MORNBFI Vol. 1 - Planters Development Bank

PROMPT CORRECTIVE ACTION FRAMEWORK[Appendix to Secs. 4193Q (2008 - 4192Q), 4192S, 4192P and 4192N]APP. Q-4009.12.31In carrying out its primary objective ofmaintaining price stability conducive to abalanced and sustainable growth of theeconomy 1 , the BSP must necessarilymaintain stability of the financial systemthrough preservation of confidence therein.While preservation of confidence in thefinancial system may call for closure ofmismanaged banks and/or financial entitiesunder its jurisdiction, such closure is notthe only option available to the BSP. Whena bank’s closure, for instance, is adjudgedby the Monetary Board to have adversesystemic consequences, the State may actin accordance with law to avert potentialfinancial system instability or economicdisruption. 2It is recognized that the closure of abank or its intervention can be a costly andpainful exercise. For this reason, the BSP,as supervisor, can enforce PCA 3 as soonas a bank’s condition indicates higher-thannormal risk of failure.PCA essentially involves the BSPdirecting the board of directors of a bank,prior to an open outbreak of crisis, toinstitute strong measures to restore theentity to normal operating condition withina reasonable period, ideally within one (1)year. These measures may include any orall of the following components:(1) Implementation of a capitalrestoration plan;(2) Implementation of a businessimprovement plan; and(3) Implementation of corporategovernance reforms.Capital restoration plan – thiscomponent contains the schedule forbuilding up a bank’s capital base (primarilythrough an increase in Tier 1 capital) to alevel commensurate to the underlying riskexposure and in full compliance withminimum capital adequacy requirement. Inconjunction with this plan, the BSP may alsorequire any one (1), or a combination ofthe following:1. Limit or curtail dividend paymentsto common stockholders;2. Limit or curtail dividend paymentsto preferred stockholders; and3. Limit or curtail fees and/or otherpayments to related parties.Business improvement plan – thiscomponent contains the set of actions to betaken immediately to bring about animprovement in the entity’s operatingcondition, including but not limited to anyone (1), or a combination of the following:1. Reduce risk exposures tomanageable levels;2. Strengthen risk management;3. Curtail or limit the bank’s scope ofoperations including those of its subsidiariesor affiliates where it exercises control;4. Change or replace managementofficials;5. Reduce expenses; and6. Other measures to improve thequality of earnings.Corporate governance reforms – thiscomponent contains the actions to beimmediately taken to improve thecomposition and/or independence of theboard of directors and to enhance thequality of its oversight over the managementand operation of the entity. This alsoincludes measures to minimize potentialshareholder conflicts of interest detrimentalto its creditors, particularly, depositors in a1Section 3 of Republic Act No. 76532Section 17 and 18 of Republic Act No. 3591, as amended3Section 4.6 of Republic Act No. 8791Manual of Regulations for Non-Bank Financial InstitutionsQ RegulationsAppendix Q-40 - Page 1