Malaysia's third largest lender RHB Bank has obtained central bank approval to begin talks to sell up to 30 percent in its new Islamic banking arm to the Saudi-based Dallah Albaraka Group (DAG), reports said today.

Sulaiman Abdul Rahman Taib, chairman of parent RHB Capital, was quoted by The Edge financial newspaper as saying that negotiations were expected to be concluded soon.

"The move is in line with our aspirations to become a major provider of Islamic banking and finance products and services regionally, and eventually globally," he said.

The group's new unit RHB Islamic Bank Bhd is expected to begin operations on March 16.

The Saudi group had previously owned a minority stake in Malaysia's first Islamic bank, BIMB Holdings, but had sold its shares late last year "in preparation for its new role in RHB Islamic Bank."

DAG is one of the world's top Islamic financial groups, with operations in 43 countries.

Malaysia's central bank Tuesday relaxed restrictions on foreign ownership in local Islamic banks, raising the ceiling to 49 percent compared to 30 percent previously, to boost the country's aim to become a key Islamic financial hub in the region.

Islamic banking combines Islamic laws, which forbid interest payments, with modern banking principles.

Assets in Malaysia's Islamic banking sector currently represent nearly 10 percent of those in the entire banking system and the government aims to double this by 2010.