Palestine Monetary Authority

Instructions No. (2010/6)

To all banks operating in Palestine
Date: Tuesday, August 03, 2010

Subject: Bank Mergers

Based on the provisions of Chapter Eleven of the Banks Law No. (2) of 2002, attached are the instructions organizing bank mergers as follows:

(1/6): Definitions
(2/6): General Provisions
(3/6): Voluntary Merger
(4/6): Acquisition or Purchase
(5/6): Forced Merger
(6/6): Final Provisions

The provisions of these instructions shall apply from the date of their issuance, and all banks must rectify their status to comply with these instructions to ensure full compliance.

Supervision and Inspection Department
Palestine Monetary Authority

Ramallah - Al Bireh P.O.Box 452 - Tel: 02-2409920 - Fax: 02-2409922 Gaza - P.O.Box 4026 - Tel: 08-2825713 - Fax: 08-2844487 E-mail: info@pma.ps Ramallah - Al Bireh P.O.Box 452 - Tel: 02-2409920 - Fax: 02-2409922 Gaza - P.O.Box 4026 - Tel: 08-2825713 - Fax: 08-2844487 www.pma.ps

(1/6): Definitions

Bank Merger:

Merger is an agreement that leads to the joining or union of two or more banks, resulting in either the loss of all merged banks' independence and legal personality, replaced by a single bank with an independent and new legal personality called the merging bank or the resulting bank, or the retention of the legal personality of one of the banks wishing to merge. In all cases, the assets and liabilities of the merged banks are transferred to the new bank or the merging bank.

Purchase (Acquisition or Absorption):

It is one of the forms of merger whereby a bank purchases all assets/liabilities or the banking portfolio of another bank or more, or purchases more than 50% of the issued shares of another bank.

Voluntary Merger:

A merger that takes place between two or more banks by a decision of the General Assemblies of local banks or by a decision of the headquarters of foreign banks, in addition to the approval of the supervisory authority in the home country.

Forced Merger:

A merger that takes place by a decision of the Palestine Monetary Authority to preserve depositors' rights or achieve the public interest.

Merging Bank:

The bank into which the merged bank or banks are merged, replacing them, and to which their assets and liabilities are transferred, or the bank resulting from the merger of two or more banks such that all merged banks lose their independence and legal personality, and the merging bank replaces them.

Headquarters:

The headquarters or general management of the foreign bank in the home country.

(2/6): General Provisions

1. No bank may merge with one or more other banks without obtaining prior written approval from the Palestine Monetary Authority.

2. Banks wishing to merge must each submit a written application to the Palestine Monetary Authority to obtain its approval for the merger, accompanied by the draft agreement and board of directors' approvals.

3. Banks wishing to merge must prepare a draft agreement relied upon to execute the merger process, which must include in particular the following:

a. Proposed merger mechanisms.
b. The need to evaluate the banking portfolio of each bank, the name of the company or audit firm to be entrusted with the evaluation in case the banking portfolio evaluation is agreed upon by an audit firm, and the proposed evaluation period.
c. The composition of the proposed board of directors.
d. The proposed capital of the bank.
e. Distribution of ownership shares in the capital.
f. The data specified in the merger agreement and the date specified for the final merger.
g. The preliminary estimate of the assets and liabilities of the banks wishing to merge at actual or market value.
h. The proposed external auditor to be approved for the bank resulting from the merger.
i. The proposed organizational structure and main administrative functions.
j. The proposed banking (IT) system to be used, and data processing for merged banks using more than one banking (IT) system.

k. The specialized teams, their scope of work, authorities, and the implementation schedule.
l. The proposed personnel system and information related to employees, their rights, and service conditions.
m. Information related to the salary scale and end-of-service benefits.
n. The schedule for implementing the merger plan, including procedural and implementation steps for the merger.
o. Any other data requested by the Palestine Monetary Authority.

