* C. bank unveils measures to help Islamic banks do business
* Sing dollar Islamic bonds treated equally to govt bonds (Recasts and adds tax measure)
By Liau Y-Sing and Nopporn Wong-anan
SINGAPORE, May 7 (Reuters) - Singapore's central bank unveiled regulatory and tax measures on Thursday to help its Islamic banks do business, as the city-state steps up efforts to grab a slice of the rapidly growing $1 trillion industry.
Singapore is a latecomer to sharia banking and wants to use its position as one of the world's top financial centres to woo investors seeking Islamic assets.
The Monetary Authority of Singapore said with immediate effect, Singapore dollar Islamic bonds would have equal tax, regulatory and liquidity treatment as Singapore government bonds.
Islamic transactions can be costlier than conventional deals as they often involve multiple sale and purchase transactions which attract tax.
The central bank also said banks can enter into diminishing musharaka financing and spot murabaha transactions with immediate effect.
"Taken together, these various changes will allow banks to conduct a wide range of Islamic financing activities, and to have greater flexibility to structure instruments to meet their risk management needs," central bank chief Heng Swee Keat told a conference.
A diminishing musharaka is a joint ownership arrangement where a bank gradually sells its portion of the jointly owned asset to the customer.
Under a murabaha deal, an Islamic bank buys an asset from a third party and sells it to its customer at cost plus profit. This allows the bank to extend financing without charging interest, which is forbidden by sharia law.
Islamic banking has grown beyond its traditional market of devout Muslims into a $1 trillion industry, due to a surge in Gulf petrodollars and a rise in demand for ethical investments.
Middle East economies such as Dubai and Bahrain, along with Malaysia, have the world's top Islamic financial markets.
On the Islamic bond, or sukuk market, Heng said Malaysia and Indonesia are expected to issue about $1.3 billion of sovereign Islamic bonds in the first half of the year.
"More private sector issuers are expected to tap the sukuk market and to attract new investors and clients," Heng said.
New Islamic bond issuance fell two-thirds to a three-year low of $15.77 billion in 2008, the Islamic Finance Information Service has said.
Bankers and industry officials are cautious about prospects
for a recovery in the sukuk market this year due to the global
economic slowdown.
(Editing by Rupert Winchester)
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