(Refiles to correct reference to national hero in paragraph 3; clarify that congress, not central bank, issued law in paragraph 5)
By Emily Chan and Neil Jerome Morales
TAIPEI/MANILA, Aug 27 (Reuters) - Taiwan's Cathay Financial Holding Co is in talks to acquire a 20 percent stake in medium-sized Philippine lender Rizal Commercial Banking Corp amid plans to expand in Southeast Asia, people with knowledge of the discussions said.
The stake could be worth around 14.3 billion pesos ($327 million) using Rizal's current share price.
Rizal Bank stocks jumped nearly 6 percent on Wednesday after media reports on Cathay's interest in the lender, which is named after 19th century national hero Jose Rizal.
Taiwan's financial regulators are encouraging banks to expand in Asia as the home market is over-crowded. The Financial Supervisory Commission said last week it will ease rules for banks, insurers and brokerages to make acquisitions in Asia .
The Philippines is one of Southeast Asia's fastest growing economies and banks are attracting overseas investment after Congress passed a law allowing foreign groups to take full control of local banks.
Rizal Bank has previously said it was studying options to sell a stake to raise capital.
Cathay Financial declined to comment on the matter, but a regulatory official in Taiwan said the group was planning to purchase a stake in a Philippine lender, and may use its insurance capital arm for the investment.
The Taiwanese group already holds a stake in Vietnam's unlisted Indovina Bank Ltd.
Rizal Bank President Lorenzo Tan told Reuters he could not comment on the matter as this time.
"Strategic partners provide technology transfer, expand distribution capability and market reach, expand financial capacity for acquisitions and organic growth," he added.
The sources declined to be named as they were not authorised to speak to the media. Bloomberg had earlier reported that Cathay was in talks to acquire a stake in Rizal.
Rizal shares were trading around 5.2 percent higher at 55.75 pesos each at 0432 GMT, outpacing the financial services index which edged up 0.14 percent. Trading volumes in the stock were more than three times the average 90-day trading volume.
$1 = 43.6850 Philippine peso Additional reporting by Faith Hung in TAIPEI and Saeed Azhar in SINGAPORE; Writing by Rosemarie Francisco; Editing by Miral Fahmy