4. The boards of directors of banks wishing to merge must approve the draft agreement and initially ratify it, then present it to the Palestine Monetary Authority to obtain its written approval for the merger.

5. Upon receiving the merger request and draft agreement, the Palestine Monetary Authority shall study the request and draft, then respond to the banks wishing to merge within thirty days from the date of submitting a complete request.

6. The Palestine Monetary Authority may reject the merger request if any of the following is evident:

a. If the purpose of the merger involves achieving a direct personal interest for any of the executives or any of the shareholders of the banks wishing to merge.
b. If the merger will lead to monopoly and negatively affect competition in the banking market or cause harm to the general economic interest according to the Palestine Monetary Authority's estimates.

7. In case of the Palestine Monetary Authority's approval of the merger, an evaluation of the net assets and liabilities of the banks wishing to merge shall begin, and an audit firm may be appointed to do so.

8. The Palestine Monetary Authority may determine a time period within which the merger must be completed, during which the banks wishing to merge must take all necessary measures to execute the merger.

9. The results of the evaluation prepared by the banks or by the audit firm must be submitted to the Palestine Monetary Authority within a period not exceeding one week from the date of completing the evaluation, and the audit firm's report must be accompanied by the comments of each party, if any.

10. Each of the banks wishing to merge must submit a formal request to the Palestine Monetary Authority to obtain its approval for the date, place, and agenda of the Extraordinary General Assemblies of the local banks wishing to merge.

11. The Extraordinary General Assemblies of the banks wishing to merge shall be convened to ratify the agreement, and foreign banks may take the measures they deem appropriate in this regard.

12. The bank resulting from the merger must comply with the provisions of the Banks Law and prevailing legislation in Palestine and the instructions issued by the Palestine Monetary Authority.

13. The decisions taken at the Extraordinary General Assemblies of the merged banks shall be registered and published with the Companies Registrar at the Ministry of National Economy according to the legal procedures originally mandated.

14. After the general assemblies of the banks meet and approve the merger decision, the boards of directors of the banks that decided on the merger shall continue to exist until the merging bank or the resulting bank is registered as a single bank and the final accounts of each are ratified.

15. After commencing the merger of banks with each other, in the case of a merger that leads to all merging and merged banks losing their independence and legal personality, replaced by a single bank with an independent and new legal personality, the authority of the board of directors of each of the merged banks remains within the bank itself, and a committee consisting of members representing the boards of directors of the banks, with three members from each bank, shall be formed for a temporary period to manage the affairs of the bank resulting from the merger, and a chairman shall be appointed for it. This must be stipulated in the draft agreement approved by the General Assemblies or the headquarters of the banks subject to the merger. The committee shall undertake the following:

a. Convoke the General Assembly of the bank resulting from the merger.
b. Prepare the internal regulations and the founding contract of the bank resulting from the merger.
c. Manage the affairs of the bank resulting from the merger until a new board of directors is formed.

16. The external auditor shall prepare the economic financial statements of the bank resulting from the merger, and the bank resulting from the merger must submit the financial statements to the Palestine Monetary Authority within a period not exceeding sixty days from the date of executing the merger.

17. The Palestine Monetary Authority may extend the period mentioned in the previous paragraph if necessity dictates.

18. The capital of the bank resulting from the merger shall be registered with both the Palestine Monetary Authority, the Companies Registrar, and the Capital Market Authority and the Palestine Exchange.

19. The Palestine Monetary Authority's written approval must be obtained for the internal regulations and founding contract of the bank resulting from the merger.

20. The procedures for approval, registration, and publication stipulated by the Companies Law shall be followed to register the merging or resulting company and cancel the registration of the merged companies.

21. The merger decision must be published in at least two daily newspapers issued in Palestine within one week from the date of the decision's issuance, and the announcement must include the names of the merged banks and the name of the bank resulting from the merger.

