The Bank of Kuwait and the Middle East won an initial approval from the central bank to transform into an Islamic bank, the official Kuwait News Agency (Kuna) reported on Wednesday.

The approval gives the lender, one of the Gulf Arab state's smallest banks, one year to complete the steps required for the transformation, or lose the permission, Kuna quoted Central Bank Governor Sheikh Salem Abdul-Aziz al-Sabah as saying.

'The bank will not carry out Islamic banking activities until it is registered as an Islamic bank in the central bank's records' after finalising the process, said Sheikh Salem.

The bank applied for a licence to transform its activities in September 2007, four years after a law amendment was passed in 2003 allowing the move.

The Commercial Bank of Kuwait said in March it was awaiting approval from the central bank to transform into an Islamic lender.-Reuters