Royal Bank of Scotland is considering merging its troubled Ulster Bank business with Irish rivals, according to a report.
The taxpayer-backed lender is mulling a tie-up of Ulster with other lenders to strip out costs at the loss-making division and help boost its position in the Irish market, according to The Sunday Times.
It is thought that potential merger candidates could be Permanent TSB or the Irish subsidiaries of Danske Banke or KBC.
RBS revealed mounting losses at Ulster in last week's annual results, with the business slipping deeper into the red with operating losses of £1.5 billion in 2013 against £1 billion in 2012.
It is understood that attempts to find a buyer for the ailing arm have so far failed.
But RBS is now said to be holding discussions with private equity firms over providing backing for a scheme to merge Ulster with competitors.
Such a deal could see RBS reduce its stake in Ulster to less than 50%, which would help remove losses from its balance sheet.
Given the scale of the turnaround job at RBS, which slumped deeper into the red with losses of £8.2 billion last year , boss Ross McEwan is under pressure to resolve the Ulster issue.
It has long been a thorn in the wider group's side, now accounting for a fifth of all bad debt charges despite only representing 4% of the balance sheet.
Acquired when RBS bought NatWest in 2000, the group has faced mounting calls to hive off Ulster Bank as its woes have added to the wider problems at the part-nationalised lender.
But it is a politically sensitive issue for RBS and the Government, given its importance as a lender to the whole island of Ireland and the fact it is the last British-owned retail bank in Northern Ireland.
Ulster is the largest bank in Northern Ireland and the third largest in the republic, with more than 1.9 million customers.
RBS launched a review of Ulster's future last November when it revealed toxic loans at the division would make up nearly a quarter of the bad debts being hived off into the new internal "bad'' bank at RBS.
At the time of the bad bank announcement, the Treasury said that ''while Ulster Bank fits well with RBS's strategic footprint and core capabilities, a sustainable operating model needs to be found for it so that it is a viable business in a normalising Irish economy''.
Mr McEwan, chief executive at RBS, remained tight-lipped on specific plans for Ulster in his strategic overhaul unveiled last week, signalling it will be retained but overhauled substantially.
He told analysts that Ulster Bank had been "problematic", but that RBS was committed to the Irish market.
RBS declined to comment on the merger report.