HONG KONG/TOKYO (REUTERS) - Japan's Sumitomo Mitsui Banking Corp is in advanced talks to buy a US$1.2 billion (S$1.5 billion) stake in BTPN, an Indonesian lender backed by TPG Capital, people familiar with the matter told Reuters.

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

In 2008, TPG acquired a 71.6 per cent stake in the Indonesian pensioners' savings bank, named Bank Tabungan Pensiunan Nasional Tbk (BTPN), for US$195 million. The private equity firm's stake dropped to 58.5 per cent 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 percent of TPG's stake, allowing it to abide by Indonesia's new foreign ownership limits for banks, the people added.

The 40 per cent stake in currently valued at US$1.2 billion, based on Friday's stock price of 5,050 rupiah.

SMFG and TPG declined comment.

Sources declined to be identified as the discussions were confidential.