CORRECTED - Abu Dhabi's Hilal Bank to set up Kazakh unit

(Corrects second paragraph to make clear Almaty largest Kazah city, not capital)

* Taps growing demand in Muslim majority country * Will have initial capital of $27 mln

By Stanley Carvalho

ABU DHABI, March 31 (Reuters) - Abu Dhabi's government-owned Al Hilal Bank will set up an Islamic bank in Kazakhstan to tap into the central Asian state's majority Muslim population, it said on Tuesday.

Al Hilal will headquarter the new bank in the central Asian state's largest city Almaty, opening in the second half of 2009 with an initial capital of 100 million dirhams ($27 million), Chairman Ahmed Ateeq al-Mazrouei told Reuters.

"It will be (one of) the first Islamic bank in Kazakhstan, which has a majority Muslim population, and we want to replicate the Abu Dhabi model there," he said.

Islamic banking is one of the world's fastest growing financial sectors, rising 15 percent to 20 percent a year, industry estimates showed. [ID:nISLAMIC]

Al Hilal, which opened in June last year and has an authorised capital of 4 billion dirhams, has said it is unlikely to break even this year and may slow overseas expansion due to the global economic crisis.

Hilal's move into central Asia comes at a time when the malaise infecting conventional markets may be spreading to the Islamic finance market, which until now has been relatively shielded from the effects of the slowing global economy.

Still, Gulf lenders have been scrabbling to invest and expand, and are increasingly looking abroad.

Islamic banks in particular are looking to tap booming demand from the world's 1.3 billion Muslims for investments that comply with their beliefs.

Islam bans interest, investing in prohibited sectors such as gambling, pornography and alcohol and stipulates that risk and reward be shared among all those in the business venture.

Hilal's move follows Qatar Islamic Bank QISB.QA, which in May said it was setting up a unit in Kazakhstan.

Fellow lender Abu Dhabi Islamic Bank ADIB.AD said in December it was pursuing opportunities outside its home market to offset growing competition in the United Arab Emirates, the world's fifth-largest oil exporter.