BOC Hong Kong is a unit of Bank of China Ltd , the fourth-biggest lender by assets in the mainland, and selling NCB will help streamline the group's operations in the country, the people said. A $6 billion sale would make it Asia-Pacific's third-biggest bank deal, according to Thomson Reuters data.

An elimination of overlapping businesses could come as a boost for state-controlled Bank of China which has seen a slowdown in profit growth and an increase in bad loans as China's economic growth weakens..

As of June last year, half of NCB's total loans were to customers in China, according to ratings agency Moody's.

One potential buyer interested in NCB is China Cinda Asset Management Co Ltd, the nation's No. 2 bad debt manager that listed in Hong Kong in December 2013, the people said.

China Cinda has been keen to buy a bank, as unlike its biggest rival Huarong Asset Management, Cinda does not own a bank, one of the people said. Having a bank will help China Cinda tap cheap sources of funds to buy soured loans.

The sources declined to be identified as the discussions were confidential.

BOC Hong Kong said in a statement to the Hong Kong stock exchange on Thursday that it was conducting a feasibility study to review its group's business and assets portfolio, which may or may not lead to a disposal of assets.

China Cinda said it "is not in a position to confirm the accuracy of the news."

"The company confirms it has not engaged in negotiation with any third party...as at the date of this announcement," it said in a statement issued to the exchange late Thursday.

BOC Hong Kong shares jumped 3.8 percent to an eight-week high on Friday, compared with a 0.5 percent gain in the benchmark Hong Kong share index. China Cinda shares rose 0.5 percent.

POTENTIAL OTHER INTEREST

At $6 billion, the sale would rank behind Australia's Westpac Banking Corp's $17.9 billion purchase of St George Bank, and Bank of America Corp's $7 billion acquisition of a stake in China Construction Bank, both in 2008.

Nanyang has a book value of about $4 billion and bankers estimate any deal could be struck at about 1.5 times price to book, a measure usually used for valuing bank deals. That compares with 1.8 times price to book paid last year by Singapore's Oversea-Chinese Banking Corp for Hong Kong' family-run Wing Hang Bank in a $4.9 billion deal.

An NCB sale could also attract interest from other Chinese state-backed financial institutions and some private enterprises, the people said.

"If you’re trying to build a financial empire you want to get as many licenses within your stable of companies as you can," said Matthew Smith, banking analyst at Macquarie Group. "They'd be talking about synergies, using the bank's branch platform as a means of selling funds and insurance."

MOODY'S DOWNGRADE

BOC Hong Kong has discussed the potential NCB sale internally but no final decision has been made, one person with direct knowledge of the matter said. A decision could come in the next few weeks, which may result in the launch of a formal sale process "soon", the person said.

BOC Hong Kong's investment banking unit is expected to run the sale process, but another foreign bank is also likely to be hired to help with the process, the people added.

Established in 2001, BOC Hong Kong was formed by merging 10 of the 12 businesses of Bank of China group. Nanyang Commercial Bank has always operated as a separate entity given its China focus.

A slowdown in the Chinese economy has impacted Nanyang's asset quality and triggered a ratings downgrade by Moody's in December, which cited its "weaker risk profile as a result of growing mainland exposure".

(Additional reporting by Bengaluru newsroom; Editing by Muralikumar Anantharaman, David Evans and Edwina Gibbs)

By Denny Thomas and Engen Tham