AMENDMENTS TO REGULATIONS ON DIVIDEND DECLARATION AND INTEREST PAYMENTS ON TIER L CAPITAL INSTRUMENTS

Section 1. The following sections/subsections of the MORB are hereby amended as follows:

“Sec. X136 Dividends.
The following rules and regulations shall govern the declaration  of
dividends  on shares  of stock,  regardless  of feature,  as well  as
interest payments on unsecured subordinated debt which meet the
qualification requirements  of  Additional  Tier  1  or  Hybrid  Tier 
1  capital  as  defined  under existing risk-based capital adequacy
framework.

“Pursuant to Section 57 of R.A. No. 8791, no bank
shall declare dividends greater  than its accumulated  net profits  then
on hand, deducting  therefrom  its losses and bad debts. Neither shall
the bank declare dividends if, at the time of declaration, it has not
complied with the provisions of Subsec. X136.2.”

Ҥ X136.1 Definitions. For purposes of this Section, the following definitions shall apply:

“xxx”

Ҥ X136.2 Requirements on the declaration of dividends. At the time of declaration, banks shall have complied with the following:

“a.  clearing account with the Bangko Sentral is not overdrawn;
“b.  Liquidity floor requirement for government funds;
“c. 
Minimum  capitalization   requirement   and  risk-based  capital 
ratios  as provided under applicable and existing capital adequacy
framework;
“d.  Capital conservation buffer requirement as defined in
Appendix 63b, Part III, for universal and commercial banks (U/KBs) and
their subsidiary banks and quasi-banks (QBs);
“e.  Higher loss
absorbency requirement, phased-in starting 1 January 2017 with full
implementation by 1 January 2019, in accordance with Domestic
Systemically Important Banks (DSlBs) Framework as provided under
Circular No. 856 dated 29 October 2 014, for U/KBs and their subsidiary banks and QBs that are identified as DSIBs; an

“f.  
Has not committed  any unsafe or unsound banking practice as defined
under existing regulations and/or major acts or omissions^[1]  as may be
determined by  the  Bangko  Sentral  to  be  ground  for  suspension 
of  dividend  distribution, unless this has been addressed by the bank
as confirmed by the Monetary Board or the Deputy Governor,  SES, as may
be applicable,  upon recommendation  of the appropriate department of
SES.

“Banks shall ensure compliance with the minimum capital
requirements  and risk-based capital ratios even after the dividend
distribution.”

“§ 3136.2 Limitations/Amount available for dividends declared by rural banks  and  cooperative   banks.  The  following  rules  shall  also  govern  the declaration of dividends by RBs and Coop Banks.

“a.  Reserve for retirement of government preferred stock.
In addition to the requirements prescribed in Subsec. X136.2, an
RB/Coop Bank may declare cash dividends only if the amount of its
reserve for retirement of government preferred stock is at least equal
to the amount which should have been accumulated  had the bank
transferred annually to the reserve account from its undivided profits
an amount equal to at least an average of one-tenth (1/10) of the total
amount of preferred stock; and

“(1) 
Held  prior  to  09  June  1992.  Whenever  dividends  of  not  less 
than fourteen  percent  (14%)  are declared  on common  stock, 
government  preferred stock shall be entitled to a cash dividend not to
exceed two percent (2%) of total outstanding preferred stock. Should the
dividends declared on common stock be less than fourteen percent (14%),
the dividend on preferred stock shall be proportionately reduced.

“(2)
Held on or after 09 June 1992. Shares held by the LBP, DBP, or by any
government-owned  or-controlled  bank or Fl shall share in dividend
distributions from the date of issuance  in the amount  of four percent 
(4%) on the first and second years six percent (6%) on the third and
fourth years; eight percent (8%) on the fifth and sixth years; ten
percent (10%) on the seventh and eighth year; and twelve percent (12%)
on the ninth to the fifteenth years, which shall be cumulative:
Provided, That the RB and the government-owned  or controlled bank are 
not  precluded   from  entering  into  an  agreement   providing   for 
rates  of dividends other than those prescribed by law.

