Clydesdale Bank, Scotland’s largest issuer of banknotes, could lose a lucrative contract to distribute money because of Lloyds TSB’s merger with HBOS.

Clydesdale has £1.1 billion in circulation, much of this through its own branches and ATMs and other banks and building societies, including Lloyds TSB.

Now the Lloyds Banking Group will be taking on the mantle of Bank of Scotland north of the Border, including the printing and distribution of its banknotes. Its clearing bank, Lloyds TSB Scotland, has an exclusive deal to use Clydesdale Bank notes in its branches and ATMs — which will be viewed as a minor embarrassment when the takeover is completed in early January.

Lloyds TSB Scotland said the company was aware of the issue and realised customers would think a new Bank of Scotland should be handing out its own notes rather than Clydesdale cash.

It confirmed there was a contract with Clydesdale Bank and said negotiations would be made to secure a satisfactory release.

However, a spokesman for Clydesdale Bank said a contract with Lloyds TSB Scotland was still in place and he was unaware of any plans to end this relationship.

Asked if the ending of the deal might put Clydesdale’s own banknotes in jeopardy, he said: “We will continue to issue banknotes because we have contracts with a number of banking outlets.”

Lloyds Banking Group will shortly be reviewing the designs of Bank of Scotland’s banknotes.

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