MORNBFI Vol. 1 - Planters Development Bank

APP. Q-5309.12.31risk profile, or does not result in the bankhaving adequate capital, then considerationshould be given to applying prudentialmeasures.2. The measures available to the BSPinclude:a. Requiring the bank to improve itsinternal control and risk managementframeworks;b. Requiring the bank to reduce the riskinherent in its activities, products andsystems;c. Restricting or limiting the business,operations or network of the bank;d. Limiting or prohibiting thedistribution of net profits and requiring thatpart or all of the net profits be used toincrease the capital accounts of the bank;ande. Requiring the bank to increase itscapital.3. The choice of prudential measuresshould be determined according to theseverity and underlying causes of thesituation and the range of measures andsanctions available to the BSP. Measurescan be used individually or in combination.The requirement to increase capital should,however, be imposed on any bank whichexhibits an imbalance between its businessrisks and its internal control and riskframeworks, if that imbalance cannot beremedied by other prudential measures orsupervisory actions within an appropriatetimeframe.4. The requirement to increase capitalmay also be set where the BSP judges theexisting capital held by a bank to beinherently inadequate for its overall riskprofile. It must be acknowledged that thereis no ‘scientific’ method for determining theamount, and that capital is not a long-runsubstitute for remedying deficiencies insystems and controls. In practice, theprocess relies heavily on subjectivejudgment and peer-group consistency toensure a level playing field and a defense topossible challenge that may be posed bybanks.5. Prudential measures should becommunicated promptly and in sufficientdetail. In communicating its decision onprudential measures, the BSP should:a. Explain in sufficient detail the factorswhich have led to the risk assessmentconclusions;b. Indicate areas of weakness and thetimeframe for remedial action;c. Explain the reasons for anyadditional capital requirement; andd. Indicate what improvements couldbe made to systems and controls to makethem adequate for the risks and activities ofthe bank, and for this improvement to bereflected in the bank’s capital requirements.(Circular No. 639 dated 15 January 2009)Manual of Regulations for Non-Bank Financial Institutions Q RegulationsAppendix Q-53 - Page 3