Westpac Banking Corporation, Australia’s oldest company, is in talks with a smaller rival to create a A$64 billion (£31 billion) institution with a customer base equivalent to about half the size of the country’s population.

A merger of Westpac and St George Bank, a former building society, would supersede Commonwealth Bank of Australia as the country’s biggest bank by market value and would have almost 10 million individual and business customers.

Wayne Swan, Australia’s finance minister, said that he would examine the details of what would be the country’s biggest bank merger, though analysts said the proposal was unlikely to face political hurdles.

Westpac, presently the country's third biggest bank, said that an enlarged group would maintain its separate brands, hold a quarter of the country’s home loans and be the largest wealth platform provider with A$108 billion in customer funds.

Westpac approached St George on Friday after years of speculation that one of the four biggest banks, which are prevented from merging with each other under the so-called "four pillars policy", would pounce on the fifth largest bank in the market.

“It would create Australia's leading financial institution with regard to meeting customer needs, distribution, strong brands, scale, financial strength and the best products,” Gail Kelly, the chief executive of Westpac, said.

Ted Evans, the chairman of Westpac, said that the merger would help Westpac to achieve its strategic priorities sooner.

While other big banks are beginning to expand into Asia, the UK or the US, Westpac wants to focus on the local banking and wealth markets.

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