In accordance with the regulations, policies and guidelines on Corporate Governance issued by Bangko Sentral ng Pilipinas (BSP), the Securities and Exchange Commission (SEC) and other regulatory bodies, Citystate Savings Bank recognizes the need to strengthen its policy on related party transactions and other similar situations so as to prevent or mitigate abusive transactions with related parties and avoid risks of conflict of interest.
On 13 November 2015, the Monetary Board (MB), in its Resolution No. 1903 approved the guidelines strengthening oversight and control standards for managing Related Party Transactions (RPTs).
As per BSP Circular No. 895 policy statement, the BSP guidelines on Related Party Transactions recognizes that transactions between and among related parties create financial, commercial and economic benefits to individual institutions and to the entire group where said institutions belong. This guidelines are designed to ensure that banks exercise appropriate oversight and control over their RPTs as well as for alignment with the effective control systems for managing said exposure. In this regard, related party transactions are generally allowed provided, that these are done on an arm’s length basis.
CITYSTATE SAVINGS BANK recognizes that certain relationships can present potential or actual conflicts of interest and may raise questions about whether transactions associated with such relationships are consistent with CITYSTATE SAVINGS BANK’s general policies and its stakeholders.
The Related Party Transaction Policy sets out to achieve the following:
To formulate policies and procedures that would ensure the integrity and transparency of related party transactions for the approval of the RPT Committee or Board of Directors;
To implement the general requirements as approved by the RPT COMMITTEE and Board of Directors;
To adopt and approve a group-wide Related Party Transaction (RPT) Policy which shall encompass all entities within the banking group.
To effectively identify, manage and monitor RPTs on a per transaction and aggregate basis.
To ensure that RPTs are within prudent levels, the policy shall include consolidation of all existing policies that address the reportorial requirements or may make reference to already existing policies.
TERMS AND DEFINITIONS:
3.1 RELATED PARTIES – the policy shall clearly define “Related Parties”. This shall cover the bank’s subsidiaries as well as affiliates and any party (including their subsidiaries, affiliates and special purpose entities) that the bank exerts direct/indirect control over or that exerts direct/indirect control over the bank; the bank’s Directors; Officers; Stockholders; and Related Interest (DOSRI), and their close family members, as well as corresponding persons in affiliated companies. This shall also include such other person/juridical entity whose interest may pose potential conflict with the interest of the financial institution (FI), hence, is identified as a RELATED PARTY.
3.2 RELATED PARTY TRANSACTIONS – this are transactions or dealings with related parties of the bank/FI; or any financial transaction, arrangement or relationship between the company and any related party for a transfer of resources , services or obligations , regardless of whether or not a price is charged.
3.3 CLOSE FAMILY MEMBERS – this refers to the person’s related to the bank’s Directors, Officers and Stockholders (DOS) within the second degree of consanguinity or affinity, legitimate or common-law. These shall include the spouse, parent, child, brother, sister, grandparents, grandchild, parent-in law; son/daughter-in law, brother/sister-in law of the FI’s and DOS.
3.4 CONSANGUINITY – this shall define as with the same blood relationship, descended from the same ancestor (e.g. grandmother, granddaughter, grandchild).
3.5 AFFINITY – this is defined as relationship by-law (thru marriage), kinship (e.g. Sister/brother-in law, grandfather/grandmother-in law and or common law).
3.6 DOSRI – this shall refer to the related interest (RI) limited to 1ST degree relatives of the Directors, Officers, Stockholders and related interest and their close family members as well as the corresponding persons in affiliated companies.
3.7 SUBSIDIARY – a corporation more than fifty percent (50%) of the voting stock of which is owned or controlled directly or indirectly through one (1) or more intermediaries.
3.8 AFFILIATE – a juridical person that directly or indirectly, through one (1) or more intermediaries, is controlled by, or is under common control with the bank or its affiliates.
3.9 CORRESPONDING PERSONS IN AFFILIATED COMPANIES – this refers to the Directors, Officers and Stockholders (DOS) of the affiliated companies and their close family members.
3.10 MATERIALITY THRESHOLD – refers to any financial transaction, arrangement or relationships in which: a). the aggregate amount involved will or may exceed Php1.0M in any fiscal year;
b). where the company is a participant; and
c). the related party has or will have a direct or indirect material interest.
IDENTIFIED RELATED PARTIES:
DOSRI (RI limited to 1ST degree relatives);
A Director of the bank and its subsidiaries, affiliates’ “director” or a stockholder owning at least 1% or more;
Key Officers of the bank (senior officer) and its subsidiaries and affiliates’ with the rank of an “AVP” and up;
Close Family Members of DOS (2nd degree relatives) or an immediate family member of Directors, Officers and Stockholders;
A Corresponding Person in Affiliated Companies/other person/ juridical entity whose interest may pose potential conflict with the interest of the Financial Institution (FI);
Any outstanding transactions entered into with an unrelated party that subsequently becomes a Related Party (RP);
Any transactions directly or indirectly involving any Related Party that would be required to be disclosed or any currently proposed transactions involving the company, including joint ventures in which the amount involved will or may exceed PHP1.0M.
