WHEREAS, under the present law, rural banks have to amend their Articles of Incorporation before private persons acquiring preferred shares of stock held by the government may enjoy the rights and privileges appertaining to common shares of stock; and

WHEREAS, to make investments in rural banks attractive and to further stimulate the growth of such banks, there is need to provide for the automatic conversion of preferred shares of stock into common stock upon sale to private parties.

NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue of the powers vested in me by the Constitution, do hereby order and decree the amendment of Republic Act No. 720, as amended, as follows:

SECTION 1. Section seven of Republic Act Numbered Seven Hundred and Twenty, as amended, is hereby further amended to read as follows:

"SEC. 7. To provide supplemental capital to any Rural Bank until it has accumulated enough capital of its own to stimulate private investments in Rural Banks, the Development Bank of the Philippines shall, upon certification of the Monetary Board which shall be final, of the existence of such need, subscribe within thirty days to capital stock or any Rural Bank from time to time in an amount equal to the total equity investment of the private shareholders which shall be paid in full at the time of subscription but not exceeding one million pesos: Provided, however, That shares of stock issued to the Development Bank of the Philippines, pursuant to this section, may, at any time, be paid off at par and retired in whole or in part if, in the opinion of the Monetary Board, the Rural Bank has accumulated enough capital strength to permit retirement of such shares; or if an offer is received from private sources to replace the equity in investments of the Development Bank of the Philippines with an equivalent investment or more in the common stock of such Bank. In case of such retirement of stock or replacement of equity investments of the Development Bank of the Philippines, the registered private shareholders of the Rural Bank shall have the right of pre-emption within one year from date of offer in proportion to their respective holdings.

Stock held by the Development Bank of the Philippines, under the terms of this section, shall be made preferred only as to assets upon liquidation and without the power to vote and shall share in dividend distributions not exceeding two percent thereof without preference: Provided, however, That if such stock of the Development Bank of the Philippines is sold to private shareholders, the same shall be converted automatically into common stock of the class provided for in section nine: Provided, further, That pending the amendment on the Articles of Incorporation of the Rural Bank, if necessary, for the purpose of reflecting the conversion into common stock of the referred stock sold to private shareholders, the transfer shall be recorded by the Rural Bank in the stock and transfer book and such shareholders shall thereafter enjoy all the rights and privileges of common stockholders. The preferred stocks so transferred shall be surrendered and cancelled and the corresponding common stocks shall be issued.

The corporate secretary of the Rural Bank shall submit to the Central Bank and the Securities and Exchange Commission a report on every transfer of preferred stock to private shareholders, and such report received by the Securities and Exchange Commission shall form part of the corporate records of the Rural Bank. When all the preferred shares of stock of a Rural Bank have been sold to private shareholders, the articles of Incorporation of the Rural Bank shall be amended to reflect the conversion of the preferred shares of stock into common stock. For this purpose, the President, the corporate secretary, and a majority of the Board of Directors shall issue a certificate that all preferred shares have been sold and transferred to private shareholders which, together with a copy of the articles of Incorporation, as amended, duly certified correct by the said President, corporate secretary, and a majority of the Board of Directors, shall be filed with the Securities and Exchange Commission, which shall attach the same to the original Articles of Incorporation on file with said office.

The Securities and Exchange Commission shall not register the amended articles of incorporation unless accompanied by the certificate of authority required under Section nine of Republic Act Numbered Three Hundred and Thirty-Seven, as amended."

SEC. 2. This Decree shall take effect immediately.

Done in the City of Manila, this 11th day of June, in the year of Our Lord, nineteen hundred and seventy-eight.

			(Sgd.) FERDINAND E. MARCOS President of the Philippines
	By the President:
	(Sgd.) JACOBO C. CLAVE
		Presidential Executive Assistant