DBP to unload 44% stake in Islamic bank

MANILA, Philippines - The country’s only Islamic bank has been placed on the auction block in a bid to broaden its ownership and financial expertise.

As part of its five-year rehabilitation program, a 49 percent stake Al Amanah Islamic and Investment Bank of the Philippines (Amanah Islamic Bank) will be offered to interested parties, particularly to existing Islam-oriented financial institutions.

The sale would open up the bank to capital from the Middle East as well as Southeast Asia investors. It would facilitate the entry of Islamic banking expertise and technology.

Amanah Islamic Bank is majority controlled by the Development Bank of the Philippines (DBP), the government financial institution that acquired the bank from the National Government.

According to DBP senior vice president for marketing (head office) Susan Prado, several domestic and foreign banks have already signified interest in acquiring the 49-percent equity in Amanah Islamic Bank.

Reports likewise confirmed that an Islamic financial institution based in Malaysia was interested in the bank.

The same reports indicate that the intention is in getting businesses from the Middle East and other predominately Islamic states. “These financial institutions and businesses have a bias towards dealing with shariah-oriented financial institutions. The opportunities are huge,” it said.

The Islamic bank could likewise serve as a settlement bank for DBP for all Islamic-originated grants, donations, remittances, loans, and payments. It could provide DBP’s Investment Banking Services group assistance in tapping the Islamic capital markets.

Islamic bonds is a potential funding source for major development needs in government infrastructure.

DBP alone cannot issue such unique debt papers but an Islamic investment bank like Amanah Islamic Bank can issue as well as tap capital sources.

But Prado said that DBP was not in a hurry to sell, adding that the immediate target was to make the bank profitable.

As part of the rehabilitation process, the bank acquired shariah core banking systems with modular applications, which include audit, treasury, and risk management systems. The new systems will conform to the Islamic practice.

It is refurbishing or rationalizing its seven-branch network, and it is sending bank personnel to Malaysia for training in Islamic banking processes.

Amanah Islamic Bank has to still ensure that it adopts the capital framework set by the Basel II and III.

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. And 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 client, with the bank acquiring the prospective property.

Thus risk-sharing falls on the shoulder of both bank and ‘co-investor’ (borrower), thus the bank will not be burdened theoretically with non-performing loans (NPLs)

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).

From 1990 to 2007, Amanah Islamic Bank incurred operational losses, forcing the Bureau of Treasury (BTr) to provide liquidity and cash operational requirements. In 2007, its deficit reached P562.19 million with total advances from the BTr of P459.34 million.

In 2008, P386.19 million worth of real and other properties acquired (ROPA) were transferred to the National Government. In turn, government shared the financial burden by selling 10-percent equity each to the Government Service Insurance System (GSIS), the Social Security System (SSS), and the DBP.

It was subsequently acquired by DBP, and recapitalized to as much as P1.5 billion.