c914 - 2016 Updates On DOSRI Rule PDF
c914 - 2016 Updates On DOSRI Rule PDF
c914 - 2016 Updates On DOSRI Rule PDF
The Monetary Board, in its Resolution No.974 dated 2 June 2OL6, approved the
revisions to prudential policy on loans, other credit accommodations, and guarantees
granted to directors, officers, stockholders, and their related interests (DOSRI), subsidiaries
and affiliates amending relevant provisions of the Manual of Regulations for Banks/Manual
of Regulations for Non-Bank Financial Institutions (MORB/MORNBFI) as follows:
Sec. X326 Policy Statement. The Bangko Sentral recognizes that transactions of its
supervised financial institutions (BSFls) with related parties, which include dealings
with directors, officers, stockholders, and their related interests (DOSRI), subsidiaries,
and affiliates, may be both productive and prudent. The Bangko Sentral also
recognizes the need to provide BSFIs with flexibility with respect to lending to DOSRI,
subsidiaries, and affiliates premised on the overarching principle that the transactions
shall at all times be kept above board and conducted on an arm's length basis, and
that BSFIs have adopted robust internal policies and procedures in handling related
party transactions that are compliant with the minimum requirements of law and
regulations.
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e. Related interest shall refer to any of the following:
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(3) Co-owner with the director, officer, stockholder or his spouse or relative within
the first degree of consanguinity or affinity, or relative by legal adoption, of the
A. Mabini St., Malate 1"004 Manila, Philippines . 1632]|7O8-/ /OL . www.bsp.gov.ph . [email protected]
property or interest or right mortgaged, pledged or assigned to secure the loans or
other credit accommodations, except when the mortgage, pledge or assignment
covers only said co-owner's undivided interest;
The general principles and standards that will govern the business relationships
between banks and their related NGOs/foundations engaged in retail microfinance
are found in Appendix 27.
f. Subsidiory shall refer to a corporation or firm more than fifty percent (50%) of the
outstanding voting stock of which is directly or indirectly owned, controlled or held
with power to vote by its parent corporation.
g. Affiliate shall refer to an entity linked directly or indirectly to a bank by means of:
(1) Ownership, control as defined under Subsec. XI46.L, or power to vote of at
least twenty percent (20yol of the outstanding voting stock of the borrowing entity,
or vice-versa;
(3) Common stockholders owning at least ten percent (LO%I of the outstanding
voting stock of the bank and at least twenty percent 120%l of the outstanding
voting stock of the borrowing entity;
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(4) Management contract or any arrangement granting power to the bank to direct
or cause the direction of management and policies of the borrowing entity; or
(5) Permanent proxy or voting trusts in favor of the bank constituting at least
twenty percent (20%l of the outstanding voting stock of the borrowing entity, or
vice versa.
In cases where the borrowing entity is linked to the lending bank both as DOSRI
and as a subsidiary or affiliate, the DOSRI rules shall apply.
h. Unencumbered deposits x x x
l. Secured loan, borrowing or other credit occommodotion shall refer to any loan, or
credit accommodation or portion thereof referred to in Sec. X327 which is secured by
physical collateral, financial guarantee, or other instruments, that are enforceable,
reafizable, and marketable and meets the standards prescribed under Subsec. X178.7
and Sec. X311.
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o. Ceilings. The total outstanding loans, other credit accommodations and guarantees
to each of the bank's subsidiaries and affiliates shall not exceed ten percent lll%l
of the net worth of the lending bank: Provided, That the unsecured loans, other
credit accommodations and guarantees to each of said subsidiaries and affiliates
shall not exceed five percent (5o/ol of such net worth: Provided, further, That the
total outstanding loans, other credit accommodations and guarantees to all
subsidiaries and affiliates shall not exceed twenty percent (2O%l of the net worth
of the lending bank: Provided, finally, That these subsidiaries and affiliates are not
refated interest of any of the director, officer, and/or stockholder of the lending
bank.
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infrastructure, energy and power generation, and other priority programs and
projects, including those under the Public-Private Partnership (PPP) Program of the
government, consistent with the Philippine Development Plan/Public Investment
Program of the National Government, duly certified as such by the Secretary of
Socio-Economic Planning, shall be subject to a separate individual limit of twenty-
five percent (25%l of the net worth of the lending bank: Provided, That the
unsecured portion thereof shall not exceed twelve and one-half percent (12.5%l of
such net worth: Provided, further, That these subsidiaries and affiliates are not
related interest of any of the director, officer, and/or stockholder of the lending
bank: Provided, finally, That the total outstanding loans, other credit
accommodations and guarantees to all subsidiaries and affiliates shall be subject to
the aggregate limits for related party transactions.
b. Exclusions from the ceilings. Loans, other credit accommodations and guarantees
secured by assets considered as non-risk under existing Bangko Sentral regulations
as well as interbank call loans shall be excluded in determining compliance with
the ceilings prescribed under ltem "a" above.
c. Procedural requirements. x x x.
