BSP sets minimum capitalization for Islamic banking units

The Bangko Sentral ng Pilipinas (BSP) will apply big banks’ minimum capital requirement to Islamic banking units (IBU) to be set up by universal and commercial banks. Big banks are required to put up a minimum P3 billion to P20 billion capitalization depending on the number of branches. A bank with just one head office will be required P3 billion capitalization while a bank with 10 branches should have at least P6 billion capitalization. If up to 100 branches, the requirement is P15 billion and more than 100 is P20 billion. BSP Deputy Governor Chuchi G. Fonacier has signed Circular No. 1173 on April 18, which approved the modified minimum capitalization for conventional banks with an IBU. “A conventional bank that is a commercial bank or a subsidiary of a universal or commercial bank (U/KB), which complies with the minimum capital requirements applicable to its respective banking category, may be allowed to operate an IBU within a reasonable transitory period not exceeding five (5) years reckoned from date of BSP approval,” said Fonacier in the circular memo. She also said that after the transitory period, the conventional bank's operation of an IBU may be allowed subject to compliance with the minimum capitalization reguirement for a big bank. An Islamic bank “may take the necessary steps to have their shares of stock listed in any duly registered stock exchange,” she added. Meanwhile, Fonacier said that not later than six months prior to the end of the transitory period, the conventional bank allowed to operate an IBU will have to submit an acceptable capital build-up plan. This should include the following: the IBU's strategies, financial projections including underlying assumptions; other relevant information to ensure sustained viability of the lslamic banking operations; and the bank's compliance with the minimum capital requirement based on the number of branches used in the operations of the lBU. “Periodic reports on the status of implementation of its capital build-up plan shall be submitted to the appropriate supervising department of the Bangko Sentral to assess the bank's continuing compliance with its capital build-up plan,” said Fonacier. In applying for an IBU license, a conventional bank must be compliant with the BSP’s prudential criteria and has a system for segregating the lslamic banking transactions of the IBU from its conventional banking business, as well as establishing an appropriate Shari’ah Governance Framework (SGF). The capital requirement is one of the reasons why there are few IBU applicants. A hefty capital is also needed to establish an SGF. The SGF ensures that the Islamic bank or IBU adheres to Shari’ah principles and has a Shari'ah Advisory Council. Republic Act No. 11439 or the Islamic Banking Law was enacted in 2019. But it was only in 2022 that the BSP started the creation of the Shari’ah Supervisory Board SSB in the Bangsamoro Autonomous Region in Muslim Mindanao to promote Islamic finance and Islamic banking in the region. Last February, Fonacier said an Islamic bank based in Turkey has been exploring ways to put up a subsidiary or unit in the Philippines. Before the global pandemic was declared on March 2020, the BSP was already talking to two banks interested in setting up either a full Islamic bank or an IBU.