The Bangko Sentral ng Pilipinas (BSP) is proposing a new circular on the divestment of banks' disallowed equity investments.
Based on the draft circular released to banks on Monday, Sept. 4, these equity investment transactions which were previously disapproved by the BSP at some point and are “not allowed under existing regulations or were unlawful or made in violation of existing laws” can be divested once the circular is approved.
In the proposed rules, which was signed by BSP Governor Eli M. Remolona, the BSP said transactions on equity investments that were not allowed or were disapproved for failing to meet central bank regulations, can be divested within a period not exceeding 90 calendar days from a BSP notice if the shares of stock from loans will be divested within a “reasonable period not to exceed three years from the date of acquisition thereof.”
“The Monetary Board may act on request for extension to comply with the divestment period. Such may be considered on a case-by-case basis but not to exceed fifteen (15) calendar days and thirty (30) calendar days” for some items, “after which, the deadline shall be final and executory,” said the BSP.
Based on the draft rules, the BSP said “transaction” refer to subscription/issuance, purchase/sale, transfer, conversion of preferred shares or debt instruments into voting shares of stock, and such act, contract, agreement or arrangement whereby a bank acquires voting shares of stock from one person, whether natural or juridical, or is vested the right to vote or the control of the voting shares of stock.
Unlawful transactions, meanwhile, are those that would “result/be in excess over any of the prescribed ownership ceilings” under certain laws such as Republic Act No. 8791 or General Banking Law of 2000, among others. Considered unlawful transactions are also those that violate existing agreements, said the BSP.
Besides those transactions that were disapproved by BSP, the new circular also clarified the basis for the divestment period, such as “unlawful and void transactions” which the BSP said “are not legally executable from the very beginning.”
“Banks shall complete the divestment or rescission of the transaction within a period not exceeding 30 calendar days from receipt of notice from the Bangko Sentral, or other regulatory authorities, of the violation of pertinent law/regulation/agreement,” said the BSP.
Meanwhile, the proposed circular also covered investments in venture capital corporations or VCCs such as banks with acquired shares of stock of VCCs in excess of limits and “which have not been previously confirmed by the Monetary Board” will have to get confirmation.
The BSP will impose a short transitory provision which is within 15 days after the Monetary Board approves the new circular to divest disallowed equity investments.
All banks should submit feedback or suggestions to the BSP by Sept. 18, 2023, if they have issues or concerns regarding the proposed circular.