New rules to boost Islamic banking
Credit to Author: Mayvelin U. Caraballo, TMT| Date: Tue, 21 Jan 2020 17:10:06 +0000
NEW Bangko Sentral ng Pilipinas (BSP) regulations for Islamic banking would support the establishment of a cohesive Islamic finance regulatory framework in the Philippines, according to Fitch Ratings.
“The BSP’s new regulations aim to allow the sector to compete on an even regulatory playing field,” the credit ratings agency said in a report released on Monday night.
Last December, the central bank said regulations that resounded its promotion of strong corporate governance and consumer protection cover the licensing framework on the establishment of Islamic banks (IBs) and Islamic banking units (IBUs) and its expectations on the Shari’ah Governance Framework for them.
“If the move is able to support financial inclusion and economic development, particularly in the Autonomous Region in Muslim Mindanao, an area with one of the largest Muslim populations in the Philippines, it would be broadly in line with the government’s agenda for inclusive growth,” Fitch Ratings said.
According to the ratings agency, several factors would affect the growth of Islamic banking in the country.
One of them, it said, is the extent to which the financial ecosystem evolves to allow Islamic banks to operate on equal footing with their conventional counterparts from a regulatory and tax perspective.
It added that other key pillars of Islamic finance, such as sharia-compliant insurance (takaful) and sukuk, would be required for a fully developed Islamic financial ecosystem.
“The absence in the Philippines of a central sharia board to certify Islamic financial products could hamper the sector’s development,” Fitch Rating warned.
Another important factor for the sector’s growth is the ability of banks and other interested stakeholders, including regulators and government, to spread awareness about Islamic finance and build up a cadre of staff with expertise in working and structuring sharia-compliant financial products.
The experience of many Filipinos working in the Middle East, where Islamic banking is widespread, could also help in spreading awareness of the sector, the debt watcher said.
It also highlighted that one factor to watch would be whether the authorities’ efforts to develop the regulatory environment are able to attract foreign direct investment, leading to merger and acquisition activity or potential tie-ups that might accelerate the sector’s growth.
“Fitch believes that Islamic financial institutions from member-states of the Gulf Cooperation Council, for example, could have interest in the potential for cross-border deals. These institutions have been instrumental in developing Islamic finance outside the Gulf, in countries such as Morocco and Turkey,” Fitch Ratings said.
Despite its potential, the credit watchdog noted the development of an Islamic finance ecosystem would take time, saying Islamic banks were not expected to take a significant market share from well-established conventional banks over the medium term.
It pointed out that limited funding sources, as well as a lack of public awareness and trust in Islamic financial services, would continue to constrain the sector’s growth, at least in the medium term.