Philippines: Establishment of Islamic banking pushed

MANILA – The Bangko Sentral ng Pilipinas (BSP) is pushing for the establishment of Islamic banking in the country to support the requirements of Muslims and of economic development in Mindanao.

This is one of the proposed amendments to the BSP charter or Republic Act No. 7653.

BSP Deputy Governor Vicente Aquino said the BSP plans to structure credit facilities to Islamic banks in accordance with the principles of Islamic finance.

“Islamic banks should be granted similar privilege to avail of BSP credit facilities,” he said.

BSP Deputy Governor Nestor Espenilla said the central bank aims to develop separate regulation for the Islamic banking system, allowing it to operate on a larger scale.

The country has one Islamic bank, Al-Amanah, a subsidiary of Development Bank of the Philippines (DBP). “Its operation (Al-Amanah) is only small scale. This will pave way for Islamic banking system,” Espenilla said, referring to the proposed amendments to the BSP charter.

He cited the no-interest rate rule of Isalmic finance.

“We want to create inclusive banking system including financial service to Islamic community. We will also allow foreign Islamic banking as an investor,” Espenilla said.

Besides financial facilities for Islamic banks, the proposed amendments to the BSP charter also include the following:

Additional BSP capitalization of P150 billion, which is payable in three years;
Restoration of tax exemption to support increase in dividends;
Flexibility to establish adequate loss allowances and create reserve buffers against future risks and contingencies;
Enhancements to credit operations;
Restoration of BSP authority to obtain data from private individuals and institutions;
Proposed consultation with the BSP before licenses of banks and entities be revoked by other government entities;
Strengthening of administrative and criminal sanctions;
Enhance resolution mechanism to deal with problem financial institutions;
Allow full flexibility to conduct risk based supervision;
Accord legal protection for BSP officials and staff when performing duties; and
Lifting of the deposit confidentiality laws