President Benigno S. Aquino III has signed into law a consolidated bill amending the Rural Bank Act to allow foreign capital infusion in rural banks.
Deputy Presidential Spokesperson Abigail Valte announced during the regular press briefing in Malacanang on Wednesday that the Chief Executive signed on May 24 Republic Act 10574 otherwise known as “An Act Allowing the Infusion of Foreign Equity in the Capital of Rural Banks, Amending Republic Act No. 7353 otherwise known as “The Rural Bank Act of 1992,” as amended and for other purposes.
The Act is a consolidation of House Bill 5360 and Senate Bill 3282 that were finally passed by the House of Representatives and the Senate on February 4, 2013 and January 30, 2013, respectively.
The new law amends Section 4 of Republic Act 7353 to enable foreign individuals and entities to acquire equity of up to 60% in rural banks.
“Non-Filipino citizens may own, acquire or purchase up to sixty percent (60%) of the voting stocks in a rural bank. The percentage of foreign-owned voting stocks shall be determined by the citizenship of the individual or corporate stockholders of the rural bank,” the law said.
Prior to the passage of this Act, foreign banks are allowed to acquire equity in rural banks but prohibits foreign individuals or foreign entities from doing the same.
The new law provides “that no rural bank shall be operated without a Certificate of Authority from the Monetary Board of the Bangko Sentral ng Pilipinas. Rural banks shall be organized in the form of stock corporations. No less than forty percent (40%) of the voting stocks of a rural bank shall be owned by citizens of the Philippines or corporations or associations organized under the laws of the Philippines at least sixty percent (60%) of whose capital is owned by such citizens.”
Under RA 10574, non-Filipino citizens may become members of the Board of Directors of a rural bank but their participation in the Board shall be limited to their proportionate share in the equity of the rural bank: Provided, however, that at least one (1) independent director shall be elected to the Board of Directors.
“No director or officer of any rural bank shall, either directly or indirectly, for himself or as the representative or agent of another, borrow any of the deposits or funds of such banks, nor shall he become a guarantor, indorser, or surety for loans from such bank to others, or in any manner be an obligor for money borrowed from the bank or loaned by it except with the written approval of the majority of the directors of the bank, excluding the director concerned. Any such approval shall be entered upon the records of the corporation and a copy of such entry shall be transmitted forthwith to the appropriate supervising department. The director/officer of the bank who violates the provisions of this section shall be immediately dismissed from his office and shall be penalized in accordance with Section 26 of this Act,” the law said.
The Monetary Board may regulate the amount of credit accommodations that may be extended directly to the directors, officers or stockholders of rural banks of banking institutions.
However, the outstanding credit accommodations which a rural bank may extend to each of its stockholders owning two percent (2%) or more of the subscribed capital stock, its directors, or officers shall be limited to an amount equivalent to the respective outstanding deposits and book value of the paid-in capital contributions in the bank.”
Under this Act, loans or advances extended by rural banks organized and operated under this Act shall be primarily for the purpose of meeting the normal credit needs of farmers, fishermen or farm families owning or cultivating land dedicated to agricultural production as well as the normal credit needs of cooperatives and merchants.
The new law “provides supplemental capital to any rural bank until it has accumulated enough capital of its own or stimulate private investments in rural banks, the Land Bank of the Philippines, the Development Bank of the Philippines or any government-owned or -controlled bank or financial institution shall subscribe within thirty (30) days to the capital stock of 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 the subscription or such amount as may be necessary to promote and expand rural economic development: Provided, however, that shares of stock issued to the Land Bank of the Philippines, the Development Bank of the Philippines or any government-owned or -controlled bank or financial institution, may, pursuant to this section, at any time, be bought at adjusted book value.”
According to the new law, the Bangko Sentral ng Pilipinas, consistent with Section 11 of Republic Act No. 7353, “shall prescribe the necessary rules and regulations on the amendments of the Rural Banks Act of 1992 in consultation with various stakeholders as well as disseminate this information to allow entry of foreign equity into our rural bank system to revitalize the rural banking industry and improve access of banking services to the rural areas in the country.”
The implementing rules and regulations shall be published within ninety (90) days from the publication of this Act in two (2) newspapers of general circulation in the Philippines.
This Act shall take effect 15 days after its complete publication in the Official Gazette or in at least 2 newspapers of general circulation, whichever is earlier.