CONDITIONS FOR THE GRANT TO BANK OF AUTHORITY TO CONVERT INTO A LOWER CATEGORY

The Monetary Board, in its Resolution No. 266 dated 18 February
2000, approved the following conditions for the grant to banks of
authority to convert into a lower category:

1.         That the bank must have complied with the end-2000
minimum capital requirement and other laws/regulations applicable to the
lower bank category into which it is converting. For this purpose, the
term “capital” shall be as defined under Section X106 of the Manual of
Regulations for Banks (i.e., net of unbooked valuation reserves and
other capital adjustments as may be required by the Bangko Sentral ng
Pilipinas, among others);

2.         That the conversion to a lower category shall be effective upon receipt of notice of the approval of downgrading; Provided,
That the bank immediately thereafter shall not engage in nor renew
transactions under authorities not associated with that allowed for the
lower bank category into which it is converting and within six (6)
months from date of receipt of notice of approval of its application for
conversion, the bank shall phase-out all inherent powers and activities
under special authorities not normally associated to the lower bank
category into which it is converting; Provided, further, That a
thrift bank (previously authorized by the Monetary Board to accept
demand deposits) may be allowed to retain such authority when converting
into a rural bank but may clear checks only through a correspondent
bank and shall not be allowed to participate directly in the Philippine
Clearing House Corporation and the Bangko Sentral ng Pilipinas check
clearing operations; Provided, finally, That for failure to comply with these requirements, the following monetary and non-monetary penalties shall be imposed:

a)         Monetary penalties
From EKB to Non-EKB	P30,000/day
From Non-EKB to TB	P15,000/day
From TB to RB
Within Metro Manila	P5,000/day
Outside Metro Manila	P500/day
b)         Non-monetary penalties
Suspension of branching privileges;
Suspension of declaration of cash dividends;
Restriction on lending to affiliates;
Denial of access to BSP rediscounting facilities;
Suspension of authority to accept or handle government deposits;
Suspension of authority to engage in derivative activities (for an EKB converting into a non-EKB); and
Suspension of authority to invest in allied undertakings,

3.         That a bank which has not corrected as of date of
application the major findings/violations noted in its latest
examination shall submit upon application a Memorandum of Understanding
that it shall correct the same within a period of six (6) months from
date of receipt of notice of approval of its application, otherwise, the
same monetary and non-monetary penalties mentioned in Item “2” above
shall be imposed;

4.         That the bank shall submit the pertinent amended Articles
of Incorporation and By-Laws duly registered with the Securities and
Exchange Commission within six (6) months from date of receipt of notice
of approval of its application; and

5.         That the bank shall fully disclose its new status in its signage, financial statements and stationeries.

The same conditions and sanctions mentioned in Items “1” to “5”
above shall apply to all banks which have downgraded or with approved
downgrading prior to the effectivity of this Circular; Provided,
That the penalties mentioned in Items “2” and “3” above shall be
reckoned from their respective prescribed deadlines or within six (6)
months from date of this Circular if no such deadline is prescribed.

This Circular shall take effect immediately.

Adopted: 13 March 2000

(SGD.) RAFAEL B. BUENAVENTURA
Governor