CBP Memorandum

August 20, 1974 CBP MEMORANDUM TO : All Commercial Banks The Monetary Board, in its Resolution No. 1744 dated August 9, 1974, adopted the following additional "Guidelines on Increased Capitalization and Merger or Consolidation of Commercial Banks", in order to ensure the full and effective implementation of citizenship requirements imposed by existing applicable laws on financial institutions such as banks, investment houses and finance companies and to prevent circumvention of such an objective by means of provisions in articles of incorporation, by-laws or similar documentation: dctai "1. Where at least a majority of the equity is reserved by law to be held by Filipino citizens and foreign stockholders are occupying or will occupy a substantial minority position, no corporation in a financial sector will be permitted to provide in its articles of incorporation, by-laws or similar documentation a provision that certain corporate transactions * would require a voting concurrence of greater than 70% of the subscribed capital stock entitled to vote for banks, investment houses, finance companies and such other corporations similarly subject to regulation by the Central Bank. "The 70% ceiling on the voting concurrence requirement shall extend to all levels of corporate decisions: (a) stockholders, (b) board of directors, as well as (c) sub-committees of the board (which for this purpose refer to such bodies the voting members of which are composed exclusively of members of the board of directors and whose decisions are binding on the board as a whole without the need for further confirmation). For the board of directors, or sub-committees of the board, the 70% ceiling on the voting concurrence may refer to the entire membership rather than the quorum present. "2. The foregoing policy shall be applied prospectively; hence, it shall not affect the articles of incorporation or by-laws of financial institutions, where foreign stockholders occupy a substantial minority position, already approved by the Central Bank and/or registered with the Securities and Exchange Commission (SEC). "3. In addition to previously approved guidelines governing management contracts, the following features shall likewise be provided in any such contract as may be entered into by a domestic bank with foreign equity with a foreign bank or management group: "a. A term which shall in no case exceed five years with any subsequent renewal thereof to be subject to Central Bank approval; "b. A program for ultimate Filipinization of any such staff or line position which may be temporarily held by foreigners under a management contract or similar documents; and "c. The conditions under which such contract may be terminated by either party before expiration of the term of the contract." The Monetary Board further decided as follows: "To modify the limitation on the authority of the managing company to designate foreigners to occupy the positions of Chairman, Vice-Chairman or Presiding Officer of the Board of Directors, President, or Executive Vice President of the bank, as provided for in paragraph II.F. 2. d of Supplement II to the Guidelines on Increased Capitalization and Merger or Consolidation of Commercial Banks, so as to allow the managing company to designate a foreigner to occupy one of the aforesaid positions." (SGD.) G. S. LICAROS Governor LIST OF PERMISSIBLE SPECIAL TRANSACTIONS WHICH WOULD REQUIRE A GREATER THAN SIMPLE MAJORITY VOTE OF THE DECISION-MAKING BODY CONCERNED 1. Amendment, repeal or adoption of new by-laws. 2. Issuance of any share of stock of any class, or of any security convertible into or exchangeable for any share of stock, or the grant of an option to purchase any such share or convertible or exchangeable security. 3. Increase or decrease of the number of directors. 4. Incurring or increasing of bonded indebtedness. 5. Appointment of legal counsel or external auditors. 6. Amendment, repeal or adoption of new by-laws where such power has been duly delegated to the board of directors. 7. Entering into a Management Contract, any contract with third persons, firm or corporation for the general management, administration and operation of the company's business and properties. 8. Amendment, termination (other than by expiration of term), cancellation, extension or modification of the contract referred to in the immediately preceding item. 9. Investing the funds of the Bank in the equity of any other corporation or business or for any purpose other than the main purpose for which the Bank is organized. 10. Selling, exchanging, leasing or otherwise disposing of all or substantially all of the properties and assets of the Bank, including its goodwill, and entering into a merger or consolidation. 11. Issuing stock or bonded dividends. 12. Substantial participation of foreigners in the equity of the bank. cdll 13. Increase or decrease of capital stock which would dilute the voting equity of foreign stockholders. 14. Substantial capital expenditures, borrowings, and loans. 15. Concentration of credit to affiliated groups of borrowers. 16. Loans to directors, officers, stockholders and/or their related interest. Footnotes * Such as those enumerated in the attached list.