The supervisory boards of the major banks Caixabank and Bankia decided on Thursday to merge, creating one of the largest banks in Spain.
The move, which comes in middle of the severe economic crisis caused by the coronavirus pandemic, will see much larger Caixabank taken over by Bankia, the newspaper El Pais reported.
The new bank will also be called Caixabank.
The merger and plans to expand online banking are likely to lead to the closure of bank branches and job losses.
Prime Minister Pedro Sanchez's left-wing government supports the merger to strengthen the banking sector.
The merger has to be approved at an extraordinary general meeting of the shareholders of both banks, probably in the second half of October.
In the wake of the financial crisis of 2008, Bankia had to be saved from collapse by the state, which holds 62% of the shares, with financial aid of around 23 billion euros (27.3 billion dollars).
Largest Spanish lender
Sanchez's smaller coalition partner, Unidas Podemos, is now campaigning for the new big bank to pay back the bailout.
The merger will create the largest Spanish lender in which the state will hold around 16% of the shares.
Minister of Economic Affairs Nadia Calviño has reportedly already approved the merger in principle.
With a total domestic balance sheet total of almost 564 billion euros, the new bank would be ahead of the previous number one, BBVA.
Caixabank and Bankia currently have more than 50,000 employees, more than 6,000 branches and around 20 million customers.
