The Bank of Tokyo-Mitsubishi UFJ - the world's largest bank by assets - will break into Islamic finance by tying up with Malaysia's largest banking group, the Japanese company said Wednesday.

Islamic financial practices ban the payment or receipt of interest or any transactions.

While complying with the religious regulations, Tokyo-Mitsubishi UFJ said it will place Islamic bonds called Sukuk through Malaysian partner, Commerce International Merchant Bankers (CIMB), while issuing bonds for Japanese companies in Malaysia.

The bank will also conduct investment operations such as mediating mergers and acquisitions for Malaysia-based Japanese cooperations, it said.

Tokyo-Mitsubishi UFJ, created last year by a merger, and CIMB signed the tie-up deal in Kuala Lumpur on Wednesday, the Malaysian bank said.

"We plan to affiliate with Malaysia's CIMB to respond to a growing need for our services there," a Tokyo-Mitsubishi UFJ spokesman said separately.

Demand for Islamic financing is growing in countries with significant Muslim populations, particularly in the Middle East.

Largely Muslim Malaysia is a leader in Islamic banking after introducing services in 1983. The country is liberalizing its Islamic financial system and is also promoting itself as a center for education on Islamic finance.