(Adds details and background)
* Latest in HSBC's efforts to shed non-core assets
* Another Japanese investment in Vietnam's financial sector
TOKYO, Dec 20 (Reuters) - Sumitomo Life Insurance Co said on Thursday it is buying HSBC Holding's 18 percent stake in Vietnamese insurer Baoviet Holdings for about $340 million, the latest Japanese acquisition in Southeast Asia.
Faced with weak growth prospects at home and a strong yen, Japanese banks and insurers are stepping up overseas expansion.
For Sumitomo Life, the deal represents success after an earlier setback. It had tied up with Vietnam Bank for Agriculture and Rural Development (Agribank) with the intention of setting up a life insurance joint venture in the country. But the plan was shelved last year, prompting the Japanese company to seek a new partner.
For HSBC, the deal marks further progress on Chief Executive Stuart Gulliver's plan to exit non-core businesses. Earlier this month the bank sold a minority stake in China's Ping An Insurance. HSBC also sold its general insurance business to French insurer Axa and Australia's QBE Insurance Group Ltd earlier this year.
HSBC paid $360 million to buy the 18 percent stake in Baoviet in two tranches in 2007 and 2009.
Sumitomo Life, one of Japan's top four life insurers, said it will acquire the stake for about 7.1 trillion Vietnam dong ($340.3 million). The transaction is subject to regulators' approval.
Last week, a source with knowledge of the matter said Japan's biggest bank, Mitsubishi UFJ Financial Group Inc , plans to buy 20 percent of VietinBank from the Vietnamese government for about $720 million.
Japanese insurers are attracted to the growth potential of Southeast Asian markets as life insurance markets are currently very small. Vietnam's market was worth just $818 million in 2011 in terms of premiums, compared with Japan's $524.7 billion that year, according to Swiss Re's Sigma Report.
Vietnam's life insurance penetration rate, a measure of how much a country's population spends on life insurance, was just 0.7 percent in 2011, compared with 8.8 percent in Japan and 3.6 percent in the United States, according to Swiss Re.
Reuters this month reported that Japan's Dai-ichi Life Insurance Co Ltd and Fukoku Mutual Life Insurance Co were among companies shortlisted to buy a minority stake in Indonesia's Panin Life for about $200 million. (Reporting by Taiga Uranaka; Editing by Muralikumar Anantharaman and Elaine Hardcastle)