Caixabank shareholders on Thursday approved a planned merger with smaller rival Bankia which will create Spain’s biggest domestic bank once the deal is approved by regulators.

The move comes two days after shareholders in Bankia, Spain’s fourth-largest bank, approved the proposed tie-up with Caixabank, its third-largest lender.

The new entity, which is to retain the name Caixabank, will hold a 25 per cent share of Spain’s domestic banking market, with combined assets worth €660 billion euros and 20 million customers. 

Both banks said the merger was needed to be better positioned to deal with the challenges facing the banking sector such as low interest rates and growing competition from financial technology startups.

“The goal is to anticipate the demands of the current context,” Caixabank president Jordi Gual said during an extraordinary shareholders’ meeting held in the eastern city of Valencia.

The COVID-19 pandemic has accentuated the situation due to the worsening economic situation, he added.

The deal still needs the approval of the Spain’s  CNMC competition watchdog and the economy ministry but the leaders of both banks are confident regulators will give the merger the green light, allowing them to implement it by the end of the first quarter in 2021 with full integration by the year’s end. 

Under terms of the deal, Bankia shareholders will hold 25.8 per cent of the new entity while shareholders in Caixabank would hold 74.2 per cent.

In 2012, the Spanish government saved Bankia from collapse, spending €22 billion to bail out a lender that was considered a symbol of financial excess when the economy was mired in crisis.

The Spanish banking sector has seen a decade of consolidation with dozens of mergers. The Caixabank-Bankia tie-up will bring the total number of banks in Spain down to 11 from 70 a decade ago.

The tie-up will bring the total number of banks in Spain down to 11 from 70 a decade ago

The latest attempt, to fuse BBVA and Banco Sabadell, the country’s second and fifth-largest banks, failed however.

While the new Caixabank is set to dominate the domestic market, Spain’s biggest banks remain Santander and BBVA, both of which have bigger international operations.