BSP Circular 858 on Foreign Bank Entry Rules

Legal basis and linked statutes

Republic Act No. 10641 is the statutory basis for amendments governing the liberalized entry and scope of operations of foreign banks.
Republic Act No. 10641 amends Republic Act No. 7721, which governs the entry of foreign banks into the Philippines.
BSP Circular No. 858 also amends MORB provisions that cross-reference ownership limits and related banking rules using references to, among others, Republic Act No. 8791, Republic Act No. 7906, Republic Act No. 7353, and Republic Act No. 10574.
BSP Circular No. 858 harmonizes MORB rules with provisions on capital adequacy and risk-based capital frameworks linked to Republic Act No. 8791.

Liberalized entry and foreign banks rules

Section X105.1 requires prior approval of the Monetary Board before a foreign bank may operate in the Philippines, through one of the following modes of entry:
- acquiring, purchasing, or owning up to one hundred percent (100%) of the voting stock of an existing domestic bank, including banks under receivership or liquidation, provided no final court liquidation order has been issued;
- investing in up to one hundred percent (100%) of the voting stock of a new banking subsidiary incorporated under Philippine laws; or
- establishing a branch and sub-branches with full banking authority.
Foreign banks must file their application for authority to operate with the Office of the Governor, Bangko Sentral, under the selected mode of entry, and application requirements are under Appendix 2.
Section X105.2 requires, in addition to compliance with Section X105.3, that a foreign bank applicant be:
- widely-owned and publicly-listed in the country of origin, unless the applicant is owned and controlled by the government of its country of origin; and
- established, reputable and financially sound.
Determinations of “widely-owned,” “publicly-listed,” “established,” “reputable,” and “financially sound” are based on information from submitted documents required under Appendix 2, and if the foreign bank is owned/controlled by a holding company, the requirement may apply to the holding company.
Section X105.3 mandates that selection of foreign banks allowed to enter is guided by factors including:
- geographic representation and complementation;
- strategic trade and investment relationships, including financial assistance, and loans and investments in the Philippines, plus significant trade especially where the Philippines has substantial net exports;
- relationship between the applicant bank and the Philippines, including capability to promote trade and attract foreign investments, plus long-standing financial/commercial relationship and assistance;
- demonstrated capacity, including global reputation for financial innovations and stability in a competitive environment;
- reciprocity rights enjoyed by Philippine banks in the applicant’s country, consistent with general reciprocity opportunities for Philippine banks to establish operations; and
- willingness to fully share banking technology.

Capital requirements and transition rules

Section X105.4 requires capital compliance for foreign banks as follows:
- For locally incorporated subsidiaries, a foreign bank subsidiary must comply with the minimum capital and prudential capital ratios applicable to domestic banks of the same category under prevailing regulations.
- For foreign bank branches, a branch must comply with the minimum capital and prudential capital ratios applicable to domestic banks of the same category under prevailing regulations.
For foreign bank branch compliance with minimum capital:
- “capital of a foreign bank branch” means the sum of:
  - permanently assigned capital,
  - undivided profits, and
  - accumulated net earnings, composed of unremitted profits not yet cleared by the Bangko Sentral for outward remittance and losses in operations,
  - less capital adjustments required by the Bangko Sentral under prevailing rules and regulations of general application.
- Permanently assigned capital must be inwardly remitted and converted into Philippine currency at the exchange rate prevailing at the time of remittance.
- “Net due from head office, branches, subsidiaries and other offices outside the Philippines, excluding accumulated net earnings” is a deductible adjustment to capital.
- For compliance with the Single Borrower’s Limit (SBL), branch capital (subject to prescribed adjustments) is synonymous to its “net worth.”
Transitory provisions under Section X105.4 require:
- Minimum capital for foreign banks established prior to R.A. No. 10641 must comply with the applicable minimum capital level under Subsec. X111.1, and existing foreign banks that do not meet requirements must submit an acceptable capital build-up program under Subsec. X111.1.
- Loans and credit commitments of foreign bank branches as of the effectivity of R.A. No. 10641 may be maintained, but once repaid or expired, they may not be increased beyond the ceiling allowed under this Circular.
- Existing foreign bank branches are granted until 31 December 2019 to use twice the level of capital defined under the subsection as net worth as the reference point for determining the appropriate SBL.
Section X105.6 requires foreign bank branches to comply with the same risk-based capital adequacy ratios applicable to domestic banks of the same category, including specified treatment of:
- CET1 capital, which includes permanently assigned capital, undivided profits, accumulated net earnings and other capital components;
- deduction of “Net due from head office, branches, subsidiaries and other offices outside the Philippines, excluding accumulated net earnings” from CET1 capital;
- risk-based capital computation guidelines under Appendix 63b.
Section X105.8 grants subsidiaries and branches (established under Section X105.1) authority and privileges subject to the same limitations imposed upon a Philippine bank of the same category, including eligibility to operate under a universal banking authority, subject to existing rules and regulations and guidelines enumerated in Appendix 3.
Section X105.10 allows foreign banks to apply for conversion from one mode of entry to another, but requires compliance with all applicable requirements and submission of an acceptable transition plan addressing how the foreign bank implements the change.

