Royal Bank of Scotland (RBS), the parent company of Ulster Bank, has reaffirmed its commitment to operating in Ireland.

It has decided to put much of its Irish business into an internally managed £38 billion “bad” bank, but has opted against a full split, the group announced today.

RBS said Ulster Bank was an "important business for the whole island of Ireland" and added it wanted to ensure it had a viable business model.

Ulster Bank welcomed what it described as the vote of confidence from its parent. It described the announcement as “good news” for its customers and said it was “business as usual” for the bank.

The development comes after yesterday’s announcement by Danske Bank that it is to close its business and personal banking operations here, with the loss of 150 jobs. At the weekend ACCBank said it was to hand back its banking licence next year with the loss of about 180 jobs .

There had been concerns that RBS was planning to withdraw from or significantly downsize its involvement in the Republic, where it is the third largest bank after Bank of Ireland and AIB.

Ulster Bank revealed today it lost a further £132m in the third quarter of this year as it continues to suffer from the impacts of the property crash.

The bank said a company-wide review carried out by the Treasury in Britain had confirmed that it was “a core business for RBS”. Ulster Bank is now working on an internal business review initiated by new chief executive Ross McEwan. This will report back in February.

As part of the review Ulster Bank is likely to transfer around £9 billion (€10.6 billion) worth of assets into the new ‘bad bank’.

“We need to ensure that we have a viable and sustainable business model for Ulster Bank as part of this review. It’s an important business for the whole island of Ireland and we understand the need to get this right,” said Mr McEwan.

Minister for State at the Department of Finance Brian Hayes welcomed today's announcement, which he described as positive news for Ireland.

Commenting on the declining number of banks operating in the Irish market, he admitted this was a cause of concern.

“ Obviously we need to see a competitive banking sector because the only way back for this country is to have a competitive banking sector. It was inevitable however that as a result of the crash and the recapitalisation of the banks and the deleveraging that followed, that there would be this type of scaleback within the banking sector.”

“I think the key issue now is to keep a very sharp focus on charges and making sure that we have a competitive banking sector,” he added.

Ulster Bank’s parent, RBS, which is 81 per cent owned by the British state, revealed the outcome of its four-month Treasury review into its future today as it said operating profits more than halved to £438 million in the third quarter on a year earlier.

The group avoided a threatened carve-up and nationalisation of its problem loans, and will instead run down the assets at a faster rate.

The Treasury’s report into RBS said “while Ulster Bank fits well with RBS's strategic footprint and core capabilities, a sustainable operating model needs to be found for it so that it is a viable business in a normalising Irish economy”.

It said there was “considerable connectivity” between Ulster Bank and the rest of RBS, and said as Northern Ireland’s largest bank, it was “important to the health of the UK economy”. The report added: “UK businesses benefit from a bank which is active in both the UK and Ireland, which remains one of the UK’s largest export markets.”

According to the Treasury review, Ulster Bank’s cost base will need “substantial restructuring” if the bank is to remain attractive. It said the cost-to-income ratio was 61 per cent in the first half of 2013 and would have been higher if the income from the loans being transferred to the internal bad bank had not been written in the first place.

The review said a viable Ulster Bank “will need to match its costs to the income that can be generated from a smaller balance sheet, one that comprises only better quality lending in sustainable segments of the market.”

Banking union IBOA welcomed today’s announcement but said more clarification was needed as to the future outlook for Ulster Bank.

"The commitment to a continuing future for Ulster Bank on the island of Ireland is welcome and reflects the Bank's systemic importance as the second largest retail bank in Northern Ireland and the third largest in the Republic," said the union's general secretary, Larry Broderick.

“IBOA has a clear understanding of the need to restore the Bank to a sound financial footing. However, it is equally clear to us that this process needs to be carefully managed since drastic short-term measures can put the long-term future of the Bank at risk - if they result in a haemorrhage of loyal customers as well as committed staff,” he added.

Additional reporting: Reuters