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Subsec. X330.2 Exclusions from the thirty percent l30%l unsecured individual ceiling
for project finance
Loans, other credit accommodations, and guarantees granted by a bank to its DOSRI
for the purpose of project finance, shall be exempted from the thirty percent (3O%l
unsecured individual ceiling during the project gestation phasel: Provided, That: the
lending bank shall ensure that standard prudential controls in project finance loans
designed to safeguard creditors' interests are in place, which may include pledge of
the borrower's shares, assignment of the borrower's assets, assignment of all
revenues and cash waterfall accounts, and assignment of project documents.
For this purpose, "project finance" is defined as a method of funding in which the
lender looks primarily to the revenues generated by a single project, both as a source
of repayment and as security for the exposure. lt possesses all the following
characteristics either in legal form or economic substance:
a. The exposure is typically to an entity (often a special purpose entity or SPE) which
was created specifically to finance and/or operate physical assets;
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b. The borrowing entity has little or no other material assets or activities, and
therefore little or no independent capacity to repay the obligation, apart from the
income that it receives from the asset(s) being financed;
c. The terms of the obligation give the lender a substantial degree of control over the
asset(s) and the income that it generates; and
1
This refers to the pre-operational phase ofthe project that does not yet generate cash flows.
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Sec. X336 Supervisory Enforcement Actions. The Bangko Sentral reserves the right to
deploy its range of supervisory tools to promote adherence to the requirements set
forth in the foregoing rules and bring about timely corrective actions and compliance
with Bangko Sentral directives. The Bangko Sentral considers abuses in credit to
related parties (including credit to DOSRI, subsidiaries, and affiliates) as serious
offenses and shall be dealt with severely. In this regard, abuse shall be interpreted to
include extending credit to related parties without adopting appropriate internal
policies.
For this purpose, the Bangko Sentral may among others, issue directives or sanctions
on the Bank and responsible persons, which may include restrictions or prohibitions of
lending to related parties or from certain authorities/activities, restrictions or
prohibitions on dividend declarations; and warning reprimand, suspension, removal
and disqualification of concerned bank directors, officers, and/or employees. In
addition, the Bangko Sentral may apply the borrowing director/ officer/stockholder's
share in the bank's profit sharing program against the excess of credit extended over
any of the prescribed DOSRI ceilings.
For the duration of each violation, imposition of a fine of one-tenth of one percent
(ULO of L%l of the excess over the ceilings per day but not to exceed P30,000 a
day on the following:
(1) The lending bank;
(2) The director, officer or stockholder whose borrowing exceeds his individual
ceiling; and
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(3) Each of the directors voting for the approval of the loan or other credit
accommodation in excess of any of the ceilings prescribed in Secs. X330 and
x331.
The penalty for exceeding the individual ceiling, aggregate ceiling and ceiling on
unsecured loans shall be computed on the average amount of loans in excess of
said ceilings during the same week.
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b. Loans, other credit accommodations, and/or guarantees to: (1) Goccs; and
(2) corporations where the Republic of the Philippines, its agencies/departments/
bureaus, and/or GOCCs own at least twenty percent (20%l of the subscribed capital
stock shall be considered indirect borrowings of the Republic of the Philippines and
shall form part of the individual ceiling as well as the aggregate ceiling: Provided,That
the following loans, other credit accommodations, and/or guarantees to GOCCs and
corporations where the Republic of the Philippines, its agencies/departments/
bureaus, and/or GOCCs own at least twenty percent (20%l of the subscribed capital
stock, shall be excluded from the thirty percent l3|%l ceiling on unsecured loans
under Secs. X330 and X331:
(1) Loans, other credit accommodations, and/or guarantees for the purpose of
undertaking infrastructure and other priority programs and projects consistent
with the Philippine Development Plan/Public Investment Program of the National
Government, duly certified as such by the Secretary of Socio-Economic Planning;
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Section 2. Chapter E of Part Three of the MORNBFI on Loans/Credit Accommodations
to Directors, Officers, Stockholders and their Related Interests is hereby amended to read as
follows:
Sec. 4326Q (2008-4356Q1 Policy Statement. The Bangko Sentral recognizes that
transactions of its supervised financial institutions (BSFls) with related parties, which
include dealings with directors, officers, stockholders, and their related interests
(DOSRI), subsidiaries, and affiliates, may be both productive and prudent. The Bangko
Sentral also recognizes the need to provide BSFIs with flexibility with respect to
lending to DOSRI, subsidiaries, and affiliates premised on the overarching principle
that the transactions shall at all times be kept above board and conducted on an arm's
length basis, and that BSFIs have adopted robust internal policies and procedures in
handling related party transactions that are compliant with the minimum
requirements of law and regulations.
