BSP issues rules to boost Islamic banking

THE Bangko Sentral ng Pilipinas (BSP) announced that it has approved a liquidity risk management framework for Islamic Banks (IBs) and Islamic Banking Units (IBUs).

The BSP said the issuance is in line with its “thrust to provide a comprehensive set of regulations that will encourage investor and consumer participation on Islamic banking and finance.”

“The aim is to create an enabling environment that will allow Islamic banks to operate alongside the conventional banks under the same regulatory approach, taking into consideration the unique features of Islamic financial activities or transactions,” the BSP said.

According to the Central Bank, the new regulatory issuance is anchored on the existing liquidity risk management framework for conventional banks with additional provisions to cover the specificities of Islamic banking.

In particular, the guidelines emphasize Shari’ah compliance in liquidity risk management including the choice of instruments and tools to mitigate liquidity risk.

It also provides guidance on the treatment of Islamic banking accounts such as profit and loss sharing investment accounts.

The BSP provided an observation period from the effectivity of the circular until December 31, 2024.

“This will provide ample time for IBs and IBUs to familiarize and strategize on the choice of liquidity tools to mitigate risks arising from their business activities,” the BSP said.

During this period, the IB and IBU are required to submit quarterly reports to the regulator for monitoring purposes.