Spain's competition watchdog has approved BBVA SA's €13 billion (£10.9 billion) bid to acquire smaller rival Banco Sabadell SA with strict conditions, moving the year-long takeover battle closer to resolution.

The National Commission for Markets and Competition (CNMC) announced that commitments offered by BBVA were "adequate, sufficient, and proportionate" to address competition concerns in retail banking and payment services markets, according to official statements.

The approval sets the stage for the Spanish government's final verdict, with officials now having 15 days to decide whether to conduct further analysis. Should they proceed, a final decision would be expected within 30 days.

"The transaction gives rise to a series of risks that have been identified throughout the merger proceedings," the CNMC stated, highlighting concerns about worsening trading conditions for individuals and small businesses, potential financial exclusion in rural areas, and reduced credit access for small and medium-sized enterprises.

The watchdog identified 96 municipalities where the combined entity would exceed 50 per cent market share, creating duopoly situations in 48 locations. Additionally, seven postal codes would face monopoly conditions following the merger.

BBVA had previously indicated it might abandon the acquisition if conditions proved too onerous. The bank's chief executive officer has maintained an optimistic outlook on regulatory approval after offering remedies.

While the government cannot block BBVA from acquiring Sabadell shares, it can prevent a legal merger – potentially leaving BBVA as a major shareholder without control rights.

The proposed deal, announced in May last year, would create a new Spanish banking giant and reduce BBVA's dependence on emerging markets income. Currently Spain's second-largest bank by market value, BBVA generates approximately half its income from Mexico.

The offer consists of one newly-issued BBVA share plus €0.70 in cash for each 5.3456 ordinary shares of Sabadell.

The acquisition has faced significant opposition from politicians, government officials and business lobbies, with particularly strong resistance in Catalonia, where Sabadell represents an important regional institution.

Before implementation, the deal still requires approval from Spain's securities regulator (CNMV), which has indicated it will wait for all competition clearances before proceeding.

To address competition concerns, BBVA had offered temporary commitments including maintaining existing branch networks in underserved areas and preserving current working capital terms for 18 months for small and mid-sized businesses that work exclusively with the two banks.

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