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BSP Circular No. 888: Amendments to Regulations on Dividend Declaration and Interest Payments on Tier 1 Capital Instruments

Dear Rural Bankers,

Pursuant to Monetary Board Resolution No. 1516, wherein the provisions of the Manual of Regulations for Banks (MORB) and Manual of Regulations for Non-Bank Financial Institutions (MORNBF) on regulations on dividend declaration were amended.

The sections/ subsections of the MORB that were amended are as follows:

a. Sec. X136 Dividends

“The following rules and regulations shall govern the declaration of dividends on shares of stock, regardless of feature, as well as interest payments on unsecured subordinated debt which meet the qualification requirements of Additional Tier 1 capitals as defined under existing risk-based capital adequacy framework.

Pursuant to Section 57 of RA No. 8791, no bank shall declare dividends greater than its accumulated net profits then on hand, deducting therefrom its losses and band debts. Neither shall the bank declare dividends if, at the time of declaration, it has not complied with the provisions of Subsec. X136.2”

b. Sec X136.1 Definitions

c. Sec X136.2 Requirements on the declaration of dividends

“Banks shall have complied with the following: (a) Clearing account with the BSP is not overdrawn; (b) Liquidity floor requirement for government funds; (c) Minimum capitalization requirement and risk-based capital ratios as provided under applicable and existing capital adequacy framework; (d) Capital conservation buffer; (e) Higher loss absorbency requirement; (f) Has not committed any unsafe or unsound banking practice.”

d. 3136.2 Limitations/ Amount available for dividends declared by rural banks and cooperative banks

“The following rules shall also govern the declaration of dividends by RBs and Coop banks: (a) Reserve for retirement of government preferred stock; (b) Applicability of other laws, rules and regulations for Coop banks; (c) Dividends on government shares for RBs.”

e. X136.3 Net amount available for dividends

“Shall be the amount of unrestricted or free retained earnings and undivided profits reported in the FRP as of calendar/ fiscal year-end immediately preceding the date of dividend declaration.”

f. X136.4 Reporting and verification

“Declaration of dividends shall be reported by the bank concerned to the appropriate department of the SES within 10 banking days after date of declaration in the following manner: (a) Submission of duly notarized certification; (b) Submission of the Report on Dividends Declared.”

g. X136.5 Recording of dividends

“The liability for dividends declared shall be taken up in the bank’s book upon its declaration.”

h. X136.6 Issuance of fractional shares

“Whenever the declaration of stock dividend results in the issuance of fractional shares, banks may observe the following guidelines: x x x”

i. X136.10 Supervisory Enforcement Actions

“Consistent with Circular No. 875, the BSP may deploy enforcement actions to promote adherence with the rules and regulations governing dividend declaration and bring about timely corrective actions…”

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