Two more mutuals talk over prospect of becoming one

Coventry Building Society is discussing the possibility of joining forces with Stroud & Swindon, which could create a player with more than 20bn in assets.

Coventry approached the smaller group earlier this year.

Stroud marketing director Linda Will said the board had an obligation to consider any serious proposal. "We are in very early stage talks about which there is no detail," she said.

Stroud will be the 10th largest mutual after the completion of the tie-up between the Chelsea and Yorkshire building societies at the end of this month.

The society, which has 265,000 members and just under 3bn in assets, employs 400 people across its Stroud headquarters and branch network of 22 offices and 21 agencies in the South West.

Stroud has suffered in the low interest rate environment, with losses of 3.4m in 2008 and bad debt provisions of 1.8m.

Last week Coventry reported pre-tax profits had more than doubled in 2009 to 56.2.

Coventry has 1.2 million members and 48 branches throughout the Midlands.

A statement from Coventry said there was no certainty that a merger will take place and the deal would only go ahead if it were to benefit members of both organisations. The merger talks add to the wave of consolidation in the mutual sector during the past two years.

It follows a deal between the Yorkshire and Chelsea building societies – the UK's second and fifth largest – that will create a major force in the mutual sector, with assets of 35bn, 178 branches and 2.7 million members.

Earlier this year Yorkshire Building Society chief executive Iain Cornish said the backdrop to the building society sector had been "fundamentally altered" by the financial crisis and said the enlarged Yorkshire would see its capital base boosted by 200m despite the short-term hit to its capital ratio.

Mr Cornish said of the Chelsea: "Its core traditional building society business has great potential in combination with ours."