Spain’s bank bailout fund, the Frob, told nationalised lenders Bankia and Banco Mare Nostrum (BMN) to begin their merger process.
The fund said in a statement to the Spanish financial regulator CNMV that it was the best option to recover public aid pumped in to the struggling banks.
Both banks were badly hit by Spain’s economic crisis after the property market crash, which began in 2007, and were bailed out with almost €24bn of public money in 2013.
The fund said in the note to the market regulator that studies have valued the state’s 65% stake in BMN at €690m. The Spanish government also holds a 65.5% stake in Bankia.
The merger of the two lenders would bring Spanish coffers €401m more than the individual sale of each bank, the Frob said.