The banking sector in Canada is facing further consolidation as the National Bank of Canada has reached a comprehensive deal to acquire Canadian Western Bank, valuing the lender at approximately $5 billion.

The deal will see the Quebec-focused National Bank expand its geographical reach by taking over Canadian Western's operations, which are concentrated in Alberta and British Columbia.

CEO Laurent Ferreira stated in a conference call, "This deal will accelerate National Bank's strategic plan and overall Canadian growth."

This deal comes just months after RBC closed its acquisition of HSBC Canada for $13.5 billion, which sparked criticism for increasing market concentration as it meant the loss of what was the seventh-largest bank in Canada.

The National Bank, which is the sixth largest bank in Canada, says that its acquisition of Canadian Western will significantly expand its western footprint and create a stronger national competitor.

Canadian Western has approximately 65,000 customers and 39 branches, 30 of which are located in British Columbia, and Alberta, where National currently has only three in each, compared to 280 in Quebec.

The deal will also see National expand its lending portfolio outside Quebec by 37% as it acquires Canadian Western's $37 billion in commercial loans.

Ferreira said, "We will create a stronger full-service competitor from coast to coast, providing more options for individuals, entrepreneurs, and businesses across the country."

The National Bank plans to expand its full-service offerings through Canadian Western Bank, including its digital capabilities for all customers, while also offering wealth management and risk consulting services, areas where it says there is little overlap with Canadian Western.

Ferreira noted, "We will work with CWB customers to enhance banking services and increase investment in western communities."

Chris Fowler, CEO of CWB, stated in a release, "We are proud to partner with the National Bank and are confident that this merger will create amazing value for our customers, teams, communities, and shareholders."

The deal will see each share of CWB, except for those already owned by National, exchanged for 0.45 of a common share of the National Bank. The transaction is valued at $4.7 billion, excluding the shares owned by the National Bank.

It states that the exchange ratio values each share of CWB at $52.24, representing a 110% premium over Tuesday's closing price of $24.89.

The National Bank states it will retain Canadian Western's headquarters and two nominees from the bank will join the board of National.

It expects to incur approximately $400 million in transaction implementation costs, while planning to achieve annual cost savings of $270 million within three years of the acquisition.

To help finance the deal, the National Bank has secured a $500 million investment from CDPQ, making the Quebec pension fund the second-largest shareholder in the National Bank.

The acquisition of CWB is subject to certain customary conditions and must be approved by regulators and two-thirds of the shareholders of Canadian Western Bank at a meeting expected to be held in September.

The deal is expected to close by the end of next year.