PROVIDING FOR THE INCREASE IN CAPITALIZATION OF RURAL BANKS

• Number: Presidential Decree No. 447
• Sections: 9

Preamble

WHEREAS, the rural banking system is an effective instrument

that can be employed in the implementation of the agrarian reform

program envisioned in Presidential Decree No. 27;

WHEREAS, mobilization of funds from both the government and

private sectors for agricultural credit through the rural banking system

will speed up the attainment of widespread increased agricultural and

industrial production and commercial activities in the countryside or

rural areas;

WHEREAS, existing capital inadequacy in the rural banking

system impairs its active involvement in the current effort of the

government to accelerate the implementation of the objectives outlined

in the preceding paragraphs;

WHEREAS, outstanding rediscounting obligations of the rural

banks with the Central Bank of the Philippines can be utilized as

additional capitalization of rural banks through conversion thereof into

government counterpart investments in such rural banks under terms and

conditions as may be prescribed by the Central Bank of the Philippines.

NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the

Philippines, by virtue of the powers vested in me by the Constitution,

do hereby decree and order that:

Section 1

SECTION 1. In order to strengthen the capital base of rural

banks and expand their capacity to meet the credit needs of their

respective areas in the countryside, especially those covered by the

agrarian reform program, their present government and private

capitalizations shall be increased to such amounts, in such proportion,

and within such periods as the Central Bank of the Philippines shall

determine.

Section 2

SEC. 2. Subject to such terms and conditions as it may

prescribe, the Central Bank of the Philippines, the provisions of any

existing law to the contrary notwithstanding, is authorized to convert

the rediscounting obligations of rural banks into equity in the name of

the Land Bank of the Philippines, and the Secretary of Finance shall

correspondingly issue government bonds in favor of the Central Bank of

the Philippines. In consideration of the equity acquired by it, the Land

Bank shall issue its own shares of stock in favor of the Republic of

the Philippines.

Section 3

SEC. 3. Whenever the outstanding rediscounting obligations

of a rural bank, when converted into government equity, are insufficient

to meet the required capitalization as determined in Section 1 hereof,

the Government shall directly subscribe to the balance thereof, such

investment to be paid by government bonds to be issued by the Secretary

of Finance to the rural bank concerned, which bonds may be pledged, sold

or otherwise disposed of by the rural bank in accordance with rules and

regulations that the Monetary Board shall prescribe. In case a rural

bank has no outstanding rediscounting obligations with the Central Bank,

the Secretary of Finance shall likewise issue the necessary amount of

government bonds in favor of the rural bank to raise the Government

equity to the desired level: Provided, however, That the total

sum of such, direct investment of the Government and the rediscounting

obligations converted into equity shall not exceed the aggregate

rediscounting obligations of rural banks with the Central Bank of the

Philippines outstanding as of June 30, 1974.

Section 4

SEC. 4. All preferred shares that rural banks may issue in

favor of the Land Bank under Section 2 and Section 3 of this Decree

shall share hi dividend distribution at three per cent (3%), without

preference. By virtue of its holdings of preferred shares, the Land Bank

shall be entitled to nominate one director in any rural bank where

preferred shares are held by it.

Section 5

SEC. 5. Government bonds that may be issued in consideration

of Government preferred shares in rural banks shall bear interest at

three per cent (3%) per annum. Such bonds as the Secretary of Finance

may issue directly to rural banks for said purpose shall be given

Central Bank support and shall be eligible as part of the required

reserves against deposit liabilities of the original rural bank holders

of the bonds.

Section 6

SEC. 6. The Central Bank of the Philippines is authorized to

require rural banks to match government equity with private equity. The

provisions of R.A. 720 to the contrary notwithstanding, the Central

Bank of the Philippines may open for the establishment of a new rural

bank the area served by an existing rural bank in any of the following

events:

Upon failure of a rural bank to submit a viable capitalization

program to raise its private sector capital to the level of government

equity;

Upon failure of the rural bank, after submission and approval

of a viable capitalization program, to comply with the terms and

conditions of the program.

The Central Bank may take such other action or actions necessary

to cause the sale of the unissued shares of stock of the rural bank to

the public or to other parties acceptable to it.

Section 7

SEC. 7. The Monetary Board of the Central Bank shall

promulgate rules and regulations necessary for the effective

implementation of this Decree.

Section 8

SEC. 8. This Decree shall take effect immediately.

Done in the City of Manila, this 7th day of May, in the year

of Our Lord, nineteen hundred and seventy four.

(Sgd.) FERDINAND E.

MARCOS

President of the Philippines

By the President:

(Sgd.) ALEJANDRO

MELCHOR

Executive Secretary