Amendments to Prudential Regulatory Guidelines in Islamic Banking

BANGKO SENTRAL NG PILIPINAS

OFFICE OF THE GOVERNOR

CIRCULAR NO.1219

Series of 2025

Subject: Amendments to Prudential Regulatory Guidelines in Islamic Banking

the following amendments to prudential regulatory guidelines on Islamic banking. The Monetary Board, in its Resolution No. 1003 dated 9 October 2025, approved

1205 dated 26 December 2024 is hereby further amended to read, as follows: amended bv Circular Nos.1173 dated 19 April 2023. 1180 dated 10 November 2023. and Section 1. Section 102 of the Manual of Regulations for Banks (MORB). as

102. BASIC GUIDELINES IN ESTABLISHING DOMESTIC BANKS

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Establishment of IBs and Islamic banking units

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to a full-fledged IB. A conventional bank that complies with the capital requirements applicable to its banking category may be allowed to operate an IBU. c. Capitalization. The minimum capitalization requirements for a UB shall apply

registered stock exchange. IBs may take the necessary steps to have their shares of stock listed in any duly

d. Governance. xxx.

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Business Name

a.UBs/KBs.xxx

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d. Digital Banks. xxx

e. IBs. Only a bank duly authorized by the Bangko Sentral to operate as a full. fledged IB may use and affix the words Is/amic bankin its business name.

Bank Advertisements. xxx

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Regulations for Islamic Banks (IBs) and Islamic Banking Units (IBUs), are hereby amended to read, as follows: Section 2. The provisions under Appendix 139 of the MORB on the Prudential

PRUDENTIAL REGULATIONS FOR ISLAMIC BANKS AND ISLAMIC BANKINC UNITS (Appendix to Sec. 102)

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to comply with the following minimum requirements: "Sec. 2 Licensing of an IBU. Applicants which intend to engage in IBU are required

a.Xxx

b. The applicant shall submit a corporate plan which describes the organization and business model to be used in delivering Islamic banking products and services to its clients.

Type A license as defined in Sec. Ill, and shall be subject to the payment of applicable fees as prescribed therein. The application for authority to establish an IBU shall be categorized as a

of prescribed processing fees based on the bank's category. The operation of IBUs department of the Bangko Sentral, at least ten (lo) banking days before the intended opening. operations shall be subject to the guidelines in Sec. 105, including the payment within existing branches or BLUs shall not be subject to any fee, but shall require prior written notification - Officer and Head of Branch Banking Operations - to the appropriate supervising The establishment of a new branch or branch-lite unit (BLU) for the IBU submitted through the bank's Chief Compliance

notice of approval by the Monetary Board of their application. is not commenced for business within one (1)year after receipt by the bank of the The authority to establish an IBU shall be automatically revoked if the IBU

Sec. 3 Commencement of Operations. xxx.

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Supplemental Report. IBs and conventionat banks with IBU shall prepare Appendix 81, and in accordance with the submission guidelines provided under (IBUs), which considers the mapping of selected Financial Reporting Package (FRP) for Banks as prescribed under Section 172 and the Supplemental FRP Report for Islamic Banks (IBs) and Isiamic Banking Units operations of an IB/IBU to the existing FRP templates, as provided under Item II of Annex A. prudential reports to the Bangko Sentral using the existing templates of the Appendix 7 based on the bank's category. The submitted reports shall include Sec. 6 Submission of the Financial Reporting Package for Banks and accounts unique to the

likewise, be separately reported in the Supplementai FRP Report for Islamic Banks (IBs) and Islamic Banking Units (IBUs), which shall be considered a Sentral-Department of Supervisory Analytics (DsA), in accordance with the submission timeline of the FRP. system, selected information on accounts and transactions of an IB and IBU, shall Category A-7 report. The supplemental report shall be submitted to the Bangko To facilitate the generation of industry statistics on the Islamic banking

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date of commencement of Islamic banking operations on the submission to the requirements shall commence after the observation period. Bangko Sentral of the Supplemental FRP Report for Islamic banks (IBs) and banking operations, to allow new IBs and IBUs to familiarize with the data requirements and prescribed guidelines and to make the necessary system enhancements/adjustments. Full implementation of the prudential reporting Islamic Banking Units (IBUs) and other prudential reports related to their tslamic There shall be an observation period of three (3) years reckoned from the

Ratio (LCR) and Net Stable Funding Ratio (NSFR) for Islamic banks and Islamic banking units are hereby amended to read, as follows: Circular No. 1189 dated 27 February 2024 on the Implementation of Liquidity Coverage Section 3. The provisions under Section 145 of the MORB, as amended by

145 LIQUIDITY RISK MANACEMENT.

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Net Stable Funding Ratio (NsFR). xxx.

