Here’s a golden opportunity for a foreign investor to get into the Philippine banking industry as well as have first mover advantage in widening the Islamic banking market in the Philippines. Let’s see how we can find a suitable opportunity to make this happen.
July 28, 2014
Islamic bank eyes new life after years of struggle
A PEACE plan, a lifting of foreign ownership limits and the drafting of new Islamic banking rules in the Philippines could help breathe new life into one of the world’s oldest Islamic finance institutions.
Since 1974, Makati-based Al Amanah Islamic Investment Bank has been the only lender in the country offering financial products that obey religious principles such as a ban on interest and gambling.
But while Islamic banks around the globe enjoy rapid growth rates and bumper profits, Al Amanah has failed to post a profit for years, and was ultimately forced to offer conventional banking products just to keep afloat.
The case of Al Amanah highlights the challenges that Muslim minorities face in accessing interest-free banking services outside of Islamic banking’s core centers in the Middle East and Southeast Asia.
Lacking scale and Islamic banking expertise have meant Al Amanah has struggled despite a five-year rehabilitation plan started in 2009 by its parent, the Development Bank of the Philippines (DBP).
In 2012, Al Amanah posted a loss of 30.6 million pesos ($706,400), although it was an improvement from 2008 when it posted a loss of 124.3 million pesos. This could change as a landmark peace deal between the Philippine government and Muslim rebels helps revive the country’s south, after a 40-year conflict that displaced two million and stunted economic growth.
The agreement, brokered by the Malaysian government, will give the Muslim-majority region known as Mindanao wider powers to control their economy and culture. In line with the agreement, the central bank is preparing dedicated Islamic banking rules.
Earlier this month, the government allowed foreign banks to take full control of local lenders, replacing a cap of 60% on foreign ownership.
All these factors are rekindling interest from potential buyers for Al Amanah, said Francis Nicolas Chua, officer in charge of investment banking at DBP.
“Since last year, we have received a number of proposals from across Asia, Middle East and Europe, to partner or inquire on a sale.”
These have come from both full-fledged Islamic banks and universal banks with Islamic units, said Mr. Chua, who did not identify the parties.
“As far as Al Amanah, the government is currently in review of the whole process. The Government wants to ensure the framework is in place before privatizing.”
Mr. Chua said any potential buyer would have to make a public bid for Al Amanah, as DBP’s policy is to go through an open bid process for any sale.
Al Amanah has courted buyers for years not just to inject capital but also to introduce new products and reverse the use of interest-bearing products in the bank’s portfolio.
Islamic scholars allow such a practice under the concept of darura, or extreme necessity.
So far, however, no Islamic banks have made their intentions public.
Last week, local media reported that Malaysia’s CIMB Group Holdings, parent of CIMB Islamic Bank, was planning to take a stake, but when approached by Reuters a spokesperson at CIMB denied the bank was pursuing such an acquisition.
A source at Al Amanah said a Malaysian group did make a bid in 2006 but this was conditional on the government developing a regulatory framework for Islamic banking within a two-year time frame. “That didn’t happen so they backed away from the bid,” said the source who declined to be identified as the matter is not public, although the new developments could encourage new interest.
“Maybe the right people haven’t come in yet.” — Reuters
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