* Hopes to apply for full banking licence in October
* Will be headquartered in Frankfurt
* To target non-Muslims as well as Muslims
By Anjuli Davies
LONDON, Sept 11 Turkish bank Kuveyt Turk plans to launch Germany's first full-fledged Islamic bank, aiming to tap into demand for ethical finance in the wider population as well as within Europe's second-largest Muslim community.
The bank, which has had a presence in Mannheim since 2010, hopes to apply for a full banking licence in October and will be headquartered in Frankfurt.
It plans to open more offices in Germany and other European countries in due course, a source at the bank told Reuters on Monday, declining to be named under briefing rules.
Kuveyt Turk, which is 62 percent owned by Kuwait Finance House, will seek customers among Germany's roughly 4 million Muslims, many of them of Turkish descent.
But it also sees potential demand among non-Muslim customers in the wake of the global financial crisis, which has made some investors and depositors distrustful of conventional finance. Islamic finance is based on religious principles such as a ban on interest and pure monetary speculation.
Germany has been slow to tap into Islamic finance. Britain is Europe's main Islamic finance hub, home to five sharia-compliant banks and $19 billion in assets. In contrast to Germany, which has no specific regulatory treatment for Islamic banking, British financial authorities have introduced a series of tax and legislative changes to reduce obstacles to the industry's development.
In 2010, asset manager Meridio launched an Islamic fund in Germany that has since been liquidated because of insufficient demand, which was also the fate of one launched by Commerzbank in 2005.
In May this year, Malaysian asset manager CIMB-Principal Islamic started marketing a sharia-compliant fund in Germany.
The market potential for Islamic investment products in Germany is estimated at 1.2 billion euros ($1.5 billion) annually by the Institute for Islamic Banking and Finance in Frankfurt (IFIBAF).
But only 2-5 percent of Muslims surveyed by the federation of savings banks in the German region of Westphalen-Lippe expressed interest in sharia-compliant finance.
In 2004, the German state of Saxony-Anhalt became the first and so far only European government body to issue a sukuk (Islamic bond), with an issue of 100 million euros. (Additional reporting by Bernardo Vizcaino; Editing by Andrew Torchia)