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§§ 41160.1 - 41180 96.12.31

owned by the NBQB, less the accumulated depreciation thereof. Property used as NBQB premises purchased by the NBQB in foreclosure or execution sale shall not be considered owned by the NBQB until title is consolidated in the NBQB.

h. Furniture, fixtures and equipment depreciated refers to the cost of furniture and fixtures, including equipment owned by the NBQB, and used for its operations, less the accumulated depreciation thereon.

i. Deferred income tax refers to the accumulated balance of income tax expense deferred in view of certain expenses or provision for losses not currently deductible for income tax purposes.

Sec. 4117Q Treatment of Equity Investment with Reciprocal Stockholdings. For purposes of computing the prescribed ratio of net worth (or combined capital accounts) to risk assets, equity investments of an NBQB in another NBQB shall be deducted from its net worth if the investee NBQB has a reciprocal equity investment in the investing NBQB, in which case the investment of the NBQB or the reciprocal investment of the other NBQB, whichever is lower, shall be deducted from the net worth of the NBQBs.

Sec. 4118Q Sanctions on Net Worth Deficiency

a. Any NBQB which is deficient in the capital requirement under Sec. 4116Q shall be liable to the following sanctions:

(1) In case of capital deficiency for five (5) or more times within a reporting period: (a) For the first offense a fine of

P3,000.

(b) For the second consecutive offense - prohibition from extending new loans or making new investments for a period of thirty (30) calendar days.

New loans and new investments shall refer to any loan or investment involving disbursement of funds, except government securities.

(c) For the third consecutive offense extension of the penalty under the preceding paragraph for another thirty (30) calendar days.

(d) For the fourth consecutive offense suspension of the Certificate of Authority to engage in quasi-banking functions for a period of thirty (30) calendar days. The suspension shall be automatically be lifted if in the final reporting period of the period of suspension, the entity maintains the minimum capital required under Sec. 4116Q for every day of such reporting period.

(2) In case of continuous capital deficiency:

(a) For two (2) consecutive reporting periods - suspension of the Certificate of Authority to engage in quasi-banking functions for a period of thirty (30) calendar days.

(b) For every consecutive reporting period, the suspension shall extend for another thirty (30) calendar days.

(c) The suspension shall be automatically lifted if on the final reporting period of the period of suspension, the entity maintains the minimum capital required under Sec. 4116Q for every day of such reporting period.

(3) In all of the cases abovementioned, establishment of branches, agencies, extension、fices, etc., shall be suspended.

b. For improperly accomplished report, NBQBs shall pay P600 per business day for every business day the report is not corrected, counted as of the date the error is brought to its attention until the corrected report is submitted.

C. For willfully making false statements in the report or submitting a false report, the Certificate of Authority for quasibanking functions shall be suspended/ revoked.

d. The Monetary Board may impose additional sanctions on the entity engaged in quasi-banking functions by:

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Sec. 4126Q Dividends. The following rules shall govern cash dividend declaration by NBQBs.

§ 4126Q.1 Definition of terms. For purposes of this Section, 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 Section 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, only the installments 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 Section.

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

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interest and other pertinent fees and expenses thereon shall not be in excess of seventy percent (70%) of the appraised value of real estate, or fifty percent (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 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 twenty percent (20%) 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.

§ 4126Q.2 Liquidity standards/ratios; amount available

a. Liquidity standards/ratios. For purposes of determining funds available for dividend declarations by NBQBs, the following liquidity standards/ratios shall be adopted:

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(1) The NBQB shall have sufficient legal reserves for deposit substitutes; and

(2) The NBQB shall not have incurred net weekly deficiency in its required legal reserves for deposit substitutes during the last two (2) months immediately preceding the date of request for approval of declaration of dividends up to dividend payment date.

b. Amount available. The net amount available for cash dividend declaration shall be the total of unrestricted or free retained earnings and profit and loss summary less: (1) Bad debts against which valuation reserves are not required to be set up;

(2) Unbooked valuation reserves and other unbooked capital adjustments required by the BSP whether or not allowed to be set up on a staggered basis;

(3) Deferred income tax as defined under Item i of Subsec. 4116Q.1;

(4) Accumulated profits not yet received but already recorded by the NBQB representing its share in profits of its subsidiaries under the equity method of accounting. Said accumulated profits shall likewise be deducted for purposes of computing the amount available for stock dividends;

(5) Accrued interest earned but not yet collected or received on loans or any installment thereon; and

(6) Amount of net profits required to be transferred to retained earnings appropriated for trust business under Sec. 4413Q.

§ 4126Q.3 Reporting and verification Declaration of cash dividend shall be reported by the NBQB concerned to the appropriate supervising and examining department of the BSP within ten (10) business days from date of approval of the declaration by the NBQB's board of directors, in the prescribed form.

Pending verification of abovementioned report by the appropriate supervising and examining department of the

BSP, 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 BSP, no advice against such declaration has been received by the NBQB concerned, subject to the condition that the record date for such dividends cannot be set earlier than thirty (30) business days after declaration.

NBQBs whose shares are listed with any domestic stock exchange may give notice of cash dividend declaration in accordance with pertinent rules of the SEC: 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 BSP.

§ 4126Q.4 Recording of dividends The liability for cash dividends declared shall be taken up in the books upon receipt of BSP approval thereof, or if no such approval is received, after thirty (30) business days from the date required report on cash dividend declaration was received by the appropriate supervising and examining department of the BSP whichever comes earlier. A memorandum entry may be made to record the dividend declaration on the date of approval by the board of directors and for full disclosure purposes. The cash dividends may be disclosed in the financial statements by means of a footnote which should include a statement to the effect that the dividend declaration is subject to review by the BSP. Dividends of all kinds, whether on common or on preferred shares of stock, shall not be treated as interest expense, considering that as a general policy only irredeemable stock may be issued by NBQBs.

