DOJ Opinion No. 086, s. 1997

DOJ OPINION NO. 086 , s. 1997 December 5, 1997 Governor Gabriel C. Singson Bangko Sentral ng Pilipinas Manila Sir : This has reference to your letter seeking the "authoritative ruling" of this Department on the request of the Philippine-American Life Insurance Company (Philamlife) to own 60% of the voting stocks of Philam Savings Bank ("Philambank"), pursuant to Section 8 of R.A. No. 7721 ("An Act Liberalizing the Entry and Scope of Operations of Foreign Banks in the Philippines and for Other Purposes") allowing Philippine corporations to acquire up to 60% of the voting stock in a domestic bank. You state that Philambank (formerly AIG Finance Co. Philippines, Inc.) which started operations on December 5, 1994 is 40%-owned by Philamlife; that Philamlife which was registered with the Securities and Exchange Commission on June 21, 1947 is, in turn, 99.78%-owned by American Life Insurance Co., a corporation based in Delaware, U.S.A.; that under Monetary Board Resolution No. 502, dated November 24, 1993, Philambank was directed, in conformity with Sections 12 and 12-B of R.A. No. 337, as amended, to reduce Philamlife's stockholdings therein from 40% to 30%; that to give effect to this directive, it was proposed that the 10% difference be just swapped with an equivalent percentage of non-voting shares of other stockholders after the issuance of stock dividends out of the bank's retained earnings; and that the said proposal did not materialize since Philambank instead sought approval not only to retain the 40% stockholdings in question but to increase the same to 60% pursuant to R.A. No. 7721 and Bangko Sentral ng Pilipinas (BSP) Circular No. 51, S. 1994. Philamlife bases its proposal to increase its voting stocks in Philambank on Section 8 of R.A. No. 7721 which provides: "Sec. 8. Equal Treatment . Foreign banks authorized to operate under Section 2 of this Act, shall perform the same functions, enjoy the same privileges, and be subject to the same limitations imposed upon a Philippine bank of the same category. xxx xxx xxx "Any right, privilege or incentive granted to foreign banks or other subsidiaries or affiliates under this Act, shall be equally enjoyed by and extended under the same conditions to Philippine banks. Philippine corporations whose shares of stocks are listed in the Philippine Stock Exchange or are of long standing for at least ten (10) years shall have the right to acquire, purchase or own up to sixty percent (60%) of the voting stock of a domestic bank ." (Emphasis supplied.) Philamlife argues that the term "Philippine corporations" in the abovequoted provision (please see underscored portion) refers to corporations organized under Philippine laws without distinction as to equity ownership, for if Congress had intended said term as used in Section 8 of R.A. No. 7721 to have a different meaning, it could have unequivocably provided so, as in the case of R.A. No. 337 which specifies in Section 12 thereof the exact percentage of Filipino-owned voting stocks required in banks or, in the case of R.A. No. 7042 ("Foreign Investments Act of 1991"), which used the term "Philippine National" to refer to a locally-organized corporation at least 60% of the capital of which is owned by Filipinos. On the other hand, denial of the request of Philamlife has been suggested upon the grounds, inter alia , that while the term "Philippine corporations" connotes those organized under Philippine laws, the same term acquires a different meaning under R.A. No. 337 which requires that the citizenship of each stockholder of corporations owning stocks in a bank shall be the basis for determining whether the foreign ownership limit has been exceeded and this requirement has not been superseded by R.A. No. 7721 and that Philamlife is ineligible under Section 8 of R.A. No. 7906 to invest up to 60% of Philambank's equity since the said bank was established prior to the approval of R.A. No. 7906. For a clearer understanding of the issue at hand, it is well to consider that Philambank, which started operations on December 5, 1994, has been organized as a thrift bank. At the time of its incorporation and up to the enactment of R.A. No. 7721, the provisions governing equity ownership in thrift banks were Sections 12, 12-A, and 12-B of R.A. No. 337, as amended ("General Banking Act") which provide that Filipino equity in banks shall not be less than 70% of its voting stocks (Sec. 12); that foreign equity therein shall not exceed 30% (Sec. 12-A); and that the total voting stocks of a corporation in any bank shall not also exceed 30% (Sec. 12-B). If a corporation owns more than 30% of the voting stocks as of the effectivity of said Act, such holdings shall not be increased, but may be reduced, and once reduced, shall not be increased thereafter beyond 30% of the voting stock of the bank (Sec. 12-B). With the liberalization of Philippine banking under R.A. No. 7721, foreign banks and Philippine corporations have been allowed to own up to 60% of a bank's voting stocks (Sec. 8, R.A. No. 7721 supra ), and consistent with this policy, the stringent provisions of Sections 12, 12-A and 12-B were expressly repealed by R.A No. 7721 (Sec. 