LBS Westdeutsche Landesbausparkasse is getting closer to a merger with LBS Bausparkasse Schleswig-Holstein-Hamburg AG as the two building societies have signed a memorandum of understanding on a potential deal, German media reported March 22, citing regional savings banks association head Michael Breuer.

Based in Germany's Rhineland region, LBS Westdeutsche Landesbausparkasse employs 600 people, while LBS Bausparkasse Schleswig-Holstein-Hamburg is considerably smaller, with 250 staff.

The merger is seen as a further step in the consolidation of the German savings banks sector, which is being driven by the low interest rate environment and the growing regulatory costs. The conditions have prompted an increasing number of smaller banks to merge to achieve the economies of scale needed to cope with market challenges.

The Rhineland savings banks association, which also holds stakes in regional insurance companies Provinzial Rheinland Versicherung AG Die Versicherung der Sparkassen and Provinzial NordWest Lebensversicherung AG, is also exploring future options for the two groups, including a potential merger, according to Breuer, the reports by Handelsblatt and Finanzen.net added.