Saudi National Commercial Bank has agreed to pay $1.08 billion for a 60 percent stake in Turkish Islamic lender Turkiye Finans, the two firms said.

The ruling AK Party has encouraged Gulf investment into Turkey, and the news comes just a few days before a general election. The deal also brings welcome foreign direct investment to offset a large current account deficit.

The deal values the whole company at $1.8 billion, which compares with a $2.02 billion market value for its rival Bank Asya, which is around the same size by assets.

But it implied a price-to-book ratio of 5.8, the highest ever seen in Turkey, the companies said. One analyst, who calculated the price to first-quarter book value at 4.9, said that compared to Bank Asya's multiple of 3.85 times and newly listed Islamic lender Albaraka Turk's 2.9.

Islamic banks, which do not charge or pay interest, in line with Islamic law, are growing fast in European Union-applicant Turkey, and shares in Bank Asya have more than doubled since their listing in May last year.

Turkiye Finans had assets of 4.5 billion lira as at the end of the first quarter, according to data from the Participation (Islamic) Banks Association.

The four banks making up the sector saw total assets grow 38 percent last year and net profit rise 56 percent, according to the same data.

The owners of Turkiye Finans, industrial groups Ulker and Boydak, had said they were looking for a strategic partner to take a 50 percent stake in the bank, and hired HSBC to find a deal. The two firms will retain a 20 percent stake each, they said on Tuesday.

NCB is the largest bank in the Gulf by assets, but is set to be overtaken by a planned merger of Emirates Bank International  and National Bank of Dubai.

The deal would be completed by the end of the year, and the price could be revised up by $120-130 million depending on 2007 profit figures, Turkiye Finans chairman Mustafa Boydak said.

Other Gulf players had been interested in Turkiye Finans, including Commercial Bank of Kuwait and Noor Financial Investment Company, which made a joint bid for a 60 percent stake in the lender, a source familiar with the situation said earlier in the month. - Reuters