Pursuant to Monetary Board Resolution No. 1516 dated 17 September 2015, approving the amendments to regulations on dividend declaration, the provisions of the Manual of Regulations  for Banks (MORB) and Manual of Regulations  for Non-Bank Financial Institutions (MORNBFI) are hereby amended:

Section 1. The following sections/subsections of the MORB are hereby amended as follows:

œSec. 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  or  Hybrid  Tier  1  capital  as  defined  under existing risk-based capital adequacy framework.

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

œ X136.1 Definitions. For purposes of this Section, the following definitions shall apply:

œxxx 

œ X136.2 Requirements on the declaration of dividends. At the time of declaration, banks shall have complied with the following:

œa.  clearing account with the Bangko Sentral is not overdrawn;
œb.  Liquidity floor requirement for government funds;
œc.  Minimum  capitalization   requirement   and  risk-based  capital  ratios  as provided under applicable and existing capital adequacy framework;
œd.  Capital conservation buffer requirement as defined in Appendix 63b, Part III, for universal and commercial banks (U/KBs) and their subsidiary banks and quasi-banks (QBs);
œe.  Higher loss absorbency requirement, phased-in starting 1 January 2017 with full implementation by 1 January 2019, in accordance with Domestic Systemically Important Banks (DSlBs) Framework as provided under Circular No. 856 dated 29 October 2 014, for U/KBs and their subsidiary banks and QBs that are identified as DSIBs; an

œf.   Has not committed  any unsafe or unsound banking practice as defined under existing regulations and/or major acts or omissions^[1]   as may be determined by  the  Bangko  Sentral  to  be  ground  for  suspension  of  dividend  distribution, unless this has been addressed by the bank as confirmed by the Monetary Board or the Deputy Governor,  SES, as may be applicable,  upon recommendation  of the appropriate department of SES.

œBanks shall ensure compliance with the minimum capital requirements  and risk-based capital ratios even after the dividend distribution. 

œ 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.

œa.  Reserve for retirement of government preferred stock. In addition to the requirements prescribed in Subsec. X136.2, an RB/Coop Bank may declare cash dividends only if the amount of its reserve for retirement of government preferred stock is at least equal to the amount which should have been accumulated  had the bank transferred annually to the reserve account from its undivided profits an amount equal to at least an average of one-tenth (1/10) of the total amount of preferred stock; and

œb.  Applicability  of other laws, rules and regulations  for Coop Banks. Coop Banks shall, likewise, comply with the provisions governing the distribution of net surplus as provided under Article 86 of R.A. No. 9520, the Coop Bank ™s By-Laws as well as other laws, rules and regulations.

œc.  Dividends on government shores for RBs

œ(1)  Held  prior  to  09  June  1992.  Whenever  dividends  of  not  less  than fourteen  percent  (14%)  are declared  on common  stock,  government  preferred stock shall be entitled to a cash dividend not to exceed two percent (2%) of total outstanding preferred stock. Should the dividends declared on common stock be less than fourteen percent (14%), the dividend on preferred stock shall be proportionately reduced.

œ(2) Held on or after 09 June 1992. Shares held by the LBP, DBP, or by any government-owned  or-controlled  bank or Fl shall share in dividend distributions from the date of issuance  in the amount  of four percent  (4%) on the first and second years six percent (6%) on the third and fourth years; eight percent (8%) on the fifth and sixth years; ten percent (10%) on the seventh and eighth year; and twelve percent (12%) on the ninth to the fifteenth years, which shall be cumulative: Provided, That the RB and the government-owned  or controlled bank are  not  precluded   from  entering  into  an  agreement   providing   for  rates  of dividends other than those prescribed by law.

œ(3) Held on or after 13 September 2013. Shares held by the LBP, DBP, or by any government-owned or-controlled bank or Fl shall share in dividend distributions  from  the  date  of  issuance  in  an  amount  based  on  the  lending benchmark approved by the Bangko Sentral plus the prevailing non-prime spread of the government Fl: Provided, That the RB and the government-owned or - controlled bank are not precluded from entering into an agreement providing for rates of dividends other than those prescribed by law.

