DOJ Opinion No. 070, s. 2001

DOJ OPINION NO. 070 , s. 2001 November 19, 2001 Secretary Jose Isidro N. Camacho Department of Finance Roxas Blvd. corner Vito Cruz Street Manila Sir : This has reference to your request for opinion on whether the Al-Amanah Islamic Investment Bank of the Philippines (AIIBP) may organize a wholly-owned subsidiary that shall engage in Islamic banking activities. It may be recalled that the General Counsel of the Bangko Sentral ng Pilipinas (BSP) has already opined on the issue, holding that AIIBP may incorporate a subsidiary to be invested with Islamic banking powers based on the provisions of R.A. No. 6848 (AIIBP Charter) and R.A. No. 8791 (General Banking Law of 2000). BSP Deputy Governor Alberto V. Reyes later requested this Department to confirm such opinion in connection with the privatization of AIIBP. The conformity of the Securities and Exchange Commission (SEC) was also requested because it is the agency that will approve the incorporation of any subsidiary of AIIBP. This Department, however, declined to render opinion on the ground that the determination of whether AIIBP may incorporate a subsidiary pertains to the primary jurisdiction of the SEC and that the BSP is in the best position to determine whether an entity may be invested with Islamic banking powers considering its authority over banking institutions and familiarity with the banking laws and the rules and regulations promulgated by it or the Monetary Board and the policy repercussions of the issues involved. 1 Since, as you state, one of the conditions imposed by the Malaysian consortium which will purchase the shares of AIIBP is an "authoritative ruling" from this Department on the aforestated issue and that this appears to be the only outstanding legal issue to be resolved in connection with the implementation of the privatization of AIIBP, we are constrained to express our opinion thereon. The BSP General Counsel is of the view that "Section 16 ( sic ) . . .[R.A. No. 6848] invests . . . [the Islamic bank] with authority to invest in an allied undertaking as the Monetary Board has declared or may declare as appropriate" and that the Manual of Regulations has classified "banks" as among the financial allied undertakings of a bank; that "Section 17 of the same law authorizes the Islamic bank to participate 'in any way' in 'banks performing activities similar to its own'"; that "R.A. No. 6848 does not preclude the Monetary Board from declaring a subsidiary with Islamic banking powers as an appropriate 'allied undertaking' of AIIBP"; that Section 3.2 of R.A. No. 8791, which includes "Islamic banks" among the classification of banks, suggests that the law contemplated a number of institutions performing Islamic banking functions; and that even without such specific classification, the Monetary Board is believed to have the power "to constitute a special type of banks performing Islamic banking based on its statutory authority to provide for 'other classification of banks as may be determined by the Monetary Board of the Bangko Sentral'". After a close reading of the cited provisions of R.A. No. 6848 and R.A. No. 8791, we find no valid and cogent reason to reject the view that the AIIBP may organize a wholly-owned subsidiary that shall engage in Islamic banking activities. As viewed by the BSP, R.A. No. 6848 and R.A. no. 8791 appear to grant the AIIBP with ample investing powers, including investing in banks performing activities similar to its own as may be declared appropriate by the Monetary Board. We have no reason to disagree with the interpretation of the BSP of the applicable banking laws in view of its familiarity and expertise on the matter and the policy repercussions thereof. Indeed, Section 11(f) and Section 17 of R.A. No. 6848 provide ample legal flexibility to the AIIBP, subject to the approval of the BSP, to create a subsidiary to engage in banking similar to its own activity, for as long as such is consistent with purpose and basis of its creation as enunciated in Section 3 of R.A. No. 6848 which reads: SECTION 3. Purpose and Basis. The primary purposes of the Islamic Bank shall be to promote and accelerate the socio-economic development of the Autonomous Region by performing banking, financing and investment operations and to establish and participate in agricultural, commercial and industrial ventures based on the Islamic concept of banking. All business dealings and activities of the Islamic Bank shall be subject to the basic principles and rulings of Islamic Shari'a within the purview of the aforementioned declared policy. Any zakat or "title" paid by the Islamic Bank on behalf of its shareholders and depositors shall be considered as part of compliance by the Islamic Bank with its obligation to appropriate said zakat fund and to disburse it in legitimate channels to be ascertained first by the Shari'a Advisory Council. IHcSCA Please be guided accordingly. Very truly yours, (SGD.) HERNANDO B. PEREZ Secretary Footnotes 1. Secretary of Justice Opinion No. 58, series of 2001.