Spain’s BBVA has approached Banco Sabadell, the country’s fourth largest banking group, about a takeover worth around €10 billion.

The merger would create a Spanish banking giant with a balance sheet of €70 billion and create a major competitor to the country’s leading bank, Santander.

According to the FT, the bid is at a very early stage and it is unclear whether a deal would ultimately be reached.

In a statement on Tuesday, the TSB owner said that it had received an “indicative written proposal” from BBVA, while BBVA said that it had shared its interest in “initiating negotiations to explore a potential merger transaction”.

Sabadell added that its board “will properly analyse all aspects of the proposal”.

This potential merger would cap off a major period of consolidation within the Spanish banking sector. Since the 2008 global financial crisis, the country has seen its number of banks reduced from 55 to just 10.

The acquisition of Sabadell would enhance BBVA’s domestic position and boost its small-medium sized business lending division. A deal would also cast into doubt the fate of UK bank TSB, which it acquired for £1.7 billion in 2015 as part of an as-yet unrealised internationalisation plan, with Mexico and Turkey as its only other major markets.

The pair held discussions over a merger in 2020, but talks broke down in November as neither could settle on terms. A difference in valuation of TSB at the time was said to be the main roadblock, with Sabadell’s board refusing to accept less than €3 billion.

Sabadell did subsequently explore a sale for TSB, but ultimately kept a hold of the UK high street bank.

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