Italian cooperative lenders Banco Popolare and Banca Popolare di Milano (BPM) have agreed to merge, in a deal that will create the country’s third-largest bank by assets behind Intesa Sanpaolo and UniCredit.

The merged entity will manage over €171bn ($193bn) in assets, and will operate with 2,500 branches and over 25,000 employees.

It will have two headquarters, one in Verona and one in Milan. BPM CEO Giuseppe Castagna will be the CEO of the new group.

As per the terms of the deal, Banco Popolare will hold 54% of the new firm while the remaining 46% will be owned by the existing shareholders of BPM.

The deal will also include a capital increase of €1bn, which needs to be raised by Banco Popolare prior to the shareholders meetings.

"Through the Merger, Banco Popolare and BPM will transform from cooperative banks into joint stock companies in line with the provisions envisaged in the reform of the cooperative banks (the "Popolari Reform")," the companies said in a joint statement.

The deal has already secured the preliminary nod from European Central Bank, and is now subject to shareholder approval.