Authority scope, resource control, and equal treatment

Section X105.9 mandates that the Monetary Board adopt measures to ensure that at all times control of sixty percent (60%) of the resources or assets of the entire banking system is held by domestic banks, which are majority-owned by Filipinos.
Such measures include:
- suspension of entry of additional foreign bank subsidiaries and branches; and
- suspension of license upgrade or conversion to subsidiary of existing foreign bank branches.
Any other measures must be consistent with R.A. No. 7721, as amended by R.A. No. 10641, and must consider vested rights and non-impairment of contracts.
Section X105.12 requires equal treatment: any right, privilege, or incentive granted to foreign banks or their subsidiaries or affiliates under R.A. No. 7721, as amended by R.A. No. 10641 must be equally enjoyed by and extended under the same conditions to domestic banks.

Ownership limits and voting-share compliance

Section X126.1 subjects stockholdings in a single bank to limits prescribed in Sections 11, 12, and 13 of R.A. No. 8791, R.A. No. 7906, R.A. No. 7353, as amended by R.A. No. 10574, R.A. No. 7721 as amended by R.A. No. 10641, and other relevant laws, as summarized in the table.
The table prescribes caps based on bank type and the citizenship/qualification status of stockholders, including:
- voting shares of stock of a foreign individual or foreign non-bank corporation in:
  - UB/KB and TB: 40%
  - RB: 60%
- aggregate ownership of voting shares of foreign individuals and/or foreign non-bank corporations in:
  - UB/KB: 40%
  - TB/RB: 60%
- voting shares of stock of a qualified foreign bank in UB, KB, TB and RB: 100%
- combined ownership of voting shares of qualified foreign banks in UB, KB, TB and RB: 100%
The table further sets caps for qualified and non-qualified Philippine ownership combinations, including:
- voting shares of stock of a qualified Philippine corporation in UB, KB, TB and RB prior to the effectivity of R.A. No. 10641 (7 August 2014): 40% (UB/KB and TB) and 60% (RB), with the table’s classification maintained.
- Filipino individual voting shares of stock in:
  - UB/KB and TB: 40%
  - RB: 60%
Additional explicit rules govern foreign and Filipino ownership and control:
- Any foreign individual or non-bank corporation may each own or control up to forty percent (40%) only of the voting stock of a UB, KB or TB, with the aggregate foreign-owned voting stock not exceeding forty percent (40%) in UB/KB and sixty percent (60%) in the case of TBs.
- For RBs, non-Filipino citizens excluding foreign banks may each or in the aggregate own/acquire/purchase up to sixty percent (60%) of RB voting stock.
- The percentage of foreign-owned voting stock is determined by the citizenship of individual or corporate stockholders in the bank.
- Qualified foreign banks may own or control up to one hundred percent (100%) of the voting stock of a domestic bank.
- Any Filipino individual or domestic non-bank corporation may each own up to forty percent (40%) of voting stock of a UB, KB or TB, and up to sixty percent (60%) only of voting stock of a rural bank.
- Individuals related within the fourth degree of consanguinity or affinity (legitimate, illegitimate, or common-law) are treated as “family groups or related interests” and each may own up to forty percent (40%) of voting stock of a UB, KB or TB and up to sixty percent (60%) of voting stock of an RB, provided relationship is fully disclosed in all transactions.
- Two (2) or more corporations owned or controlled by the same family group or same group of persons are treated as related interests and each may own up to forty percent (40%) of voting stock of a UB, KB or TB and up to sixty percent (60%) of voting stock of an RB.
Section X126.2 declares unlawful and void certain transactions involving voting shares of stock of banks to the extent of excess over prescribed ceilings, including:
- any transaction involving voting shares that results in ownership and control by an individual or corporation of voting shares in excess of prescribed limits, considering the transaction “in itself” and together with other/previous transactions; and
- any arrangement such as a voting trust agreement or proxy that vests in any person the right to vote or control of voting shares in excess of prescribed ceilings, considering the arrangement “in itself” and together with other/previous transactions.

