TOKYO (Reuters) - The Bank of Tokyo-Mitsubishi UFJ (BTMU), Japan's largest lender, hopes to expand its Islamic finance business across Asia and the Gulf, buoyed by a landmark multi-currency sukuk programme set up in Malaysia, a bank official told Reuters.

Efforts by conventional banks such as BTMU are helping Islamic finance win wider appeal, with France's Societe Generale and Goldman Sachs also planning sukuk of their own.

BTMU, part of the Mitsubishi UFJ Financial Group, set up its sukuk programme in June, aiming to become the first Japanese commercial bank to tap the market.

The programme will allow its wholly-owned Malaysian unit, BTMU Malaysia Berhad, to raise the equivalent of US$500 million (S$631.7 million) via sukuk with tenors of up to 10 years.

In 2008, BTMU Malaysia Berhard set up an in-house shariah board and since then has completed a variety of Islamic finance deals in Malaysia, Singapore, Brunei and Indonesia, said Naoki Nishida, chief executive of BTMU Malaysia Berhad.

"It...provides an alternative funding source for BTMU Malaysia to manage its liquidity to match increasing and growing exposures in multi-currency sharia-compliant financing."

No timeframe was given for the first transaction, although the bank is increasingly active in the Islamic capital market.

This week, BTMU granted a three-year US$100 million commodity murabaha facility to the private sector arm of the Islamic Development Bank, Nishida said. Murabaha is a cost-plus sale arrangement which is commonly used in Islamic finance.

BTMU now offers seven Islamic banking products, including ijara and istisna structures, Islamic equivalents to leasing and project financing.

Japanese regulations only allow subsidiaries of Japanese banks to conduct Islamic finance activities, so the lender picked Malaysia due to its accommodative tax regime and deep investor pool, said Nishida.

Under Malaysian regulations, it can conduct Islamic finance activities in foreign currencies other than ringgit.