œ X136.3  Net amount  available  for dividends.  The net amount available for dividends shall be the amount of unrestricted or free retained earnings and undivided profits reported in the Financial Reporting package (FRP) as of the calendar/fiscal year-end immediately preceding the date of dividend declaration.

œThe derivation of the amount of dividends from the unrestricted/free retained earnings shall be based on a sound accounting system and loss provisioning processes under existing regulations which takes into account relevant capital adjustments including losses, bad debts and unearned profits or income.^[2] 

œ X136.4 Reporting and verification. Declaration of dividends shall be reported by the bank concerned to the appropriate department of the SES within ten (10) banking days after date of declaration in the following manner:

œa. submission of a duly notarized certification (Annex A) signed by the President,  or  an  officer  of  equivalent  rank,  and  the  Chief  Compliance  officer stating that the bank has complied with the requirements on the declaration of dividends provided under Subsec. X136.2, and, in the case of rural banks and cooperative  banks,  Subsec.  3136.2,  as well as other  existing  applicable  laws; and

œb.  Submission of the Report on Dividends Declared (Annex B), which shall be considered a Category A-1 report.

œHowever,  banks  with  major  supervisory  concerns  such  as  those  initiated under prompt corrective action (PCA) or with specific MB directive to suspend/ refrain/restrict dividend declaration, shall be subject to prior Bangko Sentral verification by the appropriate department of the SES. Pending verification of abovementioned  reports, no announcement or communication on the declaration of dividends  nor  shall  any  payment  be  made  thereon  until  receipt  of Bangko Sentral advice thereof. 

œ X136.5 Recording of dividends. The liability for dividends declared shall be taken up in the bank ™s books upon its declaration.

œHowever, for dividend declarations that are subject to prior Bangko Sentral verification,  the liability  for dividends  declared  shall be taken  up in the bank ™s books upon receipt of Bangko Sentral advice thereof. A memorandum entry may be made to record the dividend declaration on the date of approval by the board of directors.

œFor full disclosure purposes, the dividends declared shall be disclosed in the financial statements either as a footnote in the statement of changes in equity or in the notes to the financial statements. For dividends declared that is still subject to prior Bangko  Sentral  verification,  disclosure  by means  of a footnote  should include a statement to the effect that the dividend declaration is subject to review by the Bangko Sentral. 

œ   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:

œx x x 

œ X136.7 - X136.9 (Reserved) 

œ   X136.10  Supervisory  Enforcement  Actions.  Consistent  with  Circular No.  875  dated  15  April  2015,  the  Bangko  Sentral  may  deploy  enforcement actions to promote adherence with the rules and regulations governing dividend declaration  and bring about timely corrective  actions. The Bangko Sentral may issue directives to suspend/refrain/restrict  from performing a particular activity, or impose sanctions to limit the level of or suspend any business activity that has adverse effects on the safety or soundness of the bank, among others. Sanctions may  likewise   be  imposed   on  a  bank  and/or   its  directors,   officers   and/or employees.

œThe imposition of sanctions shall be without prejudice to the imposition of administrative  sanctions  under Section 37 of R.A. No. 7553 including declaring as unsafe or unsound (as defined under Section 56 of R.A. No. 8791) the inappropriate dividend declarations, and/or to the filing of appropriate criminal charges against culpable persons as provided under Section 35 of R.A. No. 7653 for the willful making of a false/misleading statement.

œFurther,  banks  subsequently   found  to  have  violated  the  provisions  on dividend  declaration  or  have  falsely  certified/submitted  misleading  statements shall be reverted to the prior Bangko Sentral verification  wherein the bank can only make an announcement  or communication  on the declaration  of dividends or payment of dividends thereon^[3]   upon receipt of Bangko Sentral advice thereof. 