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Manual of Regulations for Non-Bank Financial Institutions

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Sec. 4141Q Definition and Qualifications of Directors. Directors shall refer to the incumbent directors of the NBQB duly holding their positions as such, in accordance with the corporate by-laws and pertinent provisions of law.

A director shall have the following minimum qualifications:

a. He shall be at least twenty-five (25) years of age at the time of his election or appointment; and

b. He shall be at least a college graduate or have at least five (5) years creditable experience or training in financial management, financial market operations, or related activities, or in a field related to his position and responsibilities.

Sec. 4142Q Definition and Qualifications of Officers. Officers shall include the President, Vice-President, General Manager, Treasurer, Secretary, and others mentioned as officers of the NBQB, or those whose duties as such are defined in the by-laws, or are generally known to be the officers of the NBQB (or any of its branches and offices other than the head office) either through announcement, representation, publication or any kind of communication made by the financial intermediary: Provided, That a person holding the position of Chairman or Vice-Chairman of the Board or another

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position in the board shall not be considered as an officer unless the duties of his position in the board include functions of management such as those ordinarily performed by regular officers: Provided, further, That members of a group or committee, including sub-groups or subcommittees, whose duties include functions of management such as those ordinarily performed by regular officers, and are not purely recommendatory or advisory, shall likewise be considered as officers.

An officer shall have the following minimum qualifications:

a. He shall be at least twenty-one (21) years of age at the time of his appointment or election; and

b. He shall be at least a college graduate or have at least five (5) years creditable experience or training in financial management or related activities, or in a field related to his position and responsibilities.

Sec. 4143Q Disqualifications of Directors or Officers. The following regulations shall govern the disqualification of directors or officers.

§ 4143Q.1 Persons disqualified to become directors or officers. Without prejudice to the specific provisions of law prescribing disqualifications for directors and officers, the following persons are disqualified from becoming directors and officers:

a. Persons who have been convicted of an offense involving moral turpitude or judicially declared insolvent, spendthrift, or incapacitated to contract;

b. Persons removed by the Monetary Board pursuant to law or regulations;

c. Persons who shall refuse to disclose the extent of their business interest to the appropriate department of the BSP when required, for the proper implementation of a provision of law, or of a circular, rule,

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regulation or policy of the BSP. This disqualification shall be in effect as long as the refusal persists;

d. Directors who have been absent for whatever reasons for more than fifty percent (50%) of the regular meetings of the board during their incumbency: Provided, That the disqualification shall apply for purposes of the immediately succeeding election;

e. Persons delinquent in the payment of their obligations: Provided, That such delinquency shall operate as a disqualification as long as a delinquency persists. Delinquency, for purposes of this Subsection, shall mean that an obligation of a person with an NBQB where he is a director or officer or where he may be elected or appointed to said position, or at least two (2) obligations with banks and with other NBQBs under different credit lines or loan contracts are past due as defined in Sec. 4308Q.

Obligations shall include all borrowings from a bank or from an NBQB obtained by:

(1) A director or officer for his own account or as the representative or agent of others or where he acts as a guarantor, indorser or surety for loans from such financial institutions;

(2) The spouse or child under parental authority of the director or officer;

(3) Any person whose borrowings or loan proceeds were credited to the account of, or used for the benefit of, a director or officer;

(4) A partnership of which a director or officer, or his spouse is a managing partner, or a general partner owning a controlling interest in the partnership; and

(5) A corporation, association, or firm wholly-owned or majority of the capital of which is owned by any or a group of persons mentioned in Items (1), (2) and (4) above. f. Persons found by the Monetary Board to have willfully failed or refused to comply with any law, regulation, order or instruction of the Monetary Board or the

Governor; or to have committed irregularities; or to have conducted business in an unlawful, unsafe or unsound manner as determined by the Monetary Board in any institution supervised by the BSP;

g. Persons who have been dismissed for cause from any institution under the regulation or supervision of the BSP;

h. Except as may be authorized by the Monetary Board or the Governor, any person who is a spouse or relative within the first degree of consanguinity or affinity of any person holding the position of Chairman, Vice-Chairman, President, Executive VicePresident, General Manager, Treasurer, Chief Cashier, Chief Accountant, or equivalent positions is disqualified from holding or being elected or appointed to any of said positions in the NBQB; and any person who is the spouse or relative within the first degree of consanguinity or affinity of any person holding the position of Manager, Cashier, Accountant or equivalent positions of a branch, extension or agency office of an NBQB is disqualified from holding or being appointed to any of said positions in the same branch, extension or agency office.

The aforesaid qualifications and disqualifications for directors and officers shall be in addition to those already required by existing laws and other regulations.

§ 4143Q.2 Disqualification procedures a. Upon the establishment of any of the grounds for disqualification in Subsec. 4143Q.1, the NBQB shall cause the removal of the disqualified director or officer.

b. All cases of disqualification reported to the board of directors of the institution concerned shall be acted upon not later than the following board meeting. Within seventy-two (72) hours thereafter, the corporate secretary shall report to the appropriate supervising and examining department of the BSP the name of the director or officer involved, the ground for his disqualification and the action taken by

Q Regulations

Manual of Regulations for Non-Bank Financial Institutions

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