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Saturday, 18 April 2009

UBS sees growth in Islamic finance

DUBAI (Reuters) - UBS AG, the Swiss-based bank which is slashing staff to offset losses, sees growth opportunities in Islamic finance and plans to expand in this market, its new head of Islamic finance said on Wednesday.
Armen Papazian said he was named to the post by UBS Investment Bank 2-1/2 weeks ago with a global mandate to design innovative products.
"My appointment comes as a new commitment to take that business forward in line with the strategic targets of UBS and reemphasize that this is a strategic target of the bank," Papazian told the Reuters Islamic Finance and Banking Summit.
He declined to give any estimates, however, for growth potential in the sector, what products UBS plans or how much Islamic finance might contribute to UBS' bottom line.
Switzerland's largest bank needs new revenue. On Wednesday, it announced first-quarter loss of $1.7 billion and said it is laying off 11 percent of its workforce.
A number of banks are building up their Islamic finance units in the wake of the global credit crisis, tapping into a nascent industry estimated at $700 billion to $1 trillion in asset size and a 15-20 percent annual growth rate.
Royal Bank of Scotland, Rothschild and Bank of New York Mellon all are expanding in the field.
Under Islam, interest is banned. Sharia-compliant products are often asset based, sharing profits rather than paying interest. Papazian sees demand for innovative approaches to Islamic finance that does not merely reverse-engineer debt products.
"It is not about taking alcohol out of wine. It is about creating an attractive and tasty drink out of grapes. That is the challenge, and that innovation challenge is still very much relevant to the field of Islamic finance," he said.
Growth in the sector has been hampered by uncertainty over scholarly views on whether Islamic finance products truly comply with Sharia law and a lack of standardization. This has made each product expensive and more time-consuming to construct.
"I believe there is a lot of work to be done at the lab level," he said.
The global economic downturn and the financial turmoil -- caused by credit excesses -- can act as a catalyst for new approaches to finance based on Sharia principles, he said.
"The crisis opens up doors, unleashes a process of rethinking on many levels. There is an opportunity for Islamic finance to contribute," he said.

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