BUDAPEST (Reuters) - Prime Minister Viktor Orban has declared a three-way merger to create Hungary’s second-largest bank a transaction of national strategic interest, exempting the deal from competition scrutiny, a government decree taking effect on Thursday showed. State-owned Budapest Bank, MKB Bank and savings group Takarekbank (MTB) announced a tie-up in May to create Magyar Bankholding in a shake-up of the Hungarian banking system that has seen local players gain influence under Orban. The government decree says the measure is needed to boost the competitiveness of the Hungarian banking sector. The central bank, led by Gyorgy Matolcsy, a close Orban ally, has long argued that there were too many large banks in Hungary for the size of its market and banking services and loans were too costly. Takarek, which has an extensive rural branch network, has been working to transform itself into a universal banking group - offering more services - to compete with rivals OTP, Austria’s Erste Group and Belgium’s KBC. MKB, which focuses mostly on corporate and private banking, exited a European Union restructuring process at the end of 2019, which had banned it from acquisitions and imposed limits on the size of its balance sheet. The combined entity will be worth over 740 billion forints ($2.5 billion), with the state holding a 30.35% stake. The owners of MKB Bank, including Orban ally Lorinc Meszaros, will hold 31.96% and Takarekbank will have 37.69%. The project still faces serious challenges, including a deeper-than-expected economic downturn due to the coronavirus pandemic, which could trigger a rise in bad loans.