Bank Merger and Consolidation in the Philippines: BSP Approval Requirements

A bank merger or consolidation in the Philippines requires approval from the Bangko Sentral ng Pilipinas (BSP) and the Securities and Exchange Commission (SEC). The BSP reviews the application and supporting documents on a case-to-case basis, guided by the documentary requirements in the Harmonized List of Requirements of the Streamlined Procedures for Applications for Mergers, Consolidations and Acquisitions of Banks, as referenced in the Manual of Regulations for Banks. The merger or consolidation becomes effective only after SEC approval and issuance of the Certificate of Approval of the Articles and Plan of Merger.

Merger versus consolidation: what is the difference?

In a merger, one bank survives and the other is absorbed. The surviving bank continues to exist, while the absorbed bank's separate existence ceases and its legal personality is terminated on the effective date. The surviving bank acquires all the rights, privileges, assets, and properties of the absorbed bank and assumes all its liabilities and obligations.

In a consolidation, the constituent banks form a new consolidated corporation. The Articles of Consolidation name the new bank as the consolidated corporation, and the Plan of Consolidation governs the terms.

Both routes follow the same framework under Sections 75 to 79 of Republic Act No. 11232, the Revised Corporation Code of the Philippines.

What BSP issuances govern the application?

BSP Memorandum No. M-2022-047, issued on 09 November 2022, provides the templates for merger and consolidation of banks. It amended Circular Letter No. CL-2015-068 dated 04 November 2015, which covered the previous templates.

The BSP's stated objectives in allowing mergers, consolidations, and acquisitions are to develop larger and stronger financial institutions, improve financial strength, enhance viability, strengthen management and governance, and expand market reach.

The templates are general in nature and updated to comply with banking laws, BSP rules and regulations, the Revised Corporation Code, and the Philippine Cooperative Code, as applicable. Constituent banks may include additional provisions based on their mutual agreements and other arrangements.

What documents must accompany the application?

The templates cover the core documents for each transaction type.

For a merger of banks, the templates include the Articles of Merger, the Plan of Merger, the Directors' Certificate for amendment of the Articles of Incorporation, the Directors' Certificate for amendment of the By-Laws, the Treasurer's Affidavit, the Certificate of Increase in Capital Stock, and the Secretary's Certificate.

For a consolidation of banks, the templates include the Articles of Consolidation, the Plan of Consolidation, the Articles of Incorporation of the new bank, the Treasurer's Affidavit, and the Secretary's Certificate.

Separate templates exist for mergers and consolidations of cooperative banks, covering the Plan of Merger or Plan of Consolidation, the Directors and Secretary's Certificate for amendment of the Articles of Cooperation and By-Laws, the Treasurer's Affidavit, the Certificate of Increase in Share Capital, the Articles of Cooperation, and the Secretary's Certificate.

What corporate approvals are required?

The board of directors of each constituent bank must approve the Plan of Merger or Plan of Consolidation by majority vote at a separate regular or special meeting.

Stockholders must then ratify the plan. The Articles of Merger require approval by stockholders representing at least two-thirds (2/3) of the outstanding capital stock of each bank, voting at separate meetings. The same two-thirds threshold applies to consolidations under the Articles of Consolidation.

Any amendment to the Plan of Merger that substantially changes its terms must also be approved by majority vote of the respective boards and ratified by stockholders representing at least two-thirds of the outstanding capital stock.

How is the transaction valued and accounted for?

The Plan of Merger requires an agreed cut-off date for the audited financial statements. This cut-off date must not be more than 120 days prior to the date of filing with the SEC.

The carrying amounts and fair values of assets and liabilities as of the cut-off date are presented in Annex B of the Articles of Merger or Articles of Consolidation, together with the pro-forma values of the merged or consolidated bank using the chosen accounting method.

In exchange for the absorbed bank's assets and liabilities, the surviving bank issues fully paid shares to the absorbed bank's stockholders. These shares may come from the unissued portion of the surviving bank's authorized capital stock or from an increase in capital stock. No shares are issued if the absorbed bank has capital deficiency.

The Treasurer's Affidavit states that at least twenty-five percent (25%) of the net increase in capital stock has been subscribed and at least twenty-five percent (25%) of that subscription has been actually paid.

When does the merger or consolidation take effect?

The merger or consolidation becomes effective only after SEC approval and issuance of the Certificate of Approval of the Articles and Plan of Merger.

Before the effective date, the constituent banks must continue operating their businesses in substantially the same manner as before and preserve them as going concerns. Each bank must give the other immediate notice of any claim, event, or transaction that could materially and adversely affect their businesses, properties, or financial condition.

The constituent banks also recognize that BSP and SEC approval is based solely on the documents they submit, and they undertake to indemnify and hold the BSP and SEC free and harmless from claims arising from the approval.

Frequently asked questions

Does a bank merger need BSP approval? Yes. The BSP reviews the merger or consolidation application and supporting documents on a case-to-case basis. SEC approval is also required before the transaction takes effect.

What vote do stockholders need to approve a bank merger? Stockholders representing at least two-thirds (2/3) of the outstanding capital stock of each constituent bank must approve the Plan of Merger or Plan of Consolidation at separate meetings.

How old can the financial statements be? The agreed cut-off date of the audited financial statements must not be more than 120 days prior to the date of filing with the SEC.

Practical takeaways

• A bank merger or consolidation requires both BSP approval and SEC approval; the transaction takes effect only upon SEC approval and issuance of the Certificate of Approval.
• The board of each constituent bank must approve the plan by majority vote, and stockholders representing at least two-thirds of the outstanding capital stock must ratify it.
• Use the templates in BSP Memorandum No. M-2022-047, which amended Circular Letter No. CL-2015-068, to guide the application and documentary requirements.
• The cut-off date of the audited financial statements must not be more than 120 days prior to the SEC filing date.
• The BSP reviews applications on a case-to-case basis, so constituent banks may include additional provisions suited to their agreements.

Primary sources

The rules discussed above are drawn from the following issuances, embedded here in full for your reference.

Templates for Merger and Consolidation of BanksOpen in Law LibraryDownload PDF

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.