Circular No. 1219: Amendments to Prudential Regulatory Guidelines in Islamic Banking

BANGKO SENTRAL NG PILIPINAS
OFFICE OFTHE GOVERNOR clRcuLAR No.lag
Series of 2o25
Subject: Amendments to Prudential Regulatory Guidelines in lslamic Banking The Monetary Board, in its Resolution No. lOO3 dated 9 October 2025, approved the following amendments to prudential regulatory guidelines on lslamic banking.
Section l. Section lO2 of the Manual of Regulations for Banks (MORB), as
amended by Circular Nos. l'173 dated 19 April 2023, ll8o dated lO November 2023, and l2O5 dated 26 December 2o.24 is hereby further amended to read, as follows:
IO2. BASIC GUIDELINES IN ESTABLISHING DOMESTIC BANKS xxx.
Establishment of lBs and Islamic banking units XXX
c. Capitalization.The minimum capitalization requirements for a UB shall apply
to a full-fledged lB. A conventional bank that complies with the capital requirements applicable to its banking category may be allowed to operate an lBU. lBs may take the necessary steps to have their shares of stock listed in any duly registered stock exchange. d. Covernance. xxx. xxx BusinessNamd a. lJBs/KBs.xxx xxx d. Digital Banks. xxx e. lBs. Only a bank duly authorized by the Bangko Sentral to operate as a full￾fledged lB may use and affix the words lslamic bankin its business name. Ba n k Adve rt ise m e nfs. xxx xxx
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Section 2. The provisions under Appendix 139 of the MORB on the Prudential
Regulations for lslamic Banks (lBs) and lslamic Banking Units (lBUs), are hereby amended to read. as follows:
PRUDENTIAL REGULATIONS FOR ISLAMIC BANKSAND ISLAMIC BANKINC UNITS (Appendix to Sec. IO2) xxx. "Sec.2 Licensing of an lBU. Applicants which intend to engage in IBU are required to complywith the following minimum requirements:
a. xxx b. The applicant shall submit a corporate plan which describes the organization and business model to be used in delivering lslamic banking products and services to its clients. The application for authority to establish an IBU shall be categorized as a Type A license as defined in Sec. l'll, and shall be subject to the payment of applicable fees as prescribed therein. The establishment of a new branch or branch-lite unit (BLU) for the IBU operations shall be subject to the guidelines in Sec.1O5, including the payment of prescribed processing fees based on the bank's category. The operation of lBUs within existing branches or BLUs shall not be subject to any fee, but shall require prior written notification - submitted through the bank's Chief Compliance Officer and Head of Branch Banking Operations - to the appropriate supervising department of the Bangko Sentral, at least ten (lO) banking days before the intended opening. The authority to establish an IBU shall be automatically revoked if the IBU is not commenced for businesswithin one (l)year after receipt bythe bank of the notice of approval by the Monetary Board of their application. Sec.3 Commencement of Operations. xxx. xxx Sec. 6 Submission of the Financial Reporting Package for Banks and Supplemental Report. lBs and conventional banks with IBU shall prepare prudential reports to the Bangko Sentral using the existing templates of the Financial Reporting Package (FRP) for Banks as prescribed under Section 172 and
Appendix 81, and in accordance with the submission guidelines provided under
Appendix 7 based on the bank's category. The submitted reports shall include
the Supplemental FFIP Report for lslamic Banks (lBs)and lslamic Banking Units (lBUs), which considers the mapping of selected accounts unique to the operations of an lB/lBU to the existing FRP templates, as provided under ltem ll ofAnnex A. To facilitate the generation of industry statistics on the lslamic banking system, selected information on accounts and transactions of an lB and lBU, shall likewise, be separately reported in the Supplemental FRP Report for lslamic Banks (lBs) and lslamic Banking Units (lBUs), which shall be considered a Category A-l report. The supplemental report shall be submitted to the Bangko Sentral-Department of Supervisory Analytics (DSA), in accordance with the submission timeline of the FRP.

There shall be an observation period of three (3) years reckoned from the date of commencement of lslamic banking operations on the submission to the Bangko Sentral of the Supplemental FRP Report for lslamic banks (lBs) and lslamic Banking Units (lBUs) and other prudential reports related to their lslamic banking operations, to allow new lBs and lBUs to familiarize with the data requirements and prescribed guidelines and to make the necessary system enhancements/adjustments. Full implementation of the prudential reporting requirements shall commence after the obseruation period.
Section 3. The provisions under Section .|45 of the MORB, as amended by
Circular No.1189 dated 27 February 2o24 on the lmplementation of Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) for lslamic banks and lslamic banking units are hereby amended to read, as follows:
r45 LlQUlDlry RISK MANAGEMENT. xxx.
Net Stable Funding Ratio (NSFR). xxx. xxx. lmplementation of Liq u idigr Standa rds/Patios for I Bs/lBUs. The Bangko Sentral adopts a progressive approach in implementing the liquidity standard and ratios for lBs/BUs to address the unique specificities of lslamic banking operations, the evolving landscape of liquidity risk management in the lslamic banking system, and the limited availability of liquidity management instruments which are appropriate for lBs/BUs. lBs shall be subject to the LCR and the NSFR, consistent with the standards prescribed under this Section and its related appendices, and the general principles set out under Part Xl of Appendix 71, AppendixT2 and Appendix l3O. Compliance with the liquidity ratios shall be evaluated/determined on a bank￾wide basis. In this regard, lBUs shall not be required to submit separate LCR, NSFR, or Minimum Liquidity Ratio (MLR) reports to the Bangko Sentral. Instead, the liquidity positions, activities, and transactions of an IBU shall be consolidated into the bank-wide reports submitted by the conventional bank proper. In consolidating, the conventional banks shall observe appropriate mapping of IBU operations in accordance with the guidelines under Part Xl of Appendix 7l and related provisions under Appendix 72, consistent with the applicable liquidity standards for their bank category. Conventional banks shall integrate IBU operations within their internal governance, risk management, and oversight frameworks, including regular assessment and reporting to the Board and senior management. The Bangko Sentral, on its part, shallcontinuously review and keep an open line of communication with stakeholders to ensure that the regulatory framework remains appropriate and relevant. As the domestic lslamic banking market is still in its earlystage of development, the Bangko Sentral shall adopt a flexible approach on regulatory compliance, including the submission of required reports. lt shall engage and be responsive to the market players and new entrants to the lslamic banking system in implementing the minimu m liquidity requirements. Superuisory framework for the minimum prudential liquidity requirements.

