Two largest Greek banks hold merger talks Greece's two largest banks are in talks to form a regional "megalender," marking a significant step in the consolidation of the country's banking sector against a backdrop of austerity and continuing recession. National Bank of Greece and Eurobank are expected to make a statement later on Friday, said people connected with the negotiations. NBG, the country's biggest bank by assets, is expected to be the consolidator in the deal with Eurobank. The merged entity would have assets of more than €170bn and have a strong position in the regional Balkan market, with a dominant market share in Bulgaria and significant positions in Serbia and Romania. It would have a combined loan book of about €120bn, deposits of more than €85bn, and a workforce of more than 50,000 including regional subsidiaries. The move comes days after France's Crédit Agricole announced it had entered into exclusive negotiations with Greece's Alpha Bank, the third-largest lender, to sell the entire share capital of its local subsidiary Emporiki Bank. It also comes a few months after Piraeus Bank, the country's fourth-largest by assets, acquired the "good bank" portion of state-controlled ATEbank. Piraeus and Société Générale said this week they were in exclusive talks for a potential sale of the French lender's local subsidiary Geniki Bank to Piraeus. Greece has been under pressure from its international creditors to consolidate the sector ahead of the disbursement of a €31.2bn loan tranche, which would include about €23bn of funding to recapitalise local banks. The NBG/Eurobank merger may be enlarged further by encompassing the "good part" of state-controlled Hellenic PostBank - the next candidate for consolidation - according to bankers and analysts. However, the merged entity would also face a large capital shortfall, estimated at €12-€18bn, based on an assessment of the quality of the domestic loan portfolio by BlackRock and any potential changes to net present value losses arising from new Greek state bonds issued in the country's partial debt restructuring this year. Most of the shortfall would be covered by the international funding to be disbursed by the Hellenic Financial Stability Fund, backed by the EU and International Monetary Fund. The fund has already provided bridge capital of €7.4bn to NBG and €4bn to Eurobank. However, the new bank may have to sell some regional assets because of continued liquidity constraints, despite having access to European Central Bank funding. One analyst said:"The ECB can't be expected to fund foreign subsidiaries of Greek banks, so sales are likely. This will be easier since the merger will ensure that some subsidiaries reach a critical mass. A senior Greek banker said the new entity would have synergies of €500m-€600m annually.