MANILA - Two Philippine banks will merge to form the country's third-largest lender with assets of $388 billion ($9.19 billion), officials said yesterday, as tycoon Lucio Tan consolidates his banking interests.

The boards of Philippine National Bank, the country's fourth largest and Allied Banking Corp, the eighth largest, agreed to the merger by a share swap with PNB emerging as the surviving entity, their presidents said.

Tan is the largest shareholder of both lenders. On December 7 last year the Supreme Court lifted a freeze on Allied Bank shares, opening the door to the merger with PNB.

Tan had always hoped to merge the two banks but was blocked by a government sequestration of Allied Bank shares imposed after the late dictator and Tan's close friend Ferdinand Marcos was deposed in a popular revolt in 1986.

Through a share swap, Allied Bank shareholders will receive 140 PNB shares for every Allied Bank common share and 30.73 PNB shares for every Allied Bank preferred share.

PNB shares will be issued at P55 per share or at a premium over yesterday's closing price of P30.50. PNB shares rose 8.9 percent ahead of the announcement made after the market closed.

After the merger, PNB will be the third largest private domestic bank with a network of 626 local branches and 124 foreign offices, said PNB president Omar Byron Mier.

The banks expect the transaction to close in the third quarter. Their shareholders are scheduled to take up the merger proposal at their meetings both set for June 24.

"The merger brings together a combined complementary client base ranging from large corporations, local government units, government-owned and controlled corporations, overseas Filipino expatriates, the Chinese-Filipino community to the provincial market," Allied Bank said in a statement.

PNB has an extensive network with the millions of Filipinos working abroad.

The merged bank will not be looking at further acquisitions, Mier said, adding "we will spend the next two or three years digesting this."

He said the merged bank would focus on expanding its presence abroad, particularly in countries where PNB and Allied Bank were not active, citing Malaysia, Indonesia and Greece as examples.

The Tan group, which includes tobacco, airlines, breweries, beverages and real estate, will hold about 80.7 percent of the shares in the merged bank, Mier said.

The 71-year-old Fujian-born businessman set up Allied Bank in 1977 and acquired majority control of PNB after it was privatized in 1989.*AFP

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