MORNBFI Vol. 1 - Planters Development Bank

APP. Q-4611.12.31be revalued in accordance with PAS 21:Provided, furthermore, That for purposesof reserve requirement regulation, it shallnot be treated as time deposit liability,deposit substitute liability or other formsof borrowings.14. UnSD issuances by banks shouldcomply with the following minimumconditions in order to be eligible as LT2capital:a) It must be issued and fully paid-up.Only the net proceeds received from theissuance shall be included as capital;b) Its holders must not have priorityclaim, in respect of principal and couponpayments in the event of winding up of thebank, which is higher than or equal withthat of depositors and other creditors of thebank. Its holder must waive his right to setoffany amount he owes the bank againstany subordinated amount owed to him dueto the LT2 capital instrument;c) 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 and other creditors of the bank;d) It must not be redeemable at theinitiative of the holder. It must not berepayable prior to maturity without theprior approval of the BSP:Provided, That repayment may beallowed only in connection with a calloption after a minimum of five (5) yearsfrom issue date: Provided, however, Thata call option may be exercised within thefirst five (5) years from 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 LT2 capital instrument due to changesin the tax laws and/or regulations; oriii. It does not qualify as LT2 capitalas determined by the BSP:Provided, further, That such repaymentprior to maturity shall be approved by theBSP only if the debt is simultaneouslyreplaced with issues of new capital whichis neither smaller in size nor of lowerquality than the original issue, unless thebank’s capital ratio remains more thanadequate after redemption.It must not contain any clause whichrequires acceleration of payment ofprincipal, except in the event of insolvency.The agreement governing its issuance mustnot contain any provision that mandatesor creates an incentive for the bank to repaythe outstanding principal of the instrument,e.g., a cross-default or negative pledge or arestrictive covenant, other than a calloption which may be exercised by thebank;e) Its main features must be publiclydisclosed by annotating the same on theinstrument and in a manner that is easilyunderstood by the investor;f) The proceeds of the issuance mustbe immediately available withoutlimitation to the bank;g) The coupon rate, or the formulationfor calculating coupon payments must befixed at the time of issuance and must notbe linked to the credit standing of the bank;h) It may allow only one (1) moderatestep-up in the coupon rate in conjunctionwith a call option, only if the step-up occursat a minimum of five (5) years after the issuedate and if it results in an increase over theinitial rate that is not more than:i. 100 basis points less the swapspread between the initial index basis andthe stepped-up index basis; orii. fifty percent (50%) of the initialcredit spread less the swap spread betweenthe initial index basis and the stepped-upindex basis.The swap spread should be fixed as ofManual of Regulations for Non-Bank Financial InstitutionsQ RegulationsAppendix Q-46 - Page 9