Greek Alpha Bank said on Wednesday that it will push through a cancellation of a planned merger with Eurobank over the impact of the Greek state debt restructuring plan on the local banking sector.

The merger of the two Greek lenders with the support of a Qatari investment fund that was announced last August would create the largest bank in Greece.

It was praised by the Greek government and international financial analysts as a right step towards the strengthening of the stability of the Greek banking system.

The planned merger was approved by the shareholders of the two banks in November and would be completed this spring according to the initial timetable.

However, Alpha bank changed course and in a statement made to media on Wednesday, it said that in an upcoming general assembly of its shareholders in late March it will propose the cancelling of the entire plan.

Alpha bank argued that the Greek debt exchange plan that was completed on Monday leads to bigger than initially estimated losses to private banks, therefore the merger plan was reviewed.

Under the debt writedown deal private sector creditors suffer an up to 75 percent of real losses on the value of the Greek bonds they held in exchange of new ones of longer maturities.

The target of the Private Sector Involvement (PSI) scheme which was supported by European Union and International Monetary Fund lenders is to ease a major part of the Greek sovereign state 360-billion-euro (468 billion U.S. dollars) debt load.

According to estimates, Greek lenders hold approximately 40 billion euros (52 billion dollars) in Greek state bonds, including seven billion euros from Alpha bank.

In a first reaction on Wednesday Eurobank commented that it did not see the reasoning behind Alpha bank's choice and still considered the planned merger as beneficial.

Local analysts added that despite the collapse of the Alpha-Eurobank merger, other lenders will most probably try mergers in coming months in parallel with the recapitalization process via the Greek Financial Stability Fund.