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Fri 22 Jan 2010 03:51 PM

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Al Baraka in talks for Bank Muamalat stake - CEO

Al Baraka CEO confirms interest in Muamalat; sources says talks on 40-49% stake.

Bahrain-based Islamic lender Al Baraka is in talks to buy a stake in Malaysia's Bank Muamalat, its chief executive said, with a source adding it could buy up to 49 percent in the lender.

"Nothing has been signed, there are just talks," Chief Executive Adnan Yousif told Reuters.

Yousif said that Al Baraka had already considered buying a stake in Muamalat before the global financial crisis, but that earlier talks had been put on hold.

He said Al Baraka had not made any decisions on the purchase yet and did not elaborate on the potential size of a stake.

A person familiar with the matter said Al Baraka was looking to buy between 40-49 percent of Bank Muamalat and that the parties were likely to sign a non-disclosure agreement by next week.

The two banks "have not reached the price negotiation stage yet," the person said, declining to be identified.

Malaysian conglomerate DRB-Hicom holds a 70 percent stake in Bank Muamalat and state investment agency Khazanah Nasional owns the rest.

Bank Muamalat's assets totalled about $4.3 billion at the end of September, according to a newspaper report.

Al Baraka's interest in the Malaysian lender comes as Gulf Islamic banks seek new growth areas to diversify sources of earnings as their domestic markets mature.

Al Baraka has already said it is planning to spend $30-50 million to buy a bank in Indonesia as it seeks to expand its global footprint.

Malaysian authorities are courting more foreign investment for the domestic Islamic banking industry to create bigger players and raise the country's international profile.

The Southeast Asian economy has made its mark as a major Islamic banking hub in Asia but is seen as lacking in global clout, especially in the Middle East.

Its largest Islamic lender, Maybank Islamic, a subsidiary of Malaysia's top bank Maybank, had assets of 35 billion ringgit ($10.32bn) as of Sept 30, 2009, according to its annual report.

Saudi Islamic lender Al Rajhi has total assets of of around $45 billion, the bank said this year.

Malaysia has the world's largest sukuk, or Islamic bond market, accounting for about 42 percent of the $19 billion paper issued last year. But bankers say most Malaysian sukuk are denominated in the local ringgit currency, which lends the country little global weight.

Malaysian authorities relaxed banking rules last year to allow increased foreign equity participation of up to 70 percent in domestic Islamic banks.

But some practitioners say local Islamic lenders have shown little interest in allowing more foreign ownership, partly due to differing interpretations of the sharia, or Islamic law, between Malaysia and the Middle East.

One of the growth barriers to the $1 trillion emerging Islamic finance industry has been that it is fragmented between its two main regions, South East Asia and the Gulf Arab region.

Banks spanning the two regions would help the industry to standardise its products, analysts say. (Reuters)

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