Selection guidelines for RB foreign ownership

Section 3127.5 requires, in determining the fitness and propriety of non-Filipino citizens (excluding foreign banks) allowed to invest in voting stock of an RB, consideration of criteria for selection.
A foreign bank seeking to own, acquire, or purchase up to one hundred percent (100%) of voting stock in an RB must meet the qualification requirements under Subsecs. X1052 and the selection criteria under Subsec. X105.3.

Sub-branches of foreign bank branches

Section X153 authorizes establishing sub-branches of foreign banks only subject to Monetary Board approval.
Section X153.1 requires applications for authority to establish sub-branches to be signed by the Country Manager or the highest ranking officer in the Philippines of the applicant foreign bank and to be accompanied by:
- a certified true copy of the board resolution authorizing the Country Manager or highest ranking officer in the Philippines to apply and represent the bank; and
- a proposed business plan for the sub-branch/es.
Section X153.2 adds requirements beyond standard pre-qualification requirements in Appendix 5 by imposing:
- the branch processing fee in Subsec. X151.5; and
- for sub-branches in Makati, Mandaluyong, Manila, Parañaque, Pasay, Pasig, Quezon and San Juan in Metro Manila, also the special licensing fee under Subsec. X151.5, as applicable.
Section X153.3 provides that opening of approved sub-branches is subject to Subsec. X151.7.
Section X153.4 permits opening after approval subject to conditions requiring:
- written notice at least thirty (30) days prior to intended opening date, accompanied by:
  - proof or evidence of inward remittance needed for additional capital requirements under Subsec. X111.1, as applicable;
  - list of principal and junior officers of the proposed sub-branch/es with designations and salaries;
  - and other listed items (with placeholders maintained in the MORB text for certain items).
- adequate staff, equipment, and other facilities for commercial banking operations, and inspection finding that premises, vault, and office equipment substantially comply with security standards and are ready for use by the bank;
- issuance by the Governor of a permit to open and operate the approved sub-branch/es.
After opening, banks must submit a written notice to the appropriate department of the SES of the actual opening date not later than ten (10) banking days from opening.
Section X153.5 caps the number of sub-branches: a foreign bank authorized to establish branches may open up to five (5) sub-branches as approved by the Monetary Board.
Section X153.6 maintains a sanctions section for violations (the sanctions text is not reproduced here, but the sanctions subsection remains part of the rule structure).

Foreclosure participation limits and penalties

Section X311.4 allows foreign banks authorized to do banking business in the Philippines through modes of entry under Subsec. X105.1 to:
- bid and take part in foreclosure sales of real property mortgaged to them;
- avail of enforcement and other proceedings and take possession of mortgaged property
- for a period not exceeding five (5) years from actual possession (excluding the redemption period as defined under Subsec. X311.5), unless actual possession was acquired earlier.
Section X311.4 prohibits transfer of title to the foreign bank “in no event.”
If the foreign bank is the winning bidder, it must transfer its rights to a qualified Philippine national during the five (5)-year period, without prejudice to the borrower’s rights under applicable laws.
If the foreign bank fails to transfer within five (5) years, the foreign bank is penalized one half (1/2) of one percent (1%) per annum of the price at which the property was foreclosed until it transfers to a qualified Philippine national.
Foreign banks must maintain and make readily available for inspection information pertaining to individual mortgaged properties foreclosed to enable the Bangko Sentral to determine compliance.
This foreclosure participation rule does not limit the mortgagee-bank’s right to own condominium units under existing laws.
Section 3311.4 applies a similar foreclosure framework for RBs/cooperative banks:
- foreclosure of mortgages covering RB loans and executions of judgment involving real properties levied upon by a sheriff is exempt from newspaper publication when the total loan amount excluding interests due and unpaid does not exceed P100,000 or such amount as the Monetary Board may prescribe based on prevailing economic conditions;
- it is sufficient to publish through posting foreclosure and execution of judgment notices in the most conspicuous area of the municipal building, municipal public market, the RB, barangay hall, and barangay public market (if any) for sixty (60) days preceding the public auction.
RBs not qualified to acquire or hold land in the Philippines are allowed to bid and take part in foreclosure sales and take possession for up to five (5) years from actual possession (excluding redemption), but title cannot be transferred to the RB.
If an unqualified RB is the winning bidder, it must transfer its rights to a qualified Philippine national during the five (5)-year period, without prejudice to the borrower’s rights.
Failure to transfer within five (5) years subjects the RB to a penalty of one-half (1/2) of one percent (1%) per annum of the foreclosure price until transfer occurs.

