Spanish lender Unicaja Banco SA has firmly denied reports that it held merger discussions with Banco Sabadell SA, following claims that Sabadell had approached Unicaja as part of efforts to fend off a hostile takeover.

On Monday, Unicaja issued a clear statement rejecting Bloomberg News reports about potential combination talks between the two Spanish banks.

"A Unicaja spokesperson, who denied merger talks between both banks, said it was not aware of any informal talks with the lender's shareholders," Reuters reported.

Bloomberg had claimed that Sabadell executives "sounded out some of the key shareholders of Unicaja earlier this month about a potential deal," citing unnamed sources familiar with the matter. The alleged discussions were reportedly part of Sabadell's strategy to avoid being acquired by larger rival BBVA SA.

Unicaja's largest shareholder is Fundación Bancaria Unicaja, which holds a 31.2 per cent stake in the bank. Reuters noted that the foundation was not immediately available for comment.

This denial follows a similar pattern from earlier on Monday when another Spanish lender, Abanca, also rejected a report in the Expansion newspaper suggesting merger talks with Sabadell.

Sabadell declined to provide comment to either outlet.

The flurry of speculation comes as BBVA's hostile takeover bid for Sabadell progresses through regulatory approval. Spain's competition watchdog has already approved the takeover bid subject to several remedies, while the Spanish government has launched a non-binding public consultation on the matter.

"The government launched a non-binding public consultation on the matter last week and economy minister Carlos Cuerpo said that the process will conclude on 16 May," Reuters reported.

Both Sabadell and the Spanish government have opposed BBVA's takeover attempt, citing concerns about reduced competition and potential job losses.

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