Banco Popolare and BPM shareholders are set to vote Saturday on a proposed merger to create Italy's third-largest lender, a much-anticipated accord expected to consolidate the troubled banking sector.

However, it is not yet a done deal. While the Banco Popolare votes are widely believed to be in the bag, there are fears shareholders at the Banca Popolare di Milano (BPM) may sink the merger, with two associations of former BPM employees set against it.

Extraordinary meetings at both banks began at 0730 GMT, with some 5,500 shareholders present or represented for BPM and around 7,000 for Banco Popolare.

Italy's anti-establishment Five Star Movement has called for voters to scupper the deal.

Nerves were fraying at the BPM meeting as emotional shareholders took turns speaking before the vote.

BPM's chief executive Giuseppe Castagna told those gathered for the ballot that the merger was "a leap with which we ask you to look to the future and not the past, to look at a banking system with lots of problems which BPM can help".

The bank had written to shareholders on Monday to urge them to turn out and cast their ballots at the extraordinary meeting on forging "Banco BPM", which would be third only to giants Intesa Sanpaolo and UniCredit.

The merger represents "the best option to lead together and avoid suffering later", Castagna had said in the letter.

- 'Feet of clay' -

The deal has been on the books since March and has since gotten the green light from the European Central Bank (ECB), which required Banco Popolare to carry out a capital increase for 1.0 billion euros ($1.1 billion), which the bank duly did.

Banco Popolare's CEO Carlo Fratta Pasini told shareholders Saturday all the necessary conditions had been met "to overcome the regret over what is lost and left behind through a fusion which will be able to support our mission and identity".

The new bank would have 25,000 employees, some 2,400 branches, four million customers and would be a leader in northern Italy, one of the richest areas in Europe, managing some 171 billion euros in assets.

With chances for a "yes" vote boosted by a large presence of shareholders at the meeting, BPM said it would cover part of the costs for those who have to travel some distance to attend.

The vote needs a two-thirds majority to be valid.

Two associations of shareholder retirees have called on those casting their ballots not to be intimidated, and vote "no" to stop the creation of a bank which would be a giant with "feet of clay, worn away by an enormous mass of deteriorated credit".

But the unions, which have negotiated and won concessions on welfare and employee representation, support the merger.

- 'Only one choice' -

The tie-up would be the first following a landmark reform of cooperative banks passed by Prime Minister Matteo Renzi's government in early 2015 in a bid to promote consolidation and efficiency.

The reform scrapped restrictions on ownership and voting rules giving shareholders one vote each regardless of their stake.

The collapse of the merger would be a blow to Italy's troubled lenders, which hold 360 billion euros ($400 billion) of bad loans -- about a third of the eurozone's total -- and have been hit by the market turmoil sparked by Brexit.

Should they be left to fend for themselves individually, Banco Popolare and BPM "will certainly be more vulnerable", particularly regarding foreign investors looking to buy control of the institutions, Milan Polytechnic expert Marco Giorgino told AFP.

A "no" victory "would also be seen, especially by international investors and analysts, as a sign of failure of the Italian banking system to change and increase its stability," he added.

As far as the unions are concerned, there really is only one choice: "BPM shareholders have the responsibility to vote not only for the future of their bank but also for the entire Italian banking system," the unions said in a statement.