Bankers in Hong Kong and Malaysia are strengthening ties to boost Islamic business by focusing on the issuance of Islamic bonds and mutual funds to target investors in both markets.

A private-sector forum hosted by regulators this week is part of growing efforts to boost cross-border business between the two Asian financial centres, as competition heats up for a slice of Islamic finance business.

Identifying potential sukuk issuers which can benefit from broadening their funding sources is one area of focus, said a joint statement from Malaysia's central bank and Hong Kong's Monetary Authority.

Those plans are being spurred by Hong Kong enacting a tax bill in July to facilitate sukuk issuance, while regulators aim to present a bill in the first quarter of next year to allow the government to issue sukuk of its own.

Islamic finance, centred in southeast Asia and the Middle East, follows religious guidelines such as a ban on interest and monetary speculation. Such transactions often need clarification on their tax status as they can face heavy taxation because they involve multiple transfers of the assets backing them.

Getting traction on Islamic funds is another priority, capitalizing on a mutual recognition agreement signed in 2009 between both regulators.

Malaysia is already encouraging funds to be marketed to the Gulf region through a similar agreement with the Dubai Financial Services Authority.

Malaysia has the largest base of Islamic mutual funds in the world, with 210 retail and wholesale funds that had 79.6 billion ringgit ($24.6 billion) in assets under management as of December 2012.

The forum was attended by eight commercial banks and three fund management companies, with a conference in Hong Kong now planned for the first half of next year to raise awareness of Islamic finance.-Reuters