UPDATE 1-Gulf banks, investors plan $3 bln Islamic bank

(Adds more details, background)

By John Irish

DUBAI, March 26 (Reuters) - Gulf banks and individual investors are planning to set up a $3 billion Islamic investment bank and an Islamic stock exchange in Bahrain by 2009, the chief executive of Albaraka Banking Group BARKA.BH said.

"It will be the largest bank in the region for the issuance of sukuk and will create a secondary market for sukuk," Adnan Yousif told Reuters on Wednesday. Sukuk are bonds that comply with Islam's ban on interest.

The bank, which is aiming to be a global player, would also take projects from a conceptual stage to financing and eventually flotations, Yousif said.

Albaraka is one of the lenders that is looking to invest in the new bank, which will have a paid-up capital of $3 billion and plans to start operations in 2009.

The bank will have a targeted capital of $11 billion, Yousif said.

Other banks that have shown an interest include Saudi Investment Bank and Bahrain Islamic Bank BISB.BH, Yousif said.

"We are in discussions with the central bank of Bahrain and regulators and hope to finalise the details by the end of the year," he said.

Ernst & Young has been appointed to advise on the bank's establishment.

The project is being promoted by the chairman of the General Council of Islamic Banks, Sheikh Saleh Abdullah Kamel, Yousif said.

Value of assets under management in Islamic institutions has been growing at over 20 percent a year and reached $900 billion in 2007 and is set to hit $2 trillion by 2010, Ernst & Young said in February.

Yousif said Bahrain also planned to set up a secondary stock market in Bahrain complying with Islamic law to encourage regional investment. (For Reuters content on Islamic finance, click on ISLAMIC) (Reporting by John Irish, editing by Will Waterman)