MORNBFI Vol. 1 - Planters Development Bank

APP. Q-4611.12.31Tier 1 capital (net of deductionsenumerated in paragraph 3): Provided,furthermore, That the amount of HT1capital in excess of the maximum limitshall be eligible for inclusion in the UT2capital, subject to the limit in total Tier 2capital. To determine the allowableamount of HT1 capital, the amount of totalcore Tier 1 capital (net of deductionsenumerated in paragraph 3) should bemultiplied by seventeen and sixty fivepercent (17.65%), the number derivedfrom the proportion of fifteen percent(15%) to eighty five percent (85%), i.e.,15%/85% = 17.65%.E. Eligible unsecured subordinated debt13. UnSD issuances by banks shouldcomply with the following minimumconditions in order to be eligible as UT2capital:a) It must be issued and fully paid-up.Only the net proceeds received from theissuance shall be included as capital;b) It must be available to absorblosses of the bank without it being obligedto cease carrying on business. Theagreement governing its issuance shouldspecifically provide for the coupon andprincipal to absorb losses where the bankwould otherwise be insolvent, or for itsholders to be treated as if they wereholders of a specified class of sharecapital in any proceedings commenced forthe winding up of the bank. Issuedocumentation must disclose toprospective investors the manner bywhich the instrument is to be treated inloss situation.Alternatively, the agreement governingits issuance can provide for automaticconversion into common shares orperpetual and non-cumulative shares orperpetual and cumulative preferred sharesupon occurrence of certain trigger events,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;c) Its holders must not have priorityclaim, in respect of principal and couponpayments in the event of winding up ofthe bank, which is higher than or equalwith that of depositors, other creditors ofthe bank, and holders of LT2 capitalinstruments. Its holder must waive his rightto set off any amount he owes the bankagainst any subordinated amount owed tohim due to the UT2 capital instrument;d) 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 asagainst depositors, other creditors of thebank and holders of LT2 capitalinstruments;e) It must not be redeemable at theinitiative of the holder. It must not berepayable prior to maturity without theprior approval of the BSP: Provided, Thatrepayment may be allowed only inconnection with a call option after aminimum of five (5) years from issue date:Provided, however, That a call option maybe 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;ii. There is a change in tax status ofthe UT2 capital instrument due to changesin the tax laws and/or regulations; orManual of Regulations for Non-Bank Financial InstitutionsQ RegulationsAppendix Q-46 - Page 7