The Bangko Sentral ng Pilipinas (BSP) is amending its prompt corrective action (PCA) policy after placing more than 200 banks under “ICU.”

Proposals to revise Circular No. 523 of 2006, which expanded the conditions and events that would trigger enforcement of the PCA including measures that may be taken as PCA such as sanctions for non-compliance, will change the way BSP handles PCA-incarcerated banks.

The BSP has been reviewing the proposed new circular since August. Official documents show that the proposals have been submitted to the Monetary Board since August 19. The review includes PCA policies and procedures on handling banks under PCA.

Originally approved as Circular No. 181 in 1998, PCA was initially a set of policy guidelines for banks failing to comply with the minimum capital requirements. It will automatically apply to any bank that is “critically” undercapitalized by more than 60 percent.

Three years ago the BSP approved an expanded version of the PCA program with Circular No. 523 to include a “higher-than-normal risk of failure” not just based on a bank’s capital health.

When the new circular was implemented, the number of banks under PCA went from less than 10 to almost 400 rural banks.

A bank is a PCA candidate if its total risk-based ratio falls below 10, six and five percent; if its capital adequacy/asset quality, management earnings liquidity and sensitivity to market risk (CAMELS) is less than “3”; and if a bank has supervisory problems such as unsafe or unsound banking practices.

The International Monetary Fund said the central bank’s PCA has been helpful in monitoring bank failures but more risks-based mechanisms are required. It said that the BSP should not only closely monitor the banking system but it should also “stand ready to apply liquidity flexibilities.”

While the PCA framework is being revised, the BSP and the Philippine Deposit Insurance Corp. will each set aside P2.5 billion for a financial facility for rural banks which account for 86 percent of the total number of banks in operation – to encourage mergers and consolidations.