ATHENS--Greece's two largest lenders, National Bank of Greece SA (NBG) and Eurobank Ergasias SA (EUROB.AT), have entered merger talks aimed at forming a combined bank that would dominate Greece's domestic market and would be among the biggest in southeast Europe, officials from the two banks said Friday.

The merger, if completed successfully, is the latest sign of a sweeping consolidation in Greece's banking sector as it struggles to cope with the impact of the country's debt crisis. The combined bank would have assets of some 180 billion euros ($233 billion).

One senior bank official said the merger could also involve state-controlled TT Hellenic Postbank SA (TT.AT), in which NBG and Eurobank each hold a stake of about 6%. The deal could also involve a much smaller local player, Millennium Bank, a subsidiary of Portugal's Banco Commercial Portugues SA (BCP.LB), in forming a lender that would target large economies of scale and better access to liquidity.

"There is a strong desire from both banks to move ahead with the deal. There is no more time to lose," said one bank official briefed on the negotiations. "Banks are currently under a lot pressure from the central bank to go ahead and consolidate."

But the official also said the talks were only at an early stage: "Talks are not that far down the line. We are at the phase of "let's join up and take it from there.'"

The Athens bourse Friday suspended trading in the shares of National Bank of Greece, the country's largest lender, and peer Eurobank following press reports that the lenders are in merger talks.

Earlier Friday, Greek website ToVima.gr cited unnamed sources as saying that the two sides are close to a deal in an agreement approved by the Greek government and the country's central bank. Both of the banks refused to comment on the report, but are expected to issue an announcement later Friday.

The transaction would represent a major step in the restructuring of Greece's banking sector, which is under pressure from the government and Greece's international lenders to consolidate, even as it prepares for a giant EUR50 billion recapitalization plan.

Greek banks need that money to rebuild their capital base after a EUR200 billion sovereign-debt restructuring earlier this year effectively wiped out their capital.

That recapitalization, expected to take place later this year or early next year, will be largely underwritten by Greece's bank rescue fund with money provided by Europe's temporary bailout facility. But the banks hope that by becoming bigger and stronger, they will also attract private investors to help shore up their capital base as well as lure back nervous depositors who have taken tens of billions of euros out of the banking system in the past two-and-a-half years.

The merger talks also follow recent moves by Greece's two other leading lenders--Alpha Bank AE (ALPHA.AT) and Piraeus Bank SA (TPEIR.AT)--to acquire the Greek units of French lenders Credit Agricole SA (ACA.FR) and Societe Generale SA (GLE.FR).

Those deals are still being negotiated, but final announcements are expected in the next one to two weeks.

Write to Stelios Bouras at stelios.bouras@dowjones.com and Alkman Granitsas alkman.granitsas@dowjones.com

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