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Southeast Asia's largest lender, DBS Holdings, which has been in talks with China's Guangdong Development Bank, wanted a controlling stake in the Chinese lender, people familiar with the deal said.

Guangdong Development Bank is the second-largest lender in Guangdong Province, with 480 branches and total assets of 307 billion yuan (US$37.97 billion).

The Singapore-based DBS wanted to have more than 50 percent of the bank and is also asking for certain warranties, said one banking source. The Royal Bank of Scotland Group secured certain warranties from the Chinese Government when it invested US$3 billion in the country's second largest lender, the Bank of China.

"They put in the bid last week and they are looking for a controlling stake," said one of the sources, who declined to give any details on price of the deal.

A DBS spokeswoman declined to comment about the bank's interest in Guangdong when contacted.

Media reports have valued the Guangdong deal at about S$2 billion (US$1.18 billion). The Chinese bank had a non-performing loan ratio of 22.8 percent at the end of 2003, double the industry average.

China has a ceiling of 20 percent for foreign lenders who want to buy Chinese banks, though it is possible to get a waiver on the cap.

"If DBS does get Guangdong, it would be quite a feather in the cap for them because it would be the first time a foreign bank gets a controlling stake," said a Singapore-based investment banker.

"They have been very smart about it. DBS started looking at Guangdong early -- before it got on the radar screens -- and they somehow knew that the Chinese government will be cleaning up the banks before they are sold," said the banker.

"They will be getting a clean bank. That is why suddenly you get all these names who are interested. But DBS has an edge as it is promoting itself as an Asian bank, with the right culture to control and make the bank a success," he said.

Besides DBS, other banks said by industry sources to be interested in Guangdong include Citigroup, ING and China insurer Ping An Insurance.

DBS chief operating officer Frank Wong had been busy in China working on the Guangdong deal for the last couple of months said banking sources.