Article 160Supplement v1, p. 160

COMMERCIAL LAWS SUPPLEMENT

a portion of their loanable funds to meeting the normal

credit needs of small business enterprises: provided, That

loans shall not exceed fifteen percent (15%) of the net

worth of a rural bank of such amount as the Monetary

Board may prescribe as may be warranted by prevailing

economic conditions, and of essential enterprises or

industries, other than those which are strictly agricultural

in nature.

Section 8. To provide supplemental capital to any rural

bank until it has accumulated enough capital of its own

or stimulate private investments in rural banks, the Land

Bank of the Philippines, the Development Bank of the

Philippines

or

any government-owned or -controlled

bank or financial institution shall subscribe within thirty

(30) days to the capital stock of any rural bank from time

to time in an amount equal to the total equity investment

of the private shareholders which shall be paid in full at

the time of the subscription or such amount as may be

necessary

to

promote

and

expand

rural

economic

development: Provided, however, That shares of stock

issued

to

the

Land

Bank

of

the

Philippines,

the

Development

Bank

of

the

Philippines

or

any

government-owned

or

-controlled

bank

or

financial

institution, may, pursuant to this section, at any time, be

bought at adjusted book value.

Stocks held by the Land Bank of the Philippines, the

Development

Bank

of

the

Philippines

or

by

any

government-owned

or

-controlled

bank

or

financial

institution, under the terms of this section, shall be made

preferred only as to assets upon liquidation and without

the

power

to

vote

and

shall

share

in

dividend

distributions from the date of issuance in an amount

based

on

the

lending benchmark approved by the

Bangko Sentral ng Pilipinas plus the prevailing non-prime

spread of the government financial institution: Provided,

however, That if such stock of the Land Bank of the

Philippines, the Development Bank of the Philippines or

any government-owned or -controlled bank or financial

institution is sold to private shareholders, the same may

be converted into common stock of the class provided for

in Section 10 hereof: Provided, further, That pending the

amendment of the Articles of Incorporation of the rural

bank, if necessary, for the purpose of reflecting the

conversion into common stock of preferred stock sold to

private shareholders, the transfer shall be recorded by the

rural bank in the stock and transfer book and such

shareholders shall thereafter enjoy all the rights and

privileges of common stockholders. The preferred stocks

so transferred shall be surrendered and cancelled and the

corresponding

common

stocks

shall

be

issued.

(as

amended by RA No 10574)

The corporate secretary of the rural bank shall submit to

the

Central

Bank

and the Securities and Exchange

Commission a report on every transfer of preferred stock

to private shareholders, and such report received by the

Securities and Exchange Commission shall form part of

the

corporate

records

of

rural

bank.

When

all

the

prepared shares of stock of a rural bank have been sold to

private shareholders, the Articles of Incorporation of the

rural bank shall be amended to reflect the conversion of

the preferred shares of stock into common stock. For this

purpose, the President, the corporate secretary, and a

majority of the Board of Directors, shall be filed with the

Securities and Exchange Commission, which shall attach

the same to the original Articles of Incorporation on file

with said office.

The

Securities

and

Exchange

Commission

shall

not

register and amended Articles of Incorporation unless

accompanied by the Certificate of Authority required

under Section 9 of Republic Act No. 337, as amended.

All supervised past due and restructured past due loans,

including those covered under existing rehabilitation

programs of the Central Bank, and fifty percent (50%) of

non-supervised past due and restructured past due loans

including

accrued

interest

thereon

on

rural

banks

organized under Republic Act No. 720, as amended, as of

December 31, 1986, shall be converted into preferred

stocks, of the rural bank and issued in favor of the Land

Bank of the Philippines, the Development Bank of the

Philippines or any government-owned or –controlled

bank or financial institution: Provided, That penalties

thereon are hereby warned except accrued interest on

arrearages: Provided, further, That rural banks that prefer

to settle their arrearages under a plan or payment or a

combination of both plan of payment and conversion

may do so in accordance with existing regulations and

provisions of this Act: Provided, furthermore, That rural

banks shall match these preferred stocks with private

equity in equal annual installments over a period of

fifteen (15) years to begin three (3) years after conversion:

Provided, finally, That the Central Bank, the Land Bank of

the Philippines, the Development Bank of the Philippines

and any government-owned and –controlled bank or

financial institution shall continue to rediscount subject

to their respective programs, policies and guidelines

against papers evidencing a loan granted by a rural bank

in order to achieve the declared policy and promote the

objectives of this Act.

Section

9.

The

Land

Bank

of

the

Philippines,

the

Development

Bank

of

the

Philippines,

or

any

government-owned

or

–controlled

bank

or

financial

institution

may obtain from any source as may be

authorized under existing laws and regulations such

amount as it may require for the purpose of subscribing

to the shares of stock of rural bank: as provided in Section

13 of this Act.

Section 10. Stock certificates shall be issued to represent

the contributions to capital stock of the rural bank by the

Government through the Land Bank of the Philippines,

the Development Bank of the Philippines or through any

government-owned

or

–controlled

bank

or

financial

institutions, and by qualified persons under such terms

and conditions as the Monetary Board mat prescribe. The

powers of the Monetary Board over rural banks shall

extend to prescribing the amount, value and class of

stock issued by any rural bank, organized under this Act.

Section 11 . The power to supervise the operation of any

rural bank by the Monetary Board as herein indicated

shall consists in placing limits to the maximum credit

allowed to any individual borrower; in prescribing the

interest rate; in determining the loan period and loan

procedures; in indicating the manner in which technical

assistance shall be extended to rural banks; in imposing a

uniform accounting system and manner of keeping the

accounts

and

records

of

rural

banks;

in

instituting

periodic surveys of loan and lending procedures, audits,

test-check of cash and other transactions of the rural

banks;

and,

in

general

in

supervising

the

business

operations of the rural banks.

The Central bank shall have the power to enforce the

laws,

orders,

instructions,

rules

and

regulations

promulgated by the Monetary Board applicable to rural

banks; to require rural banks, their directors, officers and

agents to conduct and manage the affairs of the rural

banks in a lawful and orderly manner, and, upon proof

that the rural bank of its Board of Directors, or officers are

conducting and managing the affairs of the banking in a

manner contrary to the laws, orders, instructions, rules

and regulations promulgated by the Monetary Board or

in a manner substantially prejudicial in the interest of the

Government, depositors or creditors, to take over the

management of such bank when specifically authorized

to do so by the Monetary Board after due hearing process

until a new board of directors and officers are elected and

qualified without prejudice to the prosecution of the

persons

for

such

violations

under

the provisions of

Sections 32, 33 and 34 of Republic Act No. 265, as

amended.

The management of the rural bank by the Central Bank

shall be without expense to the rural bank, except such as

is

actually

necessary

for

its

operation, pending the

election and qualification of a new board of directors and

officers

to

take

place

of

those

responsible

for

the

violations

or

acts

contrary

to

the

interest

of

the

Government, depositors or creditors.

© Compiled by RGL

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