If it goes ahead, a merger of the three could create an entity with $113 billion in assets, according to Thomson Reuters data, and the United Arab Emirates' third-biggest lender after First Abu Dhabi and Emirates NBD.
ADCB, majority owned by the Abu Dhabi government, said it is in early merger talks with UNB and Al Hilal Bank late on Monday, while UNB, in a disclosure on Tuesday also confirmed talks with ADCB, saying they were "very preliminary".
ADCB shares shot 12 percent higher, while UNB was up almost 15 percent in late morning trade. Islamic lender Al Hilal is unlisted.
"The UAE has been overbanked for a long time and consolidation has been happening in the banking and investments sector to create bigger entities to compete strongly regionally and globally," said Tariq Qaqish, managing director, asset management at MenaCorp.
"But mergers could result in job losses, the closure of branches, which might have spillover effects, impacting the real estate or healthcare sectors."
Bahrain-based securities firm SICO said the deal is likely to be a share-swap, with both UNB and Al Hilal getting ADCB stock.
While ADCB, the second-largest bank in Abu Dhabi and UNB are both majority government owned, Al Hilal Bank is fully-owned by the Abu Dhabi government.
"Considering the same primary owner, we believe it is fair to assume a relatively smooth transition of this deal, before the regulatory approval stage," SICO said in a note.
Al Hilal representatives did not respond to calls, while the Abu Dhabi government did not reply to an email.
Consolidation has shaken up banking in other Gulf countries. Bahrain's Ahli United Bank is in merger talks with Kuwait Finance House, which could be the first cross-border tie-up between Gulf lenders in recent years,
Meanwhile, Saudi British Bank and Alawwal Bank have also agreed a merger to create Saudi Arabia's third-biggest lender, in a $5 billion deal that marks the first major banking tie-up in the kingdom in two decades.
(Additional reporting by Hadeel Al Sayegh, editing by Louise Heavens) ((firstname.lastname@example.org; + 9712 6444431; Reuters Messaging: email@example.com))