BSP encourages conventional banks to enter Islamic banking for market growth

The Bangko Sentral ng Pilipinas (BSP) is doubling down on its efforts to promote Islamic finance in the country by offering more incentives for conventional banks to set up Islamic banking units (IBUs).

BSP Governor Felipe M. Medalla said over the weekend that the central bank is keen on creating a “critical mass” of Islamic banks to establish a firm foothold in the local market.

Under the new scheme, qualified conventional banks that establish IBUs will be given prudential relief in meeting the minimum capital requirement, based on the number of branches used in the operations of the IBUs.

The BSP’s enforcement framework will also provide prudential safeguards to ensure accountability and promote market discipline in the financial system.

In April, the BSP issued circular 1173, which approved the modified minimum capitalization for conventional banks with IBUs.

The BSP will apply universal and commercial banks’ minimum capital requirement to IBUs, with big banks required to have a minimum capitalization ranging from P3 billion to P20 billion depending on the number of branches.

Conventional banks that comply with the minimum capital requirements applicable to their respective banking categories may operate an IBU within a reasonable transitory period not exceeding five years.

The banks must submit an acceptable capital build-up plan six months before the end of the transitory period, including financial projections, strategies, and other relevant information to ensure sustained viability of the Islamic banking operations