BSP Circular 1219: Amendments to Prudential Regulatory Guidelines in Islamic Banking

BSP Circular No. 1219 (Series of 2025) updates the MORB rules on Islamic Banks (IBs) and Islamic Banking Units (IBUs). It clarifies capitalization and naming rules, refines IBU licensing requirements, strengthens prudential reporting, and updates liquidity risk standards for IBs and IBUs.

Key Changes

Capitalization alignment: minimum capitalization for a universal bank applies to full-fledged IBs; conventional banks meeting capital requirements may operate an IBU.
Business name rule: only BSP-authorized full-fledged IBs may use "Islamic bank" in the business name.
IBU licensing details: corporate plan requirement and classification as a Type A license.
Branch/BLU rules for IBUs: new branches/BLUs follow Section 105 guidelines and fees; IBUs in existing branches require prior written notice at least 10 banking days before opening.
Automatic revocation of IBU authority if operations do not commence within one year from approval notice.
Supplemental FRP reporting required for IBs and IBUs, with mapping to existing FRP templates.
Three-year observation period before full implementation of prudential reporting for new IBs/IBUs.
Liquidity standards updated: IBs are subject to LCR and NSFR; IBUs are consolidated into bank-wide reports with proper mapping.
Sukuk treatment: eligible sukuk count as HQLA/eligible liquid assets; IILM sukuk treated as MDB-issued securities.
Shari'ah governance: liquidity instruments must be acceptable to the Shari'ah Advisory Council (SAC).

Who Is Affected

Full-fledged Islamic Banks (IBs).
Conventional banks operating or applying for an Islamic Banking Unit (IBU).
Banks consolidating IBU activities for liquidity reporting and governance.
Compliance, risk, and reporting teams handling FRP submissions and liquidity standards.

Effective Date & Transition

The circular takes effect 15 calendar days after publication in the Official Gazette or a newspaper of general circulation. New IBs/IBUs have a three-year observation period from commencement of Islamic banking operations before full implementation of supplemental prudential reporting.

Compliance Actions Checklist

Confirm capitalization compliance for full-fledged IBs or IBU operations.
Review business name usage to ensure only BSP-authorized IBs use "Islamic bank."
Update IBU license applications with the required corporate plan and ensure Type A license classification.
Plan branch/BLU openings under Section 105 rules and submit notice for IBUs in existing branches at least 10 banking days ahead.
Prepare supplemental FRP reporting for IB/IBU-specific account mapping to existing FRP templates.
Align reporting timelines with FRP submission schedules to the BSP-Department of Supervisory Analytics (DSA).
Integrate IBU liquidity data into bank-wide LCR/NSFR and MLR reporting, with correct mapping.
Review liquidity instruments for Shari'ah compliance and eligibility for HQLA/MLR reporting.

Liquidity Risk Management Highlights

Bank-wide consolidation

IBUs do not submit separate LCR/NSFR/MLR reports.
IBU liquidity positions are consolidated into the conventional bank’s reports.

Sukuk treatment

Eligible sukuk can be treated as HQLA or eligible liquid assets for MLR.
IILM sukuk are treated like MDB-issued securities for eligibility.

Governance

Liquidity instruments must be acceptable to the SAC.
Banks should assess liquidity risks across Shari'ah-compliant financing modes.

FAQs

Do IBUs need to submit separate LCR or NSFR reports? No. IBU liquidity data is consolidated into the bank-wide LCR/NSFR reports.

Is there a transition period for reporting? Yes. A three-year observation period applies before full implementation of supplemental prudential reporting.

Can a conventional bank call itself an Islamic bank? No. Only BSP-authorized full-fledged IBs may use "Islamic bank" in the business name.