ALGIERS - Bahrain's Salam Bank will launch Islamic insurance products and Visa credit card services in Algeria this year as part of an expansion but the North African country needs new legislation to unlock the industry's potential, its CEO said. Hideur Nasser, head of Islamic lender Salam Bank in Algeria, said the lender would open 10 more branches in the country this year as the market for Islamic products was growing.

Algeria is still a nascent market for Sharia-compliant products compared to Gulf Arab countries but authorities have allowed three state banks to launch products this year as the oil producer wants to tap new finance sources, he said.

Public finances have been hit by a fall in oil revenues since 2014, hitting lending of dominant statebanks.

Together with Bahrain's Al Baraka Banking group, Salam will launch takaful, or insuranceproducts, Nasser told Reuters in an interview on Monday. He gave no details.

"We will open 10 branches in 2018 all over the country, we know the demand is high," Nasser said. "International Visa cards will be available this year."

Algeria, a major oil and gas producer, offers plenty of growth opportunities as its banking rate was low -- one branch for 25,630 inhabitants, in comparison with neighbours Morocco and Tunisia with respectively one for 9,600 and one for 7,700 people, he said.

Islamic banking made up only 15.5 percent of the private sector in Algeria, he added.

The government wants to develop the sector to attract funds from a huge pool of cash held outside the formal banking system as Algeria looks for more ways to offset the sharp fall in oil prices and its energy revenues.

Prime Minister Ahmed Ouyahia has estimated the cash is worth $26 billion, while some analyst put it as high as $40 billion.

But officials must navigate sensitivities over any perceived revival of political Islam after a 1990s war with armed Islamist militants in which 200,000 people died.

Moreover, technical expertise and new legislation is needed in a country where powerful elites have resisted changes.

"The legal framework has to be amended," Nasser said, adding that Islamic bonds, or sukuk, could not be sold under current laws despite great appetite for them.

Savings products offering a conventional interest rate of more than five percent were launched in 2017 but have generated little interest as many in the Muslim country prefer Sharia-compliantproducts, industry sources say. (Editing by Ulf Laessing and Adrian Croft)

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