THE chairman of National Australia Bank, Ken Henry, has described Clydesdale Bank as a drag on growth as shareholders in the group gave overwhelming backing to a demerger that will allow the Glasgow-based lender to regain its independence.

However, Mr Henry said Clydesdale Bank would be in good shape to challenge the UK’s high street giants following the costly overhaul NAB completed to help it offload the firm.

NAB took a significant step towards making a long awaited exit from the UK banking market yesterday when shareholders in the group approved a plan to spin off Clydesdale and its sister Yorkshire Bank as CYBG group.

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The vote paves the way for a stock market flotation of CYBG, which employs 4,000 people in Scotland.

NAB has decided to persevere with the float despite recent market volatility. It plans to sell 25 per cent of CYBG to institutions in an exercise it expects will value the business at around £1.5bn to £2.0bn.

The decision to press on with the flotation has raised eyebrows in the City amid talk NAB should have waited or scaled down its plans.

Mr Henry stressed yesterday that the demerger did not depend on institutions buying all the shares offered.

However, urging NAB’s shareholders to back the demerger he underlined how keen the group is to quit the UK.

“Clydesdale Bank has been a significant factor in NAB shareholder returns not being at the level that we have wanted, nor competitive with our Australian peers.”

He noted the UK banking sector had been hit hard by the financial crisis of 2008 and the ensuing economic slowdown and faced regulatory and political challenges.

“At the same time the UK retail banking sector, including Clydesdale Bank, faced conduct-related issues,” said Mr Henry.

Earlier this month Mr Henry said it would be very, very important to complete the demerger as the UK story had been quite distracting for both management and the Australian board.

He said yesterday that the demerger would leave NAB to focus on its core Australian and New Zealand operations, which have historically generated higher returns than its businesses in other countries.

Mr Henry added: “Without competing priorities across the NAB group CYBG will be free to pursue a market position that better supports growth and shareholder return on its own.”

The NAB board believes Clydesdale is in a position to operate as a standalone group.

With 2.8 million customers and 275 branches CYB is the largest challenger to the UK’s high street giants, such as Royal Bank of Scotland and Bank of Scotland owner Lloyds Banking Group.

Mr Henry said NAB had worked hard to prepare Clydesdale for independence. This has included refocusing the business on its retail and SME lending operations, injecting capital and taking over a big portfolio of underperforming commercial property loans.

NAB has provided Clydesdale an indemnity of up to £1.7bn to cover potential misconduct liabilities.

Mr Henry said: “Led by chief executive David Duffy the (management) team is experienced, energetic and focused on its core customer segments.”

Mr Duffy believes Clydesdale can challenge the dominance of the big players in the UK. He has said Clydesdale could act as a consolidator in the challenger bank market, but the company will focus initially on proving the durability of the Clydesdale model.

A prominent investment manager suggested recently that Clydesdale could become a bid target following the planned flotation.

Justin Urquhart-Stewart, of Seven Investment Management, said as a challenger bank with a brand and a cleaned up balance sheet Clydesdale could form an attractive target for a firm that wanted to enter the UK market.

NAB has set a price range for the proposed Initial Public Offering to institutions at between 175p and 235p per CYBG share.

The issue price will be announced on 2 February 2016 based on the response to the IPO.

Trading in the shares will start on 2 February on the London Stock Exchange and on the Australian Securities Exchange the following day.

Seventy five per cent of the shares in CYBG will be allotted to shareholders in National Australia Bank.

NAB bought Clydesdale for £420m in 1987. It acquired Yorkshire Bank for around £900m in 1990.