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Implementation of Liquidity Standards/Ratios for IBs/IBUs.

appropriate for IBs/IBUs. IBs shall be subject to the LCR and the NSFR, consistent with principles set out under Part XI of Appendix 71, Appendix 72 and Appendix 130. standard and ratios for IBs/IBUs to address the unique specificities of Islamic banking operations, the evolving landscape of liquidity risk management in the Islamic banking the standards prescribed under this Section and its related appendices, and the general system, and the limited availability of liquidity management instruments which are The Bangko Sentral adopts a progressive approach in implementing the liquidity

consistent with the applicable liquidity standards for their bank category. Conventional wide basis. In this regard, IBUs shall not be required to submit separate LCR, NsFR, or positions, activities, and transactions of an IBU shall be consolidated into the bank-wide banks shall observe appropriate mapping of IBU operations in accordance with the guidelines under Part XI of Appendix 71 and related provisions under Appendix 72 Minimum Liauidity Ratio (MLR) reports to the Banako Sentral. Instead. the liauidity reports submitted by the conventional bank proper. In consolidating, the conventional Compliance with the liquidity ratios shall be evaluated/determined on a bank-

senior management. and oversight frameworks, including regular assessment and reporting to the Board and banks shall integrate IBU operations within their internal governance, risk management

compliance, including the submission of required reports. It shall engage and be implementing the minimum liquidity requirements. of communication with stakeholders to ensure that the regulatory framework remains responsive to the market players and new entrants to the Islamic banking system in appropriate and relevant. As the domestic Islamic banking market is still in its early stage of development, the Bangko Sentral shall adopt a flexible approach on regulatory The Bangko Sentral, on its part, shall continuously review and keep an open line

Supervisory framework for the minimum prudential liquidity requirements.

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Cuidelines on Liquidity Risk Management are hereby amended to read, as follows: Section 4. The provisions under Part XI. Appendix 71 of the MORB on the

CUIDELINES ON LIQUIDITY RISK MANAGEMENT (Appendix to Sec. 145)

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XI. CUIDELINES FOR IBs and IBUs

IBs/IBUs are expected to have written policies on liquidity risk management. For the IBUs, their assets and liabilities are segregated from those of the conventional bank proper, thus IBUs are expected to establish their separate liquidity management arrangements. The IBs/IBUs shall consider the following: The provisions of this Appendix apply, as appropriate, to iBs and IBUs. The

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2 "Debt instruments" should be taken to include sukuk or the Islamic alternative to

Corporation' and other similar organizations as may be determined by the securities" for HQLA (or considered as eligible stock of liquid assets for MLR bonds. Sukuk, subject to meeting the requirements for eligibility, rank as "eligible reporting). Sukuk issued by the International Islamic Liquidity Management Bangko Sentral, should be treated as though they were issued by multilateral development banks.

3 In developing a funding strategy and a contingency funding plan, IBs/IBUs should consult their Shari'ah Advisory Council (SAC)2. Any instruments to be used in eligibility requirements. liquidity management should be acceptable to the SAC and meet the prudential

Shari'ah-compliant financing that they employ, including any risk transformation option to cancel a transaction, the exercise of that option may cause the IB/IBU IBs/IBUs should also assess the liquidity risk arising from the various mode of that may take place at different stages thereof. For example, if a customer has an to hold an asset that it may need to dispose even under stressed market conditions.

5. IBs/IBUs should consider Shari'ah limitations, if any, on the ways in which liquidity can be transferred between entities in a banking group, or between the IBUs and the bank proper, including the instruments that can be used for this

purpose.

6. All cash placements made by the IB/IBU with another financial institution shall

be treated in the same way as deposits.

7. For MLR consolidation purposes, the eligible stock of liquid assets that are held by the IBU shall be counted towards the bank's eligible stock of liquid assets in an amount up to the said IBU's total qualifying liabilities that are included in the consolidated MLR of the conventional bank proper.

Or Shari'ah adviser or consultant as the case may be. per Section 139. The International Islamic Liquidity Management Corporation or IILM is an international organization Shari'ah-compliant financial instruments to facilitate effective established by central banks. monetary authorities and multilateral organizations to create and issue -border Islamic liquidity management. Page 4 of 5

Framework on Liquidity Standards-Liquidity Coverage Ratio are hereby amended to read, as follows: Section 5. The provisions under Part III, Appendix 72 of the MORB on the Basel IT

BASEL III FRAMEWORK ON LIQUIDITY STANDARDS-LIQUIDITY COVERAGE RATIO (Appendix to Sec. 145 on Liquidity Coverage Ratio [LCR], LCR Disclosure Requirements, and Sanctions)

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Part III. Applicability to IBs and IBUs

Further, IBs/IBUs shall consider the following guidelines: of Section XI of Appendix 71, which requires, among others, that the instruments to be used in liquidity management must be acceptable to the Shari'ah Advisory Council. The provisions of this Appendix shall apply to IBs/IBUs, subject to the provisions

1. A conventional bank should consider the provisions set forth below when consolidating IBU's activities in its LCR report.

2. For purposes of computing the consolidated LCR as mentioned in Item '1", the included in the consolidated LCR of the conventional bank proper. qualifying HQLA that are held by the IBU shall be counted towards the stock of HQLA in an amount up to the total net cash outflows of said IBU that are

Guidelines on the Bangko Sentral Implementation of the Net Stable Funding Ratio (NSFR) are hereby amended. Section 6. The provisions under Item E, Appendix 130 of the MORB on the

GUIDELINES ON THE BANGKO SENTRAL IMPLEMENTATION OF THE NET STABLE FUNDING RATIO (NSFR)

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E. Guidelines for IBs

Section Xt of Appendix 71 which requires, among others, that the instruments to be used advanced by a conventional bank and sukuk held by the IB shall be treated in the same way as debt securities of similar type held by a conventional bank. in liquidity management must be acceptable to the Shari'ah Advisory Council. Further, financings provided by the IB shall be treated in the same way as loans of similar type 68. The provisions of this Appendix apply to IBs, subject to the provisions of

its publication either in the Official Cazette or in a newspaper of general circulation. Section 7. Effectivity. This Circular shali take effect fifteen (15) calendar days after

FOr THE MoNEtArY BOARd:

ELI M. REMOLONA, Jr. Governor

October 2025

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