THE BANGKO SENTRAL ng Pilipinas (BSP) is looking at putting Islamic banks under an observation period of up to three years as they come up with a plan to manage their liquidity risks.
This would give them time to “strategize” on their liquidity risk management system including the choice of liquidity tools to mitigate the risks from their business activities,” it said in a draft circular.
“Likewise, this will be an opportune time for the Islamic interbank and money market system as well as the secondary markets for Islamic funds/products to develop and gain traction as the market players gradually meet the set regulatory standards,” it added.
The BSP had set an industry-wide observation period from June 9, 2021 to Dec. 31, 2024, and planned to set a minimum liquidity coverage ratio and net stable funding ratio of 100% for Islamic banks by Jan. 1, 2025.
Compliance with the liquidity ratios will be evaluated on a bank-wide basis,” the BSP said.
Islamic banking units will not be required to submit separate reports on these ratios, it said, adding that their liquidity positions, activities and transactions would be consolidated into the bank-wide reports submitted by the conventional bank proper.
“As the domestic Islamic banking market is still in its early stage of development, the Bangko Sentral shall adopt a flexible approach in regulatory compliance, including the submission of required reports,” it added.
Under the draft circular, financing provided by Islamic banks and units will be treated like loans from a conventional bank, while sukuks will be treated like debt instruments.
The BSP is also proposing to remove Islamic banks’ transitory period for reaching their minimum capital requirements.
It previously required a transitory period of up to five years for universal and commercial bank units that wish to avail themselves of an Islamic banking unit.
Six months before the transitory period ends, conventional banks allowed to operate an Islamic banking unit must also submit a capital buildup plan, as well as periodic reports on its status.
The central bank is also proposing to set an observation period of up to three years to help Islamic banks and units get used to financial reporting requirements.
Under the draft circular, Islamic banking units need not pay any fees to open in existing branches or branch-lite units.
“Banks are required to notify the appropriate supervising department of the Bangko Sentral on the opening of an Islamic banking unit in their existing branches or branch-lite units at least 10 banking days prior to the opening,” the BSP said. — Aaron Michael C. Sy
