Bank Islam signs first Islamic rate swap deal with StanChart

Bank Islam Malaysia has completed the world's first Islamic profit rate swap, a three-year 136 million ringgit ($36 million) deal with Standard Chartered Malaysia.

The deal is the Islamic equivalent of an interest-rate swap, and is called a wiqa' (value protection) forward rate agreement. Bank Islam will swap a fixed profit rate payment, due every six months, with a rate payment from Standard Chartered linked to the Kuala Lumpur interbank offering rate. The underlying notional was commodities listed on the London Metals Exchange, the banks said.

Standard Chartered designed and proposed the deal to Bank Islam, and will offer it to corporate customers that are receiving fixed-rate payments, or making floating-rate payments and expect the floating rate to rise.

Bank Islam's managing director, Zukri Samat, said the deal allowed Bank Islam to minimise its exposure to fixed-rate payments by swapping them for floating rate payments.

The Malaysian investment bank CIMB announced the launch of an Islamic rate swap in June last year, but so far no deals have been made public.