Westpac Banking Corp entered into an agreement to buy the smaller St. George Bank Ltd for A$18.6 billion ($17.6 billion) in an all stock deal to create the largest Australian home lender and one of the biggest banks by market value.

The combined bank would have 10 million customers with a market value of A$66 billion, the companies said in a joint statement. In explaining the rationale for the merger, the banks said that together they would have a larger balance sheet and greater access to funding to better withstand the current credit market difficulties.

St. George will recommend to its shareholders that they accept 1.31 Westpac shares for each St. George share. The proposed merger values St. George at A$33.10 per share, a 28 .5 percent premium based on the closing price of the bank on May 9. St. George shareholders would own 28.1 percent of the combined bank.

The agreement provides for a two week exclusivity period to undertake due diligence and negotiate detailed terms of the merger.