BSP Allows All Bank Categories to Offer Islamic Services in the Philippines

The Bangko Sentral ng Pilipinas (BSP) has issued Circular No. 1219, Series of 2025, to streamline the prudential regulatory guidelines for Islamic banking.

These amendments aim to encourage broader participation from conventional banks across all categories, allowing them to establish Islamic Banking Units (IBUs) more easily.

Under the revised rules, conventional banks that meet the capitalisation requirements of their specific banking category are eligible to operate an IBU.

Crucially, the BSP has removed the requirement for IBUs to maintain a separate capital pool, instead applying the parent bank’s existing capital framework.

This shift reduces the financial barriers for institutions entering the Shari’ah-compliant finance market.

To assist new entrants, the BSP is institutionalising a three-year observation period starting from the commencement of Islamic banking operations.

During this time, banks can familiarise themselves with the data requirements for prudential reports, such as the Supplemental Financial Reporting Package.

Furthermore, IBUs are no longer required to submit separate liquidity reports; they may instead consolidate their liquidity positions into the parent bank’s bank-wide reports.

The central bank intends to maintain a “flexible approach on regulatory compliance” while the domestic market remains in its early stages.

BSP Governor Eli M. Remolona, Jr. stated that the changes intend to “encourage more players to enter and help develop the Philippine Islamic finance market,” while supporting a more diverse financial sector and inclusive growth.

The framework also refines liquidity standards by recognising Shari’ah-compliant instruments, such as sukuk, as high-quality liquid assets (HQLA).

This ensures that banks have the necessary tools to manage liquidity risk while adhering to Islamic principles.

Featured image: Edited by Fintech News Philippines based on an image by farknot via Freepik.

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