Subsec. 4326q.1 (2008 - 4356Q.11 Definitions. For purposes of these regulations, the
following definitions shall apply:
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Sec. 4327Q (2008 - 43571 Transactions Covered. The terms loon, borrow, money
borrowed and credit occommodatrons as used herein shall refer to transactions which
involve the grant, renewal, extension or increase of any loan, discount, credit or
advance in any form whatsoever, and shall include:
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No QB shall grant, renew or extend any credit accommodation to its DOSRI whenever
its combined capital accounts is deficient relative to risk assets held under Sec. 4115Q
and 4116Q, or whenever its paid-in capital is deficient relative to the required
minimum capitalization. Neither shall it grant, renew or extend any credit
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accommodation to any of its DOSRI who has past due credit accommodations with the
QB.
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a. Ceilings. The total outstanding loans, other credit accommodations and guarantees
to each of the QB's subsidiaries and affiliates shall not exceed ten percent (10%) of
the net worth of the lending QB: Provided That the unsecured loans, other credit
accommodations and guarantees to each of said subsidiaries and affiliates shall not
exceed five percent (5%l of such net worth: Provided, further, That the total
outstanding loans, other credit accommodations and guarantees to all subsidiaries
and affiliates shall not exceed twenty percent (20%l of the net worth of the lending
QB: Provided, finally, That these subsidiaries and affiliates are not related interest
of any of the director, officer, and/or stockholder of the lending institution.
Subsec. 4330Q.1 Exclusions from the thirty percent (30%l unsecured individual
ceiling for project finance
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safeguard creditors' interests are in place, which may include pledge of the borrower's
shares, assignment of the borrower's assets, assignment of all revenues and cash
waterfall accounts, and assignment of project documents.
For this purpose, "project finance" is defined as a method of funding in which the
lender looks primarily to the revenues generated by a single project, both as a source
of repayment and as security for the exposure. lt possesses all the following
characteristics either in legalform or economic substance:
a. The exposure is typically to an entity (often a special purpose entity or SPE) which
was created specifically to finance and/or operate physical assets;
b. The borrowing entity has little or no other material assets or activities, and
therefore little or no independent capacity to repay the obligation, apart from the
income that it receives from the asset(s) being financed;
c. The terms of the obligation give the lender a substantial degree of control over the
asset(s) and the income that it generates; and
1
This refers to the pre-operational phase ofthe project that does not yet generate cash flows.
xxx
For this purpose, the Bangko Sentral may among others, issue directives or sanctions
on the Bank and responsible persons, which may include restrictions or prohibitions of
lending to related parties or from certain authorities/activities, restrictions or
prohibitions on dividend declarations; and warning reprimand, suspension, removal
and disqualification of concerned bank directors, officers, and/or employees. In
addition, the Bangko Sentral may apply the borrowing director/ officer/stockholder's
share in the QB's profit sharing program against the excess of credit extended over any
of the prescribed DOSRI ceilings.
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In case of imposition of monetary sanction for violations of the foregoing provisions,
the penalty shall be computed as follows:
For the duration of each violation, imposition of a fine of one-tenth of one percent
(L/LO of t%l of the excess over the ceilings per day but not to exceed P30,000 a
day on (1) the lending QB and the director, officer, or stockholder whose
borrowing exceeds his individual ceiling and (2) each of the directors voting for the
approval of the loan or credit accommodation in excess of any of the ceilings
prescribed in Secs. 4330Q and 4331Q.
