Two of Malaysia's largest financial institutions, CIMB Group and RHB Capital, said they plan to merge along with a property lending firm to create a "financial powerhouse" that will become the country's biggest bank.
The three institutions are seeking central bank approval for the merger, according to documents submitted Thursday with Malaysia's stock exchange, and aim to sign a definitive agreement early next year.
CIMB and RHB Capital -- the second- and fourth-largest banks, respectively -- and the Malaysia Building Society announced in July they were in early talks on creating an entity with total assets estimated at around 614 billion ringgit ($189 billion).
That would top current leader Maybank, which had total assets of about 578 billion ringgit as of July.
The resulting entity would also be Southeast Asia's fourth-biggest bank.
The Islamic-lending arms of CIMB and RHB will also link up with the Malaysian Building Society.
"The merged entity will be a major ASEAN financial powerhouse and a mega-Islamic bank," the three banks said in their joint statement filed with the stock exchange, referring to the 10-member Association of Southeast Asian Nations.
Ratings agency Fitch had warned in July that the plan was fraught with risk, particularly expected difficulties achieving integration.
Malaysia is Southeast Asia's third-largest economy after Indonesia and Thailand, and the central bank is encouraging consolidation in the banking sector as part of plans to become an important gateway into booming regional markets.
It is also determined to position Malaysia as the leading international centre for Islamic finance.
Islamic banking fuses principles of Islamic sharia law and modern banking methods. Islamic funds are banned from investing in companies associated with tobacco, alcohol or gambling.
Sharia-based finance also bans interest, which is seen as usury, and risks are shared between creditor and borrowers.