CYBG, the parent group of Clydesdale Bank and Yorkshire Bank, is to acquire Virgin Money for £1.7bn (€1.9bn), potentially boosting the reach of CYBG’s SME lending operations.

While the merger is likely to make Virgin Money’s revived plans to enter the SME banking market redundant, CYBG said it would move SME products under the Virgin Money brand in the future.

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The group is likely to retain the SME savings account range Virgin Money launched in January, as part of the first phase of its planned foray in commercial lending. CYBG added the combined entity would be “well-placed” to attract SME accounts as part of the RBS alternative remedies package. Both CYBG and Virgin Money previously expressed interest in bidding for the package.

SME and corporate lending will account for 11% of the combined entity’s £69.5bn loanbook.

“In this country, [the] SME [segment] is purely served by bigger banks. We have, really, first-class technology being developed in that space,” said David Duffy, CYBG chief executive officer.

He added: “Scale [does not mean] that you have to get bigger to be … a better competitor. I think the next-generation model of banking – including open banking, which is where we’re leading – is going to be about about partnerships, alliances and a sufficient scale.”

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Duffy specified CYBG was not looking at any further acquisition at present time.

The Virgin Money acquisition is expected to close in the fourth quarter of the year, following regulatory approval. Existing Virgin Money shareholders will have a 38% ownership stake in the combined group.