Moscow-based MDM Bank and the regional Ursa Bank, Russia's 13th- and 15th-largest banks, respectively, will merge to become the country's second-largest privately owned bank, they said in a joint statement released Wednesday.

Shareholders at the banks will merge their equity stakes in the new joint holding with 523 billion rubles ($18.7 billion) in assets and 72 billion rubles in capital.

MDM chairman Oleg Vyugin and CEO Igor Kuzin will move into the same positions at the new entity, which has yet to be named. Igor Kim, chairman of the board at Ursa, will move into the CEO post at MDM to oversee the merger.

Kim described the merger, which is expected to take between 12 and 18 months to complete, as "unprecedented" in size and importance.

"We have the resources necessary: the liquidity of MDM Bank, which is close to $1.5 billion, and Ursa Bank, approximately $1.3 billion, to create a substantial reserve for further development together," Kim said.

MDM's majority shareholder, Sergei Popov, said both he and Kim were keen on creating a "leading private Russian bank with significant competitive advantages."

One of the merger's main advantages, said Alfa Bank analyst Natalya Orlova, is the coupling of MDM's experience in corporate banking in the capital with Ursa's "regional exposure." Ursa is the country's largest bank not headquartered in Moscow, with significant retail operations in Siberia, the Urals and the Far East.

But its broad geographic coverage hasn't sheltered Ursa from the global credit crunch, and banking analysts said Ursa is in a weaker financial position than MDM.

According to independent analyst Maxim Osadchy, the business model that has fueled Ursa's rapid growth in recent years was almost entirely dependent on Western credit and eurobonds.

"This model has now gone absolutely bust," Osadchy said. "It doesn't work because the Western capital markets are closed for Russian borrowers.

"Ursa has very big difficulties in terms of credit refinancing with Western lenders, and so it needs help, and MDM can provide this help," he said. "MDM has a much stronger base of financing."

Olga Belenkaya, deputy head of research at financial consultancy Sovlink, said that when the credit crunch hit, it was "clear" that Ursa and other banks with similar business models had to begin searching for investors with more solid positions.

"Their aggressive growth model became too risky when the market situation changed," Belenkaya said.

Denis Muhin, analyst at Broker Credit Service, said both Ursa and MDM have most likely been looking for partners for several months.

But Ursa's relative weakness in relation to MDM has led analysts to believe that the merger is more the case of an acquisition in disguise.

"Officially, the deal is a merger," said Belenkaya. "But the situation looks questionable, because MDM Bank seems to have much stronger positions than Ursa and fewer debt-burden problems."