The Australian Competition and Consumer Commission said on Friday it wasn't satisfied the $4.9 billion transaction would not lessen competition in the supply of home loans and banking for small to medium enterprise and agribusiness in Queensland.
"These banking markets are critical for many homeowners and for Queensland businesses and farmers in particular," ACCC deputy chair Mick Keogh said.
"Competition being lessened in these markets will lead to customers getting a worse deal."
Mr Keogh said the regulator thought it was more likely there would be co-ordination between the four major banks in the supply of home loans if Suncorp Bank becomes part of ANZ.
ANZ indicated it would appeal to the independent Australian Competition Tribunal, a move Suncorp said it would fully support.
"We are naturally disappointed and disagree with the ACCC's decision," ANZ CEO Shayne Elliott said.
"We believe the acquisition will improve competition, which will benefit Australian consumers, particularly in Queensland.
"All of the relevant markets are intensely competitive and will continue to be intensely competitive after the acquisition."
Suncorp chairwoman Christine McLoughlin said the Queensland financial institution embarked on the deal because it thought it was in the best interests of customers, shareholders, employees and the Australian economy.
The company believed the deal wouldn't hurt competition and the group had seen nothing to change its mind during the 12-month review, Ms McLoughlin said.
"Together with ANZ, we will make our case to the tribunal, which is led by a justice of the Federal Court of Australia. The tribunal will look at all of the evidence with fresh eyes before forming its own view."
The tribunal has overturned decisions by the ACCC, including the 2019 merger of Vodafone Hutchison and TPG Telecom.
But it backed the regulator in June regarding its decision to block a spectrum-sharing arrangement between TPG and Telstra.
Suncorp Group CEO Steve Johnston said if the deal wasn't consummated the public wouldn't reap the benefits of a significant jobs and investment package that ANZ and Suncorp negotiated with the Queensland government in exchange for its approval.
The package included ANZ creating a major tech hub in Brisbane with 700 workers hired or placed there over five years and Suncorp spending $19m to develop a disaster response centre at its Brisbane headquarters.
But Mr Keogh said a lessening of competition in home loans would have a major flow-on impacts to Australians with a mortgage.
"More than a third of Australian households have a mortgage, with loans totalling around two trillion dollars, illustrating how critical it is that competition in this market is not substantially lessened," he said.
"The proposed acquisition increases the likelihood that the major banks adopt a 'live and let live' approach to each other, aimed at maintaining or protecting their existing market shares.
"This is instead of competing strongly on price, innovation and the quality of their service and products to win customers."
Treasurer Jim Chalmers said the government respected the independence of the ACCC and wouldn't comment.
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