(Adds BSI's share reaction on Thursday in paragraphs 6 and 7)

SINGAPORE/JAKARTA, April 17 (Reuters) - Abu Dhabi's largest Islamic bank is in talks to buy a minority stake valued at around $1.1 billion in Indonesia's top Islamic lender, Bank Syariah Indonesia, two sources told Reuters, with an aim to tap into a fast-growing market in Southeast Asia.

The potential acquisition of a 15% stake in Bank Syariah Indonesia (BSI) from Bank Rakyat Indonesia (BRI) is one of the options that Abu Dhabi Islamic Bank (ADIB) is considering, said the two sources.

The sources, who have knowledge of the matter, declined to be named as they were not authorised to speak to the media.

ADIB said after the publication of the Reuters report that it "strongly denies" being in any negotiations to acquire a stake in BSI. Before publication, it had declined to comment.

ADIB shares ended down 5.7% on Wednesday after the report.

On Thursday, BSI shares surged as much as 5.6% to 2,620 rupiah. Shares of the lender have climbed 50% year-to-date, giving it a market cap of some $7 billion, LSEG data showed, and valuing a 15% stake at $1.05 billion.

BRI did not respond to a Reuters request for comment.

"What we can say is that the information above is in the domain of our shareholders," state-owned BSI's corporate secretary Gunawan Hartoyo said in a statement when asked whether ADIB was in discussions to explore the possibility of investing in BSI or buying BRI's 15% stake.

Talks and deliberations are in the early stages and there is no guarantee a deal will be finalised, the sources said.

Southeast Asia, a region of 11 countries with more than half a billion people, is a fast-growing market for Islamic banking. Indonesia, the region's biggest economy, has one of the world's biggest Muslim populations.


Indonesia's sharia financial assets were worth $163 billion in July last year, up 13% from the same period a year earlier, according to the Islamic Finance Development Report published by Indonesia's financial services authority (OJK) last year.

BSI has been expanding its presence in the Middle East, having opened a representative office in Dubai International Financial Center in early January 2022 and obtained approval in August last year to become a full branch.

The bank, which counts Hajj and Umrah pilgrims from Indonesia among the majority of its customers, is looking to open a branch in Saudi Arabia next, its website says.

Indonesia set up BSI in 2021 by merging PT Bank Syariah Mandiri, PT Bank BNI Syariah and PT BRI Syariah Tbk with the aim of forming a top 10 global Islamic bank, its website showed.

Jakarta-headquartered BSI is now Indonesia's sixth-biggest bank in terms of assets.

ADIB, which has 192.8 billion dirhams ($52.51 billion) worth of assets as of end-December last year, has an overseas presence in countries including Saudi Arabia, the UK and Egypt, its website showed.

If the deal materialises, it could result in one of the biggest banking transactions in Southeast Asia in recent years.

The largest recent banking deal in the region was the sale of Citigroup's consumer banking businesses in Indonesia, Malaysia, Thailand and Vietnam to Singapore's United Overseas Bank for about S$4.9 billion ($3.59 billion) in 2022. (Reporting by Yantoultra Ngui in Singapore and Stefanno Sulaiman in Jakarta; Editing by Sumeet Chatterjee, Alexander Smith and Stephen Coates)