Challenger bank TSB would need a three-year turnaround and cost-cutting plan before it could be a candidate for sale or consolidation, according to the chairman of parent group Banco Sabadell.

The High Street lender last year saw chief executive Paul Pester stand down after a series of IT outages left 1.9 million customers locked out of online banking, costing the company £330 million.

Speaking before Sabadell Group’s annual shareholder meeting, chairman Josep Oliu, said a merger or a sale would be options to help the group recoup losses related to TSB’s IT woes, Reuters news reported.

However, Oliu warned that this would take time, adding: “TSB is a retail bank with a costly structure, it has to be turned around, for that it needs three years, an adequate return [on equity], then it can be a candidate to enter into a consolidation process.”

Last year TSB reported losses £204 million, due in part to a hiring spree for 2,100 staff to deal with the IT failures, and wider economic uncertainty in the UK.

Oliu added that Debbie Crosbie, who is set to take over as chief executive of TSB in the coming months, is set to work on a cost-cutting plan, which could include potential branch closures.

Sabadell bought TSB from Lloyds Banking group in 2015 for £1.7 billion.

Oliu said that he did not expect TSB to contribute positively to Sabadell group’s earnings until 2020, while the group’s chief executive Jaime Guardiola said Sabadell would have to postpone its 13 per cent profitability target for the challenger until 2021.

A spokesman for TSB said:“As we set out at our Full year results last month, we’re now a stronger bank, operating on a more coherent and modern platform and able to serve more customers than ever before.

He added:"We are set up for future growth and remain a key part of the Sabadell Group. We look forward to Debbie Crosbie joining us as CEO in the coming months.”

A statement from parent group Sabadell said: "TSB remains a core part for the Sabadell Group. We are fully committed to supporting the full development of TSB for its customers and its plans to become the UK’s leading challenger bank.”

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