MERGERS AND CONSOLIDATIONS

Pursuant to Monetary Board Resolution No. 384 dated 10 March 2000,
as amended by Monetary Board Resolution No. 573 dated 7 April 2000, the
provisions of The Manual of Regulations for Banks and the Manual of
Regulations for Non-Bank Financial Institutions are hereby amended as
follows:

SECTION 1.       The provisions of Secs. X112 and 4112Q of
the Manual of Regulations for Banks and Non-Bank Financial Institutions
defining merger and consolidation are hereby transferred to Subsecs.
X111.3 and 4111Q.1, respectively, as follows:

“For purposes of this section, merger and consolidation shall mean as follows:

Merger — is the absorption of one or more corporations by another
existing corporation, which retains its identity and takes over the
rights, privileges, franchises, and properties, and assumes all the
liabilities and obligations of the absorbed corporation(s) in the same
manner as if it had itself incurred such liabilities or obligations. The
absorbing corporation continues its existence while the life or lives
of the other corporation(s) is/or are terminated.

Consolidation — is the union of two or more corporations into a
single new corporation, called the consolidated corporation, all the
constituent corporations thereby ceasing to exist as separate entities.
The consolidated corporation shall thereupon and thereafter possess all
the rights, privileges, immunities, franchises and properties, and
assume all the liabilities and obligations of each of the constituent
corporations in the same manner as if it had itself incurred such
liabilities or obligations.”

SECTION 2.        Sections X112 and 4112Q of the Manual of
Regulations for Banks and Non-Bank Financial Institutions, respectively,
together with their corresponding Subsections are hereby amended to
read as follows

“Merger or Consolidation Incentives. In pursuance of the policy to
promote mergers and consolidations among banks and other financial
intermediaries as a means to develop larger and stronger financial
institutions, constituent entities may, subject to Bangko Sentral
approval, avail of any or all of the following:

a.      Revaluation of bank premises, improvements and bank
equipment of the institutions: Provided, That such revaluation shall be
based on fair valuation of the property conducted by a reputable
appraisal company which shall be subject to review and approval by the
Bangko Sentral;

b.      Unbooked valuation reserves based upon the Bangko Sentral
examination and other capital adjustments resulting from the merger or
consolidation may be booked on staggered basis over a maximum period of
five (5) years;

c.       Exemption from the 20% and 30% limitations on voting
stockholdings in the new or surviving institution of any person or
persons related to each other within the third degree of consanguinity
or affinity, or corporations, respectively: Provided, That this shall be
allowed only if the bank that is being merged is distressed AS MAY BE
DETERMINED BY THE MONETARY BOARD: Provided, further, That whenever any
of the stockholders exceed the 20% and 30% ceilings, their holdings
shall not be increased, but may be reduced and once reduced, shall not
thereafter be increased beyond the 20% and/or 30% ceilings;

d.      If by reason of merger or consolidation, the resulting
bank is unable to comply fully with the prescribed net worth to risk
assets ratio, the Monetary Board may, at its discretion, temporarily
relieve the bank from full compliance with this requirement under such
conditions as it may prescribe;

e.      Amortization of goodwill up to a maximum period of forty
(40) years if there are compelling reasons to extend for this long,
otherwise the amortization period shall not be longer than ten (10)
years;

f.        Conversion or upgrading of the existing head offices,
branches and/or other offices of the merged or absorbed institutions
into branches of the new or surviving financial institutions;

g.      Condonation of liquidated damages and/or penalties on loan
arrearages to the Bangko Sentral of rural banks which are parties to
the merger or consolidation: Provided, That loan arrearages of rural
banks to the Bangko Sentral are paid in full or shall be covered by a
plan of payment payable on an equal monthly amortization schedule over a
period not exceeding ten (10) years;

h.       Relocation of branches/offices may be allowed within one
(1) year from date of merger or consolidation in cases where the merger
or consolidation resulted in duplication of branches/offices in a
service area, or in such other cases/circumstances as may be prescribed
by the Monetary Board.

