(Adds valuation, Etruria statement, background)
MILAN May 29 (Reuters) - Italian mid-sized lender Banca Popolare di Vicenza plans to acquire smaller rival Banca Etruria for around 220 million euros as the country's banks grapple with weak profitability and sluggish economic growth.
The Bank of Italy told Banca Etruria last year to find a buyer after an audit of its books unveiled insufficient provisions against soured loans and an excessive exposure to sovereign debt.
Bankers and analysts expect a wave of mergers in coming years among Italy's 680 lenders, which are saddled with a large stock of bad loans. The consolidation is likely to accelerate if a health check of euro zone banks unearths any hidden risks in balance sheets that will require them to boost their capital.
Headquartered in Italy's wealthy north-east, Popolare Vicenza aims to boost its presence in the centre of the country through Tuscany-based Banca Etruria, which has 186 branches compared with Popolare Vicenza's 640.
Popolare Vicenza, one of 15 Italian lenders under scrutiny by European authorities as part of the bank health check-up, said on Thursday it would offer 1 euro per share in cash for Popolare Etruria - valuing Etruria at around 217 million euros ($295.5 million).
That would be a 26 percent premium to the stock's closing price on Tuesday, it said. Shares in Banca Etruria leapt as much as 21 percent on Thursday after the terms of the proposed takeover were announced.
"A cash offer on 100 percent of the capital is the best outcome for minority shareholders, giving them a chance to cash in the strong rise in the share price since the start of the year," an Italian broker said.
Banca Etruria said in a statement it had received Popolare Vicenza's offer on Wednesday and its board "will consider it during its next meetings".
If the deal were to happen, it would be the second time this year a healthier Italian bank has taken over a smaller lender with the central bank's blessing.
In April, the Bank of Italy selected Banco di Desio e della Brianza to rescue Banca Popolare di Spoleto, which had been put under special administration for more than a year because of alleged irregularities and large expected capital losses.
Popolare Vicenza started exclusive talks last month with Etruria after Italy's sixth-largest lender Banca Popolare dell'Emilia Romagna failed to follow through on an initial expression of interest.
Popolare Vicenza has repeatedly said it wants to expand its branch network through mergers and recently launched a 1 billion euro share sale to boost its capital base with a view to possible acquisitions.
Popolare Vicenza said it would launch its bid only after a positive response by Etruria's board by June 12. It said the buyout offer would be valid only if it acquired control of more than 90 percent of Etruria's capital and it would then delist its shares.
Popolare Vicenza and Banca Etruria are both co-operative lenders, meaning shareholders have one vote each regardless of the size of their stake - something that could complicate the approval of the merger offer. Etruria is set to become a joint-stock company if Popolare Vicenza gains control of it.
($1 = 0.7345 Euros) (Reporting by Valentina Za; editing by Tom Pfeiffer and Pravin Char)