THE CENTRAL BANK released its liquidity risk management framework for Islamic banks that allows them the freedom to choose Shari’ah compliant instruments to mitigate liquidity risks.

Under Circular No. 1116 published on the website of the Bangko Sentral ng Pilipinas (BSP) on Tuesday, Islamic banks and banking units will be given an observation period until December 2024 to let them familiarize and strategize in accordance with the framework.

“The regulatory issuance is basically anchored on the existing liquidity risk management framework for conventional banks with additional provisions to cover the specificities of Islamic banking,” the BSP said in a statement.

“The aim is to create an enabling environment that will allow Islamic banks to operate alongside the conventional banks under the same regulatory approach, taking into consideration the unique features of Islamic financial activities/transactions,” it added.

The newly released rules also provide guidance on the treatment of Islamic banking accounts such as profit and loss sharing investment accounts.

Based on the circular, Islamic banks and banking units should consult their Shari’ah Advisory Council to develop a funding strategy and contingency plan that will be appropriate for use.

Until end-2024, Islamic banks and banking units are expected to submit quarterly reports for monitoring purpose. For its part, the central bank will engage with industry players to assess their readiness for the implementation of the circular by January 2025.

Currently, only Al Amanah Islamic Bank operates under Islamic banking principles in the Philippines. It has been under the control of the Development Bank of the Philippines since 2008.

The regulatory framework is in line with regulations released by the central bank in accordance with the implementation of Republic Act No. 11439 or the Act Providing for the Regulation and Organization of Islamic Banks, which was enacted in August 2019. — Luz Wendy T. Noble

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