CIRCULAR NO. 888, October 21, 2015
AMENDMENTS TO REGULATIONS ON DIVIDEND DECLARATION AND INTEREST PAYMENTS ON TIER L CAPITAL INSTRUMENTS
dated 17 September 2015, approving the amendments to regulations on
dividend declaration, the provisions of the Manual of Regulations for
Banks (MORB) and Manual of Regulations for Non-Bank Financial
Institutions (MORNBFI) are hereby amended:
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.”
“§ X136.1 Definitions. For purposes of this Section, the following definitions shall apply:
“xxx”
“§ 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
Applicability of other laws, rules and regulations for Coop Banks.
Coop Banks shall, likewise, comply with the provisions governing the
distribution of net surplus as provided under Article 86 of R.A. No.
9520, the Coop Bank’s By-Laws as well as other laws, rules and
regulations.
“(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]”
“§ 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)
“§ 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”
“§ 4136Q.2 (2008 – 4126Q.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.
(SGD) DIWA C. GUINIGUNDO
[1] Major acts or omissions is defined as bank’s individual failure to comply with the requirements of banking laws, rules and regulations as well as Monetary Board directives having material impact on bank’s capital, solvency, liquidity or profitability, and/or those violations classified as major offenses under the Report of Examination, except those classified under unsafe or unsound banking practice.
[2] Unearned profits or income refers to unrealized items which are considered not available for dividend declaration such as accumulated share/equity in net income of its subsidiaries, associates or joint venture accounted for under the equity method, recognized deferred tax asset, foreign exchange profit arising from revaluation of foreign exchange denominated accounts and others.
[3] subject banks whose shares are listed with any domestic stock exchange may declare dividends and give immediate notice of such declaration to the SEC and the stock exchanges, in compliance with pertinent rules of the SEC: Provided, That, no record date is fixed for such dividend pending verification of the report on such declaration by the appropriate department of the SES.
[4] Major acts or omissions is defined as QB’s individual failure to comply with the requirements of banking laws, rules and regulations as well as Monetary Board directives having material impact on QB’s capital, solvency, liquidity or profitability, and/or those violations classified as major offenses under the Report of Examination, except those classified under unsafe or unsound practice.
[5] Unearned profits or income refers to unrealized items which are considered not available for
dividend declaration such as accumulated share/equity in net income of its subsidiaries, associates or joint venture accounted for under the equity method, recognized deferred tax asset, foreign exchange profit arising from revaluation of foreign exchange denominated accounts and others.