MORB definitions, equity investment limits, documents

Section X342.1 defines “lending institutions” as all banks: UBs, KBs, TBs and RBs/Coop Banks, including government-owned banks.
Section X342.1 defines “total loan portfolio” to include loans and receivables (gross of allowance for credit losses) excluding:
- loans granted to MSMEs other than BMBEs to the extent funded by wholesale lending of, or rediscounted with, another bank;
- agrarian reform credits/other agricultural loans under R.A. No. 10000 other than those eligible for mandatory allocation of credit for MSMEs;
- loans and receivables from repo agreements, certificates of assignment/participation with recourse, and securities lending and borrowing transactions;
- and loans/receivables booked in the FCDU/EFCDU, as defined under the FRP Manual of Accounts.
Section X378 limits equity investments of a bank in the equities of a financial allied undertaking: the equity investment in a single financial allied undertaking must be within specified ratios relative to:
- the total subscribed capital stock and
- the total voting stock of the allied undertaking.
Section X378 expressly allows a publicly-listed UB or KB to own up to 100% of the voting stock of only one (1) other UB or KB; otherwise, equity ownership is limited to a minority holding.
Appendix 2 is amended to rationalize and simplify documentary requirements for foreign bank applicants under each mode of entry.
Appendix 3 is amended for universal banking authority issuance guidelines for branches of foreign banks, including:
- minimum capital: capital of a foreign bank branch applying for UB authority must be at least the amount prescribed by the Monetary Board for UBs;
- compliance: the applicant must comply with capital adequacy ratios (Common Equity Tier 1, Tier 1, Capital Adequacy Ratio, and Capital Conservation Buffer) under Section 34 of R.A. No. 8791, Subsec. X1056, and Appendix 63b for the year preceding the filing of the application; and must have sufficient valuation reserves to cover estimated losses.
Appendix 63b/Q-46 (risk-based capital adequacy framework) is amended to reflect CET1 capital components and related regulatory adjustments, and it includes:
- CET1 comprising permanently assigned capital, undivided profits, retained earnings, accumulated net earnings, and other comprehensive income components such as net unrealized gains/losses on AFS securities and cumulative foreign currency translation;
- deduction of any balance in the “Net due from” account from CET1 capital;
- Tier 2 capital including general loan loss provision limited to a maximum of one percent (1.00%) of credit risk-weighted assets, with amounts in excess deducted from credit risk-weighted assets in computing the denominator.
Section X1055 (prescribed ratio of a “Net Due” account) and Section X105.11 (listing of shares with the Philippine Stock Exchange) of the MORB are deleted.

Procedural and administrative implementation details

Foreign banks must file applications for authority with the Office of the Governor, Bangko Sentral, for authority to operate under the permitted entry modes under Subsec. X105.1, with requirements listed in Appendix 2.
Foreign bank sub-branch applications require board authorization documentation and a proposed business plan, signed by the Country Manager or highest ranking officer in the Philippines, and are subject to branch processing fees and, in Metro Manila cities, special licensing fees.
Opening of approved sub-branches requires advance notice at least thirty (30) days before intended opening, with proof/evidence of inward remittance, officer lists with salaries, and other required attachments, plus inspection-based security compliance and issuance of the Governor’s permit.
After opening, banks must notify SES’s appropriate department of the actual opening date within ten (10) banking days.

Effectivity and final amendments

BSP Circular No. 858 provides that it takes effect fifteen (15) days after its publication in a newspaper of general circulation.
BSP Circular No. 858 amends the MORB by revising Section X105, updating Section X126.1 and X126.2, modifying Section 3127.5, amending Section X153, amending Section X311.4, amending Section 3311.4, amending Section X342.1, amending Section X378, amending Appendix 2 and Appendix 3, amending Appendix 63b/Q-46, and deleting Subsecs. X1055 and X105.11.