MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) is streamlining regulations on Islamic banking in the country, easing capitalization requirements for Islamic banking units (IBUs) while enhancing reporting and liquidity risk standards in line with global best practices.
In a draft circular posted for public comment, the BSP proposed amendments to several sections of the Manual of Regulations for Banks, covering licensing, prudential reporting and liquidity requirements for full-fledged Islamic banks and IBUs operated by conventional banks.
One key amendment removes the previously required five-year transition period and the need for a capital build-up plan for IBUs.
“The minimum capitalization requirements for a universal bank shall apply to a full-fledged Islamic bank. A conventional bank which complies with the applicable capital requirements, may be allowed to operate an IBU, subject to compliance with the minimum requirements thereon,” the regulator said.
The amendment replaced a more detailed provision that required conventional banks to eventually meet the capital threshold of a universal bank if they wished to continue IBU operations beyond a specified period. The move provides greater flexibility for banks entering the Islamic finance space.
At the same time, the BSP is strengthening the financial reporting obligations of Islamic banks and IBUs. These institutions will be required to submit the standard financial reporting package for banks, along with a supplemental FRP that reflects transactions unique to Islamic finance.
“The submitted reports shall include the supplemental FRP, which considers the mapping of selected accounts unique to the operations of an IB/IBU to the existing FRP templates,” the BSP said.
Islamic banks and IBUs are given up to three years from the start of operations to fully align with BSP’s reporting standards, giving them ample time to familiarize with the data requirements and prescribed guidelines.
On the liquidity front, the BSP said Islamic banks would be subjected to the liquidity coverage ratio and net stable funding ratio standards.
“The BSP adopts a progressive approach in implementing the liquidity standard and ratios of IBs/IBUs to address the unique specificities of Islamic banking operations and the evolving landscape in managing liquidity risk,” the central bank said.
A three-year observation period will be given to new Islamic banks and IBUs to help institutions adjust. This provides ample time for new islamic banking institutions to strategize on their liquidity management system, including choice of liquidity tools, to mitigate risks arising from their business activities.
“Likewise, this will be an opportune time for the Islamic interbank and money market system as well as the secondary markets for Islamic funds/products to develop and gain traction as the market players gradually meet the set regulatory standards,” the BSP said.
In parallel, the BSP is also requiring that liquidity tools used by Islamic banks and IBUs be Shari’ah-compliant, such as sukuk, which may be counted as high-quality liquid assets if they meet eligibility requirements.