Singapore Islamic bank seeks Asia, Gulf growth

* May take stakes in Indonesian and Malaysian banks * Keen to expand to the Middle East in the longer term

The Islamic Bank of Asia, backed by Southeast Asia's top lender, is on the hunt for acquisition opportunities in Malaysia and Indonesia to gain a foothold in the populous Muslim retail markets.

Islamic banks are turning to retail consumer demand for growth as the explosive rise of the sharia bond market slows markedly amid the global credit crisis.

Rising demand for ethical investments and growing interest by non-Muslims in Islamic finance have also turned the retail business into a potential major growth market.

Singapore-based Islamic Bank of Asia is considering ovarious ptions to enter Malaysia and Indonesia, including taking a stake in banks in these countries, the lender's chief executive Vince Cook said on Friday.

"Singapore presents a very good platform for wholesale and cross-border business and both Indonesia and Malaysia would complement that by giving us the ability to build a very sizeable retail business," Cook said in a telephone interview.

"In Malaysia, sometime during this year we will certainly have decided exactly how we want to proceed. We've surveyed the existing institutions...there hasn't been one as of yet that sort of become clearly the preferred target."

The lender, which was set up in 2007 and has a capitalisation of $500 million, currently focuses on commercial banking, corporate finance, capital market and wealth management services.

Singapore's DBS <DBSM.SI>, Southeast Asia's biggest bank by assets, has a 50 percent stake plus one share in Islamic Bank of Asia. Other shareholders include Gulf investors.

DBS has been keen to make inroads into Islamic banking, especially as growth weakens in its two main markets Singapore and Hong Kong as those economies slide deeper into recession.

Singapore itself has ambitions to become an Islamic finance centre and has been aggressive promoting the concept.

The operations of conventional and Islamic banks are usually kept separate despite any shareholding relationship between the two, as Islamic and conventional funds should not be combined because the latter is interest-based.

Purchasing a firm with an existing Islamic banking licence would allow Islamic Bank to take advantage of retail opportunities more quickly than if it set up its own branches in those countries and had to apply for new licences.

Asia is Islamic Bank of Asia's immediate priority for expansion although it is also keen on Saudi Arabia, United Arab Emirates and Kuwait, Cook said.

"We don't close off any options at this early stage ... but my expectation is that we would actually start in those markets with our own representation in our own name," the veteran Islamic banker and former Barclays executive said.

Cook also said new sales of Islamic bonds, or sukuk, could rebound this year if there is a steady flow of issues from the United Arab Emirates, one of the world's top issuers.

New Islamic bond issuance fell two-thirds to a three-year low of $15.77 billion in 2008, according to Islamic Finance Information Service, as the financial crisis made investors more wary and battered asset values worldwide.

By Liau Y-Sing