Massive losses suffered by Malaysia's first ever Islamic bank in its last financial year were a result of bad credit management rather than wrongdoing, a senior finance official said today.

Bank Islam Malaysia, 40 per cent of which will be acquired by a United Emirates group, posted a shock net loss of RM480.0 million in its financial year to June 2005.

The bank has said the results were mainly due to non-performing loans from its branch in the offshore financial hub of Labuan, but outrage over the losses prompted a bank investigation amid calls from lawmakers in October for sackings over the scandal.

The Finance Ministry's parliamentary secretary, Hilmi Yahya, said the losses, the first in the bank's history, were over weak credit management at Labuan rather than any misappropriation, the state Bernama news agency reported.

"I'm sure that with changes made at the bank's management level in Labuan and in peninsular Malaysia, the government is confident that a situation like that will not recur," Hilmi was quoted as telling parliament.

Bank to work with police

Bank Islam was set up in 1983 as Malaysia's first Islamic bank, a sector in which the country is trying to carve a niche for itself as a world leader.

After posting the losses, Bank Islam's managing director Noorazman Aziz said the bank would work with police, central bank and anti-corruption authorities to identify reasons for the results.

Second finance minister, Nor Mohamad Yakcop, also reportedly said the loans were given to "non-relevant parties" and that action would be taken against those responsible.

The bank has yet to release any details on its investigation.

The Dubai Investment Group, through its subsidiary Dubai Financial, said in June it was acquiring a 40 percent stake in Bank Islam worth some one billion ringgit.

BIMB Holdings remains the majority shareholder with 51 percent.