UPDATE 1-DBS selling over 10pct stake in Philippines' BPI-source

(Adds detail on stake, background)

By Saeed Azhar and Rosemarie Francisco

SINGAPORE/MANILA, Oct 11 (Reuters) - DBS Group ,Southeast Asia's largest lender, is selling more than half ofits $1.3 billion stake in Bank of Philippine Islands (BPI)

to Ayala Corp , a source familiar with the dealtold Reuters on Thursday.

Banks around the world have been shedding minority stakes infinancial institutions because they are considered inefficientfor capital under Basel III rules.

DBS Group CEO Piyush Gupta wants to have controlling stakesin banks, and as part of the strategy made a $7.2 billion bidfor Indonesia's PT Bank Danamon . The approval of thatdeal is delayed due to regulatory reasons.

Ayala, a conglomerate, is the biggest shareholder in BPI,which is the Philippines' largest bank by market capitalisation.DBS owns about 20.3 percent of BPI.

"DBS is selling (a) more than 10 percent stake in BPI," saidthe source, who asked not to be named because the deal is notpublic.

DBS and Ayala were not immediately available for comment.

DBS is selling the stake at a time when the Philippinesstock market is among the best performing markets in SoutheastAsia.

The Philippines main index has gained nearly 23percent this year, with BPI surging 42 percent. Last week, theshares hit a record high of 81 pesos.

DBS invested S$1.2 billion ($976 million) for a 19.7 percentstake in BPI in December 1999. It has written down part of thatinvestments over the past few years, sources said.

($1 = 1.2293 Singapore dollars)

(Additional reporting by Anshuman Daga; Editing by MichaelFlaherty and Mark Potter)

((saeed.azhar@thomsonreuters.com)(65)(6403 5664))

Keywords: DBS BPI/