CYBG, the owner of Clydesdale and Yorkshire banks, has reportedly tabled a revised £1.7bn offer to merge with Virgin Money and form a challenger bank worth £4bn.
News of CYBG's interest in Virgin Money originally surfaced at the start of May when the firm made a preliminary approach valuing the company at £1.6bn, with an offer of 1.1297 of its shares for each Virgin Money share.
But Sky News reported on Sunday that CYBG had put in a higher bid ahead of a deadline for the company to put in a firm offer by Monday evening at 5pm.
Sky News quoted sources who said the sides were holding "positive discussions", and that they were likely to ask for a week-long extension to the deadline from the Takeover Panel in an effort to reach a formal agreement.
If the companies did merge, it would create a personal and SME banking group with 6m customers and a £70bn balance sheet.
A merger could be significant for the UK banking market, as it would be a test of whether medium sized challenger banks can form a strong threat to the big five – Barclays, HSBC, Lloyds, RBS and Santander.
Fellow challengers have had a difficult time recently, as TSB was hit by a major IT crisis in May and the Co-op bank returns from a string of problems that could have wiped the company out last year.
Read more: TSB bosses face MPs over IT fiasco as customers still battle online trouble
CYBG and Virgin Money declined to comment.
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