Abbey National was today refusing to comment on rumours that it is set to merge with Yorkshire Bank's parent National Australia Bank.

The troubled bank, which has its regional office in the city, recently saw its shares slump after it issued a profit warning.

Britain's sixth-largest bank blamed worse-than-expected performance at its wholesale banking unit and said pre-tax profit would be "substantially lower" than market expectations.

It is thought Abbey and National Australia Bank are due to hold talks after NAB executives were told to prepare an analysis of the bank's books.

The former building society's own takeover protection from hostile bids ran out in April.

Matt Young, a spokesman for Abbey National told the Telegraph & Argus: "We just do not comment on market rumour and speculation."

Australian stock market-quoted NAB, which is led by chief executive Frank Cicutto, has made no secret of the fact it is looking to expand its UK operations.

It has already been linked with the Alliance and Leicester and Bradford and Bingley.

Last year an unsolicited takeover bid by Lloyds TSB was successfully fended off by Abbey when watchdogs said the deal would be anti-competitive.

Grahame Savage, chief executive at Yorkshire Bank, said: "We're always interested in opportunities that come along, especially if we can get shareholder value. We wouldn't enter into talks just for the purpose of making the business bigger."

Alexander Wright, a spokesman for Yorkshire Bank, said that they could not comment on rumours or speculations of mergers or acquisitions.

But he added: "We are a very strong acquiring bank and have grown strong with acquisitions in the UK and Ireland, acquiring four banks in 11 years.

"But we certainly cannot comment on this latest round of speculation."