The Bangko Sentral ng Pilipinas (BSP) has approved new regulations for Islamic banking to encourage more conventional banks to participate while aligning the sector with international standards.

The reforms, detailed in Circular 1219, ease the requirements for establishing Islamic Banking Units (IBUs) and refine prudential rules for the industry.

An IBU is a division of a conventional bank operating on Shari’ah principles, such as the prohibition of interest.

BSP Governor Eli M. Remolona, Jr. said the changes aim to encourage more players to enter and help develop the Philippine Islamic finance market. He added that this initiative “supports our goals of inclusive growth and a more diverse financial sector”.

Under the amended rules, IBUs are no longer subject to a separate capital requirement; the parent bank’s existing capital framework will apply.

Furthermore, the processing licence fee for an IBU will follow the fees corresponding to the parent bank’s category.

To reduce the administrative burden, IBUs are no longer required to submit a separate liquidity report and can integrate this data into the parent bank’s bank-wide reporting.

The BSP has also institutionalised a three-year observation period for new IBUs to familiarise themselves with prudential reporting standards.

The new framework also refines liquidity rules for the entire sector, clarifying that Shari’ah-compliant instruments like sukuk (Islamic bonds) may qualify as high-quality liquid assets, provided they meet prudential criteria.

These reforms are part of the BSP’s ongoing implementation of the Islamic Banking Law (Republic Act No. 11439).

Featured image by odua via Freepik.