More groups to establish Islamic banks in Philippines

MANILA, Philippines —  More groups are looking at establishing Islamic banks in the Philippines as the first branch of the new banking classification is expected to open soon, according to the Bangko Sentral ng Pilipinas.

BSP Deputy Governor Chuchi Fonacier said the regulator has seen interest from foreign groups on the possible foray into Islamic banking operations in the country.

“Given the current monetary conditions as well as global developments, we’ve been getting a clear interest from  foreign groups ,” Fonacier told reporters.

Fonacier said the first traditional bank in the country granted an Islamic banking license by the BSP is set to open a branch in Mindanao soon.

“There’s already one that we’ve granted an Islamic banking license to a particular branch. So that will open soon in Cotabato. I think within this month, it will open. I just wouldn’t like to pre-empt the announcement coming from that player,” Fonacier said.

She disclosed that another domestic player is also putting up an Islamic banking unit in the Philippines.

“In fact, one other domestic player, although it’s a branch of a foreign bank, will also be doing Islamic banking, I think, given the need, especially in the south, in Mindanao,” she said.

The BSP has dangled additional incentives as sweeteners to lure more interest in venturing into Islamic banking in the country.

The BSP has issued Resolution 493, approving the modified minimum capitalization requirements for conventional banks with Islamic banking units to expand access to Shari’ah-compliant banking products and services to all Filipinos.

The guidelines allow conventional commercial banks or subsidiary banks of a universal bank that meet the minimum capital requirement for their respective banking category to operate an Islamic banking unit within a transitory period not exceeding five years.

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

According to the BSP, the application of the central bank’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 Islamic banking units to promote market discipline in the financial system.

The central bank has maintained its flexibility to lure more interest in venturing into Islamic banking in the country after the sector was opened to new players.

For one, regulatory reforms on Islamic banking licensing, as well as Shari’ah governance and taxation have been instrumental in making the Philippines an attractive site for Islamic banking.

It has issued policies to implement the Islamic Banking Law and the provisions on Islamic banking under the Bangsamoro Organic Law.

These are Circular 1069 on the Guidelines on the Establishment of Islamic Banks and Islamic Banking Units, which is aligned with the BSP’s risk-based licensing framework, and Circular 1070 on the Shari’ah Governance Framework, which provides for decentralized compliance, wherein adherence to Shari’ah principles will be the responsibility of the Islamic bank.

In 2020, the Bureau of Internal Revenue issued Revenue Regulation 17-2020, stating that Islamic banking transactions shall not be taxed more heavily or more lightly than conventional transactions.