MILAN (Reuters) - Mid-sized Italian lender Banca Popolare di Vicenza and its smaller rival Banca Etruria (>> Banca Popolare dell'Etruria e del Lazio) have entered exclusive merger talks, they said in separate statements on Saturday.

Banca Etruria agreed not to start tie-up negotiations with any other until May 30 in order to allow Popolare Vicenza to present a binding offer, the banks said.

Smaller banks have borne the brunt of Italy's recession and are being encouraged by the Bank of Italy to merge to shore up their finances as the European Central Bank reviews their asset quality.

Banca Etruria, which has 175 branches, has also attracted interest from larger Italian bank Banca Popolare dell'Emilia Romagna (>> Banca Popolare dell'Emilia Romagna Sc).

(Reporting by Danilo Masoni; Editing by Lisa Shumaker)