Singapore's largest bank has withdrawn its application to negotiate the purchase of up to 49% of Alliance Bank Malaysia Bhd., submitting a revised proposal for a 30% stake instead, according to sources familiar with the matter.

DBS Group Holdings Ltd. modified its bid after failing to secure approval from Malaysia's central bank for its initial request, which would have necessitated a regulatory waiver. Under Malaysian rules, acquisitions of financial institutions are typically capped at 30% ownership.

The adjusted proposal is expected to face fewer regulatory hurdles with Bank Negara Malaysia, the sources added, speaking anonymously due to the confidential nature of the discussions.

If approved, the revised terms would enable DBS to negotiate with Alliance's majority shareholder, Vertical Theme Sdn., a Malaysian holding company partially owned by Singapore's state investor Temasek Holdings Pte. Temasek holds a 49% stake in Vertical Theme through Duxton Investment & Development Pte and maintains a 28.3% shareholding in DBS.

Both DBS and Vertical Theme declined to comment. Alliance Bank stated it had no knowledge of the development, while Malaysia's central bank did not immediately respond to inquiries.

A successful acquisition would establish DBS's presence in Malaysia, where Singaporean competitors Oversea-Chinese Banking Corp. and United Overseas Bank Ltd. already operate. DBS remains Southeast Asia's largest bank by total assets.

Alliance Bank's shares have declined 6% year-to-date in Kuala Lumpur trading, underperforming the broader market's 2% drop. The bank currently holds a market valuation of approximately 7.7 billion ringgit ($1.9 billion).