BSP strengthens rules on bank acquisitions

Manila, Philippines - The Bangko Sentral ng Pilipinas (BSP) has strengthened its rules on the acquisition of voting shares of stock of banks particularly those that would involve a significant change in the ownership structure and controlling interests to ensure that only persons with unquestionable integrity and sound judgment become significant stockholders of banks.

The BSP issued Circular 718 series of 2011 amending certain provisions of the Manual of Regulations for Banks pertaining to transactions involving shares of stock last April 26 and signed by then BSP officer-in-charge Juan de Zuñiga Jr.

The central bank said its new policy on voting shares of stock of banks conforms with Principle 4 of the Basel Core Principles on Effective Banking Supervision which states that supervisory authorities must have the power to review and reject proposals to transfer significant ownership or controlling interests in a bank from existing stockholders to other parties.

“This is to ensure that only persons of unquestionable integrity, probity, sound judgment and financial capability, among others, can become significant stockholders who may exercise material influence on the operations of banks,” the BSP said in a press statement.

Under the existing regulations, the BSP’s seven-man Monetary Board would have to approve the acquisition of voting shares of stock that would result in a substantial ownership of voting shares of stock by any person, whether natural or juridical, or by a group of persons.

The new regulations now require both the transferor-stockholder and the transferee-stockholder to submit jointly to the appropriate department of the Supervision and Examination

Sector (SES) of the BSP the request for prior MB approval within 60 days from transaction date or 30 days from date of receipt by the bank’s Corporate Secretary of the request for registration.

The request should be accompanied by supporting documents on the suitability of the transferee-stockholder, including evidences on the integrity, probity, financial capacity, business experience, and educational background, among others, of the individual stockholders or of the persons behind the corporate stockholders.

It should also be accompanied by an affidavit attesting that the stockholder is a bona fide owner of the voting shares of stock in the bank in his or its own right, and not as a dummy of any other person, whether natural or juridical.

The new rules also provide that the bank’s Corporate Secretary should hold in abeyance the registration of acquisition of substantial voting shares of stock by any person or group of persons until the required prior Monetary Board approval is obtained.

Willful delay in the submission by the transferor and transferee of the request for prior MB approval within the prescribed period and the consequent failure to obtain the MB approval shall subject the transferor, the transferee, or both, to the appropriate criminal liability, without prejudice to the appropriate legal actions for the recession and invalidation of the transaction.

Likewise, applicable administrative sanctions should also be imposed on any director or officer of the bank found to be acting in the interest of unregistered stockholders without prejudice to the filing of appropriate criminal charges.

Furthermore, the new circular also clarified that the required prior MB approval would not only apply to acquisitions involving issued voting shares as in the case of sales transactions between old and new stockholders but also to acquisitions involving unissued voting shares as in the case of subscription to new shares or conversion of preferred shares or debt instruments into voting shares.

Monetary authorities said 2010 was a banner year for Philippine banks contributing largely to the country’s stronger-than-expected economic growth amid the fragile recovery in advanced economies led by the US as well as the debt crisis in Europe.

They believed that Philippine banks posted healthy growths in lending, deposits, and profitability in 2010 as the country posted its strongest economic growth in 34 years as the gross domestic product (GDP) posted a surprising growth of 7.3 percent last year after slackening to 1.1 percent in 2009 due to the full impact of the global financial crisis.

Earnings of the Philippine banking system went up by 31.4 percent to P91.2 billion last year from P69.4 billion in 2009 on the back of the industry’s strong interest and non-interest income.

The banking industry posted a capital adequacy ratio (CAR) level of 16.04 percent on a solo basis in the third quarter of last year from 15.23 percent in the second quarter and 16.97 percent on a consolidated basis from 16.21 percent. The level remained well above the international benchmark ratio of eight percent and the BSP’s own 10-percent minimum requirement.