Saudi Riyal banknotes
Saudi Riyal banknotes Reuters

National Commercial Bank, the largest bank in Saudi Arabia by assets, said it will transform itself into a full-fledged Islamic bank in about five years, as Islamic scholars criticised the state-owned bank's operations for not complying with Islamic laws.

The bank (NCB), which has about $116bn (£72.1bn, €90.9bn) of assets, has already banned interest payments and pure monetary speculation in its operations. However, some of its businesses are still based on conventional banking rules.

The Jeddah-based bank is looking for a $6bn float of its shares in the largest ever share sale in the Middle East, which began on 19 October. The bank is offering one-quarter of its two billion shares, including 300 million for the public along with another 200 million which will be allocated to the state pension agency.

Hurting investors' morale about the company and its initial public offering (IPO), members of Saudi Arabia's highest religious body, the Council of Senior Scholars, last week discouraged people from investing in the company, saying it has a lot of non-Islamic business and share offer was not permissible.

"Religion comes above every thing," Sheikh Abdullah al-Mutlaq, one of the members, told state television.

Following the statement, the bank held a meeting of its own Sharia board of Islamic scholars and other top officials. Subsequently, the board reviewed and approved a plan by the NCB to convert itself into a complete Islamic bank.

The board noted that two-thirds of the bank's assets were Islamic in nature, with 78% of its financing deals, 92% of its liabilities and 73% of its income being Sharia-compliant.

It added that the bank is willing to become fully Islamic, and therefore it is permissible to buy shares in the bank, according to some religious rulings.

The planned change would make NCB the largest full-fledged Islamic bank. It has 435.5bn Saudi Arabian Riyal worth of assets as of June, compared to 295.2bn riyal worth of assets of Saudi Arabia's Al Rajhi Banking and Investment Corp, currently the world's biggest full-fledged Islamic bank.