JP Morgan had been hired as financial adviser for the deal but Asia Financial, whose president is Robin Chan's son Bernard Chan, had not set an indicative price, sources told the South China Morning Post yesterday.

Some players have suggested China Construction Bank Corp is a potential bidder. The bank's spokesman could not be reached for comment.

Ernesto Ng Tang-fai, an executive director at Asia Commercial, declined to say whether the bank had been put up for sale. Sources said it had been but stressed it did not mean a business contraction.

'The disposal only reflects the company's intention to concentrate on the high-growth insurance business, including further expansion in mainland life insurance and insurance broker business,' a source said.

PICC Life Insurance, a mainland joint venture set up by Asia Financial, PICC Holding, Sumitomo Life Insurance of Japan and Bangkok Bank, began operations last month.

In the first six months of this year, Asia Commercial accounted for 45 per cent of group net profit of $80.46 million, while 47 per cent came from the insurance division. The contributions from banking and insurance were 43 per cent and 47.7 per cent respectively last year.

Asia Financial's share price has soared 25 per cent to $2.625 in the past three trading days, with increasing turnover. The company announced it was at a preliminary stage of exploring a possible transaction yesterday.

The sale is the latest bank-to-bank acquisition in the industry after Taiwan's Fubon Financial Holdings acquired International Bank of Asia in September 2003 at 1.16 times book value.

The pricing of the deal will be watched closely and may set a new benchmark. Analysts said the acquisition price for financial institutions had ranged from one to 1.8 times book value in the past three years as deals after the 2003 Sars outbreak were done at lower prices.

ICBC (Asia)'s acquisition of Belgian Bank - the Fortis Group's retail and commercial banking operations in Hong Kong - was another deal done shortly after Sars and priced just above book value.

'Whether Asia Commercial Bank would be priced at the higher or lower end of the range depends on how much synergy the buyer would have from the acquisition,' an analyst said.

Asia Commercial's shareholders' funds stood at $1.76 billion at the end of last year. Analysts said a 1.2 times book value on an economic recovery would boost the deal's size to $2.1 billion.

Bankers said it was not surprising smaller banks could be sold despite making a profit, as they had less bargaining power than larger rivals, as they faced fierce competition and rising compliance costs.

At the end of last year, Asia Commercial had 12 branches and about 360 staff in Hong Kong.

Additional reporting by Anette Jonsson