i.        Outstanding penalties in legal reserve deficiencies and
interest on overdrafts with the Bangko Sentral as of the date of the
merger or consolidation may be paid in installments over a period of one
(1) year;

j.        Rediscount ceiling of 150% of adjusted capital accounts
for a period of one (1) year, reckoned from the date of merger or
consolidation provided the merged/consolidated bank meets the required
net worth to risk assets ratio and all of the other requirements for
rediscounting;

k.       Commercial banks whose total outstanding real estate
loans exceed 20% of total loan portfolio may be given a period of one
(1) year within which to comply with the prescribed 20% ratio reckoned
from the date of merger or consolidation;

l.        Restructuring/plan of payment of past due obligations of
the proponents with the Bangko Sentral as of the date of
merger/consolidation over a period not exceeding ten (10) years;

m.     In the case of rural banks, grant of access to the
rediscounting window of the BSP for a period of two (2) years from the
date of merger or consolidation even if its past due ratio exceeds 25%
of loan portfolio but not exceeding 30% provided the merged/consolidated
bank meets all the other requirements. During said period of two (2)
years, its rediscounting limit per application may also be increased to
an amount equivalent to the total of the rediscounting limit per
application of each of the constituent banks before merger or
consolidation;

n.       Subject to approval of the Monetary Board concurrent
officerships between a merged or consolidated bank/financial institution
and another bank/financial institution may be allowed.

Likewise, with prior approval of the Monetary Board, concurrent
directorships may be allowed in cases where a bank acquires shares of
stock of another bank for the purpose of merging or consolidating the
two (2) banks regardless of whether the banks belong to the same
category or both have quasi-banking functions;

o.      Subject to the other requirements on the establishment of
branches, the merged/consolidated rural bank may be allowed to establish
a branch each in Cebu City and Davao City if it has put up the minimum
capital requirement for these places;

p.      Grant of automatic extension of five (5) years for
retirement of government preferred shares to be reckoned from the date
of merger/consolidation;

q.      Training of officers and staff of the merging or consolidating rural banks by the Bangko Sentral;

r.       Any right or privilege granted a merging bank under a
rehabilitation program previously approved by the Monetary Board or
under any special authority granted by the Monetary Board shall continue
to be in effect.

“The foregoing incentives may also be granted in cases of purchases
or acquisitions of majority or all of the outstanding shares of stocks
of a bank/NBQB.”^[1]

“Rules on Revaluation of Assets.

1.  The revaluation of the bank’s/NBQB’s premises, improvements and
equipment shall be allowed only to all institutions participating in a
merger or consolidation if all of them belong to the same category, or
at least two (2) of them belong to the highest category among the
merging or consolidating institutions.

2.  In case the merging or consolidating institutions do not belong
to the same category or only one of them falls under the highest
category, all of them may be allowed to revalue their premises,
improvements and equipment: Provided, that the amount of appraisal
increment resulting from such revaluation shall be limited to the amount
of the total resources of the institution(s) belonging to the lower
category or categories.”^[2]

“Guidelines for Allowing Staggered Booking of Valuation Reserves.

1.  The booking on staggered basis over a maximum period of five (5)
years of unbooked valuation reserves based upon examination by the
Bangko Sentral may be allowed to all institutions participating in a
merger or consolidation if all of them belong to the same category or at
least two (2) of them belong to the highest category among the merging
or consolidating institutions.

2.  In case the merging or consolidating institutions do not belong
to the same category or only one of them falls under the highest
category, all of them may be allowed to book the required valuation
reserves BASED UPON EXAMINATION BY THE BANGKO SENTRAL on a staggered
basis over a maximum period of five (5) years: Provided, that the
aggregate amount of the required valuation reserves shall be limited to
the amount of the total resources of the institution belonging to the
lower category or categories.”^[3]

