Two of Greece's biggest banks, National and Eurobank, are in merger talks to create the country's biggest lender, banking sources said on Friday.
The bourse suspended trading in the shares of the two lenders pending official announcements after Eurobank's shares rose 5.5 percent to 1.15 euros and National Bank's 4.5 percent to 2.1 euros to value the two at around 2.6 billion euros ($3.4 billion).
Banking sources told Reuters the boards of the two banks were meeting on Friday.
"Bigger is better and the thinking is that there must be consolidation in the sector," said analyst Maria Kanellopoulou at Euroxx Securities.
Greece's banks are under pressure to merge after suffering steep losses from the country's debt restructuring, heavy deposit withdrawals and rising bad loans. Cash-strapped, they have no option but to swap shares in order to merge. "A merger between the two banks would form the biggest entity in terms of loans, deposits and branch network," Kanellopoulou said.
The combination would result in a bigger bank with 109 billion euros in net loans, 89 billion in deposits, 178 billion in assets and a domestic network of 944 branches.
National Bank (NBG) has already twice tried to merge with rival Alpha Bank but Alpha has reached a deal to buy Credit Agricole's ailing Greek unit Emporiki Bank, beating NBG and Eurobank which were also interested.
Rival Piraeus took over the healthy part of troubled state lender ATEbank in July and is expected to soon close a deal with Societe Generale <SOGN.PA > to buy the French bank's lossmaking Greek affiliate Geniki.
NBG and Eurobank did not respond to requests for comment from Reuters, while the authorities were also awaiting their official response to a report by news website To Vima, citing anonymous sources, that the two were exploring a merger.
"The capital market commission has asked the two banks to comment officially on the press report and the lifting of the trade suspension will hinge on their answer," an official at Greece's securities regulator said.
A merger would need approval from the Bank of Greece and the Hellenic Financial Stability Fund (HFSF), the bank support fund that has started to recapitalise the country's viable banks.
Another option being considered, the news site said, is a three-way merger of National Bank, Eurobank and small state-controlled lender Hellenic Postbank (TT), which the government decided in August was not viable. Both hold small stakes in TT.
"The new bank that would be formed will have a very strong presence in Greece and synergies in southeastern Europe which will mean savings," said Natasha Roumantzi, a banking analyst at Piraeus Securities.
NBG has a big presence in Turkey through its subsidiary Finansbank. Both banks also have interests in Bulgaria, Romania, Serbia and Cyprus.