Westpac will go ahead with a bid of about A$16.6 billion ($16 billion) for St George Bank, making it the biggest banking takeover in Australia, Reuters reported.

The merged bank, once created, would be Australia's largest home lender with a market share of 25 per cent, and the largest wealth management provider with funds under administration of A$108 billion.

The two banks said that, following due diligence, they had signed a merger implementation agreement on the same terms as previously announced: 1.31 Westpac shares for every St George share.

The banks said an exclusivity period due to expire on Tuesday has been extended, although this did not prevent St George from considering any superior proposals if they emerge.

Last week, National Australia Bank said it was closely watching St George to assess whether it might fit with NAB's business, but it has not decided whether to bid.

The combined entity would have a market capitalisation of around A$61 billion, overtaking Commonwealth Bank of Australia's market cap of around A$56 billion. It would rank second to National Australia Bank by asset value.