UBS is moving into the Arab world with the opening of a branch in Bahrain, where it will operate according to Islamic banking principles under Sharia law.

The branch, a wholly owned subsidiary of UBS, will operate under the name Noriba Bank BSC, and will be the first Western bank to offer wealth management to locals in a Muslim country.

The bank, due to open in September, will offer financial services including portfolio management, private equity, leasing and foreign exchange.

Under Sharia law, banks are not allowed to charge or pay interest - termed "usury" in the Koran - and instead use a system based on the sharing of capital gains.

"We've had to design our products to make them interest-free so, for instance, with deposits we'll make investments with clients and share the capital gains with them," Christoph Meier, a spokesman for UBS, told swissinfo.

"Similarly with loans, we'd share the gains from the investment [that customers make with the loans]."

Meier said that the new bank would be as rigorous in screening potential customers as banks in Switzerland, and that the due diligence banking rules would apply.

Immoral business

In addition, the bank will not be allowed to deal with companies that engage in practices considered immoral under Sharia, such as gambling, tobacco and pornography.

UBS has appointed a local expert to advise the bank on the rules of Sharia, Meier added.

The bank said the move into Bahrain was part of a wider strategy in which it envisaged expanding into Muslim countries.

"We're certainly looking at expanding into the Muslim world, where we see a business potential of around $180 billion," Meier said, adding that there was a gap in the market in providing financial services for Muslim clients.

"There are only few Western banks that have moved into that market either jointly with local banks or by opening Sharia-compliant windows for their Muslim customers - but so far UBS will be the first to bank dedicated to wealth management to operate from an Arab country."

swissinfo

In compliance with the JTI standards

More: SWI swissinfo.ch certified by the Journalism Trust Initiative