Malaysian state pension fund the Employees Provident Fund (EPF), which controversially won a US$3.6 billion (S$5.2 billion) takeover battle for RHB in March, has until June 2008 to reduce its holdings to 35 per cent from 82 per cent.

At current share prices, a 47 per cent stake in the bank would be worth close to US$2 billion.

The two foreign banks are part of a shortlist of candidates that the EPF, through financial adviser Goldman Sachs, is drawing up. It could see a few more parties lodge expressions of interest before a decision is made, the Star said on Saturday, citing an unidentified source.

The newspaper did not name the banks. EPF officials could not be immediately reached for comment.

The source said that having a sound regional growth plan was a key factor in the selection of the foreign partner.

'The EPF wants a partner for the long term, one that can share and grow along with RHB as it pursues its regional ambitions,' the source said. RHB Capital announced a revamp plan last month to double profit and market value by 2010.

It also hopes to become one of the top three largest banking groups in South-east Asia and expand its presence to China and the Middle East.

RHB Capital on Thursday announced it had dropped plans to sell a combination of its bank branches, assets and liabilities to the local unit of Gulf bank Kuwait Finance House. -- REUTERS