BSP Rules on Bank Stock Ownership Limits and Transfers

Legal basis and amended rules

The Circular was issued pursuant to Monetary Board Resolution No. 588 dated 14 April 2011.
The Circular amends the Manual of Regulations for Banks (MORB), specifically the provisions on shares of stock of banks (Sections 1 to 6).
The amended rules expressly tie stockholding ceilings and voting/control restrictions to Republic Act No. 8791, Republic Act No. 7906, Republic Act No. 7353, Republic Act No. 7721, and other relevant laws (Section 2 and Section 3).
The Circular uses R.A. No. 7653 as the reference for sanctions applicable to officers and parties (Section 3).

Coverage and who is covered

For purposes of Section X126, “corporations” includes partnerships, cooperatives, associations, and other juridical entities (Section 1).
Transactions involving voting shares of stock of banks are governed whenever voting rights or control over voting shares are acquired through covered transaction types (Section 3).
A “transaction” covers subscription/issuance, purchase/sale, transfer, conversion of preferred shares or debt instruments into voting shares, and any act/contract/agreement/arrangement where a person acquires voting shares or is vested the right to vote or the control of the voting shares of a bank (Section 3).

Stock ownership limits framework

Stockholdings of an individual, corporation, family group, or same group of persons in any bank are subject to the ceilings under Sections 11, 12, and 13 of R.A. No. 8791, R.A. No. 7906, R.A. No. 7353, R.A. No. 7721, and other relevant laws (Subsec. X126.1, as amended by Section 2).
Foreign individuals and non-bank corporations may own or control up to forty percent (40%) of the voting stock of a domestic bank, and the aggregate foreign-owned voting stock in the domestic bank must not exceed forty percent (40%) (Section 2, Subsec. X126.1).
Qualified foreign banks may own or control up to sixty percent (60%) of the voting stock of a domestic bank, with the aggregate foreign-owned voting stock owned by qualified foreign banks (including foreign individuals and non-bank corporations) not exceeding sixty percent (60%) (Section 2, Subsec. X126.1).
A Filipino individual and a domestic non-bank corporation may each own up to forty percent (40%) of the voting stock of a domestic bank, and there is no ceiling on the aggregate ownership by such individuals and non-bank corporations (Section 2, Subsec. X126.1).
An individual and a corporation or corporations wholly-owned or majority-voting-stock-owned by that individual may each own only up to a combined forty percent (40%) of the voting stock of a domestic bank (Section 2, Subsec. X126.1).
The right of qualified Philippine corporations under Section 8 of R.A. No. 7721 continues in force and effect as implemented under Subsec. X105.12 (Section 2, Subsec. X126.1).
Family groups or related interests: Individuals related within the fourth degree of consanguinity or affinity, whether legitimate, illegitimate or common-law, are treated as family groups/related interests and may each own up to forty percent (40%), provided the relationship is fully disclosed in all transactions (Section 2, Subsec. X126.1).
Related corporations and groups: Two (2) or more corporations owned or controlled by the same family group or same group of persons are treated as related interests and may each own up to forty percent (40%), provided the relationship is fully disclosed in all transactions (Section 2, Subsec. X126.1).
Coop bank cap: The equity investment of any cooperative in any Coop Bank must not exceed forty percent (40%) of the Coop Bank’s subscribed capital stock (Section 2, Subsec. X126.1).

How citizenship, control, and relationship are determined

The percentage of foreign-owned voting stock in a bank is determined by the citizenship of all the stockholders in the bank (Section 2, Subsec. X126.1).
The citizenship of a corporation stockholder follows the citizenship of the corporation’s controlling stockholders, regardless of where the corporation is incorporated (Section 2, Subsec. X126.1).
“Controlling stockholders” are stockholders holding more than fifty percent (50%) of the voting stock of the corporate stockholders of the bank (Section 2, Subsec. X126.1).
The relationship of individuals who are stockholders is determined under Articles 963 to 966 of the Civil Code of the Philippines (Section 2, Subsec. X126.1).

