New bank rules seen to avoid scandals

New bank rules seen to avoid scandals

A NEW monetary regulation has been issued to protect the banking system from scandals that may arise during transactions involving the transfer of voting shares.
Under Circular 718 issued on April 14, the Monetary Board -- the policy-making body of the Bangko Sentral ng Pilipinas (BSP) -- introduced changes to a set of rules under the Manual of Regulations for Banks (MORB) on limits of stocks in a single bank and transactions relating to voting shares, among others.

"The amendments were agreed upon by the Monetary Board in order to prevent cases like the Legacy Group’s which basically involved transactions of voting shares of rural banks," BSP Deputy Governor Juan C. de Zuñiga told BusinessWorld in an interview last Thursday.

He was referring to the failed financial group of businessman Celso G. de los Angeles, Jr. who was alleged to have diverted client funds for personal use.

Specifically, the new rules set broader coverage on transfer of voting shares, Mr. de Zuñiga said.

"Transfer of voting shares only involve current shareholders owning voting rights of banks, while other transactions like subscription, purchase, transfer, conversion of preferred shares or debt instruments into voting stocks are not covered," he explained.

Transaction of voting shares that exceed "ceilings" as prescribed by laws will be deemed "null and void," according to the circular.

Current ceilings are:

• 40% -- voting shares of a stock of a Filipino individual or a Philippine non-bank corporation in a domestic bank;

• 40% -- voting shares of foreign individual or a foreign non-bank corporation in a domestic universal, commercial, thrift and rural bank;

• 40% -- combined ownership of the voting shares of stock of foreign individuals and/or foreign non-bank corporations in a domestic universal and commercial bank;

• 60% -- combined ownership of the voting shares of stock of foreign individuals and/or foreign non-bank corporations in a domestic thrift bank;

• 40% -- combined ownership of the voting shares of stock in a domestic bank of an individual and corporation/s which is/are wholly-owned or a majority of the voting shares of stock of which is owned by such individual;

• 60% -- voting shares of stock of a qualified foreign bank or qualified Philippine corporation in a domestic bank; and,

• 60% -- combined ownership of the voting shares of stock of qualified foreign banks under the Foreign Banks Liberalization Act in a domestic bank.

Meanwhile, the circular stated that transactions resulting in "ownership of 20% of voting shares of an individual" or "effect a change in the majority ownership or control of the voting shares of stock of the bank from one group of persons to another group" is subject to Monetary Board approval.

Further, such transactions shall be reported by a bank’s corporate secretary to the Monetary Board "within 60 calendar days from [the] date of transaction or 30 calendar days from receipt by [the] corporate secretary of request for registration of the transactions," the circular said.

Failure to do so, it noted, will invalidate the transaction while those involved in the deal will be subjected to "appropriate legal actions."

"It is part of the duties of the corporate secretary to report such transaction within our prescribed time. It is necessary for the Monetary Board to know these transactions in order to supervise banks well," Mr. de Zuñiga said.

"Transactions like these involving Legacy were not dutifully reported."

The BSP has filed numerous cases such as falsification of public documents and false statements against officials, employees and agents of four shuttered rural banks under the Legacy Group

The shuttered banks are Rural Bank of Parañaque, Rural Bank of Darbci in South Cotabato, Rural Bank of San Jose in Batangas, and Bank of East Asia. --
Antonio Siegfrid O. Alegado

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