The penalty for exceeding the individual ceiling, aggregate ceiling and ceiling on
unsecured loans shall be computed on the average amount of loans in excess of
said ceilings during the same week.
xxx
xxx
b. Loans, other credit accommodations, and/or guarantees to: (1) GOCCs; and
(2) corporations where Republic of the Philippines, its agencies/
the
departments/bureaus, andf or GOCCs own at least twenty percent l2Oo/ol of the
subscribed capital stock shall be considered indirect borrowings of the Republic of the
Philippines and shallform part of the individualceiling as well as the aggregate ceiling:
Provided, That the following loans, other credit accommodations, andlor guarantees
to GOCCs and corporations where the Republic of the Philippines, its
agencies/departments/bureaus, andlor GOCCs own at least twenty percent (2O%l of
the subscribed capital stock, shall be excluded from the thirty percent l3l%l ceiling on
unsecured loans under Secs. X330 and X331 of the MORB:
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(1) Loans, other credit accommodations, and/or guarantees for the purpose of
undertaking infrastructure and other priority programs and projects consistent
with the Philippine Development Plan/Public Investment Program of the National
Government, duly certified as such by the Secretary of Socio-Economic Planning;
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A loan may also be considered as secured to the extent covered by a third party
financial guarantee or surety arrangement where the credit enhancement provider is
itself considered to be of high credit quality (credit rating of at least AA or equivalent)
or is recognized by the Bangko Sentral as eligible guarantor under existing regulations.
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l. For purpose of this Subsection, affiliate shall refer to an entity linked directly or
indirectly to a bank by means of:
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(3) Common stockholders owning at least ten percent (Llo/ol of the outstanding
voting stock of the bank and at least twenty percent (2Oo/ol of the outstanding
voting stock of the borrowing entity;
(5) Permanent proxy or voting trusts in favor of the bank constituting at least
twenty percent (20%l of the outstanding voting stock of the borrowing entity,
or vice versa.
For purposes of this Manual, the above definition of offiliote shall be adopted
except where the provision of the regulation expressly states otherwise."
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(1) Ownership, control as defined under Subsec. X145.1 of the MORB or power to
vote of at least twenty percent (20%l of the outstanding voting stock of the
borrowing entity, or vice-versa;
(3) Common stockholders owning at least ten percent (IOo/ol of the outstanding
voting stock of the financial intermediary and at least twenty percent l20%l of
the outstanding voting stock of the borrowing entity;
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Section 6. Subsection X146.1 of the MORB on definition of terms is hereby amended
to read as follows:
"Subsec. X146.1 Definition of Terms. For purposes of this Section, the following
definitions shall apply:
a. Reloted porties shall cover the bank's subsidiaries as well as affiliatesl and any
party (including their subsidiaries, affiliates and special purpose entities) that the
bank exerts direct/indirect control over or that exerts direct/indirect control over
the bank; the bank's directors, officers, stockholders and their related interests
(DOSRI) and their close family members, as well as corresponding persons in
affiliated companies. This shall also include such other person/juridical entity
whose interests may pose potential conflict with the interest of the financial
institution (Fl), hence, is identified as a related party.
The above definition shall also include direct or indirect linkages to a bank
identified as follows:
(1) Ownership, control or power to vote, of ten percent (L0o/ol to less than twenty
percent (20%l of the outstanding voting stock of the borrowing entity, or vice-
versa;
(3) Common stockholders owning at least ten percent (10%) of the outstanding
voting stock of the bank and ten percent (LO%I to less than twenty percent
(20%l of the outstanding voting stock of the borrowing entity; or
(4) Permanent proxy or voting trusts in favor of the bank constituting ten percent
(L}o/ol to less than twenty percent (20%l of the outstanding voting stock of the
borrowing entity, or vice versa.
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1
As defined under Subsec. X326.1
"Subsec. X146.5. Supervisory Enforcement Actions. The Bangko Sentral reserves the
right to deploy range of supervisory tools to promote adherence to the
its
requirements set forth in the guidelines under this Section and bring about timely
corrective actions and compliance with Bangko Sentral directives. The Bangko Sentral
considers abuses in credit to related parties as serious offenses and shall be dealt with
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severely. In this regard, abuse shall be interpreted to include extending credit to
related parties without adopting appropriate internal policies. For this purpose, the
Bangko Sentral may, among others, issue directives or sanctions on the Bank and
responsible persons, which may include restrictions or prohibitions of lending to
related parties or from certain authorities/activities, restrictions or prohibitions on
dividend declarations; and warning, reprimand, suspension, removal and
disqualification of bank directors, officers and/or employees concerned."
