UPDATE 1-Turkey to create regional Islamic "megabank" -Deputy PM Simsek

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ISTANBUL, May 11 (Reuters) - Turkey will partner with the Islamic Development Bank to create a regional Islamic finance “megabank”, Turkish Deputy Prime Minister Mehmet Simsek said on Wednesday, as part of a government drive to become a powerhouse in Islamic finance.

Simsek said the new lender would provide liquidity and investment banking services. He said Indonesia was looking to create a similar regional megabank with a $300 million investment. Turkey was looking to invest more.

“It’s important for us that this bank is being founded in Istanbul as part of our efforts to make Turkey a global centre for interest-free finance,” Simsek told reporters at an Islamic finance conference in Istanbul.

“If we’re aiming for the bank to become a global player, we cannot invest as little as $300-500 million in the bank,” Simsek said.

Turkey’s finance ministry is working on tax regulations to help develop the Islamic banking industry, Simsek said, adding that the government would support new players in the sector.

Under President Tayyip Erdogan, whose roots are in Islamist politics, Turkey is hoping it can turn disdain for traditional banks among the pious into a boom in Islamic finance, where, instead of interest, banks charge service fees and depositors share in bank profits. (Reporting by Ebru Tuncay and Asli Kandemir; Writing by Ece Toksabay; Editing by David Dolan)