Buyer to see size of loan book cut

Three suitors are still in the auction to buy the 632 branches, which Lloyds has been told to sell by European authorities and could fetch £2-2.5bn for the 41 per cent state-owned bank.

More detailed bids were due by September 30, sources said.

While the package for sale includes £64bn of loans and deposits of £32bn, a buyer has the option to take fewer assets to reduce the size of the gap with liabilities.

The buyer is likely to take loans of about £48bn, it was claimed.

The three potential bidders are start-up bank NBNK, buyout firm Sun Capital Partners, and mutually owned lender The Co-operative Bank, sources have said.

A Government-appointed commission this week stopped short of telling Lloyds to sell more branches, but said the business to be sold should have a loans/deposits ratio near the retail banking industry norm of about 130 per cent and the buyer should have a 6 per cent share of the current account market.

Lloyds said it was confident the loan/deposit ratio will be below the required level when the deal is completed in 2013.

With loans of £48bn the ratio would be 150 per cent, but Lloyds has told bidders the amount of deposits and current account market share could be increased through its Cheltenham & Gloucester brand.

NBNK, Sun Capital Partners and The Co-operative are going through details, and sources said there was still much to decide on the size and shape of what could be included in the deal.