œSec. X137 (Reserved) 

œSec. 1137 (Reserved) 

œSec. 2137 (Reserved ) 

œSec.  3137  Limitations/Amount   Available  on  Dividends  Declared  by Rural  Banks  and  cooperative  Banks.  (Deleted  by Circular  No. 888  dated  9 October 2015)

3137.1 Dividends  on government  shares (Deleted by Circular No. 888 dated 9 October 2015)

œSecs. X138 - X140 (Reserved)

œ X126.5 Issuance of redeemable shares: conditions; certification and report; sanctions

œa.  Conditions.  Banks conditions:  may issue redeemable  shares subject to the following conditions:

(1)  xxx
(2)  xxx
(3)  The applicant bank after xxx: (a)  xxx
(b)  xxx
(c)  xxx
(d)  No  dividend  shall  be  declared  or  paid  on  redeemable  shares  in  the absence of sufficient undivided profits, free surplus. 

œxxx. 

Section 2. The following sections/subsections of the MORNBFI are hereby amended as follows:

œSec. 4136Q (2008-4126Q) 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 as defined under existing risk-based capital adequacy framework.

œPursuant  to Section  57 of R.A. No. 8791,  no QB shall declare  dividends greater  than its accumulated  net profits  then on hand, deducting  therefrom  its losses and bad debts. Neither shall the QB declare dividends if, at the time of declaration, it has not complied with the provisions of Subsec. 4136Q.2. 

œ 4136Q.1  (2008  - 4126Q.1)  Definitions  of terms.  For purposes  of this
Section, the following definitions shall apply: œxxx 
œ 4136Q.2 (2008 - 4126Q.2) Requirements on the declaration of dividends/net amount available for dividends.

œa.  Requirements on the declaration of dividends. At the time of declaration, QBs shall have complied with the following:
 
œ(1) Clearing account with the BSP is not overdrawn;
œ(2) Minimum  capitalization   requirement   and  risk-based  capital  ratios  as provided under applicable and existing capital adequacy framework;
œ(3) Capital  conservation  buffer  requirement  as  defined  in Appendix  Q-46, Part III, for QBs that are subsidiaries of universal and commercial banks (U/KBs); œ(4) Higher loss absorbency requirement, phased-in starting 1 January 2017
with  full  implementation   by  1  January  2019,  in  accordance   with  Domestic
Systemically Important Banks (DSlBs) Framework as provided under Circular No.
856 dated 29 October 2014, for QBs that are subsidiaries of U/KBs identified as
DSIBs; and
œ(5) Has  not  committed  any  unsafe  or unsound  practice  as  defined  under existing regulations and/or major acts or omissions^[4]   as may be determined by the Bangko Sentral to be ground for suspension of dividend distribution, unless this has  been  addressed  by  the  QB  as  confirmed  by  the  Monetary  Board  or  the Deputy Governor, SES, as may be applicable, upon recommendation of the appropriate department of SES.

œQBs  shall  ensure  compliance  with  the  minimum  capital  requirement  and risk-based capital ratio even after the dividend distribution.

œb. Amount available. The net amount available for dividends shall be the amount of unrestricted or free retained earnings and undivided profits reported in the   Bangko   Sentral   prudential   reports   as   of   the   calendar/fiscal   year-end immediately preceding the date of dividend declaration.

œThe derivation of the amount of dividends from the unrestricted/free retained earnings shall be based on a sound accounting system and loss provisioning processes under existing regulations which takes into account relevant capital adjustments including losses, bad debts and unearned profits or income.^[5] 

œ 4136Q.3 (Reserved) 

œ 4136Q.4  (2008  - 4126Q.3)  Reporting  and verification.  Declaration  of cash  dividends  shall  be  reported  by  the  QB  concerned  to  the  appropriate department of the SES within ten (10) business days after date of declaration in the following manner:

œa.  Submission  of a duly notarized certification  (Annex A) by the president, or an officer of equivalent rank, and the Chief Compliance officer stating that the QB has complied with the requirements on the declaration of dividends provided under Subsec. 4136Q.2, as well as other existing applicable laws; and

œb.  Submission of the Report on Dividends Declared (Annex B), which shall be considered a Category A-1 report.