“(3) Held
on or after 13 September 2013. Shares held by the LBP, DBP, or by any
government-owned or-controlled bank or Fl shall share in dividend
distributions  from  the  date  of  issuance  in  an  amount  based  on 
the  lending benchmark approved by the Bangko Sentral plus the
prevailing non-prime spread of the government Fl: Provided, That the RB
and the government-owned or – controlled bank are not precluded from
entering into an agreement providing for rates of dividends other than
those prescribed by law.

“§X136.3  Net amount  available  for dividends.  The
net amount available for dividends shall be the amount of unrestricted
or free retained earnings and undivided profits reported in the
Financial Reporting package (FRP) as of the calendar/fiscal year-end
immediately preceding the date of dividend declaration.

“The
derivation of the amount of dividends from the unrestricted/free
retained earnings shall be based on a sound accounting system and loss
provisioning processes under existing regulations which takes into
account relevant capital adjustments including losses, bad debts and
unearned profits or income.^[2]”

Ҥ X136.4 Reporting and
verification. Declaration of dividends shall be reported by the bank
concerned to the appropriate department of the SES within ten (10)
banking days after date of declaration in the following manner:

“a.
submission of a duly notarized certification (Annex A) signed by the
President,  or  an  officer  of  equivalent  rank,  and  the  Chief 
Compliance  officer stating that the bank has complied with the
requirements on the declaration of dividends provided under Subsec.
X136.2, and, in the case of rural banks and cooperative  banks, 
Subsec.  3136.2,  as well as other  existing  applicable  laws; and

“b.  Submission of the Report on Dividends Declared (Annex B), which shall be considered a Category A-1 report.

“However, 
banks  with  major  supervisory  concerns  such  as  those  initiated
under prompt corrective action (PCA) or with specific MB directive to
suspend/ refrain/restrict dividend declaration, shall be subject to
prior Bangko Sentral verification by the appropriate department of the
SES. Pending verification of abovementioned  reports, no announcement or
communication on the declaration of dividends  nor  shall  any 
payment  be  made  thereon  until  receipt  of Bangko Sentral advice
thereof.”

“§ X136.5 Recording of dividends. The liability for dividends declared shall be taken up in the bank’s books upon its declaration.

“However,
for dividend declarations that are subject to prior Bangko Sentral
verification,  the liability  for dividends  declared  shall be taken 
up in the bank’s books upon receipt of Bangko Sentral advice thereof. A
memorandum entry may be made to record the dividend declaration on the
date of approval by the board of directors.

“For full disclosure
purposes, the dividends declared shall be disclosed in the financial
statements either as a footnote in the statement of changes in equity or
in the notes to the financial statements. For dividends declared that
is still subject to prior Bangko  Sentral  verification,  disclosure  by
means  of a footnote  should include a statement to the effect that the
dividend declaration is subject to review by the Bangko Sentral.”

“§  X136.6  Issuance  of  fractional  shares.  Whenever 
the  declaration  of stock dividend  results in the issuance  of
fractional  shares, banks may observe the following guidelines:

“x x x”

“§ X136.7 – X136.9 (Reserved)”

“§  X136.10  Supervisory  Enforcement  Actions.  Consistent 
with  Circular No.  875  dated  15  April  2015,  the  Bangko  Sentral 
may  deploy  enforcement actions to promote adherence with the rules
and regulations governing dividend declaration  and bring about timely
corrective  actions. The Bangko Sentral may issue directives to
suspend/refrain/restrict  from performing a particular activity, or
impose sanctions to limit the level of or suspend any business activity
that has adverse effects on the safety or soundness of the bank, among
others. Sanctions may  likewise   be  imposed   on  a  bank  and/or  
its  directors,   officers   and/or employees.

“The imposition of
sanctions shall be without prejudice to the imposition of
administrative  sanctions  under Section 37 of R.A. No. 7553 including
declaring as unsafe or unsound (as defined under Section 56 of R.A. No.
8791) the inappropriate dividend declarations, and/or to the filing of
appropriate criminal charges against culpable persons as provided under
Section 35 of R.A. No. 7653 for the willful making of a false/misleading
statement.

“Further,  banks  subsequently   found  to  have 
violated  the  provisions  on dividend  declaration  or  have  falsely 
certified/submitted  misleading  statements shall be reverted to the
prior Bangko Sentral verification  wherein the bank can only make an
announcement  or communication  on the declaration  of dividends or
payment of dividends thereon^[3]  upon receipt of Bangko Sentral advice
thereof.”