"Sec. X111 (2008 - X1O6l Minimum Required Capital. The following provisions shall
govern the capital requirements for banks
The term capitol shall be synonymou s to unimpoired copitol ond surplus, combined
capitol occounts and net worth and shall refer to the total of the unimpaired paid-in
capital, surplus and undivided profits, less:
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granted to
d. Total outstanding loans, other credit accommodations and guarantees
related parties that are not at arm's lengh terms as determined by the appropriate
supervising department of the Bangko Sentral;
or
g. Equity investment of a bank in another bank or enterprise, whether foreign
domestic, if the other bank or enterprise has a reciprocal equity investment
in the
investing bank, in which case, the investment of the bank or the reciprocal investment
of the other bank or enterprises, whichever is lower; and
h. ln the case of RBs/Coop Banks, the government counterpart equity, except those
arising from conversion of arrearages under the Bangko Sentral rehabilitation
program.
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"Sec. 4111Q (2008 - 4106Q1 Minimum Required Capitalization. A QB shall have a
minimum combined capital accounts of P300.0 million.
Combined copital accounts shall mean the total capital stock, retained earnings and
profit and loss summary, net of (a) such unbooked valuation reserves and other capital
adjustments as may be required by the Bangko Sentral, (b) total outstanding
unsecured credit accommodations, both direct and indirect, to directors, officers, all
stockholders and their related interests (DOSRI), (c)total outstanding unsecured loans,
other credit accommodations and guarantees granted to subsidiaries, and (d) total
outstanding loans, other credit accommodations and guarantees granted to related
parties that are not at arm's lengh terms as determined by the appropriate
supervising department of the Bangko Sentral. x x x
xxx"
xxx
Regulatory adjustment to CET1 capital
4. The following must be deducted from/(added to) CET1 capital:
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d. Total outstanding unsecured credit accommodations, both direct and indirect,
to DOSRI;
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m. Investment in equity of unconsolidated subsidiary securities dealers x x x;
n. Significant minority investments (LO%-50% of voting stock) in banks x x x;
o. Significant minority investments ILO%-SO% of voting stock) in securities x x x;
p. Minority investments (below IO% of voting stock) in banks x x x;
q. Minority investments (below t0% of voting stock) in securities dealers x x x;
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r. Other equity investments x x x;
s. Capital shortfalls x x x;
t. Reciprocal investments x x x;
u. Materiality thresholds x x x;
v. Credit linked notes x x x;
w. Securitization tranches x x x; and
x. Credit enhancing interest x x x.
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Section 10. Parts ll and lll of Appendix 63c of the MORB on Qualifying Capital and
Credit Risk-Weighted Assets, respectively, under the Revised Risk-Based Capital Adequacy
Framework for Stand-Alone Thrift Banks, Rural Banks, and Cooperative Banks (Section X118
of the MORB) are hereby amended, as follows:
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j. Minority interest x x x
Less:
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v. Total outstanding unsecured credit accommodations, both direct and
indirect, to DOSRI, net of allowance for credit losses;
vi. Total outstanding unsecured loans, other credit accommodations and
guarantees granted to subsidiaries, net of allowance for credit losses;
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viii. Deferred tax asset, net of deferred tax liability: x x x; and
ix. Goodwill, net of allowance for losses, x x x.
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Section 11. Subsections 4116Q.2 and 4115Q.3 of the MORNBFI on qualifying capital
and risk-weighted assets, respectively, are hereby amended, as follows:
"Subsec. 4LLGQ.2 (2008 - 4116q.11 Qualilying capitol. The qualifying capital shall be
the sum of --
a. Tier 1 (core)capital-
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(10) Minority interest x x x
Provided, further, That the following items shall be deducted from the total of
Tier l capital:
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(e) Total outstanding unsecured credit accommodations, both direct and indirect,
to DOSRI;
(f) Total outstanding unsecured loans, other credit accommodations and
guarantees granted to subsidiaries;
(g) Total outstanding loans, other credit accommodations and guarantees granted
to related parties that are not at arm's length terms as determined by the
appropriate supervising department of the Bangko Sentral;
(h) Deferred income tax; and
(i) Goodwill.
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(iii) Total outstanding loans, other credit accommodations and guarantees
granted to related parties that are not at arm's length terms as
determined by the appropriate supervising department of the Bangko
Sentral;
(iv) Deferred income tax;
(v) Goodwill;
(vi) Sinking fund for redemption x x x;
(vii) Equity investments in unconsolidated subsidiary banks x x x;
(viii) lnvestments in debt capital instruments x x x;
Section 12. Effectivity. This Circular shall take effect fifteen (15) calendar days
following its publication either in the Official Gazette or in a newspaper of general
circulation.
!3 June 2015
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