Foreign Ownership of Rural Banks

Foreign Ownership of Rural Banks

President Aquino approved Republic Act No. 10574 on May 24, 2013. This Act which is a consolidation of House Bill No. 5360 and Senate Bill No. 3282 was finally passed by the House of Representatives and the Senate on February 4, 2013 and January 30, 2013, respectively.

Republic Act No. 10574 is an act allowing the infusion of foreign equity in the capital of rural banks, amending Republic Act No. 7353, otherwise known as “the rural bank act of 1992″, as amended, and for other purposes.

The highlights of this act are:

– That foreigners may own a maximum of sixty percent (60% ) of the voting stock of a rural bank.

– Non-Filipino citizens may become members of the Board of Directors of a rural bank but their participation in the Board shall be limited to their proportionate share in the equity of the rural bank: Provided, however, That at least one (1) independent director shall be elected to the Board of Directors.

– “Rural banks which are not qualified to acquire or hold land in the Philippines shall be allowed to bid and take part in foreclosure sales of real property mortgaged to them, as well as to avail of enforcement and other proceedings, and accordingly to take possession of the mortgaged property, for a period not exceeding five (5)-years from actual possession: Provided, That in no event shall title to the property be transferred to such rural bank. In case the rural bank is the winning bidder, it shall, during the said five (5)-year period, transfer its rights to a qualified Philippine national, without prejudice to a borrower’s rights under applicable laws. Should a rural bank be not able to transfer such property within the five (5)-year period, the rural bank shall be penalized one-half (1/2) of one percent (1%) per annum of the price at which the property was foreclosed until the rural bank is able to transfer the property to a qualified Philippine national.”

A rural bank in the Philippines must have forty percent (40%) or less foreign ownership to qualify to acquire or hold land in the Philippines.

(Article No. XII, Sec. 7 of the Constitution; Ch. 5, Sec. 22 of C.A. 141; Sec. 4 of R.A. 9182)