“Sec. X137 (Reserved)”

“Sec. 1137 (Reserved)”

“Sec. 2137 (Reserved )”

“Sec.  3137  Limitations/Amount   Available  on  Dividends  Declared  by Rural  Banks  and  cooperative  Banks.  (Deleted  by Circular  No. 888  dated  9 October 2015)

§ 3137.1 Dividends  on government  shares (Deleted by Circular No. 888 dated 9 October 2015)

“Secs. X138 – X140 (Reserved)

Ҥ X126.5 Issuance of redeemable shares: conditions; certification and report; sanctions

“a.  Conditions.  Banks conditions:  may issue redeemable  shares subject to the following conditions:

(1)  xxx
(2)  xxx
(3)  The applicant bank after xxx: (a)  xxx
(b)  xxx
(c)  xxx
(d) 
No  dividend  shall  be  declared  or  paid  on  redeemable  shares 
in  the absence of sufficient undivided profits, free surplus.”

“xxx.”

Section 2. The following sections/subsections of the MORNBFI are hereby amended as follows:

“Sec. 4136Q (2008-4126Q) Dividends. The
following rules and regulations shall  govern  the  declaration  of 
dividends  on  shares  of  stock,  regardless  of feature,  as  well 
as  interest  payments  on  unsecured  subordinated  debt  which meet
the qualification requirements of Additional Tier 1 as defined under
existing risk-based capital adequacy framework.

“Pursuant  to
Section  57 of R.A. No. 8791,  no QB shall declare  dividends greater 
than its accumulated  net profits  then on hand, deducting  therefrom 
its losses and bad debts. Neither shall the QB declare dividends if, at
the time of declaration, it has not complied with the provisions of
Subsec. 4136Q.2.”

“§ 4136Q.1  (2008  – 4126Q.1)  Definitions  of terms.  For purposes  of this
Section, the following definitions shall apply: “xxx”
Ҥ 4136Q.2 (2008 Р4126Q.2) Requirements on the declaration of dividends/net amount available for dividends.

“a.  Requirements on the declaration of dividends. At the time of declaration, QBs shall have complied with the following:
 
“(1) Clearing account with the BSP is not overdrawn;
“(2)
Minimum  capitalization   requirement   and  risk-based  capital 
ratios  as provided under applicable and existing capital adequacy
framework;
“(3) Capital  conservation  buffer  requirement  as 
defined  in Appendix  Q-46, Part III, for QBs that are subsidiaries of
universal and commercial banks (U/KBs); “(4) Higher loss absorbency
requirement, phased-in starting 1 January 2017
with  full  implementation   by  1  January  2019,  in  accordance   with  Domestic
Systemically Important Banks (DSlBs) Framework as provided under Circular No.
856 dated 29 October 2014, for QBs that are subsidiaries of U/KBs identified as
DSIBs; and
“(5)
Has  not  committed  any  unsafe  or unsound  practice  as  defined 
under existing regulations and/or major acts or omissions^[4]  as may
be determined by the Bangko Sentral to be ground for suspension of
dividend distribution, unless this has  been  addressed  by  the  QB 
as  confirmed  by  the  Monetary  Board  or  the Deputy Governor, SES,
as may be applicable, upon recommendation of the appropriate department
of SES.

“QBs  shall  ensure  compliance  with  the  minimum 
capital  requirement  and risk-based capital ratio even after the
dividend distribution.

“b. Amount available. The net amount
available for dividends shall be the amount of unrestricted or free
retained earnings and undivided profits reported in the   Bangko  
Sentral   prudential   reports   as   of   the   calendar/fiscal  
year-end immediately preceding the date of dividend declaration.

“The
derivation of the amount of dividends from the unrestricted/free
retained earnings shall be based on a sound accounting system and loss
provisioning processes under existing regulations which takes into
account relevant capital adjustments including losses, bad debts and
unearned profits or income.^[5]”

“§ 4136Q.3 (Reserved)”

“§ 4136Q.4  (2008  – 4126Q.3)  Reporting  and verification. 
Declaration  of cash  dividends  shall  be  reported  by  the  QB 
concerned  to  the  appropriate department of the SES within ten (10)
business days after date of declaration in the following manner:

“a. 
Submission  of a duly notarized certification  (Annex A) by the
president, or an officer of equivalent rank, and the Chief Compliance
officer stating that the QB has complied with the requirements on the
declaration of dividends provided under Subsec. 4136Q.2, as well as
other existing applicable laws; and

“b.  Submission of the Report on Dividends Declared (Annex B), which shall be considered a Category A-1 report.

