PROMPT CORRECTIVE ACTION FRAMEWORK
[Appendix to Section 003]
(1) Implementation of a capital restoration plan;
(2) Implementation of a business improvement plan; and
(3) Implementation of corporate governance reforms.
Capital restoration plan – this component contains the schedule for building up a bank’s capital base (primarily through an increase in Tier 1 capital) to a level commensurate to the underlying risk exposure and in full compliance with minimum capital adequacy requirement. In conjunction with this plan, the Bangko Sentral may also require any one (1), or a combination of the following:
1. Limit or curtail dividend payments to common stockholders;
2. Limit or curtail dividend payments to preferred stockholders; and
3. Limit or curtail fees and/or other payments to related parties.
Business improvement plan – this component contains the set of actions to be taken immediately to bring about an improvement in the entity’s operating condition, including but not limited to any one (1), or a combination of the following:
1. Reduce risk exposures to manageable levels;
2. Strengthen risk management;
3. Curtail or limit the bank’s scope of operations including those of its subsidiaries or affiliates where it exercises control;
4. Change or replace management officials;
5. Reduce expenses; and
6. Other measures to improve the quality of earnings.
Corporate governance reforms – this component contains the actions to be immediately taken to improve the composition and/or independence of the board of directors and to enhance the quality of its oversight over the management and operation of the entity. This also includes measures to minimize potential shareholder conflicts of interest detrimental to its creditors, particularly, depositors in a bank. This likewise lays down measures to provide an acceptable level of financial transparency to all stakeholders. Such actions could include, but are not limited to, any one (1), or a combination of the following:
1. A change in the composition of the board of directors or any of the mandatory committees (under the MORB);
2. An enhancement to the frequency and/or depth of reporting to the board of directors;
3. A reduction in exposures to and/or a termination or reduction of business relationships with affiliates that pose excessive risk or are inherently disadvantageous to the supervised financial institution; and
4. A change of external auditor.
A bank may be subject to PCA whenever any or all of the following conditions obtain:
(1) When either of the Total Risk-Based Ratio4, Tier 1 Risk-Based Ratio, or Leverage Ratio5 falls below ten percent (10%), six percent (6%) and five percent (5%), respectively, or such other minimum levels that may be prescribed for the said ratios under relevant regulations, and/or the combined capital account falls below the minimum capital requirement prescribed under Sec. 121;
(2) The CAMELS composite rating is less than “3” or a Management component rating of less than “3”;
(3) A serious supervisory concern has been identified that places a bank at more- than-normal risk of failure in the opinion of the director of the Examination Department concerned, which opinion is confirmed by the Monetary Board. Such concerns could include, but are not limited, to any one (1) or a combination of the following:
a. Finding of unsafe and unsound activities that could adversely affect the interest of depositors and/or creditors;
b. A finding of repeat violations of law or the continuing failure to comply with Monetary Board Directives; and
c. Significant reporting errors that materially misrepresent the bank’s financial condition.
(1) monetary penalty on or curtailment or suspension of privileges enjoyed by the board of directors or responsible officers;
(2) restriction on existing activities that the supervised financial institution may undertake;
(3) denial of application for branching and other special authorities;
(4) denial or restriction of access to Bangko Sentral credit facilities; and
(5) restriction on declaration of dividends.