ACC Bank is to begin closing branches and to refocus on higher margin business in an attempt to attract a buyer. But the board and management have a tough job on their hands when it comes to knocking the bank into shape and it may be some time before a sale is completed.

Chief executive Mr Colm Darling has confirmed that a major restructuring is under way at the State-owned bank. This will include the closure of some of its 10 Dublin branches and a major reorganisation of its 50 rural branches. Administrative functions now carried out at the branches will be centralised and the branches will be manned by a small sales force. Mr Darling would not outline how many job losses will result although the bank, which has a relatively high turnover among its 650 staff already, is confident these can be achieved voluntarily.

Essentially, ACC will withdraw from costly areas of business, such as current account provision and mortgages and become primarily a business bank offering higher margin commercial loans and services. A key objective for the bank will be to link up with other financial institutions to sell their products through its existing delivery channels, according to chairman Mr Padraic O'Connor.

The entire restructuring plan, which has been approved by the bank's board of directors and presented to the Department of Finance, is due to be completed by 2003. Mr O'Connor says the board is very enthusiastic about the project and it comes at a time when there is an appetite for change at the bank. He insists morale is high at the bank despite the disappointing outcome of the prolonged merger negotiations with TSB Bank which ended in January.

The bank is currently one of the least competitive of the Irish financial institutions operating off a very high cost structure. Its cost to income ratio rose last year to 65.9 per cent and while cost-cutting will be the order of the day, the measures announced yesterday will take more than two years to bring that ratio down.

Mr O'Connor says the cost to income ratio will in fact rise sharply over the next couple of years and could move towards the "high 70s" with redundancy and other costs association with the restructuring feeding into that ratio. After that he predicts costs will fall sharply, but only to around 60 per cent, which by 2003 should be well out of step with its rivals.

The chairman accepts that on that basis the bank looks highly unattractive in the short-term.

Another huge cloud lingering over the bank - just how much will it have to pay the Revenue Commissioners in DIRT arrears and penalties - is another drawback for any potential buyer.

Mr O'Connor has described estimates that the Revenue could demand more than £17 million from the bank as "spurious" but with the bank generating weaker profits of just £19.5 million in 1999, it remains a concern until the Revenue quantifies the scale of its liabilities. The chairman says this outcome may heighten the challenge for the bank. "We can only play with the hand we are dealt".