UBS to widen Islamic derivative offering -unit head

Thu Nov 12, 2009 5:08am EST

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By Cecilia Valente

LONDON, Nov 12 (Reuters) -The Islamic division of Swiss financial group UBS (UBSN.VX) will broaden its derivatives offering to meet a growing demand for risk management tools.

Division head Armen Papazian told Reuters UBS's Islamic clients were seeking ways to hedge risks, predicting 20 percent growth in its Islamic derivatives business in the year to end-2010.

"Islamic finance has been and still is a strategic priority for UBS," said Papazian, who took up the position in March.

The Islamic unit was integrated into the bank in 2006. Papazian declined to provide details on the unit's contribution to overall revenues of the parent bank, which has been struggling to rebuild its reputation following client withdrawals and a damaging row with the U.S. over wealthy tax dodgers. [ID:nL2713325] "Islamic banks' treasuries and their clients have a variety of needs, which are the driving force behind the growth of profit rate swaps and Islamic currency options and futures," he said. Profit rate swaps are used to mitigate risk linked with fluctuations.

Papazian, who is responsible for Asia, Europe, North Africa and the Middle East said UBS Islamic Finance is also poised to offer Sharia currency options early next year.

Islamic institutions have so far had limited exposure to derivatives because of the requirement to have tangible assets underpin every transaction. Scholars are split on whether Islam permits the use of derivatives.

Despite lingering doubts, the first ever template for over-the-counter Islamic derivative contract is expected to be launched this year or early next year. [ID:nKLR542692]

The unit has also developed new sukuk structures, which Papazian said comply with the standards of the Bahraini Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI). He declined to elaborate.

It will also offer more equity-based products, he said.

UBS Islamic Finance was a lead manager in the Dubai $1.9 billion dual-tranche five-year sukuk placement last month. [ID:nLS627233] (Editing by Will Waterman)

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