UNSECURED SUBORDINATED DEBT

1.         Subsection X116.1.b.1(8) of the Manual is hereby amended to read as follows:

“(8)    With
prior BSP approval, unsecured subordinated debt with a minimum original
maturity of at least ten (10) years, subject to the following
conditions:

x                    x                      x

vi.      It must not be repayable prior to maturity without the prior consent of the BSP: Provided, That repayment may be allowed in connection with call option only after a minimum of five (5) years from issue date and only if —

– The bank’s capital ratio is at least equal to the required minimum capital ratio; and

– The debt is
simultaneously replaced with issues of new capital which is neither
smaller in size nor of lower quality than the original issue;

vii.     It
may allow a moderate step-up in the interest rate in conjunction with a
call option, only if the step-up occurs at a minimum of ten (10) years after the issue date and if it results in an increase over the initial rate that is not more than 100 basis points, provided that only one (1) rate step up shall be allowed over the life of the instrument;

x               x          x.”

2.      Subsection X116.1.b.2(1) of the Manual is hereby amended to read as follows:

“(1)    With
prior BSP approval, unsecured subordinated debt with a minimum original
maturity of at least five (5) years, subject to the following
conditions:

x               x          x

vi.      It must not be repayable prior to maturity without the prior consent of the BSP: Provided, That repayment may be allowed in connection with call option only after a minimum of five (5) years from issue date and only if —

– The bank’s capital ratio is at least equal to the required minimum capital ratio; and

– The debt is
simultaneously replaced with issues of new capital which is neither
smaller in size nor of lower quality than the original issue;

vii.     It
may allow a moderate step-up in the interest rate in conjunction with a
call option, only if the step-up occurs at a minimum of five (5) years
after the issue date and if it results in an increase over the initial
rate that is not more than 100 basis points or 50% of the initial credit
spread, at the option of the bank, provided that only one (1) rate step up shall be allowed over the life of the instrument;

x               x          x.”

3.  The last paragraph of Subsection X116.1.b.2 of the Manual is hereby amended to read as follows:

“Provided,
That the total amount of lower Tier 2 capital that may be included in
the Tier 2 capital shall be a maximum of 50% of total Tier 1 capital
(net of deductions therefrom): Provided, further, That the total amount of upper and lower Tier 2 capital that may be included in the qualifying capital shall be a maximum of 100% of total Tier 1 capital (net of deductions therefrom);”.

4.  The first paragraph of Subsection X116.1.c of the Manual is hereby amended to read as follows:

“c.     Less deductions from the total of Tier 1 and Tier 2 capital as follows:

x               x          x

(4)            Reciprocal investments in equity of other banks/enterprises; and

(5)            Reciprocal
investments in unsecured subordinated term debt instruments of other
banks, in excess of the lower of (i) an aggregate ceiling of 5% of total
Tier 1 capital of the bank; or (ii) 10% of the total outstanding
unsecured subordinated term debt issuance of the other bank,

x               x          x “

5.  The
last paragraph of Subsection X116.2.a of the Manual on on-balance sheet
assets that are 100% risk-weighted is hereby amended to read, as
follows:

“100% risk weight — All other assets including, among others, the following:

x                      x          x

except those which are deducted from capital, as follows:

(8)     Reciprocal investments in equity of other banks/enterprises;

(9)     Reciprocal investments in unsecured subordinated term debt instruments of other banks, in excess of the lower of (i)
an aggregate ceiling of 5% of total Tier 1 capital of the bank; or (ii)
10% of the total outstanding unsecured subordinated term debt issuance
of the other bank; and

(10)   Net due “from” head office, branches, subsidiaries and other offices outside the Philippines, if any (for foreign bank branches).”

6.  Subsection X166.4 of the Manual is hereby amended to read as follows:

“§ X116.4           Required
Reports. — Banks shall submit a report of their risk-based capital
adequacy ratio on a solo basis (head office plus branches) and on a
consolidated basis (parent bank plus subsidiary financial allied
undertakings, but excluding insurance companies) quarterly
to the appropriate supervising and examining department of the BSP in
the attached prescribed forms within the deadlines, i.e., 15 banking
days and 30 banking days after the end of reference quarter, respectively.  Only
banks with subsidiary financial allied undertakings (excluding
insurance companies) which under existing regulations are required to
prepare consolidated statements of condition on a line-by-line basis
shall be required to submit report on consolidated basis.  The abovementioned reports shall be classified as Category A-2 reports.”

This Circular shall take effect immediately.

Adopted: 9 Dec. 2002

(SGD.) ALBERTO V. REYES
Officer-in-Charge