BSP Circular No. 434 (2004)

(NAR) VOL. 15 NOS. 1-2 / APRIL - JUNE 2004

[ BSP CIRCULAR NO. 434, May 18, 2004 ]

AMENDMENTS TO CIRCULARS NOS. 283, 391, 341, 246 AND

297 The Monetary Board, in its Resolution No. 300 dated March 11, 2004, approved the amendments to the following circulars/regulations:

Section 1. Section 3 of Circular No. 283 dated May 17, 2001 is hereby amended to read as follows:

"Section 3. Subsecs. X141.4 and 4141Q.4 are hereby added to the Manual of Regulations as follows: "SPECIFIC DUTIES AND RESPONSIBILITIES OF THE BOARD OF DIRECTORS: "1. x x x x x x x x x "x x x x x x x x x " 9.To constitute the following committees: "(a) Audit committee. The audit committee shall be composed of members of the board of directors, at least two (2) of whom shall be independent directors, preferably with accounting and finance experience. The audit committee provides oversight of the institution's internal and external auditors. It shall be responsible for the setting-up of the internal audit department and for the appointment of the internal auditor as well as the independent external auditor. It shall monitor and evaluate the adequacy and effectiveness of the internal control system."x x x x x x x x x"

Section 2. Item "a" of Section 4, Circular No. 391 dated July 15, 2003 which amended Section 3 of Circular No. 296 dated September 17, 2001, is hereby amended to read as follows:

"Section 4. Subsecs. X143.5 and 4143Q.5 Confirmation of the election/ appointment of directors and officers are hereby renumbered as Subsecs. X141.4 and 4141Q.4 and amended to read as follows: The election/appointment of directors and officers of banks/quasi-banks/trust entities shall be subject to confirmation by the: Confirming Authority Position Level a. Monetary Board Directors, Senior Vice Presidents and above of universal banks and commercial banks as well as the Directors, President, Chief Executive Officer, Chief Operating Officer, Senior Vice Presidents or equivalent rank of thrift banks, Islamic banks, rural banks, cooperative banks, quasi-banks and trust entities with total assets of at least P1 billion. "x x x x x x x x x"

Section 3. Section 2 of Circular No. 341 dated August 6, 2002 is hereby amended to read as follows:

"Section 2. The Monetary Board may, at its discretion and based on the seriousness and materiality of the acts or omissions, impose any or all of the following sanctions provided under Section 37 of R.A. No. 7653 and Section 56 of R.A. No. 8791, whenever a bank, quasi-bank or trust entity conducts business in an unsafe and unsound manner: For Banks For Non-Banksa. Issue an order requiring a. Issue an order requiring the institution to cease the NBQB/trust entity to and desist from cease and desist from conducting business in an conducting business in an unsafe and unsound unsafe and unsound manner and may further manner and may further order that immediate order that immediate action be taken to correct action be taken to correct the conditions resulting the conditions resulting from such unsafe or from such unsafe or unsound practice; unsound practice; unsound practice;

b. Fines in amounts as b. Fines in amounts as may be determined by the may be determined by the Monetary Board to be Monetary Board to be appropriate, but in no case appropriate but in no case to exceed Thirty to exceed P30,000 a day Thousand pesos on a per transaction basis (P30,000.00) a day on a taking into consideration per transaction basis the attendant taking into consideration circumstances, such as the the attendant gravity of the act or circumstances, such as the omission and the size of gravity of the act or the NBQB/trust entity, to omission and the size of be imposed on the the bank, to be imposed NBQB/trust entity, their on the bank, their directors and/or directors and/or responsible officers; responsible officers;

c. Suspension of interbank c. Suspension of lending clearing privileges/ or foreign exchange immediate exclusion from operations or authority to clearing; accept new deposit substitutes and/or new trust accounts or to make new investments;

d. Suspension of --rediscounting privileges or access to Bangko Sentral credit facilities;

