The UK's second-largest mortgage lender said the move was instigated by smaller rivals who approached it after slumping to first-half pre-tax losses as a result of bad debts.

Derbyshire, which has branches in Sheffield and Grimsby, expects to report pre-tax losses of £17m and Cheshire is due to report a £10.5m loss.

Nationwide chief executive Graham Beale denied the Nationwide is involved in further consolidation of struggling mutuals, and played down suggestions the takeovers were instigated by the Financial Services Authority to prevent market instability.

He said: "We've not had any other approaches and we're not in talks with anybody either, so these are the only two transactions we've been involved in."

Derbyshire and Cheshire customers will not receive a payout to preserve the enlarged company's capital, and the deals will be completed through board resolutions, rather than a vote by customers.