Kuwait City: Commercial Bank of Kuwait, the Gulf state’s fifth-largest lender by assets, has received regulatory approval to issue up to 120 million dinars ($425.8 million) of bonds, as it prepares to convert into an Islamic bank.

In April, CBK shareholders approved both the issuance of the subordinated bonds and plans to convert the lender into a full-fledged Islamic bank, making it the sixth in the oil-rich country to follow Islamic principles.

The bonds will comply with Basel-III rules, which are being phased in around the world over the next several years. Kuwait’s central bank issued final guidance on capital adequacy requirements at the end of June.

While CBK said its conversion would not be immediate, it would leave Kuwait with only four local conventional banks and could help tip the Islamic banking industry’s market share above an estimated 40 per cent.

Kuwait’s five Islamic banks are Kuwait Finance House, Boubyan Bank, Al Ahli United Bank, Kuwait International Bank and Warba Bank, the latter set-up in 2010.

CBK is not the first to convert into an Islamic bank, with Boubyan and Al Ahli having done so previously, but this is becoming more attractive as the industry’s growth continues to outpace that of their conventional peers.

This month, Malaysia’s Agro Bank said plans to convert to Islamic banking by 2015 remained in place with SME Bank planning a full conversion by 2018. In Pakistan, Faysal Bank and Summit Bank also plan to make the switch to Islamic banking.