Italy’s Intesa Sanpaolo has secured the green light from European Central Bank (ECB) to acquire smaller rival UBI Banca, Reuters has reported.

Intesa unveiled its plans to buy UBI back in February.

The Italian banking group launched a €4.9bn ($5.45bn) bid for the acquisition.

The deal is said to create Eurozone’s seventh-largest bank. The move is aimed at boosting the banks’ profits via cost cuts.

Now, Intesa needs the final approval from Italy’s antitrust body Italian Competition Authority (ICA) before launching the official offer.

In the meantime, ECB has allowed the bank to acquire at least 50% + 1 share in UBI, the report added.

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Through the merger, Intesa expects to raise provisions against loan losses at UBI Banca to its own levels, and reduce UBI’s impaired loan burden.

According to Reuters, this complements the key focus of ECB supervisors in the Italian banking industry of reducing problem loans.

Moreover, Intesa has decided not to add the Covid-19 pandemic as a factor that could affect the validity of the offer.

The decision comes after UBI filed a complaint with the Italian market watchdog Consob, stating that the pandemic gives Intesa the right to walk away under the ‘material adverse change’ (MAC) clause and hence the bid should not be considered valid.