Regional lender Bendigo Bank Ltd has rejected a revised informal proposal for a merger with the Bank of Queensland (Bank of Qld) Ltd.
Bank of Qld announced on Thursday that its offer had been rejected, with chairman Neil Roberts saying the failure of the proposal was "disappointing".
In April, Bendigo rejected a formal $2.5 billion offer from Bank of Qld, saying the proposal was neither "certain nor compelling".
The revised proposal included an all-cash option as an alternative to shares in the merged entity.
Bank of Qld said it would no longer seek a merger with Bendigo, and would instead concentrate on its existing organic growth strategy and acquisition opportunities.
"We believe the merger made a lot of sense," Mr Roberts said.
"Our proposal in March followed two years of informal discussions between the two banks.
"Bank of Qld will now focus on other strategic initiatives to grow the bank, in addition to its strong organic growth strategy."
Bank of Qld also reaffirmed its previously announced market guidance, saying it was confident of continued above market growth.
A merger between Bendigo and Bank of Qld would have created the seventh biggest bank in Australia.
At 1542 AEST Thursday, shares in Bank of Qld were trading down 13 cents to $17.81, while shares in Bendigo rose four cents to $16.37.