BSP streamlines prudential regulations for Islamic banking sector

THE BANGKO SENTRAL ng Pilipinas (BSP) has streamlined its guidelines covering the establishment of Islamic banks and banking units to help support the sector’s growth.

In a circular dated Oct. 17, the central bank simplified the capitalization requirements for both Islamic banks (IB) and conventional banks seeking to operate an Islamic banking unit (IBU).

“The minimum capitalization requirements for a UB (universal bank) shall apply to a full-fledged IB. A conventional bank that complies with the capital requirements applicable to its banking category may be allowed to operate an IBU,” it said.

Previously, the rules made distinctions on the kinds of conventional banks that can set up IBUs and also impose a transitory period of a maximum of five years for these lenders to put up the minimum capital required from universal banks to be allowed to continue operating their IBUs. They were also mandated to submit a capital buildup plan.

The BSP also said that applicants who plan to establish an IBU are required to submit a corporate plan describing the organization and its business model. They are required to start the IBU’s operations within one year from approval of their application or else the authority will be automatically revoked.

The circular also outlined the reporting requirements for IBs and conventional banks with IBUs to aid in its monitoring of the sector.

Meanwhile, the BSP said it will adopt a “progressive approach” in implementing liquidity standards and ratios for Islamic banks and Islamic banking units as it considers the unique nature of the sector’s operations.

“The Bangko Sentral, on its part, shall continuously review and keep an open line of communication with stakeholders to ensure that the regulatory framework remains appropriate and relevant. As the domestic Islamic banking market is still in its early stage of development, the Bangko Sentral shall adopt a flexible approach on regulatory compliance, including the submission of required reports. It shall engage and be responsive to the market players and new entrants to the Islamic banking system in implementing the minimum liquidity requirements.”

The central bank added that IBs and IBUs must have written policies on liquidity risk management that are compliant with Shari’ah principles. — K.K. Chan