Top investment bank UBS says Ireland is too small to make a real difference for Halifax Bank of Scotland, adding that cracking the retail market will be a struggle because local banks already offer a good deal.

"We have to confess to finding the market's obsession with the prospects for HBOS's investments in Ireland rather peculiar, " UBS said. "In a group context, we believe this business is not . . . nor is it ever likely to be . . . a major driver of earnings."

UBS believes it will take years for HBOS to see a return on its money. "Whilst the group's expansion into Irish retail banking is likely to grab headlines in the Irish press as it attempts to position itself as the Irish consumer champion, the contribution of the Irish retail business is unlikely to be meaningful over the next two to three years, " it said.

UBS described the new deposit account as "one of the most aggressively priced that we can remember". It believes it could attract as many as 375,000 savers by 2007, most of them looking for a follow-on to SSIAs. But it will cost Bank of Scotland dearly, with UBS estimating that it will lose 8 a year for every 1,000 deposited.

The losses will continue until January 2008, when Bank of Scotland ends its pledge to pay savers 1.5% more than the base rate of interest set by the European Central Bank.

The bank plans to follow the deposit account with mortgages, credit cards, personal loans and eventually current accounts. But UBS says it will be hard for HBOS to crack this market.

"It strikes us that many of these products are already quite competitively priced, " UBS said.