22. The General Assembly of the bank resulting from the merger shall be convened to ratify the following:

a. The new internal regulations and founding contract.
b. The authorized capital of the bank.
c. The name of the resulting bank.
d. The economic financial statements of the bank resulting from the merger.
e. The election of a new board of directors.

23. The committee composed of representatives is relieved of its duties upon the formation of the new board of directors.

24. The capital of the bank resulting from the merger shall be distributed to the shareholders of the merged banks in a ratio consistent with their shares or stocks therein or based on the results of the portfolio evaluation.

25. The Palestine Monetary Authority shall cancel the licenses of the merged banks and issue a new license to the bank resulting from the merger, or cancel the licenses of the merged banks except for the license of the merging bank.

(3/6): Voluntary Merger of Banks

1. The merger between two or more local banks shall be through the merger of the bank or banks into one of the banks or into a new bank called the merging bank, while the legal form of all merged banks ceases to exist.

2. The merger between a foreign bank and a local bank shall be through the merger of one or more foreign banks into one or more local banks or vice versa.

3. A foreign bank may merge with one or more foreign banks according to the conditions specified by the Palestine Monetary Authority.

4. Approval of the General Assemblies of the local banks wishing to merge for the merger decision must be obtained.

5. The decision shall be taken at an extraordinary meeting of the General Assembly by a majority vote and according to what is stipulated in the Companies Law and the bank's internal regulations.

6. Without prejudice to other laws, the General Assembly's decision is binding on all shareholders of the merged banks (who signed the merger agreement), and the right of the aggrieved party, if any, is limited to claiming compensation.

7. The decisions taken by the General Assemblies of the merged banks shall be registered with the Companies Registrar according to legal procedures.

8. Approval of the headquarters of the foreign bank for the merger decision must be obtained, as well as approval from the supervisory authority in the home country according to its requirements in this regard.

9. A foreign bank or more may merge into another bank without canceling the license of the merging bank, by the merged bank/banks acquiring a share in the capital of the merging bank. In this case, the license of the merging bank remains, while the license of the merged bank is withdrawn or canceled.

10. In the case of a merger between a local bank and one or more foreign banks, and the merger is decided by merging the foreign bank or banks into the local bank, the license of the local bank remains valid and the licenses of the foreign banks are canceled. The merger shall be carried out through the following:

a. Transfer of the net assets and liabilities of the foreign bank to the local bank.
b. The capital of the local bank shall be increased by the net market value of the foreign bank through a special subscription allocated to the foreign bank.
c. The local bank may, in agreement with the foreign bank, reform the board of directors by introducing new members representing the foreign bank, subject to obtaining the Palestine Monetary Authority's approval according to procedures.

11. The decisions taken by the headquarters of the merged banks shall be registered with the Companies Registrar according to legal procedures.

12. The Palestine Monetary Authority shall exercise its authorities regarding the withdrawal, cancellation, and issuance of licenses for the merged and resulting banks after completing the necessary procedures in this regard.

(4/6): Acquisition or Purchase

Any bank may, after obtaining the Palestine Monetary Authority's approval, purchase all assets, rights, liabilities, or obligations, or the banking portfolio of another bank, according to the following:

1. The credit portfolio granted by the bank to its clients or its issued commitments and guarantees against them, through the use of a debt transfer instrument and a right assignment instrument, without the need to obtain the personal consent of the debtor, guarantor, pledgor, or beneficiary. The judicial agency shall be used for the purpose of assigning fixed assets.

2. Deposits or other rights or liabilities of any kind, including lease rights.

3. The process of purchasing some or all assets, rights, liabilities, and obligations of another bank is based on the authorities available to the Board of Directors; otherwise, the authorities lie with the General Assemblies of local banks or the headquarters of foreign banks.

4. The process of purchasing some or all assets and liabilities of the bank requires a decision from the Extraordinary General Assemblies of local banks or the headquarters of foreign banks to approve the sale process.

Palestine Monetary Authority Instructions No. 6 of 2010 Regarding Bank Mergers