Increase in Capitalization of Rural Banks

Rural banks shall increase their government and private capitalizations.
Central Bank of the Philippines (CBP) determines the amounts, proportions, and schedule for such increases.
Goals focus on meeting credit demands of rural areas and agrarian reform beneficiaries.

CBP authorized to convert rural banks' rediscounting obligations into equity held by the Land Bank of the Philippines.
This conversion is subject to conditions prescribed by the CBP.
The Secretary of Finance must issue government bonds to CBP corresponding to this equity acquisition.
Land Bank issues shares of stock to the Republic of the Philippines in exchange.

If converted rediscounting obligations are insufficient to meet required capitalization, Government will directly invest.
Government investment paid via issuance of government bonds to rural banks.
Bonds can be pledged, sold, or disposed of as regulated by the Monetary Board.
If rural bank has no rediscounting obligations, government bonds may still be issued to raise equity.
Total government investment capped by the aggregate rediscounting obligations outstanding as of June 30, 1974.

Preferred shares issued to Land Bank carry a 3% dividend without preference.
Land Bank, as preferred shareholder, entitled to nominate one director in the rural bank.

Government bonds issued as investment bear 3% interest per annum.
Bonds issued directly to rural banks enjoy Central Bank support.
Such bonds may be counted as part of rural banks' required reserve against deposit liabilities.

CBP authorized to require rural banks to match government equity with private equity.
CBP may approve the establishment of new rural banks in areas served by existing ones under specific default conditions:
- Failure to submit or comply with viable capitalization programs.
CBP empowered to facilitate sale of unissued shares to public or acceptable parties.

The Monetary Board of the CBP to issue necessary implementing rules and regulations.
Immediate effectivity upon issuance of the Decree.

Signed by President Ferdinand E. Marcos and Executive Secretary Alejandro Melchor on May 7, 1974, in Manila.