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Singapore’s DBS, Gulf investors set up Islamic bank

SINGAPORE - Singapore’s DBS Group Holdings DBSM.SI said on Monday it plans to tap growing Middle Eastern affluence by launching an Islamic bank that will offer financial advice and products in Gulf countries and in Asia.

DBS -- Southeast Asia’s largest bank -- will own 60 percent of the Singapore-based lender, named Islamic Bank of Asia or IB Asia, with the remaining shares owned by a group of 22 private and institutional investors from the Middle East.

The bank did not identify the 22 investors, other than to say that they are families and industrial groups from countries of the Gulf Cooperation Council (GCC), which includes Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates.

“With more than 70 percent of the world’s free foreign reserves between China, India, the GCC and Singapore, why should we take a back seat in letting established Western players decide how to price and structure financing in key projects,” DBS Chief Executive Officer Jackson Tai told a news conference.

DBS’s move comes as Singapore competes with Kuala Lumpur in neighbouring Malaysia to become Asia’s centre for financial products that comply with Islamic laws, which do not allow the use of interest in transactions.

Tai, who estimated the Islamic banking market at $400 billion, said that IB Asia does not have a Middle Eastern partner bank.

IB Asia will have a paid-up capital of $418 million, which Tai expects will increase to $500 million in the coming weeks.

The new bank’s chief executive will be Vince Cook, 45, who has worked in Middle Eastern banking for more than 20 years. Cook was a managing director for Barclays Capital in Dubai before he became general manager at Qatar National Bank in Doha.

The Islamic bank would begin operations this month, with plans to hire 58-60 staff by the end of 2007, Cook said.

Stay out of Islamic retail market

IB Asia will focus on offering private and commercial banking services, Tai said, adding that this will distinguish it from financial services providers in countries such as Malaysia and Indonesia.

“We will not indulge in retail and high-street banking,” said IB Asia Chairman Abdulla Hasan Saif, who is also the adviser for Economic Affairs to the Prime Minister of Bahrain.

IB Asia board’s also includes Lee Hsien Yang, who resigned as chief executive of Singapore Telecommunications STEL.SI last month. Lee is the brother of Singapore’s prime minister.

A banking analyst at a Singapore-based foreign stock broker told Reuters that a focus on private and commercial banking is a good way for DBS to break into Islamic financing.

“Corporate banking is easier to manage and gives DBS time to grow its understanding of Islamic financing. Retail banking requires more understanding and attention to the nitty-gritty than corporate banking,” he said.

DBS’s new Islamic bank is set up at a time when Singapore is trying to catch up with its regional neighbours.

In Malaysia, Islamic banking assets make up over 12 percent of total bank assets.

CIMB Group, Malaysia’s second-largest banking group -- said in April it would set up its first lslamic private bank in Malaysia this year. CIMB also has a private banking focus, targeting high net worth clients who own investable assets exceeding 1 million ringgit ($293,100).