By Yantoultra Ngui and Kane Wu

SINGAPORE/HONG KONG (Reuters) - DBS Group, Southeast Asia's top bank by assets, is the frontrunner to buy a controlling stake in Indonesia's Panin Bank, three people with knowledge of the matter said.

The Singapore lender was competing with Malaysia's CIMB Group in the second round of the bidding process, according to one of the people.

Roughly 86% of Panin Bank, Indonesia's 12th largest lender, is up for sale. As of Tuesday's market close, the combined holding owned by Australia's ANZ and the Gunawan family was worth $1.8 billion.

ANZ, which owns 39% according to LSEG data, has been trying to sell its stake since 2013. The founding Gunawan family is flexible about how much it might sell and the amount will depend on the offer price, sources have said.

Binding bids for the stake are due by end-April or early May subject to market conditions, according to two of the people, who added that the thinking of the bidders could change.

The sources declined to be identified as the matter was private.

DBS, ANZ and CIMB declined to comment. Panin Bank's President Director Herwidayatmo referred Reuters' request for comment to its controlling shareholders.

If successful, DBS' acquisition of the Panin Bank stake would be first deal under incoming CEO Tan Su Shan.

Tan, who will assume the role on March 28, told Reuters this week that DBS is open to bolt-on acquisitions if they fit strategically, created additional value and are earnings accretive within an acceptable period of time.

Analysts say the deal would propel DBS, which has a unit in Indonesia, to rank among the country's top 10 biggest banks.

PT Bank DBS Indonesia has one head office and 33 other offices with 3,011 employees in 15 major cities, according to the DBS website.

Panin Bank's businesses span consumer financing to private wealth. Singapore's Oversea-Chinese Banking Corp and Japan's Sumitomo Mitsui also showed interest in the sale earlier on, sources have said.

Panin Bank, formally known as Bank Pan Indonesia, was founded by Mu'min Ali Gunawan in 1971 and listed on the Jakarta stock exchange in 1982.

Its net profit climbed 8.2% to 2.74 trillion rupiah ($165 million) last year as interest income rose and it provisions for bad debt fell.

The bank's shares have plunged by about a fifth for the year to date, sliding along with other Indonesia stocks and the rupiah as investor jitters over government policy and the country's fiscal health grow.

($1 = 16,590 rupiah)