Prohibited transactions and void consequences

Transactions involving voting shares that result in ownership/control in excess of the ceilings under R.A. No. 8791, R.A. No. 7906, R.A. No. 7353, R.A. No. 7721, and other relevant laws are declared unlawful and void to the extent of the excess (Subsec. X126.2.a, as amended by Section 3).
A covered unlawful and void case occurs when any transaction (in itself or together with other/previous transactions) results in ownership and control in excess of prescribed ceilings by specified categories, including:
- Filipino individuals and Philippine non-bank corporations in a domestic bank: 40% (Section 3, Subsec. X126.2.a).
- Foreign individuals and foreign non-bank corporations in a domestic bank:
  - UB/KB and TB: 40%;
  - RB: No foreign stockholdings (Section 3, Subsec. X126.2.a).
- Combined foreign ownership in a domestic bank:
  - UB/KB: 40%;
  - TB: 60%;
  - RB: No foreign stockholdings (Section 3, Subsec. X126.2.a).
- Individual plus wholly-owned/majority-owned corporate group: combined 40% (Section 3, Subsec. X126.2.a).
- Under R.A. No. 7721 ceilings for qualified foreign banks and qualified Philippine corporations in a domestic bank (UB/KB, TB, RB): 60% and combined ownership of qualified foreign banks (including foreign individuals and non-bank corporations): 60% (Section 3, Subsec. X126.2.a).
A covered unlawful and void case also occurs when any act/contract/agreement/arrangement (including a voting trust agreement or proxy) vests in any person the right to vote or control of the voting shares, if it results in acquisition of voting rights/control in excess of the prescribed ceilings (Section 3, Subsec. X126.2.a(2)).

Prior Monetary Board approval triggers

Prior approval of the Monetary Board is required for transactions involving voting shares if the transaction (in itself or with other/previous transactions) will:
- Result in ownership or control of more than twenty percent (20%) of the voting shares of a bank by any person (natural or juridical), or enable such person to elect or be elected as a director; or
- Effect a change in the majority ownership or control of the voting shares from one group of persons to another group (Section 3, Subsec. X126.2.b(1)).
In any case involving the change in majority ownership/control, the transaction cannot be approved unless the bank immediately complies with the prescribed minimum capital requirement for new banks, notwithstanding any approved capital build-up program (Section 3, Subsec. X126.2.b(1), proviso).

Approval request process and suspension of registration

The request for prior Monetary Board approval must be submitted jointly by the transferor-stockholder (or the bank in the case of additional subscription or conversion of preferred shares or debt instruments) and the transferee-stockholder, through the bank, to the appropriate BSP department of SES (Section 3, Subsec. X126.2.b(2)).
The request must be accompanied by, for the transferee-stockholder, the same papers/documents required of incorporators/stockholders of newly established banks under Appendix 37 “Basic Guidelines in Establishing Banks” (Section 3, Subsec. X126.2.b(2)).
The corporate secretary must hold in abeyance the registration of the transaction until the prior BSP approval is submitted as provided in Subsec. X126.2.c (Section 3, Subsec. X126.2.b(2)).

Additional subscription and escrow rule

For additional subscription, the bank must not recognize the funds infused by the subscriber in its books as asset and liability or equity unless prior Monetary Board approval is obtained (Section 3, Subsec. X126.2.b(3)).
Pending Monetary Board approval, the infused funds must be placed in escrow in another bank (Section 3, Subsec. X126.2.b(3)).

Corporate secretary duties in stock transactions

The corporate secretary must, before registering a transaction or agreement in the bank’s stock and transfer book, ascertain the identity and citizenship of the subscriber/purchaser/transferee/recipient, and of any voting trustee, proxy, or person vested with the right to vote, requiring proof of citizenship (Section 3, Subsec. X126.2.c(1)).
For corporate citizenship proof, the corporate secretary may require a certified true copy of the articles of incorporation accompanied by the affidavit of the corporate secretary certifying correctness and accuracy of the list of stockholders, their citizenship, and the percentage of shares owned (Section 3, Subsec. X126.2.c(1)).
The corporate secretary must require disclosure, at the time of receipt of the registration request, of all information regarding persons related within the fourth degree and corporations where the applicant has controlling interest, including the extent of controlling interest (Section 3, Subsec. X126.2.c(2)).
The corporate secretary must require the subscriber/purchaser/transferee/recipient (or equivalent persons with voting rights) to execute an affidavit (sample format in Appendix 4) stating, among others, that the person is a bona fide owner of the shares, not acting as agent, assignee, proxy, nominee, or dummy, and that the person has full awareness of:
- Prohibitions against ownership exceeding ceilings under Subsec. X126.2.a; and/or
- The requirement for prior Monetary Board approval for transactions resulting in significant ownership of voting/common shares under Subsec. X126.2.b (Section 3, Subsec. X126.2.c(3)).
The corporate secretary must deny registration if the request will patently cause voting shares to exceed ceilings under laws/BSP regulations and must immediately inform the parties in writing (Section 3, Subsec. X126.2.c).
The corporate secretary must hold in abeyance registration if the request would result in significant ownership requiring prior Monetary Board approval but no prior approval is submitted, and must immediately inform the parties in writing (Section 3, Subsec. X126.2.c).
If the corporate secretary has reason to doubt legality, the corporate secretary may commence an action before the appropriate body (Section 3, Subsec. X126.2.c).
The corporate secretary must promptly inform stockholders who have reached ceilings of their ineligibility to own/control beyond the applicable ceiling or who would own voting shares requiring prior Monetary Board approval (Section 3, Subsec. X126.2.c(4)).
The corporate secretary must disclose ultimate beneficial owners of bank shares held in the name of PCD Nominee Corporation in an annual (or quarterly whenever changes occur) report on “Consolidated List of Stockholders and Their Stockholdings (BSP 7-16-11)”, made under oath by the corporate secretary (Section 3, Subsec. X126.2.c(5)).

