Greece's international lenders have asked Athens to halt the merger of National Bank with Eurobank , worried that the resulting lender would be too big for the state to deal with, daily Kathimerini reported on Saturday.
The paper said the European Union, European Central Bank and International Monetary Fund troika had raised issues over the size of the merged entity relative to Greece's gross domestic product (GDP) and the banking sector as a whole.
Two banking sources, speaking on condition of anonymity, confirmed to Reuters that doubts had been raised.
"Pretty much these are the arguments put forth by the troika," one of the bankers told Reuters.
The banks and the Greek government had no comment to make on the report. European Commission officials were not immediately available.
National Bank (NBG) took over 84.3 percent of Eurobank last month via a share swap as part of consolidation in Greece's banking industry to cope with fallout from the debt crisis and a deep recession.
The two banks have already initiated merger procedures.
"NBG is going ahead with the legal merger process to absorb Eurobank, which has been approved by Greek and European authorities. Our goal is to complete the process by June," an NBG official told Reuters, declining to comment on the report.
The combined group would have assets of 170 billion euros, almost the size of the country's 190 billion GDP and 36 percent of total deposits.
"The troika is arguing that the two banks must be recapitalized separately and remain separate legal entities," Kathimerini said.
"The request of the troika that the merger be cancelled is a red line for the government as the tie up is now on its final stretch," the paper said.
The two banks together need 15.6 billion euros in fresh capital to shore up their solvency ratios to levels required by the central bank after incurring losses from a sovereign debt writedown and impaired loans.
According to the paper, troika officials argue that the combined entity would find it hard to raise a minimum 10 percent of the needed capital from the private sector to stay privately run, as required under the agreed recapitalization scheme.
Such an outcome would bring the group under the full control of a state bank support fund, which would have a harder time finding a buyer for a bank of this size in the future.
(Reporting by George Georgiopoulos; editing by Patrick Graham)