DBS Group Holdings is winding down its Islamic banking unit, which it said has been unable to achieve economies of scale.

"After much consideration, the board of directors of The Islamic Bank of Asia (IB Asia) has unanimously agreed to progressively wind down IB Asia," DBS said in a statement posted on the Singapore Exchange website yesterday.

"As a separate legal entity, IB Asia is unable to achieve economies of scale."

The process of winding down the unit will likely take two to three years, a DBS spokesman said.

IB Asia, which had been named "Best Islamic Bank in Singapore" by Islamic Finance News in January this year, offers wealth management services to high net worth customers.

It also provides treasury, corporate advisory and capital market services to businesses.

Its offerings are based on Islamic finance principles, which ban the charging of interest and investing in firms linked to tobacco, alcohol and gambling.

The move to wind down IB Asia is subject to obtaining approval from its shareholders and receiving regulatory approvals, DBS said.

DBS had set up IB Asia in 2007, investing US$250 million (S$352 million) in Singapore's first Islamic bank.

It was joined by 22 co-investors from prominent families and industrial groups from Gulf Cooperation Council countries, such as Qatar, Saudi Arabia and the United Arab Emirates. Each of these shareholders owns less than 5 per cent of IB Asia.

Going forward, DBS will continue to develop and distribute sya-riah-compliant products, such as Islamic bonds or sukuk, within the bank's main operations, DBS said.

"DBS will also do its best to absorb the majority of IB Asia staff and support them through this transition."

The bank has 33 employees.

IB Asia's board of directors includes Mr Abdullah Tarmugi, the former speaker of the Singapore Parliament, and former Singtel chief Lee Hsien Yang, as well as DBS chief executive Piyush Gupta.