The Bangko Sentral ng Pilipinas (BSP) on Wednesday announced it has relaxed rules for Islamic banking units (IBUs) to develop the country’s Islamic banking industry.
Under the amended regulations, the BSP said that IBUs are not subject to a separate capital requirement. Conventional banks with IBUs will instead follow the capital requirements and license processing fees applicable to their corresponding bank category.
“We want to encourage more players to enter and help develop the Philippine Islamic finance market. This supports our goals of inclusive growth and a more diverse financial sector,” said BSP Governor Eli Remolona Jr.
The updated rules also institutionalize a three-year observation period for the submission of prudential reports on Islamic banking operations starting from their launch.
IBUs are no longer required to submit a separate liquidity report, as this can now be integrated with a bank-wide liquidity report.
The BSP said Islamic banking and finance enable Muslims to access formal financial products and services that comply with Islamic teachings, such as the prohibition of interest, while also offering alternative financial services for non-Muslims.
The BSP aims to promote financial inclusion in the country, which involves catering to the unique financing needs of the Muslim community, among others.
Islamic banking refers to a banking or financing activity that upholds the principles of Shari’ah, based on justice, fair dealings and harmony through the equitable distribution of wealth. It is anchored on two fundamental concepts: prohibition of interest and sharing of risk and reward.
Fitch Ratings said it expects the Islamic finance industry in the Association of Southeast Asian Nations (ASEAN) to reach $1 trillion by end-2026, after growing to nearly $950 billion by the first half of 2025. The industry’s growth will continue to be led by Malaysia, Indonesia, and Brunei, Fitch projected, citing their large Muslim populations which enable regulations, accessibility to the Islamic bond sukuk, and potential for stronger ties with countries from the Gulf Cooperation Council (GCC).
Demand for Islamic finance in ASEAN remains fragmented, with a limited presence in Singapore, the Philippines and Thailand, Fitch said. In the Philippines, the outstanding sukuk has remained flat since its first sovereign issuance in 2023.
The sole Islamic bank in the country had assets of $20 million, significantly lower than Brunei’s nearly $10 billion in Islamic banking assets at the end of 2024.