WHO ARE CONSIDERED BANK’s/FI’s RELATED PARTIES?
For the purposes of this policies, a Party is related when classified as:
– ALC Group of Companies
– Related Interest (RI up to the first degree of DOS)
4.2 Close Family Members of DOS up to the second degree of consanguinity & affinity;
4.3 Corresponding Persons in Affiliated Companies with the rank of an “AVP” and up;
4.4 Any person/juridical entity whose interest may pose potential conflict with interest of the bank.
IDENTIFIED RELATED PARTY TRANSACTIONS:
Finance (including: Credit accommodations and equity contributions in CASH or in kind);
Purchases, and sales of assets, supply of goods or materials, including transfer of technology and Intangible items (e.g. Research and development, trademarks);
Consulting, professional, agency and other service arrangements/contracts;
Agency agreements; License Agreements;
Investments and/or subscriptions for debt/equity issuances;
Leasing of property of any kind (lease arrangements / contracts);
Selling or disposing of, or buying property of any kind;
Borrowings, commitments, fund transfers, guarantees, sureties and investments;
Management contracts/ establishment of joint venture entities;
For the purposes of this policies, a related party transaction is any transfer of resources, services or acceptance of obligations between related parties, regardless whether any compensation has been agreed upon.
THE RELATED PARTY TRANSACTIONS INCLUDES THE FOLLOWING:
6.1 SALE OF ASSETS INCLUDING ROPA TO RELATED PARTY:
(Minimum contents of Related Party Transaction Proposals)
Name of Related Party Buyer (identify relationships with the bank);
Interest Rate, repayment period, collateral (if sale by installment);
Price discovery mechanism employed (including appraised values) (e.g. Public/private bidding);
Background and description of the asset;
Other material terms and conditions (including deviations from the policy);
Terms generally granted on similar transactions to similarly-situated buyers.
6.2 GRANT OF LOANS TO RELATED PARTY TRANSACTIONS:
(Minimum contents of Related Party Transactions Proposals)
Name of Related Party Borrower (identify relationship with the bank);
Risk Rating of Borrower;
Amount of Loan, actual interest rate, repayment period and collateral;
Prevailing market rates for similar loans;
If collateral is deposit (interest rate on deposits);
Other material terms and conditions (including deviations from the policy);
Total exposure of the borrower/related borrowers;
Terms generally granted to similarly-situated borrowers.
GENERAL POLICY STATEMENT:
Guided by the firm commitment to integrity, CITYSTATE SAVINGS BANK ensures the fairness and transparency of related party transactions between and among the corporation and its parent company, joint ventures, subsidiaries, associates, affiliates, major stockholders, officers and directors, including their spouses, children and dependent siblings and parents and of interlocking director relationships by members of the board.
It is the bank policy that any transaction involving related parties must be conducted at an arm’s length with any consideration paid or received by the bank or any of its subsidiaries in connection with any such transaction being on terms no less favorable to the bank than terms available to any unrelated party under the same or similar circumstances must be done with the best interest of CITYSTATE SAVINGS BANK in mind.
8.1 The management represents that the bank shall enter into Related Party
Transactions in the ordinary course of business; basis and with the best interest of the bank.
d one on an arm’s length
8.2 All material Related Party Transactions (RPT)shall require approval of the Board of Directors through special resolution and the related parties shall abstain from voting on such resolution.
8.3 All Related Party Transactions in excess of the limits, which are not in the ordinary course of business or not at arm’s length basis shall also require prior approval of the board and related parties shall abstain from voting on such resolution.
8.4 In determining whether to approve, ratify or disapprove or reject a Related Party Transaction, the RPT Committee as appropriate, shall take into account among other factors it deems appropriate whether the RPT is entered into on terms no less favorable to the company than to terms generally available to an unaffiliated third-party under the same or similar circumstances; whether there was a bidding process and the results thereof; review of the valuation methodology used and alternative approaches to valuation of the transaction and the extent of the related person’s interest in the transaction.
8.5 The policy applies to any transaction, arrangement or relationship in which the aggregate amount involved will or may exceed PHP1.0M in any fiscal year where a related party has or will have direct or indirect material interest.
