(Adds comments from government official)
BANGKOK, Jan 15 (Reuters) - Thailand is finalising the terms of a merger between TMB Bank Pcl and Thanachart Bank and the Cabinet is expected to approve it by the end of this month, a senior finance ministry official said on Tuesday.
This comes after the government last year approved tax incentives for bank mergers to help them better compete with their larger regional rivals.
"The finance minister would like the merger of TMB Bank and Thanachart to happen as soon as possible... and will be concluded by this government," the head of State-Enterprise Policy Office, Prapas Kong-ied, told reporters.
Thai elections are slated for Feb. 24 but expected to be delayed to mid to late March, election officials say.
The government holds a 25.92 percent stake in TMB Bank, while Dutch banking group ING Groep NV owns 25 percent.
Thanachart Capital Pcl has a 51 percent stake in Thanachart Bank, while a unit of Canada's Bank of Nova Scotia owns the remaining.
Both local banks have been in consultation with advisers to thrash out the terms of the merger, said sources familiar with the situation.
They are working on a share swap ratio and ScotiaBank, which unsuccessfully tried to sell its stake in Thanachart a few years ago, is keen to exit its investment, the sources added.
The finance ministry is keen to offload its stake. However, TMB shares are trading below their purchase price, so the ministry has no option but to retain its stake.
"Right now, we are not thinking selling (our stakes)," Prapas told Reuters, adding that prices were lower than when the government acquired the shares.
Both banks and the finance ministry have been in negotiations for the last few months.
The government has to ensure that it does not receive unfavourable terms, Prapas said.
"This is not an industry transformation but there is a need to consolidate and this is a part of that process," one of the sources said. The merged entity will be Thailand's sixth largest bank.
Last year, the Asian asset management unit of Prudential Plc , Eastspring, bought 65 percent of TMB's asset management unit. (Reporting by Satawasin Staporncharnchai, Chayut Setboonsarng and Kitiphong Thaichareon in Bangkok and Anshuman Daga in Singapore; Additional reporting by Kane Wu in Hong Kong; Editing by Subhranshu Sahu)