Taiwan's state-linked banks look closer to merging, and investors are betting on it — good news for shareholders of both.

• Waterland Financial's board met to decide whether to let its chairman open merger talks.
• Chang Hwa Bank already said its board set up a team to study tie-ups, investments, or a full merger, and is hiring financial advisers.
• Trading volume in Waterland Financial exploded to more than five times the previous day's, and both stocks rose.
• The push fits a government policy of merging state-controlled financial firms to build bigger, more competitive banks.
• Chang Hwa Bank blamed fierce competition and the cost of going digital for needing a bigger partner.

Outlook: Expect formal adviser appointments and feasibility studies before any deal terms appear.