A man cleans a window at a branch of Japan’s Sumitomo Mitsui Banking Corp in Tokyo, and (right) the logo of Bank Tabungan Pensiunan Nasional (BTPN) is seen at the bank’s headquarters in Jakarta. Sumitomo Mitsui Banking Corp is in advanced talks to buy a $1.3bn stake in BTPN, an Indonesian lender backed by TPG Capital.

Reuters/Hong Kong

Japan’s Sumitomo Mitsui Banking Corp is in advanced talks to buy a $1.3bn stake in BTPN, an Indonesian lender backed by TPG Capital, people familiar with the matter told Reuters, lifting BTPN’s shares 9% yesterday.

SMBC’s pursuit of Indonesia’s seventh-largest bank by market value is another example of a Japanese company seeking to grow in that country’s fast growing financial services market. A sale by TPG would also provide another case of a US private equity investor raking in a massive profit from an early investment in an Asian financial institution.

In 2008, TPG Capital Management acquired a 71.6% stake in the Indonesian pensioners’ savings bank, named Bank Tabungan Pensiunan Nasional (BTPN), for $195mn. The private equity firm’s stake dropped to 58.5% after a rights offering in 2010.

SMBC, a unit of Japan’s third-largest lender by assets Sumitomo Mitsui Financial Group, is currently negotiating to buy 40% of TPG’s stake, allowing it to abide by Indonesia’s new foreign ownership limits for banks, the people added.

Yesterday, BTPN shares made their biggest one-day percentage gain in two years to trade as high as 5,450 rupiah, while the benchmark Indonesian share index was up 0.2%. That move values a 40% stake in BTPN at $1.3bn.

SMFG shares did not trade yesterday due to a public holiday in Japan. SMFG and TPG declined to comment.

The sources declined to be identified as the discussions were confidential.

TPG executives were in Tokyo last week for another round of talks, one person with knowledge of the matter said. It was not immediately clear what TPG plans to do with its remaining 18.5% stake, although the buyout firm may sell the shares in the open market, people familiar with the matter said.

Established in 1958, BTPN now operates as a full-fledged commercial bank with a market value of $3bn and has more than 19,000 employees and over 10,000 branches.

BTPN is the world’s seventh-most expensive bank among lenders with a market value of $1bn or above, according to Thomson Reuters data. It trades at a price-to-book (P/B) multiple of 3.81, up from 0.7 in December 2008, when TPG struck the deal.

A deal higher than $1.52bn would make it Japan’s second-biggest outbound M&A in the banking sector, according to Thomson Reuters data. Mitsubishi UFJ Financial Group’s $3.71bn purchase of UnionBanCal Corp in the US in 2008 is Japan’s biggest ever outbound bank purchase.

A successful deal would give SMBC a foothold in the rapidly growing Indonesian economy and an under-developed banking market, where just 20% of working age individuals have a bank account, compared with nearly 100% in Australia and New Zealand. Indonesia, which is Southeast Asia’s biggest economy, is forecast to grow at 6.2% in 2013, fuelling demand for consumer and corporate loans.

Last year, Indonesia issued new bank ownership rules that limit single ownership in local banks at 40%. The new rules have made it difficult for buyers such as SMBC to get control of a domestic bank.

The same rule has delayed the approval of Singapore’s DBS Group Holdings $7.2bn bid for PT Bank Danamon a year after it was launched. The Indonesian bank regulator is expected to make a final decision on the DBS-Danamon deal in May.

TPG and its Indonesian affiliate North Star agreed to a five year lock up when they acquired the stake in 2008. That lock-up expired this March. Since then, several suitors have held informal talks to buy TPG’s stake. SMBC’s bigger rival, MUFG had also expressed interest buying the stake, but those talks have since discontinued, the people familiar with the matter said.

It was unclear whether TPG and SMBC would announce a deal before the Indonesian bank regulator makes a final decision on DBS-Danamon deal next month.

Sumitomo Mitsui Financial Group is working with Goldman Sachs Group Inc, people familiar with the matter said.

Goldman Sachs declined to comment.

A successful sale to SMBC would be the latest lucrative exit from bank and insurance assets for private equity in Asia. Many of those investments were made around the mid-2000s as US private equity firms in particular snapped up stakes in regional banks and insurers at low valuations following the Asian financial crisis that crippled many financial institutions across the region.

Earlier this year, private equity firm Carlyle Group sold its remaining stake in China’s No 3 insurer China Pacific Insurance Co, raking in a total profit of more than $4bn, its largest-ever dollar profit on an investment.

TPG’s previous bank exits in Asia include the sale of an 18% stake in China’s Shenzhen Development Bank, which the firm acquired in 2004. That generated a return of about 16 times the initial investment of $155mn, selling the stake in two blocks to Ping An Insurance for a total of around $2.4bn in 2010.