BLME Uses Reval for Shariah-compliant Hedge Accounting

The Bank of London and the Middle East (BLME), one of the first Shariah-compliant banks in the world to qualify for hedge accounting under International Accounting Standard (IAS) 39, has deployed Reval software-as-a-service (SaaS) for a more robust and flexible solution for its hedge accounting requirements.

The bank has deployed Reval in place of its original in-house application primarily for fair-value hedging of its large portfolio of bond-like instruments, called sukuk, and for cash flow hedging of its portfolio of deposits.

“As a leading Islamic wholesale bank with a sizeable leasing business, BLME prudently hedges its exposures to market interest rate volatility using products and structures that enable us to comply with the core tenets of Shariah,” said Nigel Denison, executive director and head of markets at BLME. “For example, we use profit rate swaps, which use reciprocal murabaha transactions to create an instrument with the risk management characteristics of a conventional interest rate swap.”

The Islamic finance market has experienced rapid growth with the introduction of sophisticated structures that enable companies to finance themselves in compliance with Shariah principles. This growth in turn has led to an increasing demand in complementary products and the creation of an over-the-counter (OTC) market in Shariah-compliant instruments.


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