Jakarta. Bank Danamon, Indonesia's fifth-largest private lender, announced a plan on Tuesday to merge with local lender Bank Nusantara Parahyangan.

"The proposed merger is subject to approval by the relevant regulatory authorities, both banks' shareholders, and to meeting the legal formalities for such a transaction," Bank Danamon said in a statement on Tuesday.

This is part of a larger plan by Japan's Bank Mitsubishi UFG (MUFG) to acquire a 73.8 percent stake in Bank Danamon.

Bank Danamon and Bank Nusantara Parahyangan (BNP) are now able to merge after MUFG acquired 40 percent of Danamon in August last year.

Aside from owning Bank Danamon, MUFG also holds a majority stake in BNP through its subsidiary, Acom, one of Japan's largest loan companies.

Bank Danamon and BNP are required to merge as Indonesia applies a single-presence policy, which ensures that one single entity does not hold a majority stake in more than one company.

MUFG's plan for acquiring a majority stake in Danamon has been laid out in three stages.

In the first stage, which was completed in December 2017, MUFG acquired a 19.9 percent stake in Danamon from Singapore's wealth fund firm Temasek for $1.17 billion.

The Japanese lender subsequently raised its stake in Danamon to 40 percent last August with the acquisition of a further 20.1 percent. In the final stage, the Japanese lender will seek approval to acquire the remaining shares, which in total, will give it a 73.8 percent stake.

The acquisition is the part of MUGF's ambitious plan to expand its presence in the region.

The deal marks the largest acquisition of an Indonesian company by a foreign entity after American multinational cigarette and tobacco manufacturer Philip Morris International bought a 60 percent stake in HM Sampoerna for $3 billion.