Al Amanah Bank eyes profit in 5 years

MANILA, Philippines - The country’s first and only Islam-oriented commercial bank said it is aiming to become profitable within the next five years as it hopes to lure foreign investors to acquire 40-percent stake in the bank.

Al-Amanah Islamic Bank chairman and chief executive officer Armando O. Samia said the bank is still in the reorientation and recovery stage from years of neglect.

“We are still refurbishing eight branches located in Mindanao, and we are also investing heavily on technology,” Samia said during the formal opening of its ninth branch in Makati – its first branch outside Mindanao.

The bank will also acquire shariah core banking systems with modular applications which include audit, treasury, and risk management systems. The new systems will conform to the Islamic practice as well as the Basel I and II risk-weighted frameworks.

In 2008, the state-run Development Bank of the Philippines (DBP) acquired Al- Amanah Islamic Bank, investing as much as P1 billion for its recapitalization.

Due to the unique character of shariah banking, lending is prohibited and deposits cannot earn interest. But an Islamic bank can enter into joint venture or profit sharing arrangements with individuals or businesses. Also, it may receive deposits and reward the same with safe keeping fees. Instead of mortgage loans, the Amanah-Islamic Bank can enter into a profit sharing arrangement with its bank clients, with the bank acquiring the prospective property.

Thus risk-sharing falls on the shoulders of both bank and ‘co-investor,’ hence the bank will not be burdened with non-performing loans (NPLs).

But the rest of the banking operations will be basically similar to commercial or conventional banking operations.

The Islamic-oriented bank is targeting to be profitable as early as 2012 to be able to lure foreign investments, preferably from regional Islamic banks or businesses originated from the Middle East.

“The potential for businesses, either Islamic or Islamic-related, is tremendous in the long term,” bank officials said.

DBP president and chief executive officer Reynaldo G. David said the bank could “serve as our settlement bank for all Islamic-originated grants, donations, remittances, loans, and payments”. It will also provide DBP’s Investment Banking Services group assistance in tapping the Islamic capital markets.

In the first half of 2008 alone, the size of the Islamic Funds has been estimated at $70.5 billion (P3.2 trillion) despite very challenging market conditions. Most of these funds originated from Malaysia and United Arab Emirates.

Al-Amanah Islamic Bank was formed as the Philippine Al-Amanah Bank in 1973 by virtue of Presidential Decree 264 issued by then President Marcos. It was re-established as Al-Amanah Islamic Investment Bank in 2000 to promote and accelerate socio-economic development of the Autonomous Regions of Muslim Mindanao (ARMM).