The move was prompted by worries over raising the funding for the 777m Australian dollar ($676m; £355m) deal.

Australian interest rates are at a 12-year high, prompting banks to increase provisions for bad loans.

Analysts said that this was making it more difficult or more expensive for the banks to raise funds.

Pulling out ‘prudent’

Commonwealth Bank said the amount it could lose due to borrowers defaulting on loans was A$496m higher this year, taking its total bad debt provision to A$930m.

Despite this, its full-year net profit after tax rose 7% to A$4.79bn.

CBA’s announcement followed National Australia Bank and New Zealand Banking Group who warned of rising bad debt charges last month.

Analysts said this had affected the reputation of Australian banks on the financial markets. making fund raising trickier.

Speaking on the decision to pull out of takeover talks, CBA’s chief executive Ralph Norris said: “Obviously it would be a requirement to raise significant funds for the book we would be taking over.

“We agreed it was prudent to not go further.”

CBA confirmed in July that it was in talks with Royal Bank of Scotland which bought ABN Amro last year, about buying the Dutch bank’s holdings in Australia and New Zealand.

News reported by The BBC