MORNBFI Vol. 1 - Planters Development Bank

APP. Q-4611.12.31sale debt securities shall be risk-weightednet of specific provisions as provided inparagraph 1 of Part III.A, but withoutconsidering accumulated market gains/losses.D. Eligible instruments under hybrid Tier1 capital12. Perpetual preferred stock andperpetual UnSD issuances of banks shouldcomply with the following minimumconditions in order to be eligible as hybridTier 1 (HT1) capital:a) It must be issued and fully paid-up.Only the net proceeds received from theissuance shall be included as capital;b) The dividends/coupons must benon-cumulative. It is acceptable to paydividends/coupons in scrip or shares ofstock if a cash dividend/coupon is withheld:Provided, That this does not result on issuinglower quality capital: Provided, further, Thatwhere such dividend/coupon stocksettlement feature is included, the bankshould ensure that it has an appropriatebuffer of authorized capital stock andappropriate stockholders and boardauthorization, if necessary, to fulfill theirpotential obligations under such issues;c) It must be available to absorb lossesof the bank without it being obliged to ceasecarrying on business. The agreementgoverning its issuance should specificallyprovide for the dividend/coupon andprincipal to absorb losses where the bankwould otherwise be insolvent, or for itsholders to be treated as if they were holdersof a specified class of share capital in anyproceedings commenced for the windingup of the bank. Issue documentation mustdisclose to prospective investors the mannerby which the instrument is to be treated inloss situation.Alternatively, the agreement governingits issuance can provide for automaticconversion into common shares orperpetual and non-cumulative preferredshares upon occurrence of certain triggerevents, as follows:i. Breach of minimum capital ratio;ii. Commencement of proceedings forwinding up of the bank; oriii. Upon appointment of receiver forthe bank.The rate of conversion must be fixed atthe time of subscription to the instrument.The bank must also ensure that it hasappropriate buffer of authorized capitalstock and appropriate stockholders andboard authorization for conversion/issue totake place anytime;d) Its holders must not have a priorityclaim, in respect of principal and dividend/coupon payments in the event of windingup of the bank, which is higher than or equalwith that of depositors, other creditors ofthe bank and holders of LT2 and UT2 capitalinstruments. Its holder must waive his rightto set-off any amount he owes the bankagainst any subordinated amount owed tohim due to the HT1 capital instrument;e) It must neither be secured norcovered by a guarantee of the issuer orrelated party or other arrangement thatlegally or economically enhances thepriority of the claim of any holder as againstdepositors, other creditors of the bank andholders of LT2 and UT2 capital instruments;f) It must not be redeemable at theinitiative of the holder. It must not berepayable without the prior approval of theBSP: Provided, That repayment may beallowed only in connection with call optionafter a minimum of five (5) years from issuedate: Provided, however, That a call optionmay be exercised within the first five (5) yearsfrom issue date when –i. It was issued for the purpose of amerger with or acquisition by the bank andthe merger or acquisition is aborted;Manual of Regulations for Non-Bank Financial InstitutionsQ RegulationsAppendix Q-46 - Page 5