THE £1.7 billion takeover of TSB by Spain's fifth largest bank has been approved by UK regulators.

Banco de Sabadell has been cleared by the Prudential Regulation Authority and the Financial Conduct Authority to take control of the challenger bank, after the boards of both banks reached agreement on the 340p per share cash offer in March.

The confirmation puts one of the most historic names in Scottish banking in Spanish hands, and paves the way for TSB to be delisted from the London Stock Exchange on or around July 28.

The bank has 181 of its 685 branches in Scotland and its sale, just more than a year after it floated on the stock market, is expected to bring more competition to the UK's "big five" banks.

TSB, which has about 4.6 million customers and 8,700 members of staff, is the UK's seventh largest retail bank by branch network.

The approval by regulators effectively completes the sale by Lloyds Banking Group of its remaining 40 per cent stake in TSB for about £680m. Lloyds, owner of Bank of Scotland, was forced by the European Commission to offload more than 600 UK bank branches as a condition of its £20.5bn bail-out by the UK Government at the height of the financial crisis.

A £750m deal to sell the branches to the Co-operative Bank, Project Verde, fell through, before Lloyds revived the TSB brand and floated it as a standalone challenger bank last year.

The price paid by Sabadell marked a 31 per cent premium on the 260p at which TSB shares made their debut on the stock market last summer.

Sabadell said the TSB deal marked a major leap forward in its strategy to grow internationally, with 22 per cent of its assets now held outside its native Spain. Before the deal five per cent of its assets were held overseas.

Chairman Josep Oliu said: "Today marks the beginning of a major project. This is a milestone that enables us to enter a market with vast opportunities. We do so in partnership with a well-positioned challenger bank with a prestigious brand backed by a long tradition."

TSB chief executive Paul Pester said: "The deal with the Sabadell Group is a major vote of confidence in TSB. With the extra firepower and fresh perspective of Sabadell, TSB will be stronger and even better placed to build on its position as Britain's challenger bank."