By Marcin Goclowski and Pawel Sobczak
WARSAW (Reuters) - Poland's second largest lender Bank Pekao is likely to pursue a merger with smaller rival Alior Bank but will delay publishing a recommendation on the tie-up until after June, two sources familiar with the matter said.
One source told Reuters the head of Poland's ruling party, Jaroslaw Kaczynski, had "accepted the merger, but the publication of the recommendation will be slightly delayed, because not all papers are ready."
The merger would reinforce a consolidation trend in Poland's banking sector, which has accelerated in recent years as smaller banks struggled to compete in a low interest rate environment and have had to meet demands for more capital from regulators.
"Everything points to a decision for the merger, although it won't be an easy merger," a second source said, confirming a delay to the recommendation that had previously been expected by the end of June. "No final decision was taken," the source said.
Pekao declined to comment.
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Pekao and Alior are state-owned after they were both bought back from private investors by state institutions, including country's top insurer PZU.
Foreign investors such as Santander and BNP Paribas have also been buying up smaller Polish banks, which analysts said was prompting Polish players to expand to compete.
If the merger is approved, Pekao will increase its assets by 70 billion zloty ($18.57 billion) from 186 billion zloty, enabling it to move much closer to its main competitor, state-run PKO BP, which has assets of 297 billion zloty.
Analysts said a merger with Alior would reduce Pekao's ability to pay hefty dividends, which have been a draw for investors.
"Pekao investors are mainly dividend ones, while Alior shareholders belong to the group of players putting money in growth companies," BOS brokerage analyst Michal Sobolewski said, adding investors also wanted to see share swap parity and savings from the merger.
In the latest sign of foreign interest in Poland's banking industry, Reuters reported on Wednesday that Santander and Credit Agricole were among those interested in Societe Generale's Polish unit Eurobank.
($1 = 3.7700 zlotys)
(Reporting by Marcin Goclowski and Pawel Sobczak; Additional reporting by Wojciech Zurawski; Editing by Jane Merriman)