Japan's Mizuho Financial Group is negotiating to acquire Australia and New Zealand Banking Group's minority stake in Bank Pan Indonesia. Talks are believed to be at an early stage.
Industry sources value the deal at around $570m (£368m, €428).
A Reuters report, drawing on information from anonymous sources, said that Mizuho, Japan's second-largest bank by assets, approached ANZ in July to buy the latter's 39.2% stake in Bank Pan Indonesia (Panin).
A sale would enable ANZ to return capital to shareholders and focus on organic growth in Indonesia. The Australian bank has a 99% stake in ANZ Indonesia.
A successful deal would also reduce ANZ's capital burden. ANZ owns minority stakes in several Asian banks and would therefore be obligated to hold more capital under Basel III norms and Australia's proposed capital rules.
A purchase will help Mizuho establish itself in the growing Southeast Asian market where rivals Mitsubishi UFJ Financial (MUFG) and Sumitomo Mitsui Financial (SMFG) have already signed deals.
Pursued by Reuters, ANZ and Mizuho declined to comment. Bank Panin officials were not available to comment.
In February, Mizuho president Yasuhiro Sato said the bank would expand its overseas footprint through the acquisition of an Asian investment bank or a US commercial bank within three years.
ANZ Chief Executive Mike Smith has said the bank would be open to exiting some of its Asian investments following new capital rules proposed by Australian regulators.
"The carrying value is around A$668m ($613m) and ANZ should be aiming for this if it were to sell the stake," Reuters quoted Sydney-based T S Lim, a senior banking analyst at Bell Potter Securities as saying.
Bank Panin trades at a price-to-book ratio of 0.9 times, while Indonesian banks on average trade at 1.8 times, according to Thomson Reuters data.
Bank Panin's stock price ended 7.94% higher in Jakarta on Tuesday. Mizuho's stock price gained 1.94% in Tokyo while ANZ's stock price added 1.12% in Sydney at the end of day's trade.
Sluggish growth in Japan has forced the country's lenders and insurers to tap overseas markets such as Southeast Asia. Japanese banks have sealed deals worth $8.2bn in the region so far this year. In July, MUFG acquired a majority stake in Thailand's Bank of Ayudhya for $5.6bn. In May, rival SMFG acquired a 40% stake in Indonesia's BTPN for $1.5bn
In 2011, Mizuho acquired a 15% stake in Vietcombank for $567m.