NATIONAL Australia Bank's decision to retain the Clydesdale has thwarted start-up bank NBNK's ambition of combining it with Lloyds TSB Scotland to create a strong challenger to Royal Bank of Scotland and Bank of Scotland north of the Border.

All sides are clear that by deciding to retrench into its heartlands in Scotland and Yorkshire, NAB has rejected a sale of Clydesdale for the foreseeable future.

Whether NBNK ever made a formal offer for Clydesdale is a matter of dispute.

Selling Clydesdale was an option considered by NAB in its strategic review. However, NAB insisted it never received a formal offer from anyone.

NBNK's curt "no comment" strongly implies room for disagreement.

Either way, Scotland is left with a highly concentrated market where Lloyds and RBS account for 77% of small business lending, according to Scottish Government figures, and similarly dominant positions in retail banking.

And we will see a smaller Clydesdale even in Scotland where some business centres will close.

Those who know NBNK say that while it would also have cut jobs at Clydesdale, fewer would have gone because it would have sought to expand the business.

NAB's decision makes NBNK's life more difficult as it seeks to muscle in on the sale of Lloyds Banking Group's Verde portfolio of 632 branches, including 185 run by Lloyds TSB Scotland.

The acquisition of Clydesdale would have handed NBNK a ready-made set of systems onto which to bolt the Lloyds business.

However, sources insist NBNK could still make a standalone Verde business work.