* SMBC paying about 4.5 times price-to-book ratio
* TPG initially paid $195 mln for 71.6 pct stake in 2008
* Indonesia among most underdeveloped Asia bank markets
* BTPN shares have risen a almost 12 times since early 2008
TOKYO/HONG KONG, May 9 (Reuters) - Sumitomo Mitsui Financial Group's deal to buy a $1.5 billion stake in Indonesia's BTPN at high valuations marks the beginning of an aggressive push by cash-rich Japanese lenders into retail banking in other Asian markets.
Indonesia is Southeast Asia's biggest economy but has one of Asia's most underdeveloped banking markets, giving it great allure for foreign investors even if regulatory worries have impeded some deals.
Japanese banks, in particular, are increasingly trying to build up a large retail client base globally. They are seeking access to local-currency savings to fund growth in overseas loans, hoping to counterbalance sluggish growth at home, banking sources say.
The agreement by SMFG's core banking unit, Sumitomo Mitsui Banking Corp, to buy 40 percent of Bank Tabungan Pensiunan Nasional Tbk PT (BTPN), Indonesia's seventh-biggest bank by market value, also puts private equity owner TPG Capital on course for another bumper return from an Asian bank investment.
At a price-to-book ratio of about 4.5 based on Reuters calculations, it is one of the most expensive bank deals ever in Asia. BTPN also ranks as the world's sixth-most expensive lender measured by price-to-book ratio among global banks with a market value of $1 billion or above, according to Thomson Reuters data.
Galvanised by TPG's investment, BTPN stock has risen twelvefold since early 2008, giving it a market value of $3.4 billion.
The deal is set to be Japan's second-biggest outbound M&A in the banking sector, after Mitsubishi UFJ Financial Group's (MUFG) $3.71 billion purchase of UnionBanCal Corp in the United States in 2008.
SMFG, Japan's third-largest bank by assets, is buying a well-capitalised outfit. BTPN's non-performing loans sit at 0.66 percent, compared with an Indonesian industry average of 1.56 percent, and it has a Tier 1 risk-adjusted capital ratio of 21.87 percent, almost double the industry average.
SMFG will first buy 24.26 percent of BTPN for 6,500 rupiah per share, a 14 percent premium to BTPN's last traded price and equivalent to 9.12 trillion rupiah ($937 million). It will then raise its holding to 40 percent as long as it wins regulatory approval.
"Some premiums must be paid for nearly 30 percent annual growth rate of BTPN's profit and loan balances," said Toyoki Sameshima, senior analyst at BNP Paribas Securities in Tokyo.
SMFG is buying most of those shares from TPG, which acquired 71.6 percent of BTPN in 2008. The private equity firm's stake dropped after a rights offering in 2010 and it currently holds 57.87 percent.
TPG and its Indonesian affiliate North Star paid about $195 million for the stake in 2008, meaning that were TPG to offload its entire holding in BTPN at the premium offered by SMFG it would make a return of more than 10 times its initial investment. TPG declined to comment on how it plans to sell its remaining 25.29 percent stake in BTPN, valued at $860 million at current market prices.
One of the biggest challenges Japanese banks face is a lack of a retail network overseas.
Japan's biggest lender MUFG wants to acquire an Asian commercial bank so it can kick-start local banking operations in the region, its chief told Reuters in an interview last month.
Sources have told Reuters that MUFG is bidding for General Electric's $1.8 billion stake in Thailand's Bank of Ayudhya .
SMFG has also said it is looking at developing other types of consumer finance in Southeast Asia, such as sales finance for cars, air conditioners and TVs.
ROOM TO GROW
The appeal of Asia's expanding middle class and fast-growing economies has spurred dealmaking and a raft of IPOs and secondary share-offerings.
Indonesia, in particular, has ample room for new and existing banks to ramp up growth.
Only about 40 percent of Indonesia's 240 million people have bank accounts and most personal borrowing is done outside the banking sector. It has more than 120 commercial lenders but most of them are minnows unable to compete with the top 10 operations which control 80 percent of total bank assets.
Still, SMBC's move surprised some as the Indonesian bank regulator has yet to approve Singaporean bank DBS Group Holdings' $7.2 billion deal to buy a controlling stake in Indonesia's Bank Danamon.
Soon after DBS announced that deal in April 2012, the Indonesian central bank announced new bank guidelines, which capped bank ownership at 40 percent.
Established in 1958, BTPN started as a pensioners' savings bank but now operates as a commercial bank, with more than 19,000 employees and over 1,900 branches.
BTPN shares did not trade on Thursday as Indonesian markets were closed for a public holiday. SMFG's shares ended down 2 percent in afternoon trade, slightly underperforming a 1.6 percent decline in Tokyo banking stocks.