Challenger banks One Savings Bank and Charter Court Financial Services Group are in final talks over a potential £1.6bn, the two firms have said.

The banks said they are in advanced discussions in relation to an all-share merger of the two firms, which would see One Savings Bank chief executive Andy Golding become the head of the combined group.

If the deal is completed, shareholders of One Savings Bank would own approximately 55 per cent of the combined company, while Charter Court shareholders would possess the remaining 45 per cent.

In a statement, the banks the merger would create a leading UK specialist lender and establish a retail wholesale funding platform.

Commenting on the potential merger, Livingstone director Nick Field said: “As both One Savings Bank and Charter Court have attractive net interest margins around 3 per cent, a track record of good quality growth, and strong positions in specialist products we see this as largely a merger of equals, which is reflected in the all-share deal structure.

“Because both businesses lend across a relatively full range of specialist products and have each invested to develop both retail and wholesale funding capabilities, we would expect operating costs to be the primary area of short-term synergy opportunity.

“As the UK specialist finance market is undoubtedly experiencing some reduction in demand arising from economic uncertainty, consolidation presents a compelling opportunity to deliver incremental profitability independent of market growth.”

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