A proposed merger with smaller rival Norwich & Peterborough will give Bradford-based Yorkshire Building Society branches in a part of the country where it is thin on the ground – and provide the opportunity to develop new products, such as a current account.

The YBS and N&P boards have agreed the terms for a merger that would create an enlarged business – still with its base in Bradford – with combined assets of more than £34 billion, three million members and 224 branches.

If approved by N&P members in July – YBS members will not get a vote – the move will provide a swansong for Yorkshire chief executive Iain Cornish, who announced recently that he is standing down at the age of 50, once a successor is appointed.

Former Standard Life Bank boss Anne Gunther was unveiled as N&P’s new chief executive this week, but if the merger goes ahead, it is understood this will turn out to be an interim appointment. YBS is still recruiting for Mr Cornish’s replacement.

N&P was recently fined £1.4m by the Financial Services Authority for mis-selling Keydata investment products and has been ordered to set aside £51m for compensation payments. A YBS spokesman said this had been factored into its merger bid .

The Yorkshire is the UK’s second-largest building society, with assets exceeding £30 billion, while N&P is the ninth-largest with assets of £3.7 billion, 470,000 members and more than 800 staff.

The combined business will be called Yorkshire Building Society, although the N&P name will be retained as a separate brand within the Yorkshire, similar to the Chelsea and Barnsley brands following the swallowing-up of those two societies.

If approved and confirmed by the Financial Services Authority, the merger is expected to be completed in November. No payments will be made to members of either society as a result of the deal.

The merger will give YBS a strong presence in East Anglia, where there is virtually no overlap with N&P’s 46 branches. YBS said it would retain all N&P’s existing branches, which employ 360 staff, for at least two years and maintain a significant operations base in Peterborough, the site of N&P’s head office, for at least three years.

A YBS spokesman stressed that, aside from the Keydata issues, N&P remained a profitable business, achieving an underlying profit of around £5m in its latest accounts.

Iain Cornish said: “N&P has similar values to the Yorkshire. It shares our commitment to mutuality and our determination to deliver long-term value.

“We will build on N&P’s brand and the value it has delivered to its members, while considering developing our own products in areas where N&P has complementary capabilities and expertise, such as the current account market.”