The state-backed bank is considering buying its larger rival in a deal that could be worth $12 billion, Stuff reported this morning.
According to reports, "negotiations are under way" for Kiwibank to take over BNZ from its parent, National Australia Bank. According to the report, BNZ could fetch between $10 billion and $14 billion.
Merger talk has intensified throughout the week, but neither bank has commented on the rumours.
An acquisition is viewed as a way for Kiwibank, led by Steve Jurkovich (pictured) to jump into the top bracket of New Zealand banks.
Under its current ownership structure, analysts believe Kiwibank's growth prospects are limited.
A deal would radically reshape the NZ banking landscape and require significant funding from Kiwibank's owners, ACC and NZ Super Fund. Analysts believe a merged Kiwibank and BNZ could enter the NZX50 under a new structure.
At the moment, Kiwibank has less than 5% of the New Zealand market. The big four still have 86.4% of total assets in the New Zealand banking sector, with Kiwibank holding a 4.1% share, according to the Banking Ombudsman Scheme's latest annual report.
