By Andres Gonzalez and Jesús Aguado

LONDON/MADRID (Reuters) - Banking consolidation is not always the best way to create shareholder value and can lead to oligopolies that are bad for clients, Chair of Spain's Sabadell Josep Oliu said on Monday.

Sabadell is trying to fend off an around 12 billion euro ($13.09 billion) hostile takeover by rival BBVA that the Spanish government has opposed. The European Central Bank, however, approved it on Sept. 5.

Addressing the Spanish Chamber of Commerce in London, Oliu said consolidation was, undeniably, a way to strengthen the financial system, but "increasing an institution's relative size in a market inevitably leads to increased oligopolistic power to the detriment of consumers".

Oliu also said the deal would have a negative impact on credit and competition in the SME segment and the competition authorities should analyse it in depth.

Last week, Spanish economy minister Carlos Cuerpo said the review of BBVA's bid for Sabadell could last into the first quarter of 2025.

While Madrid considers that the combination of the two banks would impact jobs and customers, BBVA's Chief Executive Officer Onur Genc last month told Reuters European banks risked falling further behind global rivals if governments blocked UniCredit's potential takeover of Germany's Commerzbank and BBVA's bid for Sabadell.

Oliu said banking union in Europe had been held back by factors such as the lack of a European deposit insurance scheme, but was desirable and would be achieved eventually.

Consolidation processes would boost value, he said, provided employees, clients, society and politicians embraced them.

"My personal view is that today Sabadell and BBVA offer more value on their own than they would do together," he said.

($1 = 0.9165 euros)

(Reporting by Jesús Aguado in Madrid and Andrés González in London; editing by Barbara Lewis)