But Islamic banks are not expected to take significant market share in the medium term.
The Philippine central bank’s recent approval of new regulations for Islamic banks and banking units is a positive step for the development of Islamic finance in the country, but Islamic banks are not expected to take significant market share over the medium term, says Fitch Ratings.
The new regulation hopes to allow the sector to compete in an even regulatory field as there is only one major player, Development Bank of the Philippines’ subsidiary Al Amanah. It would be in line with the government’s plan of inclusive growth particularly in the Autonomous Region in Muslim Mindanao (ARMM), currently one of the least banked regions in the country, the report noted.
Several factors will affect the growth of Islamic finance in the country, including the evolution of the financial ecosystem to allow Islamic banks to operate equally alongside their conventional counterparts.
“A fully developed Islamic financial ecosystem would also require other key pillars of Islamic finance, such as sharia-compliant insurance and sukuk. The absence in the Philippines of a central sharia board to certify Islamic financial products could hamper the sector’s development,” the report said.
Another factor is the ability of banks, regulators and the government to promote awareness about Islamic banking and building of staff with experience in sharia-compliant financial products.
Foreign direct investment, particularly from the Gulf Cooperation Council, could increase interest in cross-border deals and spur growth in the sector, Fitch said.
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