Banks will transfer their paper bill-payment business to post offices in a deal likely to be confirmed next week.

While the agreement will increase An Post's revenues, it will not avert the financial crisis at the post offices, which are technically insolvent.

The deal with the Irish Payment Service Organisation - which represents the banks - will come days after the Minister for Public Enterprise, Ms O'Rourke, suggested the sector should pay millions of pounds in State subventions to keep rural post offices open.

The Irish Bankers Federation yesterday said it had nothing to say about that suggestion.

Banks would encounter difficulty justifying any such payments of a State sector company to their shareholders, sources said.

They also questioned Ms O'Rourke's linkage of the issue with reductions in corporation tax to 12.5 per cent from 36 per cent. Such reductions applied in all commercial sectors, so banks should not be singled out to support post offices, sources said.

An Post would require State support of more than £80 million by 2005 if no branches were closed and its business was not developed. Therefore, the bill payments will have a small impact on An Post's difficulties.

Sources familiar with the arrangements believe the transfer of business will increase An Post's revenues by about £1 million each year.

Some 16 million transactions are managed each year on the company's existing bill-pay service. The new arrangement is likely to increase that by between five and seven million.

The deal will apply to bill payments to phone companies such as Eircom and Eircell, to television relay firms such as NTL and Chorus, and to Bord Gais - all of which can currently be paid at post offices.

It is understood An Post must reach new agreements in cases where it has no existing arrangement with billing companies, such as the ESB.