The state-owned Development Bank of the Philippines (DBP) has taken over Al-Amanah Islamic Investment Bank following final approval from monetary authorities last week.
After complying with regulatory requirements, the Bangko Sentral ng Pilipinas (BSP) said the policy-setting Monetary Board approved DBP’s acquisition of 90.6 percent of the country’s only Islamic bank.
BSP officer-in-charge Armando Suratos told reporters over the weekend that the MB also allowed Al-Amanah to continue performing conventional banking operations for five years.
Under Islamic banking laws, Al-Amanah would have to operate as an Islamic bank but Suratos said the BSP allowed the bank to retain conventional banking for a short period to enable it to establish stronger financial footing.
This provision was originally approved by the BSP to entice private investors to buy into Al-Amanah when the National Government put it on the auction block last year.
Suratos said the MB decided that the DBP should be allowed to benefit from the same perk that would have been available to private investors since it would have to turn the Islamic bank around.
DBP is taking over Al-Amanah after the government failed to privatize it last year.
Suratos said that DBP was buying out Al-Amanah’s current shareholders, mainly the National Government, Social Security System, Government Service Insurance System (GSIS), the Privatization Management Office and an “insignificant” private shareholder.
Suratos declined to reveal how much DBP was paying for its acquisition of Al Amanah but when it was auctioned off last year, the government’s floor price was set at P900 million for 90 percent of the country’s only Islamic bank.
Traditional Islamic banking laws prohibit Islamic banks from charging interests on loans but the BSP said that if Al-Amanah would be able to do regular banking, it would realize some income in the meantime.
“A lot of existing Islamic banks in other countries already do this,” said BSP deputy governor Nestor Espenilla Jr.
After the prescribed period, however, Espenilla said Al-Amanah would revert to a purely Islamic bank, performing banking operations according to Islamic banking laws.
The BSP said Islamic banking was emerging as a major growth area in banking, with huge resources that were ready to be tapped for the appropriate projects.
“It is unique in that banking would be governed by the Sharia Advisory Council and the principles of Islamic banking is guided by the Q’oran,” the BSP said. “We have to make regulatory adjustments in this respect.”
Under the Shariah laws, earning of profit through interest is strictly prohibited. Islamic banking system requires that loans are asset-backed, and arranged as profit- sharing transactions.
When the government failed to sell the bank, however, DBP decided to take over.
Despite initial optimism over investor interest and lucrative prospects in the banking industry, last year’s auction for the Al-Amanah Islamic Bank failed with only Banco de Oro making a bid.
Although an undisclosed number of bidders were pre-qualified for the auction, only BDO actually dropped a bid into the box and officials were forced to declare the auction a failure, leaving the bid envelope sealed.