14, ibid .). Subsequently, and as a corollary measure to R.A. No. 7721, Congress enacted R.A. No. 7906 ("An Act Providing for the Regulation of the Organization and Operations of Thrift Banks, and for Other Purposes"), Section 8 of which allows foreign equity ownership in thrift banks established after the approval of said Act to the extent of 60% of the bank's voting stocks. From the foregoing statements of fact, it is clear that when Philambank started its operations on December 5, 1994, well subsequent to the effectivity of R.A. No. 7721, the same having been approved as law on May 18, 1994 and published in Malaya on May 21, 1994, the governing law was already R.A. No. 7721 which allows foreign banks as well as ". . . Philippine corporations . . . of long standing for at least ten (10) years . . . to acquire, purchase or own up to sixty (60%) of the voting stock of a domestic bank " (see Sec. 8, supra ). Devoid of any need to elucidate, Philamlife, having been organized under Philippine law, is a Philippine Corporation (Sec. 123, Corporation Code of the Philippines). As such, it may own up to sixty (60%) of the voting stock of a domestic bank, pursuant to R.A. No. 7721. It bears stress that R.A. No. 7721, was enacted " to create a more competitive environment and encourage greater foreign participation through increase in ownership in domestic banks, foreign banks and the entry of new foreign bank branches (Sec. 1, R.A. No. 7721, emphasis supplied) To assume that the liberalization policy applies only to foreign banks and not to Philippine corporations is to discriminate against Philippine corporations by reading into the law a classification that is legally inexistent, thus, defeating the very purpose of the law in promoting and encouraging a stable, competitive and dynamic banking and financial system. Where the law does not distinguish, we should not distinguish. Ubi lex non distinguit, nec nos distinguire debemus . It is claimed that Philamlife is ineligible under Section 8 of R.A. No. 7906 to invest up to 60% of Philambank's equity since said Section 8 applies only to thrift banks to be established " AFTER the approval of this Act," and not to those already operating prior to its effectivity, such as Philambank. Assuming this is correct, it still stands that R.A. No. 7721 has already repealed the restrictive provisions of Sections 12, 12-A and 12-B of R.A. No. 337, as amended, and now allows up to sixty percent (60%) equity ownership of foreign and Philippine corporations in banks, and that, as earlier stated, this was the governing law as of the date of effectivity of R.A. No. 7906, which was approved as law on February 23, 1995 and published in Malaya and Philippine Journal on March 2, 1995. In fact, during the deliberations on the aforequoted provision of R.A. No. 7906 by the Senate Committee on Banks, Financial Institutions and Currencies, Senator Raul Roco, the bill's sponsor, stated that ". . . The bill provides that at least 40% of the voting stock of a thrift bank shall be owned by citizens of the Philippines. This was in anticipation of the bill liberalizing the entry of foreign banks which was still undergoing deliberations at the time of the filing of this Report . (Congressional Record, January 18, 1995, p. 14) Apparent from this statement is the intent of Congress to unify the provisions of R.A. No. 7721 and R.A. No. 7906. "To deduce any conflict between these two laws would be tantamount to a disregard of the will of the legislature. Every statute should receive such a construction as will make it harmonize with the pre-existing body of laws. Antagonism between the Act to be interpreted and the previous laws, whether statutory or unwritten, is to be avoided, unless it was clearly the intention of the legislature that such antagonism should arise" (Black, Handbook on the Construction and Interpretation of the Laws, p. 345 [1911]). In any case, the last paragraph of Section 8, of R.A. No. 7906 obliterates all objections as to the capacity of Philamlife to own up to 60% of Philambank. It provides thus "SEC. 8. Ownership . At least forty percent (40%) of the voting stock of a thrift bank which may be established after the approval of this Act shall be owned by citizens of the Philippines . . . xxx xxx xxx "Any provisions of existing laws to the contrary notwithstanding, stockholdings in a thrift bank shall be exempt from any ownership ceiling for a period of ten (10) years from the effectivity of this Act ." (Emphasis supplied) Senator Raul Roco clarified the above-quoted provision, as follows: "The stockholdings in a thrift bank shall be exempt from individual and corporate ownership ceiling for a period of ten (10) years . But after ten years, there will be provisions for dispersing the ownership so that there will be greater participation by the public " (Congressional Record, January 18, 1995, p. 14; emphasis supplied). cdt In view of the foregoing premises, we opine that Philamlife may own up to 60% of the stockholdings of Philambank pursuant to Section 8 of R.A. No. 7721 and Section 8, last paragraph, of R.A. No. 7906. Please be guided accordingly. Very truly yours, (SGD.) TEOFISTO T. GUINGONA, JR. Secretary