Inclusion as Part of Upper Tier 2 Capital of the Hybrid Tier 1 Capital Instruments in Excess of the 15% of Tier 1 Capital Limit

CIRCULAR NO. 528 Series of 2006

Subject: Inclusion as Part of Upper Tier 2 Capital of the Hybrid Tier 1 Capital Instruments in Excess of the 15% of Tier 1 Capital Limit

The Monetary Board in its Resolution No. 458 dated 7 April 2006, approved the following amendments to the provisions of the Manual of Regulations for Banks (MORB). This is to allow the inclusion as part of Upper Tier 2 capital of the amount of Hybrid Tier 1 capital instruments in excess of the maximum allowable limit of 15% of total Tier 1 capital as provided in Circular 503 dated 22 December 2005 for purposes of calculating the risk-based capital adequacy ratio (CAR) of banks.

Section 1. Subsection X116.1.a.2.1 of the MORB on Hybrid Tier 1 (HT1) capital is hereby amended to read as follows:

“1. With prior BSP approval, perpetual preferred stock and perpetual unsecured subordinated debt, subject to the following conditions:

x x x

Provided, That for purposes of reserve requirement regulation, the HT1 shall not be treated as time deposit liability, deposit substitute liability or other forms of borrowings: Provided, further, That the total amount HT1 that may be included in the Tier 1 capital shall be limited to a maximum of 15% of total Tier 1 capital (net of deductions therefrom): Provided, furthermore, That the amount of HT1 capital in excess of the maximum allowable limit shall be eligible for inclusion in the Upper Tier 2 capital, subject to the limit on total Tier 2 capital. To determine the allowable amount of HT1, the amount of total Tier 1 capital (net of deductions therefrom) excluding the HT1 should be multiplied by 17.65%, the number derived from the proportion of 15% to 85% (i.e., 15%/85% = 17.65%);”

Section 2. Subsection X116.1.b.1 of the MORB on Upper Tier 2 capital is hereby amended by adding another item to the list of Upper Tier 2 capital elements, as follows:

“11. Hybrid Tier 1 capital instruments in excess of the maximum allowable limit of 15% of total Tier 1 capital (net of deductions therefrom ) referred to in Subsection X116.1.a.2.1 on Hybrid Tier 1 (HT1) capital.”

This Circular shall take effect fifteen (15) days after its publication either in the Official Gazette or in a newspaper of general circulation.

FOR THE MONETARY BOARD:

DIWA C. GUNIGUNDO Officer-in-Charge

3 May 2006