BSP issues reporting guidelines for Islamic banking transactions

The Bangko Sentral ng Pilipinas (BSP) has approved the prudential reporting framework for Islamic Banks (IBs) and Islamic Banking Units (IBUs) as part of its initiatives to promote Islamic banking in the country. The reporting framework sets the accounting treatment of common Islamic banking arrangements.

“The reporting framework for IBs and IBUs is aligned with the BSP’s single regulatory and supervisory framework, which highlights that existing regulations apply to IBs and IBUs insofar as these are consistent with Shari’ah principles,” said BSP Governor Benjamin E. Diokno.

“The framework also considers the applicable provisions of the Philippine Financial Reporting Standards to ensure a level playing field for Islamic banking and conventional banking,” the Governor explained.

The guidelines require an IBU to segregate its books and records from those of its parent conventional bank for transparency and to ensure that the transactions of the IBU are carried out in a manner that meets Shari’ah requirements.

Aside from the existing Financial Reporting Package[1] (FRP), IBs and IBUs are required to submit a supplemental report that captures the details of accounts that are unique to them.

The framework also provides guidelines on how selected accounts of IBs and IBUs will be mapped onto the FRP to ensure fair presentation, consistency, and comparability of reports.

An observation period on the submission of the reports of IBs and IBUs will commence from the reporting period of end-June 2022 until 31 December 2023 with full implementation on 31 March 2024.

The prudential reporting framework is part of the series of regulations being issued by the BSP in keeping with Republic Act No. 11439 or An Act Providing for the Regulation and Organization of Islamic Banks, which was signed into law in August 2019.

In December 2019, the BSP issued guidelines on the establishment of IBs and IBUs and the Shari’ah Governance Framework for IBs and IBUs, followed by guidelines on the management of liquidity risk by IBs and IBUs issued in May 2021.

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[1] The Financial Reporting Package (FRP) is a set of financial statements for prudential reporting purposes composed of the Balance Sheet, Income Statement and Supporting Schedules. The FRP is primarily designed to align the BSP reportorial requirements with the provisions of the Philippine Financial Reporting Standards/ Philippine Accounting Standards and Basel 2 Capital Adequacy Framework. It is also designed to meet BSP statistical requirements.