The Bangko Sentral ng Pilipinas (BSP) is in talks with Malaysian-owned Maybank Philippines Inc. and another unnamed foreign bank to set up an Islamic bank or Islamic banking unit (IBU) in the country.
BSP Governor Eli M. Remolona Jr. said Wednesday, April 17, that there are several financial institutions that have shown interests in putting up an Islamic bank or establish Islamic finance in the Philippines but the two foreign banks are the only ones serious enough to have already approached the BSP.
“Maybank is going to open an (Islamic bank) window,” said Remolona.
BSP Assistant Governor Arifa A. Ala, who is also chairperson of the inter-agency Working Group on Islamic Banking and Finance, said Maybank is planning to open a window or an IBU.
“We are seeing two potential applicants but they have not yet submitted applications but we have held meetings with them already, discussing the requirements for establishing Islamic banking units,” she said in a press briefing.
“Those two are the ones in an advanced stage of discussion,” she added.
Meanwhile, Ala said there is no specific number of applicants but she said the BSP “would like to have more because for the longest time we only have one Islamic bank in the name of Al Amanah Islamic Investment Bank.”
Now, the Philippines has two Islamic banks, Al Amanah and CARD Bank Inc. CARD stands for The Center for Agriculture and Rural Development Inc. It is a microfinance institution first established in 1997.
The BSP approved the first Islamic bank license last year after the 2019 enactment of the Islamic banking law or Republic Act No. 11439.
Before the first IBU license, the Philippines only has one Islamic bank which is the state-owned Al Amanah, a subsidiary of the Development Bank of the Philippines and created by a presidential decree in 1973.
Before the global pandemic was declared on March 2020, the BSP was already talking to two banks interested in setting up either a full Islamic bank or an IBU.
The key difference between an Islamic bank and a conventional bank is that depositors are “investors rather than lenders” in the former and they are just lenders in the latter.
In a conventional bank set up, the bank pays fixed interest on deposit liabilities and charges interest on loans while an Islamic bank has risk sharing or profit and loss sharing. A non-Muslim bank is also exposed to assets and liabilities mismatch risk while an Islamic bank’s assets and liabilities are “better matched”.
The BSP has already adopted a modified minimum capitalization for conventional or non-Islamic banks planning to set up an IBU and will allow for a five-year transitory period.
In applying for an IBU license, the BSP will require an applicant to comply with the following minimum requirements: must be compliant with the BSP’s prudential criteria; and has a system for segregating the lslamic banking transactions of the IBU from its conventional banking business as well as establishing an appropriate Shari’ah Governance Framework (SGF).
The capital requirement is one of the reasons why there are few IBU applicants. A hefty capital is needed to establish an SGF. The SGF ensures that the Islamic bank or IBU adheres to Shari’ah principles and has a Shari'ah Advisory Council.