Section 4. The provisions under Part Xl, Appendix 7| of the MORB on the
Guidelines on Liquidity Risk Management are hereby amended to read, as follows:
GUIDELINES ON LIQUIDITY RISK MANACEMENT
(Appendix to Sec.145) xxx
Xl. GUIDELINES FOR lBs and lBUs
The provisions of this Appendix apply, as appropriate, to lBs and lBUs. The lBs/lBUs are expected to have written policies on liquidity risk management. For the lBUs, their assets and liabilities are segregated from those of the conventional bank proper, thus lBUs are expected to establish their separate liquidity management arrangements. The lBsIBUs shall consider the following:
l. xxx
"Debt instruments" should be taken to include sukuk or the lslamic alternative to bonds. Sukuk, subject to meeting the requirements for eligibility, rank as'eligible securities' for HQLA (or considered as eligible stock of liquid assets for MLR reporting). Sukuk issued by the International lslamic Liquidity Management Corporationr and other similar organizations as may be determined by the Bangko Sentral, should be treated as though they were issued by multilateral development banks. In developing a funding strategy and a contingency funding plan, lBs/lBUs should consult their Shari'ah Advisory Council (sAC)'?. Any instruments to be used in liquidity management should be acceptable to the SAC and meet the prudential eligibility requi rements. lBs/lBUs should also assess the liquidity risk arising from the various mode of Shari'ah-compliant financing that they employ, including any risk transformation that may take place at different stages thereof. For example, if a customer has an option to cancel a transaction, the exercise of that option may cause the lB/lBU to hold an asset that it may need to dispose even under stressed market conditions.
5. lBs/BUs 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 lBUs and the bank proper, including the instruments that can be used for this purpose. All cash placements made by the lBllBU with another financial institution shall be treated in the same way as deposits. 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 qualiffing liabilities that are included in the consolidated MLR of the conventional bank proper. The International lslamic Liquidity Management Corporation or llLM is an international organization established by central banks. monetary authorities and multilateral organizations to create and issue Shari'ah-compliant financial instruments to facilitate effective cross-border lslamic liquidiry management. Or Shari'ah adviser or consultant as the case may be, per Section 139. 2. 3. 4. 7.

Section 5. The provisions under Part lll, Appendix 72 of the MORB on the Basel lll
Framework on Liquidity Standards-Liquidity Coverage Flatio are hereby amended to read. as follows:
BASEL Iil FRAM EWORK ON LtQUtDtTy STAN DAR DS-L|QU rDrTY COVERAGE RATIO (Appendix to Sec. 145 on Liquidity Coverage Patio ILCRJ, LCP Disclosure Peg u irements, a nd Sa nctions) xxx.
Part lll. Applicabilityto lBs and lBUs
The provisions of this Appendix shall apply to lBs/lBUs, subject to the provisions of Section Xl 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. Further, lBs/lBUs shall consider the following guidelines:
l. 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 ltem'1", the
qualiffing 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 included in the consolidated LCR of the conventional bank proper.
Section 6. The provisions under ltem E, Appendix
Guidelines on the Bangko Sentral lmplementation of the (NSFR) are hereby amended. 130 Net of the MORB on the Stable Funding Ratio CUIDELINES ON THE BANGKO SENTRAT IMPLEMENTATION OF THE NET STABLE FUNDING RATIO (NSFR) xxx. E. Guidelines for lBs
68. The provisions of this Appendix apply to lBs, subject to the provisions of
Section Xl of Appendix V,which requires, among others, that the instruments to be used
in liquidity management must be acceptable to the Shari'ah Advisory Council. Further, financings provided by the lB shall be treated in the same way as loans of similar type advanced by a conventional bank and sukuk held by the lB shall be treated in the same way as debt securities of similar type held by a conventional bank.
Section 7. Effectivity. This Circular shall take effect fifteen (15) calendar days after
its publication either in the Official Gazette or in a newspaper of generalcirculation. FOR THE MONETARY BOARD:
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4rrM. REM.L.NA,JR. f7 october2o2S
Governor