The global Islamic bond market will remain largely dormant until international banks return to the market, which could last into the second half of 2009, bankers said on Monday.

"We're hopeful that in 2009, maybe in the second half, we will see an upturn," David Pace, chief financial officer at Unicorn Investment Bank told newswire Reuters during an Islamic banking conference in Manama.

The Islamic bond, or sukuk, market received a double blow this year, as both the global liquidity freeze and a controversy over which types of sukuk are compliant with Islamic law hit the market.

The local banks are supportive, but they don't have the fire power, they don't have the balance sheet," Pace said.

"So we're saying to our customers, rather than doing the $1billion sukuk internationally, let's maybe do a Riyal deal with a number of Saudi banks," he said.

Global sukuk issuance dropped 60 percent to $15.2 billion between January and October compared with the same period in 2007, according to a report by McKinsey & Co.

"It'll be a while before the sukuk market starts to come back," said John Weguelin, chief executive at European Islamic Investment Bank.

Adding to the international credit freeze, which has hit conventional and Islamic bond markets alike, comments made by a leading scholar at the end of 2007 that some Islamic bonds were not compliant with Islamic law as previously thought by the industry also roiled the market.

Sheikh Muhammad Taqi Usmani, chairman of the board of scholars at AAOIFI - the Accounting and Auditing Organization for Islamic Financial Institutions - last year said some types of sukuk are not compliant with Islamic law because of repurchase agreements.

The promise to pay back bonds at face value at maturity, or in the event of a default, violates the principle of risk- and profit-sharing on which Islamic bonds should be based, he said.

"Most nascent markets would not survive such a (two-fold) blow," said Osgur Tanrikulu, partner at McKinsey & Co's Middle East office, during the conference.

But a number of initiatives by governments and regulators in the Gulf Arab region will help recover the sukuk market as soon as the bear market on international capital markets has been left behind, he said.

Bahrain's central bank at the end of October expanded the types of collaterals it accepts by adding government-issued ijara Islamic bonds.