Switzerland's biggest bank, UBS, is to absorb its Islamic banking unit, based in the Gulf, so as to offer Sharia-compliant financial products worldwide.
The bank said on Tuesday that services offered by its Noriba subsidiary in Bahrain would be transferred to its wealth management and investment banking divisions at the end of the year.
UBS said its clients preferred to deal directly with the bank itself rather than its Noriba subsidiary, which was set up in 2002 specifically to offer Sharia-compliant products.
"Clients have sought to receive these products from UBS itself rather than from its separately branded unit," UBS spokeswoman, Sabine Woessner, told swissinfo. "Noriba's clients will be transferred to Global Wealth Management or to the Investment bank."
Because Islamic (or Sharia) law forbids the payment of interest – termed "usury" in the Koran - Islamic banking operates by sharing profit (or loss) between the bank and its clients.
Sharia products also cannot be invested in companies involved in gambling, alcohol, tobacco, pornography and pork production.
Demand for such services has risen significantly in recent years. The General Council for Islamic banks estimates that they are about 300 financial institutions specialising in Sharia-compliant products, and that they hold assets worth around $300 billion (SFr391 billion).
The Council says deposits grew by almost 14 per cent from 1998 to 2003.
UBS has been targeting institutional and high net worth individuals in the Gulf through its Noriba subsidiary. The parent bank has 65 employees in the Middle East, based in Abu Dhabi, Dubai, Bahrain, Egypt and Lebanon.
Not in Iran
In January, UBS and its main Swiss Rival Credit Suisse, confirmed that they were pulling out of Iran. UBS said the decision was based on an internal risk assessment, which took into account that Iran was tagged as one of the countries belonging to the so-called axis of evil.
The bank said it activities in Iran were also not cost effective, and the burden of regulatory compliance in countries like Iran was simply too heavy.
Islamic banking offers financial products, which conform to Sharia law, as laid down in the Koran.
Since the taking of interest is forbidden, banks use a system based on the sharing of capital gains.
Sharia-compliant banking also forbids investments in companies involved in gambling, alcohol, tobacco, pornography and pork production.