THE BANGKO SENTRAL ng Pilipinas (BSP) is looking into reducing the minimum capital requirement needed to set up Islamic banking units to attract more players.

“We are conducting a policy study to liberalize and relax the minimum capital requirement for Islamic banking units so that there will be other kinds of conventional banks that would be open to explore opening Islamic banking units,” Noel P. Tianela, deputy director and head of the BSP’s Islamic Banking Supervision Group, said at a virtual briefing on Thursday.

The minimum capital required to set up an Islamic bank is the same as those for universal banks.

Under the BSP’s Manual of Regulations for Banks, a universal lender looking to establish just a head office is required to put up capital of at least P3 billion, while one with 10 branches or less needs to have a minimum of P6 billion in buffers. Those with 11-100 branches are required to have at least P15 billion in capital, while the minimum for those with more than 100 branches is P20 billion.

BSP Governor Benjamin E. Diokno earlier said they have received a number of queries for the establishment of Islamic banks and banking units, although no application has been submitted.

“The inquiries include one relating to the establishment of a foreign Islamic bank within a foreign bank. However, the discussion on this is still on the exploratory stage,” the central bank chief said on Thursday.

“Pre-pandemic, a few conventional banks signified interest, but no formal application has been filed yet. Potential players are perhaps still conducting their research,” Mr. Diokno added.

In 2019, the central bank released the framework for the establishment of Islamic banks. This followed the signing of Republic Act 11439 in the same year, which mandated the central bank to regulate these types of lenders.

Islamic banking principles operate without the involvement of riba or interest, which is prohibited under the Shari’ah law. These lenders also issue funding instruments called “sukuk” for their operations and capital needs.

Mr. Diokno said the BSP is doing research regarding profit sharing investment accounts as well as the capital adequacy ratio for Islamic banks.

“Capacity building is needed to upskill the knowledge and address the technical capability requirements of participants from both public and private sector,” he said. 

The BSP has teamed up with the Bangsamoro Government, National Commission on Muslim Filipinos, and the Department of Finance on establishing a Shari’ah Supervisory Board (SSB) in the Bangsamoro Autonomous Region in Muslim Mindanao, pursuant to the Bangsamoro Organic Law. The SSB will give Shari’ah compliance oversight for the Islamic banking and finance industry in the region.

Al Amanah Islamic Bank is the only Islamic bank operating in the country. It is under the Development Bank of the Philippines.

Meanwhile, at the same briefing, Mr. Diokno said more rural banks are now participating in the country’s real-time gross settlement system for interbank transactions and government collections, also known as the PhilPASS Plus.

The system facilitates the flow of large value payments for major transactions, as well as retail payment clearing for checks, ATMs, InstaPay, and PESONet.

“Participating rural banks increased by 21.7% to 101 at end-February this year from 83 in 2020. Moreover, 26.2% of the 386 rural banks in the country are already onboard PhilPaSS Plus,” he said.

More rural banks joining the PhilPASS Plus will help boost financial inclusion, Mr. Diokno said.

“We also see an uptrend in PhilPaSS Plus transactions amid its increased membership and the improving economic climate as our country recovers from the pandemic,” he said.

Transaction volume through the system rose 15.1% from 2019 to February 2022, while value doubled to more than P45 trillion.

The central bank earlier announced it will waive PhilPASS plus fees until the end of 2022 to extend its relief measure for financial institutions. — L.W.T. Noble