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UBS is planning to expand its Islamic finance capabilities as part of its push into the Middle East, but there are signs that the sector is losing its shine in the region.

The Swiss bank already has big plans. Last month it announced that it was set to double headcount in equity research and investment banking. Now, a spokesperson says it also plans to increase activity and headcount in Islamic finance.

UBS’s Islamic finance division has largely shied away from the headlines since the bank fully integrated its Sharia-compliant arm, Nariba, into the parent company in 2006. The aim was to utilise UBS’s core functions – asset management, investment banking and wealth management – to meet the growing demand for Sharia-compliant products.

However, the Islamic finance space might not be as hot as was previously thought in the Middle East. In February, a ruling by the Accounting & Auditing Organisation for Islamic Financial Institutions clamped down on what constitutes an Islamic bond, or sukuk. Only 85% of those issued by global banks met the new standards.

What’s more, though sales of sukuks have been doubling since 2004, this year has seen a fall-off in demand since the ruling. 2008 sales to end-August reached $11bn, according to data compiled by Bloomberg, down from $21bn in the same period last year.

But this dropoff has yet to affect Islamic players’ appetite for hiring. Michael Ketley, executive consultant at recruiters MRK International, says: “Our Islamic clients are big and getting bigger. We see no indication of a slowdown in hiring within this space and, what’s more, it’s still incredibly difficult to find people with the relevant skill sets.”