Rural Bank of Dolores (Quezon), Inc.

Dolores, Quezon
POLICY ON RELATED PARTY TRANSACTIONS
I. DEFINITION
A. Related Parties - 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 interests (DOSRl), and their close famiLy
members, as well as corresponding persons in affiliated companies. This
shall also include such other person/juridical entity whose interests may
pose potential conflict with the interest of the financial institution (Fl),
hence, is identified as a related party.
B. Close family member are persons 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, grandparent, grandchild, parent-in-law,
son-/daughter-in-law,
brother-/sister-in-law,
grandparent-in-law,
and
grandchild-in-law of the Fls DOS.
C. Corresponding persons in affiliated companies are the DOS of the
affiliated companies and their close family members.
D. Control of an enterprise exists when there is:
Power over more than one-half of the voting rights by virtue of an
agreement with other stockholders; or
Power to govern the financial and operating policies of the
enterprise under a statute or an agreement; or
Power to appoint or remove the majority of the members of the
board of directors or equivalent governing body; or
Power to cast the majority votes at meetings of the board of
directors or equivalent governing body; or
Any other arrangement similar to any of the above.
Control is presumed to exist if there is ownership or holding, whether
direct or indirect, of 20 percent or more of a class of voting shares of a
company.
E. Related party transactions are transactions or dealings with related
parties of the Fl, including its trust department regardless of whether or
not a price is charged. RPTs shall be interpreted broadly to include not only
transactions that are entered into with related parties but also outstanding
transactions that were entered into with an unrelated party that
subsequently becomes a related party
II. DUTIES AND RESPONSIBILITIES
A. Board of Directors
1. Observe good governance and approve an overarching policy on the
handling of RPTs to ensure that there is effective compliance with
existing laws, rules and regulations at all times, that these are

conducted on an arms length basis, and that no stakeholder is unduly

disadvantaged.
2. Approve all material RPTs, those that cross the materiality threshold
and write-off of material exposures to related parties, and submit the
same for confirmation by majority vote of the stockholders in the
annual stockholders' meeting. Any renewal or material changes in the
terms and conditions of RPTs shall also be approved by the board of
directors.
3. Delegate to appropriate management committee the approval of RPTs
that are below the materiality threshold, subject to confirmation by the
board of directors
4. To establish an effective system to:
a. Determine, identify and monitor related parties and RPTs;
b. Continuously review and evaluate existing relationships between
and among businesses and counterparties; and
c. ldentify, measure, monitor and control risks arising from RPTs.
5. Maintain adequate capital against risks associated with exposures to
related parties.
6. Oversee the integrity, independence, and effectiveness of the policies
and procedures for whistleblowing.
B. Related Party Transactions (RPT) Committee
1. Evaluate on an ongoing basis existing relations between and among
businesses and counterparties to ensure that all related parties are
continuously identified, RPTs are monitored, and subsequent changes
in relationships with counterparties (from non-related to related and
vice versa) are captured
2. Evaluate all material RPTs to ensure that these are not undertaken on
more favorable economic terms
3. Ensure that appropriate disclosure is made, and/or information is
provided to regulating and supervising authorities relating to the
bank's RPT exposures, and policies on conflicts of interest or potential
conflicts of interest
4. Report to the board of directors on a regular basis, the status and
aggregate exposures to each related party as well as the total amount
of exposures to all related parties.
5. Ensure that transactions with related parties, including write-off of
exposures, are subject to periodic independent review or audit process
6. Oversee the implementation of the system for identifying, monitoring,
measuring, controlling, and reporting RPTs, including the periodic
review of RPT policies and procedures.

