Subject to regulatory approval, the bodies hope to fuse in 2022 into a Hunter body with 600,000 customers and $19.8 billion in total assets.

Together they employ more than 1600 people, and in a statement on Tuesday the banks confirmed there would be no forced redundancies as a result of the union for at least two years.

Both brands are also expected to be retained under the memorandum of understanding that will allow them to explore the plan in greater detail.

Greater Bank chair Wayne Russell said both sides of the merger had "exceptional financial strength" independently.

"Our collective capabilities and capacity will enable us to invest more in technology and innovation, and offer great value for our customers," he said.

"We believe this is an incredible opportunity to grow our brands and help more Australians with their retail banking needs."

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Newcastle Permanent chair Jeff Eather said it would create a financial institution committed to the customer-owned model.

"It will also position the Hunter region as a financial powerhouse in Australia," he said. "Our vision is to be a vibrant employer of choice that delivers fulfilling and rewarding careers for more than 1,600 people."

The Perm's chief executive, Bernadette Inglis, said it could transform and future-proof both businesses.

"It enables the combined organisation to carve out a presence as a beacon for the mutual sector, and be a significant competitor in retail banking," she said.

"Newcastle Permanent and Greater Bank have attractive and complementary characteristics which we believe make this merger highly compelling, and provide significant value to customers, through improved technology and organisational capability."

Greater chief executive Scott Morgan said it was crucial that both organisations matched changes in the wider market.

"Smaller organisations can be at a disadvantage in keeping pace with required investment in frequent and complex technology advancements," he said.

"A decade ago there were circa 200 mutuals across Australia, today the number is fewer than 70."

The merger proposal also includes maintaining a network of 100 branches for at least two years, as well as customer contact centres and headquarters from both sides of the ledger.

Mr Russell is proposed to chair the merged entity alongside Mr Eather as deputy.

Ms Inglis would be chief executive officer, with Mr Morgan her deputy.

Progressing the plan requires approval by members of both institutions and regulators the Australian Prudential Regulation Authority and the Federal Treasurer.

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