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Wed 18 Jun 2008 12:28 PM

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Kuwait's KFH to expand in Turkey and Gulf

UPDATE 1: Islamic lender also considering entering Hong Kong and Australia, CEO says.

Kuwait Finance House (KFH) aims to become one of the top banking players in Turkey and is considering expansion in Hong Kong and Australia to tap booming demand for services compliant with Islamic law.

Chief Executive Mohammad Al-Omar said KFH, the Gulf's second-largest Islamic bank by market value, plans to set up an investment firm in Saudi Arabia and spread out in the six countries of the Gulf Cooperation Council (GCC).

"We are looking at all GCC markets. We see that a lot of companies are coming from outside to the GCC because it is a growth region so we will put all our resources there," Omar told newswire Reuters in an interview.

KFH, which operates in accord with Islamic law banning the receipt of interest, has applied to set up a Saudi firm offering investment banking services with a capital of 500 million riyals ($133.3 million).

"We are waiting for approval," he said, adding the UAE, Oman and Qatar were also interesting markets.

In Turkey, KFH wants to boost branches of Kuveyt Turk, in which it holds the majority, to 113 from about 100 now by year-end and become one of the top-10 lenders by organic growth, and ruled out buying a local bank.

"The average top 10 banks have more than 500 branches. We see the market in Turkey as very reasonable for us to expand to. We are looking to be one of the top 10 banks... We are looking at five to seven years," Al-Omar said.

Kuveyt Turk, which had assets worth 3.9 billion Turkish lira ($3.18 billion) at the end of 2007, is the third-largest Islamic bank in Turkey by assets, according to the Turkish Participation Banks Association.

"[What] Turkey can give us is the diversified economy. They have huge exports, they are talking about more than $80 billion worth of exports and about more than $200 billion worth of deposits in local banks," he added.

Al-Omar reiterated an initial public offering for Kuveyt Turk, originally planned for the first quarter, would stay on hold until markets had improved.

Operating under Islam's ban on lending on interest, KFH, in which the government holds 43 percent, makes money by sharing profit from sharia compliant investments such as real estate or automotive rental companies.

Moody's Investor Service said in February that global assets that comply with Islamic law have grown 15 percent each year for the last three years. Assets could grow by another third to more than $1 trillion by 2010, McKinsey & Co. said in December.

KFH, which is offering retail and corporate services, was also still considering launching an Islamic bank in Algeria and investing in Morocco but the immediate focus was the Gulf.

"It is a natural geographic expansion," Al-Omar said.

So far, Kuwait Finance House has a unit in Bahrain offering services such as private equity deals. It also operates in the United Arab Emirates through a 20 percent stake in Sharjah Islamic Bank.

Al-Omar said KFH would also like to set shop in Dubai.

In Asia, where KFH is operating through a unit in Malaysia, the bank is looking at moving to Hong Kong after the government had invited it to offer Islamic banking services.

KFH, which had assets worth 9.408 billion dinars ($35.39 billion) at the end of March, was also exploring participating in infrastructure projects in Indonesia as well as Australia.

"Australia is a very good market, has performed well and has nothing to do with the suprime [crisis]. We are looking at opportunities there," he said, declining to elaborate.

Al-Omar declined to give a 2008 profit forecast after KFH boosted first-quarter net profit by 43 percent to 73.4 million dinars. "We are very optimistic," he said.

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