C. Senior Management

1. Implement appropriate controls to effectively manage and monitor

RPTs on a per transaction and aggregate basis
2. Monitor, on ongoing basis, exposures to related parties to ensure
compliance with the Fl's policy and BSP's regulations.
D. Internal Audit
1. Conduct a periodic formal review of the effectiveness of the Fl's system
and internal controls governing RPTs to assess consistency with the
board-approved policies and procedures.
2. The resulting audit reports, including exceptions or breaches in limits
shall be communicated directly to the Audit Committee.
E. Compliance Officer
1. Ensure that the Bank complies with relevant rules and regulations and
is informed of regulatory developments in areas affecting related
parties.
2. Aid in the review of the Banks transactions and identify any potential
RPT that would require review by the Board or RPT Committee.
3. Ensure that the RPT policy is kept updated and is properly implemented
throughout the Bank.
III. POLICY ON RELATED PARTY TRANSACTIONS(RPT)
Coverage
This policy shall apply to all RPTs that pose material/special risk or
potential abuse to the Bank and its stakeholders. This includes:
On- and off-balance sheet credit exposures and claims and writeoffs;
Investments;
Consulting,
professional,
agency
and
other
service
a
arrangements/contracts;
Purchases and sales of assets
Construction arrangements/contracts;
Lease arrangements/contracts;
Borrowings, commitments, fund transfers and guarantees;
Sale, purchase or supply of any goods or materials;
Establishment of joint venture entities; and
Outstanding transactions that were entered into with an unrelated
party that subsequently becomes a related party.
1. All RPTs shall be conducted in the regular course of business and not
undertaken on favourable economic terms.
2. Determination of price, interest rates, fees, tenor and collateral requirement
shall be applied uniformly to related and non-related parties under similar
circumstances.
3. The price discovery mechanism may include, but not limited to, acquiring the
services of an external expert, opening the transaction to a bidding process,
or publication of available property for sale.

4. Members of the board, stockholders, and management shall disclose to the

board whether they directly, indirectly or on behalf of third parties, have a
financial interest in any transaction or matter affecting the Bank.
5. Directors and officers with personal interest in the transaction shall abstain
from the discussion, approval and management of such transaction or matter
affecting the Bank.
6. The Materiality threshold or the level where omission or misstatement of the
transaction that could pose significant risk to the Bank and could influence
the economic decisions of its board of directors shall be as follows:
Related
Party
Transactions Materiality Threshold
(RPT)
Loans and other credit accommodation

Other Investment

All DOSRI transaction regardless of

the
amount
or
outstanding
transaction of unrelated party
which
subsequently
become
related party that that will cause
exposure of Banks capital of up to
5%
.05% of the Banks capital

Consulting, professional, agency and

other service a arrangements/contracts

All transaction

Purchases and sales of assets

Sale, purchase or supply of any goods
or materials;
Establishment of joint venture entities

Greater than or less than 5% of

the book value of asset purchased
or sold
Greater than or less than 5% of
the book value of asset purchased
or sold
All transaction

7. Transactions excluded from the materiality threshold requirement are as

transactions concerning deposit operations, those granted under BSPapproved fringe benefit programs and loans guaranteed by hold-out deposit.
8. The internal prescribed ceilings shall be as follows:
A. Aggregate Ceiling:
Total Outstanding DOSRI Loans (secured or unsecured) = 10% of
Total Loan Portfolio (TLP) or 100% of Net worth whichever is lower.
Total unsecured DOSRI loans (if any) = shall not exceed 5% of the
aggregate ceiling.
a.

Individual Ceiling:
Direct and Indirect = shall not exceed the total of DOSRIs book
value of paid- in capital plus unencumbered outstanding deposit
with the bank.
Individual unsecured DOSRI loan (if any) shall not exceed 20% of
his total DOSRI loans.

9. Breaches to the prescribed shall be immediately reported to the Board with

the decision of the board to accept the exposure or to take steps to address
the breaches, as may be necessary, duly documented in the minutes of
meetings.

10.
Whistle blowing mechanism shall be developed. All employees shall be
encouraged to report any illegal or irregular RPT transactions without the risk
of reprisal.
11.
Any transactions with related party/ies not in arms length transaction
shall be subject of investigation by the RPT Committee and the Board. Any
findings of illegality, irregularity or unethical shall be dealt with seriously. This
may result to recession of the contract, penalty or filing of appropriate legal
action.
12.
Directors and officers who have been remiss in their duties in handling
RPTs shall be subject to reprimand, suspension, removal and disqualification.
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