JAKARTA (REUTERS) - Indonesia's central bank has approved the bid by Singapore's DBS Group to buy up to 40 per cent of PT Bank Danamon, governor Darmin Nasution said on Tuesday.

"If they want more... we want to see a realisation from MAS (the Monetary Authority of Singapore) regarding our need for reciprocity," the outgoing governor told reporters.

The long-awaited approval follows the central bank's earlier ruling that bidders can first take only a 40 per cent stake in a local bank. They must then undergo three financial-soundness tests, one every six months, before moving to majority ownership. That would mean it would be at least 18 months before DBS could take control of Indonesia's sixth largest lender.

The deal hit a wall last year when the Indonesian regulator capped ownership in local banks shortly after DBS announced the bid. There have also being growing calls in parliament for Singapore to open up to Indonesian banks if the DBS deal is allowed to go through.

DBS wants to buy the Danamon stake from Singapore's state investor Temasek.