DBS Group's Islamic unit to enter Persian Gulf

DBS Group Holdings' Islamic banking unit plans to expand from its Singapore base into the Persian Gulf this year to target the $1 trillion dollar global market for services that comply with the religion's Shariah law.

The Islamic Bank of Asia, 60 per cent owned by Southeast Asia's largest bank, may open a representative office in Bahrain to offer corporate finance, wealth management and investment services, Chief Executive Officer Vince Cook said. The four-month old bank aims to become a conduit from which companies and funds can tap clients across Asia and the West Asia.

"Our focus is very much cross-border,'' Cook said in an interview yesterday. "We would start fairly small, get our feet wet. The environment in Bahrain is quite conducive for Islamic banking. It enables us to keep a close eye on the market.''

Singapore is encouraging companies to boost their range of Islamic products to woo investors from the West Asia in a bid to catch up with Malaysia to increase the city-state's share of a market estimated to grow to $2.8 trillion by 2015. Singapore has about S$2 billion ($1.3 billion) of Shariah-compliant property funds and S$500 million of Islamic insurance funds, the central bank said in September.

"Singapore is catching up,'' said Song Seng-Wun, an economist at CIMB-GK Research in Singapore. "Singapore has been building relations in the West Asia and that will help in attracting more wealth.''

Under Islamic law, or Shariah, the payment of interest and investment in businesses such as tobacco, alcohol and gaming is prohibited, making many conventional stocks, bonds and banking avenues off limits to Islamic investors.

The central bank has waived double stamp duties for Islamic real estate financing and allows financial institutions to offer investment products through so-called Murabahah transactions, or the sale of goods at a price plus an agreed profit margin.

Islamic Bank of Asia, in which DBS invested $250 million, plans to attract "high-net worth'' individuals with new investment products in the next six to 18 months, Singapore- based Cook said.

The Islamic Bank of Asia is trying to strengthen its brand in a market that has attracted competitors such as Standard Chartered, ABN Amro Holding and HSBC Holdings. Started in May by DBS and 22 West Asian investors, the bank plans to increase staff to 60 by year-end from 40, Cook said.

Qatar National Bank, the Persian Gulf emirate's largest, opened an office in Singapore in April. Bahrain's AlBaraka Banking Group, the world's fourth-largest Islamic financial services provider, will spend as much as $300 million to woo customers in India and China.

"The potential for the business is huge,'' Cook, 46, said. "Almost all the participants are more interested in developing the market than they are interested in wrestling market share off each other. Everybody's eyes are on the growth.''

DBS has fallen 12 per cent this year, compared with the 18 per cent increase in Singapore's benchmark Straits Times Index.