Vietnam’s government is looking to sell part of its stake in Military Commercial Joint Stock Bank , MBB -0.23% a large local lender with a market capitalization of close to $2 billion, people familiar with the plans said.

The government is appointing banks to conduct the sale, the people said, likely to a single strategic partner. Hanoi is paring its ownership of hundreds of state enterprises to move toward a more private-sector-led economy.

The size of the stake and the amount expected to be raised are yet to be completed, the people said.

The government owns 44% of Military Commercial Bank through several military-linked companies, according to FactSet, a data provider. Domestic and foreign financial institutions own 11%, with the rest held by individual investors and entities such as mutual funds.

Military Bank didn’t respond to queries seeking comment.

The government has been working to open up a fragmented banking sector to competition and inject foreign technology and expertise into its financial system. Foreign interest in this frontier market has been high, in line with its strong economic growth—7.1% in 2018.

In 2017, the government raised $4.8 billion from the sale of its 54% stake in beer maker Saigon Beer Alcohol Beverage Corp. The country is among the biggest beneficiaries of redirected trade flows as multinational companies work around a trade dispute between the U.S. and China. The country’s benchmark Ho Chi Minh stock index is up 9.7% so far this year.

In addition to regular commercial banking services, the Hanoi-headquartered Military Commercial Bank also has an asset-management company and operates insurance services under MB Ageas Life Insurance Co. Ltd. It owns more than 100 branches, including two in Laos and Cambodia, and a representative office in Russia, according to the bank’s website.

Its net profit nearly doubled to $267 million last year, and its total assets ended 2018 close to $16 billion.

One of the people familiar with the bank’s interest in a strategic investor said the stake sale would likely attract interest from other Asian banks, possibly from Japan and South Korea, among others, and help Military Commercial Bank meet new international capital requirements.

In 2012, Bank of Tokyo-Mitsubishi UFJ paid $743 million for a 20% stake in the state-owned Vietnam Joint Stock Commercial Bank for Industry and Trade , or VietinBank, and in 2016, Singapore sovereign-wealth fund GIC Pte. Ltd. acquired a 7.7% stake in Vietcombank , the country’s largest bank by market capitalization. Last year, one of the country’s largest private sector banks, Techcombank , raised $922 million in an initial public offering.

By P.R. Venkat & Jake Maxwell Watts - The Wall Street Journal - July 14, 2019