The Bangko Sentral ng Pilipinas (BSP) has tightened prudential regulations for Islamic banks and banking units to align their operations with international standards while allowing flexibility during the sector’s early growth stage.
Under Circular 1219, the Monetary Board approved on Oct. 9 amendments to several sections of the Manual of Regulations for Banks to refine licensing, liquidity and reporting requirements for Islamic banks (IBs) and Islamic banking units (IBUs).
The BSP said the revised framework seeks to ‘address the unique specificities of Islamic banking operations, the evolving landscape of liquidity risk management in the Islamic banking system and the limited availability of liquidity management instruments which are appropriate for IBs and IBUs.’
Applicants seeking to operate an IBU must now submit a detailed corporate plan describing their business model and delivery of Shari’ah-compliant products and services.
The establishment of an IBU will be treated as a Type A license, subject to applicable fees and the bank’s capitalization requirements. The authority to operate will be automatically revoked if business does not commence within one year from Monetary Board approval.
To improve industry monitoring, IBs and IBUs are required to submit prudential reports using existing financial reporting package templates, alongside a supplemental FRP report that reflects Islamic finance-specific accounts.
The BSP will observe a three-year transition period to allow new IBs and IBUs to adjust to data and system requirements before full implementation of the prudential reporting standards.
The circular also refines rules under the liquidity coverage ratio (LCR) and net stable funding ratio (NSFR) to reflect Shari’ah-compliant instruments such as sukuk, which will now be treated as eligible liquid assets if they meet prudential criteria.
‘Debt instruments should be taken to include sukuk or the Islamic alternative to bonds,’ the BSP said, adding that those issued by the International Islamic Liquidity Management Corp. and similar multilateral organizations may qualify as high-quality liquid assets.
IBs are expected to establish independent liquidity management frameworks, while IBUs must maintain segregated assets and liabilities from their parent conventional banks.
For conventional banks with IBUs, compliance with liquidity ratios such as the LCR, NSFR and minimum liquidity ratio will be determined on a consolidated basis. IBUs are not required to submit separate liquidity reports, but their transactions must be incorporated into the parent bank’s reports.
The BSP said it would maintain ‘an open line of communication with stakeholders to ensure that the regulatory framework remains appropriate and relevant.’
It added that given the Islamic banking market’s nascent stage, the central bank would adopt a flexible approach in enforcing compliance, especially in report submissions.
The new rules also clarify that only banks duly authorized by the BSP as full-fledged IBs may use and affix the term ‘Islamic bank’ in their business name.
IBs are likewise encouraged to take ‘necessary steps to have their shares of stock listed in any duly registered stock exchange,’ signaling support for greater market participation and transparency.