Fines for delayed beneficial ownership reporting

Willful delay in submitting the ultimate beneficial owners report is a Category A-2 report failure and subjects the bank to fines for delayed reports under Subsec. X192.2, reckoned from the day following the due date until the correct report is submitted (Section 3, Subsec. X126.2.c(5)).

Sanctions under R.A. No. 7653

Any willful delay by the transferor and transferee in submitting a prior Monetary Board approval request with required supporting papers/documents within sixty (60) calendar days from the date of transaction or within thirty (30) calendar days from receipt by the corporate secretary of the registration request—whichever is earlier—subjects the transferor, transferee, or both to sanctions prescribed under Section 36 of R.A. No. 7653, without prejudice to legal actions for rescission and invalidation (Section 3, Subsec. X126.2.b(4)).
Any director and/or officer acting in the interest of an unregistered stockholder is subject to administrative sanctions under Section 37 of R.A. No. 7653, without prejudice to filing appropriate criminal charges under Section 36 of R.A. No. 7653 (Section 3, Subsec. X126.2.b(4)).
Any violation of Subsec. X126.2.b(3) subjects the bank and/or its directors and/or officers to applicable administrative sanctions under Section 37 of R.A. No. 7653, without prejudice to criminal charges under Section 36 of R.A. No. 7653 (Section 3, Subsec. X126.2.b(4)).
The corporate secretary found to have willfully falsely certified/submitted misleading statements and/or violated any provisions of Subsec. X126.2.c is subject to applicable administrative sanctions under Section 37 of R.A. No. 7653 without prejudice to criminal charges for willful false or misleading statements under Section 35 of R.A. No. 7653 (Section 3, Subsec. X126.2.c).

Newly established banks’ stockholder documents

Entities applying for a license to engage in banking business must submit, before being allowed to operate, an:
- Alphabetical list of stockholders showing the number and percentage of voting shares owned (Section 3, Subsec. X126.2.d(1)).
- Separate list of stockholders owning voting shares who are related within the fourth degree and include corporations wholly-owned or majority-owned by such stockholders, including their subsidiaries (Section 3, Subsec. X126.2.d(2)).
- Affidavit under oath from each stockholder (sample format in Appendix 4) attesting, among others, that the stockholder is the bona fide owner of the voting shares in their own right and not as agent, assignee, proxy, nominee, or dummy (Section 3, Subsec. X126.2.d(3)).

Preferred-to-common conversion limits

Conversion of preferred stock into voting/common shares, regardless of convertibility features and notwithstanding any existing BSP regulations to the contrary, must be:
- Effected only to the extent of the prescribed ceilings under existing laws; and
- Subject to prior Monetary Board approval whenever the conversion will result in significant ownership of the voting/common shares by any person or by one group of persons, as provided in Subsec. X126.2.b (Section 4, Subsec. X126.4(d)(1) and (2)).
The foregoing conversion rule must be specifically stated in the certificates of preferred shares of stock (Section 4).

Appendices and reporting reclassification

Appendix 4 (format of affidavit on transfer of stock) is amended according to Annex A (Section 5).
Appendix 6 on reports required of banks is amended to reclassify “Consolidated List of Stockholders and Their Stockholdings (BSP 7-16-11)” from Category B to Category A-2 report (Section 6).