e. Suspension of lending --or foreign exchange operations or authority to accept new deposits or make new investments;

f. Suspension of d. Suspension of responsible directors responsible directors and/or officers; and/or officers;g. Revocation of quasi- e. Revocation of quasi-banking license; and/or banking license and/or trust authority; and/or h. Receivership and f. Receivership and liquidation under Section liquidation under Section 30 of R.A. No. 7653. 30 of R.A. No. 7653 All other provisions of Sections 30 and 37 of R.A. No. 7653 whenever appropriate shall also be applicable on the conduct of business in an unsafe or unsound manner. The imposition of the above sanctions is without prejudice to the filing of appropriate criminal charges against culpable persons as provided in Sections 34, 35 and 36 of R.A. No.

7653.

Section 4. Item "c", Section 2 of Circular No. 246 dated June 1, 2000, as amended, on Restructured Loans shall apply to NBQBs and amends Subsection 4351Q.1 as follows: "Subsec. 4351Q.1 Definition; when to consider performing/non-performing. "x x x x x x x x x "A loan which is restructured shall be considered non-performing except: "(1) When the loan is current and performing (i.e., with updated principal and interest payments) on the date of restructuring, in which case, the loan shall retain its performing status; and "(2) Fully secured by real estate with loan value of up to sixty percent (60%) of the appraised value of the real estate security and the insured improvements thereon, and such other first class collaterals as may be deemed appropriate by the Monetary Board: Provided, That a restructured loan, with or without capitalized interest, must be yielding a rate of interest equal to or greater than the NBQB's average cost of funds at the date of restructuring, otherwise, it shall be considered non-performing. "The restoration to a performing loan shall only be effectiveafter a satisfactory track record of payments of the required amortizations of principal and/or interest has been established. "For this purpose, a satisfactory track record of payments of principal and/or interest shall mean three (3) consecutive payments of the required amortizations of principal and/or interest have been made. However, in the case of a restructured loan with capitalized interest but not fully secured by real estate with loan value of up to sixty percent (60%) of the appraised value of the real estate security and the insured improvements thereon or other first class collaterals, six (6) consecutive payments of the required amortizations of principal and/or interest must have been made. "A restructured loan which has been restored to a performing loan status shall be immediately considered non-performing in case of default of any principal or interest payment in accordance with Sec. 4308Q."

Section 5. Item "b(3)(c)" of Section 1, Circular No. 297 dated September 17, 2001 is hereby amended to include compliance with the required reserves on "TOFA-Others" and liquidity reserves on government deposits as a prerequisite for engaging in derivatives transactions and shall read as follows:

"Section 1. Subsections X602.1 and 4603Q.1 are hereby amended to read as follows: "Subsection ________ Scope and pre-qualification requirements. The following provisions shall govern the scope and pre-qualification requirements for the grant of authority to engage in derivatives activities. "x x x x x x x x x b. For regular derivatives authority "x x x x x x x x x "3) Other requirements. BSP shall evaluate bank's/NBQB's and other BSP supervised FI's financial soundness and track record of compliance with major prudential requirements, such as, but not limited to:"(a) CAMELS composite rating of at least "3" in the last regular examina -tion; "(b) Minimum applicable capital adequacy ratio; "(c) Minimum reserves against deposit liabilities/deposit substitutes, CTFs, and TOFA-Others; "(d) x x x x x x x x x "x x x x x x x x x"

Section 6. Subsections X415.2/4415Q.2 is hereby amended to read as follows: "Subsecs. X415.2/4415Q.2 Eligible securities. Securities enumerated in Subsecs. X405.2/4405Q.2 shall be eligible as security deposit for faithful performance of investment management activities." This Circular shall ake effect fifteen (15) days after its publication in the Official Gazette or in a newspaper of general circulation. Adopted: 18 May 2004

(SGD.) RAFAEL B. BUENAVENTURA Governor