Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence, including affiliates. Related parties may also be individuals or corporate entities.
Because transactions with related parties can be abused, the terms of such transactions are of vital interest to majority and minority shareholders alike—the interests of shareholders, as a whole, and of all stakeholders must be fully protected.
BPI institutionalized a sustainable framework for identification, assessment and reporting of related party transactions, aimed at achieving an increased degree of transparency in such transactions.
Related Party Transactions Committee
BPI established a Board-level Related Party Transactions (RPT) Committee to assist the Board in assessing material agreements of any kind with a related party and determine whether to approve, ratify, disapprove or reject a related party transaction. Currently composed of independent and non-executive directors, this Committee meets monthly to vet credit and non-credit related party transactions of significant amounts above the material threshold of P50 million.
The RPT Committee:
- Formulates, revises, and approves policies on related party transactions;
- Conducts any investigation required to fulfill its responsibilities on RPTs;
- Assesses agreements of any kind with a related party to ensure that transactions are entered into on terms no less favorable to the bank than terms generally available to an unaffiliated third-party under the same or similar circumstances; and
- Reviews the adequacy of Management’s monitoring and reporting systems on RPTs.
The RPT Committee Roles and Responsibilities, Composition and Meetings, Performance and Charter can be read here.
Evaluation of Related Party Transactions
In assessing material agreements of any kind with a related party in determining whether to approve, ratify, disapprove or reject a related party transaction:
- The Committee shall take into account whether the RPT is entered into on terms no less favorable to the Bank than terms generally available to an unaffiliated third-party under the same or similar circumstances.
- For a transaction involving a sale of bank assets, the Committee shall review the results of the appraisal, valuation methodology used as well as alternative approaches to valuation.
- The Committee shall assess the extent of the related party’s interest in the transaction:
- Term of the transaction;
- The related party’s interest in the transaction;
- Purpose and timing of the transaction;
- Whether the bank is a party to the transaction and, if not, the nature of the bank’s participation in the transaction;
- If the transaction involves the sale of an asset, a description of the asset including date acquired and costs basis;
- Information concerning potential counterparties in the transactions;
- Approximated value of the transaction and the approximated value of the related party’s interest in the transaction;
- Description of provisions or limitations imposed as a result of entering into proposed transaction;
- Whether the proposed transaction includes any potential reputational risk issues that may arise as a result of or in connection with the proposed transaction;
- Purpose of transaction; and
- Potential benefits to the bank.
All Directors, officer and employees are also required to disclose conflicts and potential conflicts, as well as relationships with clients, prospects, suppliers and other interests.
Disclosure of Related Party Transactions
RPTs are properly disclosed in the Bank’s audited financial statements, and other applicable fillings in accordance with the relevant rules and issuances of the Securities and Exchange Commission and other regulatory bodies. If needed, the Committee may also call on independent experts to help with valuation issues to ensure that the interests of the Bank and stakeholders are protected.