Azerbaijan's biggest bank closes Islamic banking department

BAKU, Oct 13 (Reuters) - The International Bank of Azerbaijan (IBA), the country's largest and the only state-owned bank, has closed its Islamic banking department, a senior manager said on Tuesday.

Behnam Gurbanzade, IBA's director of Islamic banking, told reporters the department was closed last week, but did not give the reasons. The department started the service in April 2013.

According to Azeri media, the decision was linked to structural changes in the bank.

"The agreements signed with international financial institutions within the framework of Islamic banking, as well as the bank's liabilities in this area remain in force," Yadigar Jafarli, IBA's spokesman, told Trend news agency.

The bank's Islamic assets rose to $526 million at the end of 2014 from $160 million a year earlier. It has been offering sharia-compliant products through an Islamic window, a practice which allows conventional lenders to provide Islamic financial services as long as client money is segregated from the rest of the bank.

IBA raised $252 million through an Islamic syndicated loan in 2014 from Al Hilal Bank, Barwa Bank, Citigroup, Dubai Islamic Bank, JP Morgan and Noor bank.

In July Azeri President Ilham Aliyev ordered IBA to be privatised after undergoing a clean-up to get rid of distressed assets resulting from poor management.

IBA is the only state-owned bank in the oil-producing former Soviet republic, with the finance ministry holding 51.1 percent. It holds 35 percent of banking assets in Azerbaijan.

Islamic finance has developed slowly in the former Soviet state, where an estimated 93 percent of the 9 million people are Muslim. (Reporting by Nailia Bagirova; Writing by Margarita Antidze; Editing by Jason Bush and William Hardy)