DBS Group, Southeast Asia's biggest lender, has pulled out of the race to buy ING's private banking unit in Asia, as it did not want to pay a premium for the business, a source with knowledge of the deal told Reuters.

This leaves HSBC as the strongest player for the Asian assets, which bankers said ING may try to sell for about $1 billion after it agreed last week to sell its Swiss assets to Julius Baer for 520 million Swiss francs ($507 million).

ING is selling assets globally as part of a global restructuring to pay back bailout money to the Dutch government.

DBS found it inappropriate to pay a premium given that it has its own private-banking franchise which is already bigger and more well-established compared to the assets for sale, the source said on Tuesday. The source did not want to be identified because the talks on the deal are not public.

DBS's bid lapsed a few weeks ago, the source said.

DBS, which was ranked as Asia's sixth-biggest private bank in terms of assets by consultancy Calamander, is bigger than ING's private bank in Asia. DBS manages about S$30 billion ($22 billion) in client assets.

ING is estimated to manage about $16 billion in client assets.

The Singapore bank said last week that it plans to set up a domestic private banking presence in China, as its sees onshore wealth management growing in importance and new funds flowing in from Asian investors.

Lazard was advising DBS on the bid, sources have said.

The bank said in a statement on Tuesday that it would not comment on M&A activity.

DBS' priority is to pursue organic growth opportunities which extend our Asia banking franchise, DBS said.

In any inorganic initiative we pursue, we always adopt a disciplined approach and will only do the deal if it fits our strategic initiatives and return on investment requirements.

Singapore's third-biggest bank, OCBC, is also considered a potential bidder for Asian assets of ING, sources have said. The bank's private banking arm is run by Frenchman Olivier Denis.

OCBC said in a statement on Tuesday it is in talks to buy ING assets, but did not specify the assets. It added there was no certainty that an agreement will result from the talks.

($1=1.026 Swiss Franc)

($1=1.396 Singapore Dollar)

(Editing by Muralikumar Anantharaman)