UniCredit has received authorisation from the European Central Bank to increase its stake in German lender Commerzbank to up to 29.9 per cent, marking a significant step in what could become Europe's largest cross-border banking deal since the global financial crisis.

The Italian bank currently holds approximately 18.5 per cent of Commerzbank through derivatives and requires additional approvals, including from Germany's Federal Cartel Office, before converting these into physical shares.

UniCredit has been gradually building its position in the German bank since September, reaching 28 per cent in December through financial contracts tied to shares. This has fuelled speculation about a potential merger, though the bank has now indicated any decision on a full acquisition would be pushed back.

"Our original timeline for deciding on whether to proceed or not with a potential combination is now likely to extend well beyond the end of 2025," UniCredit stated on Friday.

The bank is also waiting to begin discussions with Germany's incoming government once it is formed, following a strong backlash in German political circles to the prospect of foreign ownership of the Frankfurt-based lender.

UniCredit chief executive officer Andrea Orcel has previously stated he would only consider a complete takeover if all stakeholders support the move. The Milan-based bank's interest in Commerzbank dates back to 2001, preceding its 2005 acquisition of Munich-based HVB.

"While the approval underscores UniCredit's financial strength and regulatory compliance, there are still many factors that will determine any further steps and their associated timeline," the Italian bank said.

Commerzbank, which last month unveiled a new strategy aimed at preserving its independence, responded by saying the ECB's decision does not alter UniCredit's position as merely a shareholder.

"We are convinced of our strategy, which aims for profitable growth and value increase, and we are focusing on its successful implementation," a Commerzbank spokesperson said.

The Italian bank noted that its investment has already driven positive changes at Commerzbank, contributing to a substantial increase in the German bank's share price. However, UniCredit added that "only significant time will reveal if the plan is executable and hence determine whether such price appreciation is justified and sustainable."

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