National Bank of Kuwait (NBK) bought a 13.2 per cent stake in Boubyan Bank for $295 million in an auction on Wednesday, becoming the largest shareholder in the Islamic lender.

Kuwait Investment Authority (KIA), the Gulf Arab state's sovereign wealth fund, was selling its 19.8 percent stake in Boubyan, or 231 million shares, in an auction in which Securities Group Company also competed.

KIA, which manages the Opec member's massive oil-generated assets, is a major shareholder in many Kuwaiti firms including heavyweight Mobile Telecommunications Company (Zain) and Kuwait Finance House.

NBK bought 154 million shares at 550 fils per share for a total of 84.7 million dinars ($295.1 million), the bourse said in a statement. Securities Group Company bought the remaining 77 million shares, or 6.6 percent stake, at 560 fils per share for 43.12 million dinars, the bourse added.

NBK already owned a 14.33 percent stake in Boubyan. The deal would raise its ownership to 27.5 percent as Kuwait's biggest lender by market value moves to boost its sharia-compliant business.

The deal is a strategic move for NBK, providing it with a gateway into the Islamic banking market, NBK's Vice Chairman Nasser al-Sayer said in a statement.

"Our main goal is to stabilize Boubyan Bank, enhance its position in the local market and develop its various Islamic banking services," he said.

Islamic banking is one of the world's fastest growing financial sectors, rising 15-20 percent a year, according to industry estimates.

The sale could also benefit the small Islamic lender, which has faced a wave of resignations in February with all board members stepping down without giving a reason, said Mustafa Behbahani, a director at Kuwait's Gulf Consulting Company.

"There were many disputes in the management (of Boubyan) which stalled its progress," said Behbahani. "But NBK's acquisition will change the management and benefit Boubyan," he added.

Boubyan Bank, which complies with Islam's ban on interest and competes with larger rival Kuwait Finance House and Kuwait International Bank, has been in the middle of a legal row in recent weeks.

Commercial Bank of Kuwait and Investment Dar, the Islamic finance firm that owns half of British luxury car maker Aston Martin, have been involved in the row over the right to own a 19.2 per cent stake.

Boubyan's shares have risen 31.7 percent this year, outperforming the main benchmark which fell 1.4 percent.-Reuters