MORNBFI Vol. 1 - Planters Development Bank

§ 4116Q.211.12.31(f) Unsecured loans, other creditaccommodations and guarantees granted tosubsidiaries and affiliates;(g) Deferred income tax; and(h) Goodwill.b. Tier 2 (supplementary) capital whichshall be the sum of -(1) Upper Tier 2 (UT2) capital -(a) Paid-up perpetual and cumulativepreferred stock;(b) Perpetual and cumulative preferredstock dividends distributable;(c) Appraisal increment reserve - QBpremises, as authorized by the Monetary Board;(d) Net unrealized gains on underwrittenlisted equity securities purchased: Provided, Thatthe amount thereof that may be included in UT2capital shall be subject to a fifty-five percent (55%)discount (for IH);(e) General loan loss provision: Provided,That the amount thereof that may be includedin UT2 capital shall be limited to a maximum ofone and twenty-five hundredths percent (1.25%)of gross risk-weighted assets, and any amount inexcess thereof shall be deducted from the totalrisk-weighted assets in computing thedenominator of the risk-based capital ratio;(f) With prior BSP approval, unsecuredsubordinated debt (UnSD) with a minimumoriginal maturity of at least ten (10) years, subjectto the following conditions:(i) It must not be secured nor covered by aguarantee of the issuer or related party;(ii) It must be subordinated in the right ofpayment of principal and interest to all creditorsof the QB, except those creditors expressed torank equally with, or behind holders of the debt.Subordinated creditors must waive their right toset off any amounts they owe the QB againstsubordinated amounts owed to them by the QB.The issue documentation must clearly state thatthe debt is subordinated;(iii) It must be fully paid-up. Only thenet proceeds actually received from debtissues can be included as capital. If the debt isissued at a premium, the premium cannot becounted as part of capital;(iv) It must not be redeemable at the initiativeof the holder;(v) It must not contain any clause whichrequires acceleration of payment of principal,except in the event of insolvency;(vi) It must not be repayable prior to maturitywithout the prior consent of the BSP: Provided,That repayment may be allowed in connectionwith call option only after a minimum of five (5)years from issue date and only if – (1) the QB’scapital ratio is at least equal to the requiredminimum capital ratio; and (2) the debt issimultaneously replaced with issues of newcapital which is neither smaller in size nor oflower quality than the original issue;(vii) It may allow a moderate step-up in theinterest rate in conjunction with a call option,only if the step-up occurs at a minimum of ten (10)years after the issue date and if it results in anincrease over the initial rate that is not more than100 basis points: Provided, That only one (1) ratestep up shall be allowed over the life of theinstrument;(viii) It must provide for possible conversioninto common shares or preferred shares orpossible deferral of payment of principal andinterest if the QB’s capital ratio becomes lessthan the required minimum capital ratio;(ix) It must provide for the principal andinterest on the debt to absorb losses where theQB would not otherwise be solvent;(x) It must allow deferment of interestpayment on the debt in the event of, and at thesame time as, the elimination of dividends onall outstanding common or preferred stock ofthe issuer. It is acceptable for the deferred interestto bear interest, but the interest rate payable ondeferred interest should not exceed market rates;(xi) It must be underwritten by a third partynot related to the issuer QB nor acting inreciprocity for and in behalf of the issuer QB;Manual of Regulations for Non-Bank Financial InstitutionsQ RegulationsPart I - Page 13