Stocks in caixabank and bankia rose dramatically on friday following the two spanish lenders confirmed these people were in talks about a potential merger, a tie-up that will create the countrys largest domestic bank with assets in excess of 650bn.

Shares in bankia, the smaller of the two groups, rose 29 per cent at the beginning of trading to 1.34, while caixa gained 15 %, rising to 2.08, after the teams stated these were examining an all-share merger, which would let them have a connected market capitalisation of 16.6bn.

The news headlines also boosted stocks in competitors including banco de sabadell and bankinter, which rose significantly more than 11 and 6 per cent correspondingly, as investors speculated that an understanding could ignite a wider revolution of dealmaking in sector. stocks in frances socit gnrale and bnp paribas attained about 5 percent each, germanys commerzbank climbed very nearly 8 per cent and bank of ireland rose 5.4 percent.

A combined caixa-bankia would come to be spains largest loan provider by market share in domestic financial loans and deposits, although it will never possess extensive overseas functions of santander and bbva, at present the countrys two biggest finance companies.

The talks come while the coronavirus pandemic exacerbates combination pressure on retail banks, forcing loan providers already experiencing record-low interest rates to set aside high priced terms.

Although the wide range of finance companies in spain has contracted from 55 to 12 since the 2008 financial meltdown, regulators have continued to recommend combination as a way of lowering prices and enhancing effectiveness.

Pablo hernndez de cos, governor of spains central lender, said earlier in the day this week there is a margin for [banking] mergers that could assist enhance individual lenders additionally the sector as a whole.

Observers have long likely to see additional combination in spanish banking sector, that will be dominated by retail-focused lenders having endured low interest and have now larger and much more expensive branch systems than peers in much of europe.

Jos ignacio goirigolzarri, bankias chairman, called early as 2018 that the team could be a perfect complement a number of its competitors.

Pressure has grown this year while the pandemic prompted forecasts of a sharp increase in loan defaults. caixas web profit fell 67 percent in the 1st one half since it set aside a 1.1bn provision for bad loans from the pandemic, while bankias web revenue fell 64 %.

Benjie creelan-sandford, analyst at jefferies, estimated that a combined caixa-bankia could chop up to 40 % of the smaller loan providers cost base through branch closures and work losings.

Bankia, whoever market value rose to about 3.9bn on friday, was bailed out-by the state in 2012 through a 22.4bn relief bundle after becoming hit by property losses during the financial meltdown. the spanish federal government, that has a stake of slightly below 62 % within the team, is keen to recover whenever possible of these funds.

The economy ministry stated its concern would be to maximise the value of this general public holding [in bankia] and strengthen spains economic security and therefore the countrys lender rescue investment would analyse anypotential price through the point of view of producing worth and optimising the data recovery of condition help.

Alberto garzn, the consumer liberties minister, told spanish radio on friday the best way to recover the bailout funds in the event that merger went forward would-be when it comes to state to keep a stake within the brand-new bank. analysts calculate it will be left with a holding of about 14 % in an enlarged entity.

Stefan nedialkov, analyst at citigroup, stated he did not expect federal government intervention to present a buffer to a package, saying a potential exchange would offer the [government] with an even more liquid means of exiting its bankia risk without disturbing its price.