UPDATE 4-Greek banks NBG, Eurobank in merger talks-sources

* National to make bid for Eurobank via share swap

* Merger would form Greece's biggest lender

* Shares suspended pending announcements

* NBG, Eurobank hold board meetings

(Adds NBG offer imminent) By George Georgiopoulos and Lefteris Papadimas

ATHENS, Oct 5 (Reuters) - National Bank of Greeceand Eurobank are in merger talks to create thecountry's biggest lender, banking sources said on Friday, thelatest move in efforts to consolidate the Greek bankingindustry.

Banks are under pressure to merge after suffering steeplosses from the country's debt restructuring, heavy depositwithdrawals and rising bad loans, but short of cash they have nooption but to swap shares in order to merge.

Sources said National was about to make a public offer forEurobank via a share swap and announcements were imminent.

The bourse suspended trading in the shares of National Bankand Eurobank on Friday following an earlier media report of themerger talks, which sent Eurobank's shares up 5.5 percent to1.15 euros and National Bank's 4.5 percent to 2.1 euros, tovalue the two at around 2.6 billion euros ($3.4 billion).

Banking sources told Reuters the boards of the two bankswere meeting on Friday.

"Such a deal would change the Greek banking landscape,forming a European-size player with better prospects to regainaccess to capital markets and money markets in particular," saidTheodore Krintas, head of wealth management at Attica Bank.

At current prices NBG's market capitalisation is 3.2 timesthat of Eurobank.

"There will be a public offer tonight by NBG for Eurobank byexchanging shares," one of the sources said. "It has to clearthe securities regulator's legal department."

Recapitalised with 18 billion euros derived from thecountry's international rescue fund, the country's four biggestbanks - National, Eurobank, Alpha and Piraeus

- have already begun the process of consolidation bybuying up smaller rivals.

Without access to interbank funding, Greek banks have reliedon the European Central Bank and the Bank of Greece to relievetheir liquidity squeeze. Their exposure to the Eurosystem ofeuro zone central banks stood at 131.6 billion euros in August.

"The banking system is adjusting faster than people expectedto the overall restructuring the Greek economy has to gothrough. A deal will have a positive market impact, showing thatthings are moving," Krintas said.


A merger between National and Eurobank would create thebiggest single bank in terms of loans, deposits and branchnetworks, with 109 billion euros in net loans, 89 billion indeposits, 178 billion in assets and a domestic network of 944branches, said analyst Maria Kanellopoulou at Euroxx Securities.

National Bank has already twice tried to merge with Alphabut Alpha has now reached a deal to buy French lender CreditAgricole's ailing Greek unit Emporiki Bank, beatingNBG and Eurobank which were also interested.

Piraeus took over the healthy part of troubled state lenderATEbank in July and is expected to soon close a deal withSociete Generale to buy the French bank's lossmakingGreek affiliate Geniki .

NBG and Eurobank did not respond to requests for commentfrom Reuters and the authorities were also awaiting theirofficial response to the earlier report by news website To Vima,citing anonymous sources, that the two were exploring a merger.

"The capital market commission has asked the two banks tocomment officially on the press report and the lifting of thetrade suspension will hinge on their answer," an official atGreece's securities regulator said.

A merger would need approval from the Bank of Greece and theHellenic Financial Stability Fund (HFSF), the bank support fundthat has started to recapitalise the country's viable banks.

The HFSF bank support fund is due to be allocated 25 billioneuros from the next 31.5 billion euro tranche of Greece'sinternational bailout to carry out the banking sector's furtherrecapitalisation.

Another option being considered, the news site said, is athree-way merger of National Bank, Eurobank and smallstate-controlled lender Hellenic Postbank (TT) , whichthe government decided in August was not viable. Both hold smallstakes in TT.

Including TT in the deal could help lower the capital needsof the combined entity, meaning the HFSF would have to dish outsmaller amounts, Krintas said.

"The new bank that would be formed will have a very strongpresence in Greece and synergies in southeastern Europe whichwill mean savings," said Natasha Roumantzi, a banking analyst atPiraeus Securities.

NBG has a big presence in Turkey through its subsidiaryFinansbank and both banks also have interests in Bulgaria,Romania, Serbia and Cyprus.($1=0.7689 euros)

(Editing by Greg Mahlich and David Holmes)

((george.georgiopoulos@thomsonreuters.com)(+30210 3376437)(Reuters Messaging:george.georgiopoulos.thomsonreuters.com@reuters.net))