“In the case of purchase or acquisition of majority or all of the
outstanding shares of a bank/NBQB by another bank/NBQB, the revaluation
of assets and the booking of the required valuation reserves BASED UPON
EXAMINATION BY THE BANGKO SENTRAL over a period of five (5) years shall
be allowed only if such purchase or acquisition is for the purpose of
rehabilitating the former bank/NBQB: Provided, that the revaluation of
assets and staggered booking of valuation reserves shall be allowed in
full only if both banks/NBQBs belong to the same category. Otherwise,
only the bank/NBQB being acquired/rehabilitated shall be allowed to
recognize in full the appraisal increment resulting from revaluation of
assets and to book valuation reserves on a staggered basis, while in the
case of the acquiring bank/NBQB, the appraisal increment resulting from
revaluation of assets and the privilege of staggered booking of
valuation reserves shall each be limited to the amount of the total
resources of the bank/NBQB being acquired/rehabilitated.”^[4]

The revaluation of assets and staggered booking of valuation
reserves shall be available for a period of two (2) years from 19
February 1999 while the rest of the incentives enumerated under Secs.
X112 and 4112Q shall be available for a period of three (3) years from
31 August 1998.”^[5]

“The appraisal increment resulting from the revaluation shall form
part of capital for purposes of determining single borrower’s limit and
capital to risk assets ratio. The use of appraisal increment for cash
dividend shall be governed by the provisions of the Corporation Code.”^[6]

“THE REVALUATION OF PREMISES, IMPROVEMENTS AND EQUIPMENT OF THE
INSTITUTION AS WELL AS THE RECOGNITION OF GOODWILL AS AN INCENTIVE TO
MERGERS OR CONSOLIDATIONS SHALL ONLY BE ALLOWED IF THE FOLLOWING
CONDITIONS ARE MET:

i.        THE SURVIVING OR CONSOLIDATED ENTITY WILL MEET THE
EXISTING CAPITAL REQUIREMENTS AFTER ALL ADJUSTMENTS ARE TAKEN UP IN THE
BOOKS OF ACCOUNTS OF THE MERGING OR CONSOLIDATING ENTITIES BUT BEFORE
CONSIDERING APPRAISAL INCREMENTS AND GOODWILL, OR THERE WILL BE INFUSION
OF FRESH CAPITAL TO MEET SAID EXISTING CAPITAL REQUIREMENTS; AND

ii.       THE MERGER OR CONSOLIDATION WILL RESULT IN A MORE VIABLE
FINANCIAL INSTITUTION AS A RESULT OF COST SAVINGS AND IMPROVED
COMPETITIVE POSITION.

IN CASE OF PURCHASE OR ACQUISITION OF THE MAJORITY OR ALL OF THE
OUTSTANDING SHARES OF STOCKS OF A BANK, THE SAME CONDITIONS MUST BE
SATISFIED.”^[7]

“THE EXEMPTION FROM THE 20% AND 30% LIMITATIONS ON EXISTING
STOCKHOLDINGS AS AN INCENTIVE TO PURCHASE OR ACQUISITION OF MAJORITY OR
ALL OF THE OUTSTANDING SHARES OF STOCKS OF A BANK SHALL ONLY BE ALLOWED
IF THE BANK BEING PURCHASED OR ACQUIRED IS DISTRESSED AS MAY BE
DETERMINED BY THE MONETARY BOARD AND SUCH PURCHASE OR ACQUISITION IS FOR
THE PURPOSE OF REHABILITATING THE BANK.”^[8]

This circular shall take effect immediately.

Adopted: 19 April 2000

(SGD.) RAFAEL B. BUENAVENTURA
Governor

 

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^[1] Secs. X112 and 4112Q of the Manual of Regulations for Banks and for Non-Bank Financial Institutions, respectively.

^[2] Subsecs. X112.a and 4112Q.a

^[3] Subsecs. X112.b and 4112Q.b

^[4] Subsecs. X112.c and 4112Q.c

^[5] Subsecs. X112.d and 4112Q d

^[6] Subsecs. X112.e and 4112Q.e

^[7] Subsecs. X112.f and 4112Q.f

^[8] Subsecs. X112.g and 4112Q.g