CBP Circular No. 879-82

June 18, 1982 CBP CIRCULAR NO. 879-82 The Monetary Board, in its Resolution No. 1078 dated June 11, 1982, approved the following regulations on cash dividend declaration by non-bank financial intermediaries performing quasi-banking functions (NBQBs). SECTION 1. Definition of Terms For purposes of this Circular, the following definitions shall apply: a. Bad debts shall include any debt on which interest is past due for a period of six (6) months, unless it is well secured and in process of collection. A loan payable in installment with an automatic acceleration clause shall be considered a bad debt, within the contemplation of this Circular, where installments or amortizations have become past due for a period of six (6) months, unless the loan is well secured and in process of collection. For a loan payable in installments without an acceleration clause or amortizations that have become past due for a period of six (6) months and which are not well secured and in the process of collection shall be considered bad debts within the contemplation of this Circular. b. Well-secured a debt shall be considered "well-secured" (or fully secured) if it is covered by collateral in the form of a duly constituted mortgage, pledge, or lien on real or personal properties, including securities. The outstanding debt, accrued interest and other pertinent fees and expenses thereon shall not be in excess of 70% of the appraised value of real estate, or 50% of the other personal properties offered as lien. c. In process of collection a debt due to an NBQB shall be considered in process of collection when it is the subject of continuing extrajudicial or judicial proceedings aimed towards its full settlement or liquidation, or otherwise to place it in current status. The extrajudicial proceedings, such as the writing of collection or demand letters, must have been initiated by the NBQB and/or its lawyers before the interest or installments or amortizations on the debt have become past due and unpaid for a period of six (6) months. The debt shall continue to be considered in process of collection for a period of six (6) months counted from date of the first collection or demand letter and if, within this period, the debtor fails to make a payment of at least 20 percent of the outstanding balance of the principal on his account, plus all interests which may have accrued thereon, the same shall automatically be classified as bad debt unless judicial proceedings are instituted. The debt shall continue to be considered in process of collection during the pendency of the judicial proceedings. When judgment against the debtor has been obtained, the NBQB must be active in enforcing the judgment for the debt to continue to be considered in process of collection. SECTION 2. Accrued Interest accrued interest earned but not yet collected or received on loans or any installments thereon shall not be considered profits and/or earnings for purposes of cash dividend declaration. SECTION 3. Amount Available as Dividends the net amount available for cash dividend declaration shall be the total of free retained earnings and profit and loss summary less: a. Bad debts against which valuation reserves are not required to be set-up; b. Unbooked valuation reserves, and other unbooked capital adjustments required by the Central Bank whether or not allowed to be set up on a staggered basis; and c. Interest and other income earned but not yet collected/received, net of reserve for uncollected interest on loans. SECTION 4. Reporting and Verification declaration of cash dividends shall be reported by the NBQB concerned to the appropriate supervising and examining department of the Central Bank within ten (10) business days from date of approval of the declaration by the NBQBs board of directors. Pending verification of above-mentioned report by the appropriate supervising and examining department of the Central Bank, the NBQB concerned shall not make any announcement or communication on the declaration of cash dividends nor shall any payment be made thereon. In any case, the declaration may be announced and the dividends paid, if, after thirty (30) business days from the date the report required herein shall have been received by the Central Bank, no advice against such declaration has been received by the NBQB concerned. NBQBs whose shares are listed with any domestic stock exchange may give notice of cash dividend declaration in accordance with pertinent rules of the Securities and Exchange Commission provided that no record date is fixed for such cash dividend pending verification of the report on such declaration by the appropriate supervising and examining department of the Central Bank. SECTION 5. Recording of Dividends the liability for cash dividends declared shall be taken up in the NBQB's book on the date of approval of the board of directors. SECTION 6. Sanctions any person or entity violating the provisions of this Circular shall be subject to the penalties provided in Section 34-B of Republic Act No. 265, as amended. This Circular shall take effect immediately. (SGD.) JAIME C. LAYA Governor