'This is a decision that is about enhancing the competitiveness and the strength of our banking system,' he told reporters after briefing the cabinet on his decision.

'The strict conditions I have imposed will ensure that the interests of both employees and customers are looked after,' he said.

Under conditions Mr Swan imposed on the merger, Westpac, Australia's third largest bank, must maintain the existing number of branches and automatic teller machines operated by the two companies.

In addition, Westpac must retain all Westpac and St George retail banking brands and keep dedicated management teams for each of the banks' retail banking distribution.

'This decision follows a thorough assessment of its impact on the national interest, including factors such as competition, economic efficiency, prudential requirements (and) financial system stability,' Mr Swan said.

'With the conditions I am imposing, this decision strikes the right balance between enhancing the competitiveness and the strength of our banking system,' he added.

The decision came after Australia's competition watchdog in Aug approved the AU$18.2 billion (S$18.17 billion) merger, saying it was unlikely to substantially weaken competition in the sector.

The new super bank will boast a larger balance sheet and capital base, as well as broader access to funding markets, making it better placed to withstand systemic shocks, Mr Swan said.

'The St George banking brand will also benefit from Westpac's lower funding costs, helping it to offer lower interest rates on loans.'

The two banks agreed in May to merge into one financial services behemoth with assets of about AU$550 billion and market capitalisation of about AU$66 billion.

The merger must however still be voted on by St George shareholders, a move the board has recommended.

'The merger will bring together the best of both banks to create a strong platform for future growth,' St George chairman John Curtis said.

Westpac chairman Ted Evans said the merger would 'create an even stronger bank which is important in these times of global economic uncertainty'.

'The core of our strategy for the combined organisation has always been to retain the distinctive brands and distribution networks of St George and Westpac,' Mr Evans said.

Mr Swan's announcement came after the Australian stock market had closed.

Westpac ended the day down 2.6 per cent while St George Bank closed 5.4 per cent lower at 28.00 as the global financial turmoil pummelled the market. -- AFP