ROYAL BANK of Scotland's efforts to offload businesses suffered a setback yesterday when the UK banking group scrapped the sale of its operations in Australia and New Zealand after the last remaining bidder dropped out.

Commonwealth Bank of Australia, the country's biggest mortgage lender, blamed uncertainty in world financial markets as it withdrew from talks to buy the business.

RBS, which acquired the businesses through its role in the break-up bid for ABN Amro, the Dutch lender, had earmarked them for disposal as part of a programme designed to boost its capital reserves by £4 billion (€5 billion). In Ireland RBS owns Ulster Bank and First Active.

However, RBS said the decision to keep the assets, valued by analysts at up to A$1 billion (€586 million), would have little impact on its balance sheet ratios because it was not expected to generate a large capital gain. Executives are now reviving plans to integrate the Australian and New Zealand businesses in RBS's global investment banking operations.

Nevertheless, the scrapped sale underlines the difficulties facing banks that are seeking to raise capital by selling subsidiaries. RBS is already facing questions about the sale of its UK insurance operations after several bidders dropped out.

Allstate, the US insurer, has made an offer for the business, which includes Direct Line and Churchill. However, the bid is below the £7 billion price tag put on RBS Insurance when it was put up for sale in April. Allianz and Travelers showed interest earlier in the auction, but Allianz said last week that it had "refrained from making an offer", and there are doubts about Travelers' commitment to the process.

Last week Sir Fred Goodwin, RBS chief executive, said the insurance operations were still up for sale but insisted the bank would not sell at any price. - ( Financial Times service)