Malaysia's Maybank to turn Indonesian unit into Islamic bank

KUALA LUMPUR, June 23 (Reuters) - Malaysia's largest lender Malayan Banking Bhd (Maybank) (MBBM.KL) will convert its Indonesian unit into an Islamic bank and undertake a capital reduction in the firm. Maybank said in a stock exchange filing on Wednesday that the shareholders of PT Bank Maybank Indocorp (BMI) wanted to move away from conventional banking to tap the growing potential of Islamic banking in the world's most populous Muslim nation.

Maybank did not give a timeline for the conversion but Indonesia's central bank deputy governor Muliaman Hadad told Reuters on Monday that the Malaysian bank will set up an Indonesian sharia bank by August. [ID:nJAK424748]

The capital reduction exercise will see BMI's authorised share capital fall to 300.7 million ringgit ($93.44 million) from 346.8 million ringgit as well as eliminate retained losses that totalled 50.1 million ringgit last year, Maybank said.

"This exercise is undertaken to enable BMI to make a fresh start under its new business activity of syariah banking, with a balance sheet that reflects fair value, without being burdened by the accumulated losses," Maybank said in a statement.

The exercise is part of the Indonesian central bank's regulations involving a change in business activities.

Maybank shares ended flat before the announcement, against the 0.5 percent gain in the broader market index .KLSE.

($1=3.217 Malaysian Ringgit)

(Reporting by Niluksi Koswanage; Editing by Julie Goh)