They inched even closer to each other July 23 when Vilniaus Bankas formally requested the central bank's permission to acquire more than 66 percent, and up to 100 percent, of Hermis' share capital.
In a brief joint statement, Vilniaus Bankas and Hermis announced they had wrapped up merger negotiations and are now simply awaiting the green light from the Bank of Lithuania. But an answer from the central bank is not expected immediately.
"Actually, we have two months in which to make a decision, but we probably won't use the entire time," said Kestutis Vanagas, spokesman for the central bank. "Still, a decision will come no earlier than September."
Local banking analysts have long considered the prospect of a Vilniaus-Hermis combo palatable. But a stamp of approval by the central bank, however, is not automatic - especially since new rules regarding mergers were established a couple of months ago.
According to the new rules, two banks cannot merge if their combined assets, deposits or loans exceed a 40 percent share of the domestic market.
The combined assets of Vilniaus and Hermis seem to be over the line and Vanagas said the central bank intends to follow all of the rules.
"According to our data for 1998, the banking assets of both Hermis and Vilniaus together have a 40.8 percent share," said Vanagas.
A spokesman for Vilni-aus Bankas indicated that the current figure is also near that same mark but refrained from offering any predictions about the central bank's decision. Still, local analysts have voiced glowing assessments of the proposal and seem to feel the central bank will approve it.
When the two banks first announced their merger intentions last June, both Eugenija Martinaityte, director of the Lithuanian Banking, Insurance and Finance Institute, and Eduardas Vilkelis, head of the Lithuanian Commercial Bankers' Association, said the step would be positive for the Lithuanian banking sector.
Although both analysts conceded that a Vilniaus-Hermis combo would still be tiny on the international scale, Vilkelis said a more powerful domestic bank would have the ability to "take on bigger projects."
Other analysts quoted in the Verslo Zinios business newspaper also felt the central bank's approval of the merger was likely.
"If the central bank will be presented with a qualified project, explaining the benefits and arguments, then a positive decision can be expected," Algimantas Krizinauskas, Balticum Management head, told Verslo Zinios.
According to the two banks' joint press release, shareholders of Hermis will be able to sell their shares to Vilniaus Bankas or exchange them for shares in the merged bank. The share price and share exchange rates are to be decided only after the central bank gives its thumbs up to the merger.
The news on July 23 inspired the most activity the Lithuanian stock market has seen all summer. Hermis share price continually shot up for several days. On July 28 alone Hermis average share price jumped by 10 percent, from 95.75 litas ($23.94) to 105.33 litas. According to stock brokers, the price jump indicates that people believe Vilniaus Bankas will be willing to pay more for Hermis' shares.
"All summer long activity had been extremely slow and in the last couple of days extremely active," said Aiva-ras Abomavicius, stock broker at Hansabank Markets.
"It's not because the macroeconomic figures are good because they aren't. Now there's a lot of speculation as to how much Vilniaus Bankas will pay for the shares in Hermis. It's possible Hermis shareholders could get somewhere between 105 and 115 [litas per share]."
Other stock brokers, like Arvydas Jacikevicius at Suprema echoed many of the opinions expressed by Abro-mavicius.
Of course, only the central bank's decision in September will put the entire situation in a sharper focus.