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MB Approves Revised Guidelines on Deposit for Stock Subscription

08.15.2012

The Monetary Board (MB) approved amendatory guidelines governing the regulatory treatment of deposit for stock subscription (DSS) of banks and quasi-banks (QBs). 

The new guidelines allow a bank/QB to recognize DSS as an equity account for prudential reporting purposes, provided that the following conditions are met:  (a) The DSS meets the definition of an equity instrument under Philippine Accounting Standards (PAS) 32 Financial Instruments: Presentation; thus, it should not be interest-bearing nor withdrawable by the subscriber; (b) The bank’s/QB’s existing authorized capital is already fully subscribed; (c) The bank’s/QB’s stockholders and board of directors have approved the proposed increase in authorized capital; and (d) The bank/QB has filed an application for the amendment of Articles of Incorporation for the increase in authorized capital with the BSP, supported with complete documents.

Non-compliance with any of the above-mentioned conditions will result in the bank/QB recognizing such DSS as a liability in its prudential reports.

The revised prudential reporting guidelines are consistent with that issued by the Securities and Exchange Commission, in its Financial Bulletin No. 6 dated 10 April 2012 for financial reporting purposes. 

The imposition of stringent conditions on the recognition of DSS as equity ensures that funds infused by subscribers as DSS are intended to be converted into shares of stock within a reasonable period of time.  It also reflects the bank’s/QB’s commitment to improve its capital position.

Given the foregoing, this capital component is now allowed to be recognized in the same category of qualifying capital as its related capital stock for purposes of computing the risk-based capital adequacy ratio.  Previously, DSS was recognized as qualifying capital at a category that is one notch lower than its related capital stock.

 

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