KUWAIT A Kuwaiti firm and a major Saudi Arabian group agreed to merge their banking and investment units to create one of the area's largest Islamic banking entities.

Saudi Arabian giant Dallah Albaraka Group (DBG) and the International Investor (TII) said in a joint statement received by Reuters on Sunday that a memorandum of understanding was reached for a "ground-breaking $300-plus million deal".

Islamic rules ban banks from charging interest.

The statement gave few details of the deal but said it aims to "combine DBG's assets in a number of banking subsidiaries with TII.

"The deal will create the first Islamic financial services group to offer a full range of investment and retail banking services to clients across the Middle East and Africa."

A senior executive close to the deal told Reuters TII will merge DBG's retail Islamic banking units in some 11 markets, including non-Arab Turkey and South Africa, with its Islamic investment banking operations to create the area's largest such entity in terms of services and geographical presence.

Regional giants Rajhi of Saudi Arabia and Kuwait Finance House are key Islamic banking forces with large domestic retail networks.

TII Chief Adnan al-Bahar said, "No other entity can offer the breadth and quality of products and services across such a wide geographical base. The new (entity) will lead the way in driving the growth of the global Islamic financial market."

His firm has some $3 billion under management.

The executive close to the deal said, "DBG has stakes ranging from 50-100 percent in Islamic banking units which will be merged under TII. DBG will own 35 percent of the new entity."

TII will pay for the banking units in cash and stock worth over $300 million, executives earlier told Reuters.

The joint statement, without giving details, said DBG will become a "major shareholder" in the new entity while TII will raise its capital to finance the deal through a new share issue at 255 Kuwaiti fils ($0.83) a share.

TII shares stopped trading on the Kuwait and Bahrain Stock Exchanges on May 29, closing in Kuwait at 228 fils a share, compared with a year high of 238 fils earlier last month and a low in end-February of 160 fils.

There are 1,000 fils to the Kuwait dinar ($3.243).

TII asked the two bourses to resume trading in its shares.