BSP introduces modified minimum capitalization for islamic banking units

Aimed at developing the Islamic banking system in the Philippines, the Bangko Sentral ng Pilipinas approved the policy on the modified minimum capitalization requirement for conventional banks with Islamic banking unit (IBU).

This policy provides more flexibility in licensing of an IBU of qualified conventional banks.

The guidelines allow conventional commercial banks (KB) or subsidiary banks of a universal bank (UB) or KB, which meet the minimum capital requirement for their respective banking category, to operate an IBU within a transitory period not exceeding five (5) years.

“The BSP aims to incentivize the conventional banks to test, explore and develop the market for Islamic banking products and services with prudential safeguards to support the entry of a critical mass of Islamic banking players in the country” said BSP Governor Felipe M. Medalla.

Qualified conventional banks with IBU will also be accorded prudential relief in meeting the minimum capital requirement which shall be based on the actual number of branches/units being used in Islamic banking operations.

The application of BSP’s enforcement framework provides prudential safeguards to ensure accountability on the committed business plan and capital build-up plan after the transitory period of covered banks with IBU to promote market discipline in the financial system.