BBVA is considering withdrawing its hostile takeover bid for Banco Sabadell after the Spanish government imposed stringent conditions on the roughly €14 billion acquisition, including a ban on merging operations for up to five years.

The bank's head of Spain, Peio Belausteguigoitia, said on Wednesday that BBVA would decide "shortly" whether to proceed with the bid, withdraw the offer, or appeal the government's decision. "We'll decide on the additional condition shortly... We're in no way keen to delay this process," he said during a summer course at Menéndez Pelayo International University in Santander.

The government announced on Tuesday that BBVA would not be allowed to integrate its operations with Sabadell for between three and five years, and would be prohibited from reducing staff or closing branches in the event of a merger. The conditions were imposed to prevent what Economy Minister Carlos Cuerpo described as a "step-by-step effect" that could lead to office closures or mass layoffs.

Belausteguigoitia acknowledged that BBVA was reassessing the expected cost savings from the deal, which were originally estimated at €850 million over two years. "Most of the synergies will come from the IT area and we are now analysing the decision from the government," he said.

The conditions have raised questions about whether BBVA could achieve the promised synergies if forced to keep the banks separate. Under Spanish law, whilst the government cannot prevent BBVA from buying Sabadell shares, it has the final say on whether a merger proceeds.

In a potential defensive move, Sabadell revealed last week that it had received expressions of interest in its British unit, TSB. Chief executive officer César González-Bueno said the bank would sell TSB if it created value for shareholders and if the price was "above market estimates". Santander is reportedly among the potential bidders for TSB, which Sabadell acquired in 2015 for £1.7 billion.

González-Bueno maintained his opposition to BBVA's bid, stating there was "deep social rejection" of the deal and claiming "there is no one in favour". He suggested that the government's conditions reduced BBVA's room to improve its offer, noting that "the lower the synergies BBVA can extract from the deal, the less room it has to sweeten the offer".

The takeover bid has already received approval from the European Central Bank and Spain's competition authority, the CNMC, which approved the deal unanimously. However, BBVA must now recalculate its synergy projections and submit updated figures to Spain's securities regulator before the bid can proceed.

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