* Targets cost base of 1.35 bln euros vs prior 1.5 bln target * Focus on larger UK corporate banking, N.Irish retail arms * In advanced talks on life, savings and wealth acquisitions (Adds details on cost cuts, exit from British SME market) DUBLIN, Dec 1 (Reuters) - Allied Irish Banks will cut its staff numbers by 15% and withdraw from the British small and medium sized business lending market in a bid to meet 2023 capital and profitability targets with increased cost cuts. AIB set out new medium-term targets on March 6, a week before Ireland began to impose COVID-19 restrictions, leading to one of Europe’s longest lockdowns that forced Ireland’s largest mortgage lender to set aside 1.3 billion euros ($1.57 billion) in impairments. In March, AIB said it planned to cut its cost base to 1.5 billion euros in 2022, target a fully loaded core equity tier 1 (CET1) capital ratio above 14% and a return on tangible equity (ROTE) in excess of 8%. It maintained the CET1 and ROTE targets on Wednesday but pushed the timeframe out by a year following the COVID-hit 2020. However the bank said it planned to cut its costs before bank levies and regulatory fees to 1.35 billion euros in 2023. Around 35 million euros of the cuts will be achieved by exiting the British SME market and focus its presence in the United Kingdom on its larger corporate banking business and Northern Irish retail arm. AIB’s UK operations represented 15% of net loans at the end of 2019 and the bank estimated that its SME book currently makes up just under a quarter of its 7.7 billion pound UK loan book. AIB Chief Executive Colin Hunt said the SME business was sub-scale and returns did not justify the amount of capital it absorbed. The bank will also shut five of its more than 200 Irish branches next year and halve its head offices in Dublin to three by 2023 as more employees work remotely. Hunt said the bank was in active discussions with a number of parties to plug gaps in life, savings and wealth products and expected to finalise the transactions in 2021. “In short, it (COVID-19) has made significant change both necessary and possible,” Hunt said. “I think we’re demonstrating an extraordinary degree of cost consciousness in how we run the business.” ($1 = 0.8284 euros) (Reporting by Padraic Halpin; Editing by Edmund Blair and David Evans)