Swedish Nordea and Norwegian DNB announced on Thursday that they will merge in Baltic eurozone members Estonia, Latvia and Lithuania.
Their new bank will be the second-largest financial institution in the region behind market-leader Swedbank, with assets worth 13 billion euros ($14.6 billion) and more than 3,000 employees.
"Nordea and DNB have entered into an agreement to combine their operations in Estonia, Latvia and Lithuania to create a leading main bank in the Baltics with strong Nordic roots," a joint statement issued by the banks said.
"Now it is time to take the next step and build for the future. Together we will have the scale, stronger geographic presence and broader a product offering, enabling us to become the main bank for customers in the Baltics," said Inga Skisaker, who heads the Swedish Nordea's Baltic state operations.
"Scale is key in banking today, with larger banks having more efficient use of resources. The new bank will be better equipped to counter increasing competition in the region," said Mats Wemlein, head of Norway's DNB's Baltic division.
The move will not affect other markets, in which the two banks will remain entirely separate and competing banks.
The announcement is subject to regulatory approval, and the merger is likely to be complete by the middle of 2017, the banks said.