By Eileen A. Mencias

The number of banks placed under the prompt corrective action of the Bangko Sentral has dropped to around 200 from over 250 in 2007, deputy governor Nestor Espenilla said yesterday.

He said the affected banks do not pose any danger to the system.

Espenilla said the prompt corrective action scheme was the central bank?s pro-active way of preventing banks from collapsing by requiring them to solve their problems.

Banks are put under the scheme if they are under-capitalized and show weaknesses in their system and management. Under the framework, banks are required to increase their capital, improve their processes so that the additional capital infused will not go to waste and strengthen corporate governance.

Majority of the 13 rural banks associated with the Legacy group of companies were placed under prompt corrective action before they were closed. But none of the Legacy banks signed a memorandum of agreement with the central bank that would have made them legally bound to institute improvements required by regulators.

The central bank closed 28 banks last year, including the banks under the Legacy group of companies. It closed three more rural banks in January.

The central bank said the prompt corrective action scheme has proven to be adequate in addressing troubled banks.

The International Monetary Fund, in a December report, said the Bangko Sentral?s framework had been helpful in monitoring the performance of banks and detecting the probability of failures.

The IMF said the Philippine central bank needed more risk-based mechanisms and should go beyond closely monitoring the system, adding that it should ?stand ready to apply liquidity flexibilities.?

?The PCA framework is largely adequate to deal with the spillovers but more risks-based approach could be considered over the medium term,? said the IMF. ?The BSP staff should [also] be legally protected against litigation.?