MORNBFI Vol. 1 - Planters Development Bank

APP. Q-2409.12.31ACTIVITIES WHICH MAY BE CONSIDERED UNSAFEAND UNSOUND PRACTICES(Appendix to Secs. 4149Q and 4408Q and Subsec. 4301Q.6)The following activities are consideredonly as guidelines and are not irrebutablypresumed to be unsafe or unsound.Conversely, not all practices which mightunder the circumstances be termed unsafeor unsound are mentioned here. TheMonetary Board may now and thenconsider other acts/omissions as unsafe orunsound practices.a. Operating with management whosepolicies and practices are detrimental to theQB/trust entity and jeopardize the safety ofits deposit substitutes/trust accounts.b. Operating with total adjustedcapital and reserves that are inadequate inrelation to the kind and quality of the assetsof the QB/trust entity.c. Operating in a way that produces adeficit in net operating income withoutadequate measures to ensure a surplus innet operating income in the future.d. Operating with a serious lack ofliquidity, especially in view of the asset anddeposit substitute/liability structure of theQB/trust entity.e. Engaging in speculative andhazardous investment policies.f. Paying excessive cash dividends inrelation to the capital position, earningscapacity and asset quality of the QB/trustentity.g. Excessive reliance on large, highcostor volatile borrowings to fundaggressive growth that may beunsustainable.For this purpose, a QB is consideredoffering high-cost borrowings if the effectiveinterest rate paid on said borrowings and/or non-cash incentives is fifty percent (50%)over the prevailing comparable marketmedian rate for similar QB categories,maturities and currency denomination.h. Excessive reliance on letters of crediteither issued by the QB/trust entity oraccepted as collateral to loans advanced.i. Excessive amounts of loanparticipations sold.j. Paying interest on participationswithout advising participating institutionthat the source of interest was not from theborrower.k. Selling participations withoutdisclosing to the purchasers of thoseparticipations material, non-publicinformation known to the QB/trust entity.l. Failure to limit, control anddocument contingent liabilities.m. Engaging in hazardous lending andlax collection policies and practices, asevidenced by any of the followingcircumstances:(1) An excessive volume of loanssubject to adverse classification;(2) An excessive volume of loanswithout adequate documentation, includecredit information;(3) Excessive net loan losses;(4) An excessive volume of loans inrelation to the total assets and depositsubstitutes/trust liabilities of the QB/trustentity;(5) An excessive volume of weak andself-serving loans to persons connected withthe QB/trust entity, especially if a significantportion of these loans are adverselyclassified;(6) Excessive concentrations of credit,especially if a substantial portion of thiscredit is adversely classified;(7) Indiscriminate participation in weakand undocumented loans originated byother institutions;(8) Failing to adopt written loanpolicies;Manual of Regulations for Non-Bank Financial InstitutionsQ RegulationsAppendix Q-24 - Page 1