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The Associated Press September 26, 2010, 12:06PM ET

Dubai Islamic Bank wins control of mortgage lender

Dubai Islamic Bank assumed control of troubled mortgage provider Tamweel on Sunday, boosting its stake in a bid to spur real-estate lending in the debt-laden emirate.

The deal carried the blessing of Dubai's government, which announced the transaction before the bank itself did.

The media office of Dubai's ruler called the transaction a testimony to the emirate's "commitment to finding incentives for further development of all economic sectors across the UAE," and said it hoped the deal would allow Tamweel to resume providing mortgages and other real estate financing.

Under the terms of the transaction, the 35-year-old bank will boost its share in Tamweel to just over 57 percent, up from about 20 percent previously, by acquiring stakes held by larger shareholders, including Istithmar, a division of troubled state conglomerate Dubai World.

Financial details were not disclosed.

Dubai Islamic Bank, though publicly traded, maintains strong ties to the emirate's elite.

Investment Corp. of Dubai, one of the emirate's many state-run investment arms, holds a large minority stake in DIB. Bank chairman Mohammed Ibrahim al-Shaibani is a close adviser of Dubai's ruler and serves as director-general of the ruler's court.

"We hope that this landmark deal will have a positive impact not only for the real estate sector but the UAE's overall economic environment," al-Shaibani said in a statement announcing the deal.

Tamweel played an important role in financing Dubai's turbocharged building spurt following its creation in 2004. But it ran into trouble when that boom began to crumble in 2008 as the global downturn gathered pace.

Dubai home prices have since plunged by half from their peak. That left lenders such as Tamweel unwilling or unable to provide mortgages given the tough property and credit climate.

The emirate's government had been in the process of orchestrating a merger of Tamweel and fellow mortgage provider Amlak Finance. Sunday's announcement throws those plans -- which have proceeded slowly and largely behind closed doors -- into question.

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