EXEMPTIONS ON MATERIALITY THRESHOLD AND EXCLUDED TRANSACTIONS:
This policy may or shall identify transactions excluded from the materiality threshold requirement such as:
9.1 Deposit operations;
9.2 Regular Trade Transactions involving purchases and sales of debt equity;
9.3 The Fringe benefit programs granted and approved by the BSP;
9.4 Branches shall be exempted in handling any Related Party Transactions excluding Chino Roces and Head Office Branch. All proposed Related Party Transactions shall
be referred to or report directly to the RPT Dept. for proper evaluation and verification of the proposed RPT;
9.5 The ordinary course transactions shall be applied on terms equivalent to market or standard terms.
9.6 Any financial services including banking services and other financial services provided by the bank to any director or any immediate family member of a director, provided that the services are on substantially the same terms as those
prevailing at the time for comparable services provided to non-affiliates.
9.7 Any exceptions to the policy on Related Party Transactions must be consistent with the act, including any regulations promulgated thereunder, and must be with prior approval of the Board of Directors (BOD).
REVIEW AND APPROVAL OF RELATED PARTY TRANSACTIONS:
In determining whether to approve or ratify a Related Party Transaction, the Committee will consider the following factors, among others, to the extent relevant to the Related Party Transactions:
10.1 Any financial transaction, arrangement or relationship in which the aggregate amount involved will or may exceed PHP1.0M in any fiscal year where a Related Party has or will have direct or indirect material interest.
10.2 Key Officers of the bank and its affiliates (senior officers) with the rank of Asst. Vice President (AVP) and up, and who has a direct or indirect material interest.
10.3 Whether the terms of the Related Party Transactions are FAIR to the company and would apply on the same basis if the transaction did not involve a Related Party.
10.4 Whether there are many compelling business reasons for the company to enter into the Related Party Transaction and the nature of alternative transactions, if any.
10.5 To review a Related Party Transaction, the Committee will be provided with all the relevant material information of the Related Party Transaction, including the terms of the transaction, the business purpose of the transaction, the benefits to the company and to the Related Party, and any other relevant matters.
10.6 To ascertain that the transaction is at arm’s length and in the ordinary course of business.
10.7 In case of material related party transactions (materiality threshold), the transaction shall require approval of the Board of Directors through special resolution.
PROCEDURES IN MONITORING RELATED PARTY TRANSACTIONS:
All departments/units with RPT shall report any possible transaction or any proposed related transactions involving related parties with direct or indirect material interest regardless of the amount. RPT Department shall identify all Related Parties for the bank on the basis of disclosures received from each department/unit, investment structures and other related supporting documents or information on a weekly basis and every end of the month. The RPT Secretariat shall arrange/consolidate all transaction reports identified as Related Parties to obtain RPT COMMITTEE’s final evaluation and endorsement prior to board approval.
While obtaining the final evaluation and endorsement, the following would be ensured:
Provide relevant details of the proposed transactions via written request with complete and significant justifications;
Evaluate whether the RPT would present a conflict of interest for any Related Party of the bank;
To ascertain that the transaction is at arm’s length basis; in the ordinary course of business and with the best interest of the bank;
In case of material transaction (threshold), the transaction needs to be referred to the Board of Directors (BOD) for approval.
DATABASE OF RELATED PARTIES:
The Related Parties of CITYSTATE SAVINGS BANK are included and arranged in a special database (herein referred to as the “RPT TRACKER”) which the bank maintains on the basis of information in its possession and of the statements received from direct related parties. The RPT TRACKER must be updated at least every six (6) months in order to be consistent in the reportorial system.
Direct Related Parties shall promptly give notice to the RPT Dept. or HRD Head of any new parties that are related to them;
The RPT Tracker will serve as the basis for the branches to perform proper tagging of the Related Party accounts base on the classification of accounts;
The RPTD shall supervises the proper updating of the DATABASE, through periodic audits carried out with the assistance of the internal Audit.
(Note: Attached is the sample of the RPT TRACKER Form – Exhibit 1.1)
REPORTORIAL PROCEDURES OF RPT VIA RPT TRACKER:
All departments/units with Related Party Transactions are required to submit their weekly and monthly reports to RPTD on or before the scheduled dates which is every Monday of the following week;
The RPT Weekly Report shall cover the previous transactions of the initiating department or units regardless of the amount involved or type of related party transactions with the Related Parties;
All RPT Reports shall be submitted to RPT Dept. for review to determine all relevant facts and
circumstances including the terms and conditions;
In case of no related party transactions for the week, STILL, the concern department or unit is required to submit the weekly report and shall indicate the following:
“NONE TO REPORT”
All department heads or unit heads with RPT shall be required to affix their signatures on the weekly and monthly report prior to submission of the final report thru EMAIL or scanned document;
All department heads and unit heads with RPT may or shall identify the next person-in-line to handle RPT. The identified next person-in-line must be knowledgeable in processing and handling RPT including the reporting.
The identified next person-in-line must be with the rank of an Official Assistant (officer level).
On a quarterly basis, the bank is required to disclose any material Related Party Transactions (RPT) to the regulatory body: Bangko Sentral ng Pilipinas (BSP).