QuestionsQuestions (BSP CIRCULAR NO. 237)
It amends the Manual of Regulations for Banks and Non-Bank Financial Institutions to define mergers/consolidations and to provide incentives, subject to BSP approval, to promote mergers and consolidations as a means of developing larger and stronger financial institutions.
Merger is the absorption of one or more corporations by another existing corporation, which retains its identity and takes over the rights, privileges, franchises, and properties, and assumes all liabilities and obligations of the absorbed corporation(s). The absorbing corporation continues its existence while the absorbed corporation(s) cease.
Consolidation is the union of two or more corporations into a single new corporation (the consolidated corporation), with all constituent corporations ceasing to exist as separate entities. The consolidated corporation then possesses all rights/privileges/franchises/properties and assumes all liabilities/obligations of each constituent.
The Manual of Regulations for Banks and the Manual of Regulations for Non-Bank Financial Institutions were amended (specifically the provisions defining merger/consolidation and the incentives provisions).
Constituent entities may, subject to BSP approval, avail of any or all of the enumerated incentives.
Revaluation is allowed only (1) as specified in the rules on participation/category alignment; and (2) must be based on fair valuation by a reputable appraisal company, subject to BSP review and approval.
If institutions do not belong to the same category or only one is in the highest category, all may be allowed to revalue provided the appraisal increment is limited to the amount of the total resources of the institution(s) in the lower category or categories.
Institutions may book unbooked valuation reserves (based on BSP examination and other capital adjustments resulting from the merger/consolidation) on a staggered basis over a maximum of five (5) years.
All may be allowed to book the required valuation reserves based on BSP examination over up to five years, but the aggregate amount is limited to the total resources of the institution(s) belonging to the lower category or categories.
It is allowed (with BSP approval) only if the bank being merged is “distressed,” as determined by the Monetary Board. Additionally, if stockholders exceed the ceilings, their holdings cannot be increased; they may be reduced, and once reduced, cannot be increased beyond the 20%/30% ceilings.
Their holdings shall not be increased; they may be reduced, and once reduced, cannot thereafter be increased beyond the 20% and/or 30% ceilings.
If, by reason of the merger or consolidation, the resulting bank is unable to comply fully with the ratio, the Monetary Board may, at its discretion, temporarily relieve full compliance under such conditions as it may prescribe.
Goodwill may be amortized up to a maximum of forty (40) years if there are compelling reasons; otherwise the amortization period shall not be longer than ten (10) years.
Relocation may be allowed within one (1) year from the date of merger/consolidation when the merger/consolidation resulted in duplication of branches/offices in a service area, or in other cases/circumstances as may be prescribed by the Monetary Board.
Outstanding penalties in legal reserve deficiencies and interest on overdrafts with the BSP as of the date of merger/consolidation may be paid in installments over one (1) year (for the incentive), provided the conditions/coverage requirements in the BSP rules are met.
A rediscount ceiling of 150% of adjusted capital accounts may be granted for one (1) year reckoned from the date of merger/consolidation, provided the merged/consolidated bank meets the required net worth to risk assets ratio and all other requirements for rediscounting.
For rural banks, access to the rediscounting window may be granted for two (2) years from the date of merger/consolidation even if the past due ratio exceeds 25% but not exceeding 30%, provided the merged/consolidated bank meets other requirements. During that period, rediscounting limit per application may also be increased up to the sum of the constituent banks’ prior limits.
The circular states that the incentives may also be granted in cases of purchases or acquisitions of majority or all outstanding shares of a bank/NBQB, subject to Bangko Sentral approval and the applicable conditions (e.g., rules on revaluation/reserves depending on purpose and category).
The purchase/acquisition must be for rehabilitating the former bank/NBQB. Revaluation and staggered booking over five years are allowed fully only if both banks/NBQBs belong to the same category; otherwise, recognition and booking are limited—generally to the acquired/rehabilitated bank for full amounts, and limited for the acquiring bank.