œHowever,  QBs  with  major  supervisory  concerns  such  as  those  initiated under prompt corrective action (PCA) or with specific MB directive to suspend/ refrain/restrict dividend declaration, shall be subject to prior Bangko sentral verification by the appropriate department of the SES. Pending verification of abovementioned  reports, no announcement or communication on the declaration of cash dividends nor shall any payment be made thereon until receipt of Bangko Sentral advice thereof. 

œ 4136Q.5 (2008 - 4126Q.4) Recording of dividends. The liability for cash dividends declared shall be taken up in the QB ™s books upon its declaration.

œHowever, for dividend declarations that are subject to prior Bangko Sentral verification, the liability for cash dividends declared shall be taken up in the QB ™s books upon receipt of Bangko Sentral advice thereof. A memorandum entry may be made to record the dividend declaration on the date of approval by the board of directors.

œFor full disclosure purposes, the cash dividends shall be disclosed in the financial statements as a footnote in the statement of changes in equity or in the notes to the financial  statements.  For dividends  declared  that is still subject to prior  Bangko  Sentral  verification,  disclosure  by  means  of  a  footnote  should include a statement to the effect that the dividend declaration is subject to review by the Bangko Sentral. 

œ 4136Q.6 (Reserved) 

œ 4136Q.7  (2008 - 4126Q.5)  Rules on declaration  of stock dividends. The declaration of stock dividends shall be subject to the preceding regulations on declaration of cash dividends.

œ 4136Q.8 - 4136Q.9 (Reserved) 

œ 4136Q.10  Supervisory  Enforcement  Actions.  Consistent  with Circular No.  875  dated  15  April  2015,  the  Bangko  Sentral  may  deploy  enforcement actions to promote adherence with the rules and regulations governing dividend declaration  and bring about timely corrective  actions. The Bangko Sentral may issue directives to suspend/refrain/restrict  from performing a particular activity, or impose sanctions to limit the level of or suspend any business activity that has adverse effects on the safety or soundness of the QB, among others. Sanctions may likewise be imposed on a QB and/or its directors, officers and/or employees.

œThe imposition of sanctions shall be without prejudice to the imposition of administrative  sanctions  under Section 37 of R.A. No. 7653 including declaring as unsafe or unsound (as defined under Section 56 of R.A. No. 8791) the inappropriate dividend declarations, and/or to the filing of appropriate criminal charges against culpable persons as provided under Section 35 of R.A. No. 7653 for the willful making of a false/misleading statement.

œFurther,   QBs  subsequently   found   to  have   violated   the  provisions   on dividend  declaration  or  have  falsely  certified/submitted  misleading  statements shall be reverted to the prior Bangko Sentral verification wherein the QB can only make an announcement or communication on the declaration of dividends or payment of dividends thereon(  upon receipt of Bangko Sentral advice thereof. 

Section 3. The Financial Reporting Package, prescribed under Subsection X191.2 of the MORB is further amended to revise the Manual of Accounts (MOA) to amend the definition of Dividends Payable as follows:

(a)  Manual of Accounts

œxxx

œ30. Other Liabilities

œ(a) Servicing Liabilities - xxx

œxxx

(e)   Dividends  payable  -  This  refers  to  the  amount  of  unpaid  cash dividends  declared  by  the  Board  of  Directors  to  stockholders  of record.

œxxx

Section 4. Appendix 6 of the MORB and Appendix Q-3 of the MORNBFI are hereby  amended  to  include  the  Report  on  Dividends  Declared  (for  bank  and QBs)  as  a  Category  A-1  report  which  shall  be  submitted  within  10  banking/ business days after date of dividend declaration to the appropriate department of the SES.

This Circular shall take effect fifteen (15) days after its publication  either in the official Gazette or in a newspaper of general circulation.