By Roushni Nair

(Reuters) -Australia's fourth-biggest bank ANZ Group said on Wednesday it had agreed to sell around 546 million shares, or 16.5% interest, in Malaysian lender AMMB Holdings (AmBank) for about 2.10 billion ringgit ($443.69 million).

The sale of shares, made through a block trade, has been upsized to a 16.5% stake from 9% previously agreed, according to a term sheet seen by Reuters.

Shares of ANZ advanced nearly 1% to A$29 by 1241 GMT, their highest since August 2021, outperforming a 0.6% gain in the broader financials sub-index.

The offer price of 3.85 ringgit apiece is at a discount of 8.35% to the closing price of AMMB's shares of 4.20 ringgit on Tuesday.

The sale comes three years after ANZ announced it would write down the value of its investment in AMMB after the Malaysian bank settled a claim linked to the massive financial scandal at state fund 1MDB.

ANZ's shareholding in AmBank will reduce to 5.2% from 21.7% once the sale is completed on March 8.

The deal is in line with ANZ's strategy, which includes shrinking key business lines involving low-returning institutional loans and its exposure to retail and wealth banking in Asia as it looks to boost its return on equity.

Proceeds from the sale will increase ANZ's CET1 ratio by 16 basis points, but would not have an incremental impact on profits, the bank said.

The deal, however, could insinuate the possibility of a higher dividend yield for future shareholder payments as the bank highlighted that capital management considerations will include proceeds from the sale.

"Facing fierce competition at home while anticipating significant headwinds from slimming net interest margins, streamlining capital resources and market exposure appears to be a sensible move for ANZ to maintain its shine among peers," Hebe Chen, an analyst with IG Markets told Reuters.

ANZ shares have added more than 3% in value since the Australian Competition Tribunal's green light for the lender's proposed A$4.2 billion ($2.73 billion) buyout of Suncorp's banking assets.

($1 = 4.7330 ringgit)

($1 = 1.5399 Australian dollars)