Rules on appointment of bank directors tightened

The Bangko Sentral ng Pilipinas further tightened the rules governing the appointment of independent bank directors in line with efforts to prevent instability in the banking system that may be caused by questionable management integrity.

Under Circular 793, which was issued last week, the BSP said direct and common-law relatives of majority shareholders, directors and officers of banks are prohibited from being appointed as independent directors.

Banks are mandated to have independent directors—people who are not majority shareholders or officers of banks— in their boards but the manual of bank regulations was silent on whether their relatives can be appointed.

The appointment of independent directors is meant to help ensure that the decisions made and implemented by banks are beneficial not only to their owners and officers, but also to other stakeholders like creditors and depositors.

“An independent director shall mean a person who is not a relative, legitimate or common law, of any director, officer or majority shareholder of the bank or its related companies,” the central bank said in a circular signed by BSP Governor Amando Tetangco Jr.

The BSP explained in the circular that the term relative refers to spouses, children, parents, brothers, sisters, parents-in-law, brothers-in-law and sisters-in law.

It also stated that individuals appointed independent directors must submit certifications, which were signed under oath, that they were not direct common-law relatives of shareholders, officers and directors of the banks.

The issuance of Circular 793 followed the move of the BSP early last year to amend the rule on the number of independent directors a bank was required to have.

Previously a bank was required to have at least two independent directors. The BSP revised the rule by requiring at least 20 percent of the bank’s board, but not less than two persons, must be composed of independent directors.

This means the more board seats a bank has, the more independent directors it should appoint.

The tightening of its rules on the appointment of independent directors is consistent with the BSP’s efforts to promote good corporate governance in the banking sector.