“However, 
QBs  with  major  supervisory  concerns  such  as  those  initiated
under prompt corrective action (PCA) or with specific MB directive to
suspend/ refrain/restrict dividend declaration, shall be subject to
prior Bangko sentral verification by the appropriate department of the
SES. Pending verification of abovementioned  reports, no announcement or
communication on the declaration of cash dividends nor shall any
payment be made thereon until receipt of Bangko Sentral advice thereof.”

“§ 4136Q.5 (2008 – 4126Q.4) Recording of dividends. The liability for cash dividends declared shall be taken up in the QB’s books upon its declaration.

“However,
for dividend declarations that are subject to prior Bangko Sentral
verification, the liability for cash dividends declared shall be taken
up in the QB’s books upon receipt of Bangko Sentral advice thereof. A
memorandum entry may be made to record the dividend declaration on the
date of approval by the board of directors.

“For full disclosure
purposes, the cash dividends shall be disclosed in the financial
statements as a footnote in the statement of changes in equity or in the
notes to the financial  statements.  For dividends  declared  that is
still subject to prior  Bangko  Sentral  verification,  disclosure  by 
means  of  a  footnote  should include a statement to the effect that
the dividend declaration is subject to review by the Bangko Sentral.”

“§ 4136Q.6 (Reserved)”

“§ 4136Q.7  (2008 – 4126Q.5)  Rules on declaration  of stock dividends. The declaration of stock dividends shall be subject to the preceding regulations on declaration of cash dividends.

“§ 4136Q.8 – 4136Q.9 (Reserved)”

“§ 4136Q.10  Supervisory  Enforcement  Actions. 
Consistent  with Circular No.  875  dated  15  April  2015,  the 
Bangko  Sentral  may  deploy  enforcement actions to promote adherence
with the rules and regulations governing dividend declaration  and bring
about timely corrective  actions. The Bangko Sentral may issue
directives to suspend/refrain/restrict  from performing a particular
activity, or impose sanctions to limit the level of or suspend any
business activity that has adverse effects on the safety or soundness of
the QB, among others. Sanctions may likewise be imposed on a QB and/or
its directors, officers and/or employees.

“The imposition of
sanctions shall be without prejudice to the imposition of
administrative  sanctions  under Section 37 of R.A. No. 7653 including
declaring as unsafe or unsound (as defined under Section 56 of R.A. No.
8791) the inappropriate dividend declarations, and/or to the filing of
appropriate criminal charges against culpable persons as provided under
Section 35 of R.A. No. 7653 for the willful making of a false/misleading
statement.

“Further,   QBs  subsequently   found   to  have  
violated   the  provisions   on dividend  declaration  or  have 
falsely  certified/submitted  misleading  statements shall be reverted
to the prior Bangko Sentral verification wherein the QB can only make an
announcement or communication on the declaration of dividends or
payment of dividends thereon(  upon receipt of Bangko Sentral advice
thereof.”

Section 3. The Financial Reporting Package, prescribed
under Subsection X191.2 of the MORB is further amended to revise the
Manual of Accounts (MOA) to amend the definition of Dividends Payable as
follows:

(a)  Manual of Accounts

“xxx

“30. Other Liabilities

“(a) Servicing Liabilities – xxx

“xxx

(e)  
Dividends  payable  –  This  refers  to  the  amount  of  unpaid  cash
dividends  declared  by  the  Board  of  Directors  to  stockholders  of
record.

“xxx

Section 4. Appendix 6 of the
MORB and Appendix Q-3 of the MORNBFI are hereby  amended  to  include 
the  Report  on  Dividends  Declared  (for  bank  and QBs)  as  a 
Category  A-1  report  which  shall  be  submitted  within  10  banking/
business days after date of dividend declaration to the appropriate
department of the SES.

This Circular shall take effect fifteen
(15) days after its publication  either in the official Gazette or in a
newspaper of general circulation.