Thailand-based TMB Bank and Thanachart Bank have signed a non-binding agreement to merge their banking activities.

The deal may value up to THB140bn ($4.47bn) and is expected to create the sixth largest bank in the country.

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The TMB-Thanachart merger is primarily driven by the government’s announcement of tax incentives for bank mergers.

Such mergers are expected to create stronger lenders and increase competition in the the country’s banking sector.

TMB-Thanachart merger: Details

Under the terms of the agreement, TMB will acquire Thanachart Bank through a combination of debt and equity.

It will issue new shares valuing 70% of the total deal, Reuters reported citing company statement.

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Thanachart Capital holding owns a 51% stake in Thanachart Bank, while the remaining 49% stake is with Canada’s Nova Scotia Bank.

TMB shares worth around THB50bn-THB55bn will be issued to Thanachart Capital as a part of the deal. Nova Scotia Bank will receive shares worth THB40bn-THB45bn.

Once completed, Dutch banking group ING, Thanachart Capital and the Thailand government will be major shareholders in the merged entity. Nova Scotia is expected to continue to hold a smaller interest in the merged entity.

It is estimated that the merged entity will have assets of THB1.9 trillion with around ten million retail customers.

Additionally, the combination will result in deposits and retail lending synergies. It will also help the combined bank to raise funds more efficiently and achieve greater economies of scale, added Reuters.

Currently, the Thailand government owns a 25.92% stake in TMB and ING holds another 25%.