Oversea-Chinese Banking Corp (OCBC) has been given the greenlight by Malaysia's central bank to set up an Islamic banking subsidiary in the country, the Singapore lender said.

With an Islamic banking subsidiary, OCBC will be able to offer the full range of Shariah-compliant financial services, it said in a statement late Wednesday.

"We have been involved in Islamic banking for the past 12 years and are thus not new to the business," said Albert Yeoh, OCBC Malaysia's director and chief executive officer.

"The approval from Bank Negara Malaysia provides us with the opportunity to take our Islamic banking business to the next level... we will be better positioned to develop OCBC Bank into a one-stop centre for Islamic Banking," he said.

Islamic finance fuses principles of sharia or Islamic law and modern banking. Funds are banned from investing in companies associated with tobacco, alcohol or gambling considered taboo by Muslims.

The system also bans the earning of interest.