Doral Financial Corporation and the Federal Reserve Bank of New York entered into an agreement Thursday requiring the financial institution to abide by a number of conditions to improve its credit risk management and administration practices.
The agreement comes a month after Doral entered into a consent decree with the Federal Deposit Insurance Corporation and the Office of the Puerto Rico Commissioner of Financial Institutions. It also puts an end to the “cease and desist” order the bank had entered into in with the agency in March 2006.
According to the agreement, Doral must take appropriate steps to fully utilize its financial and managerial resources to ensure it complies with any supervisory action taken by federal and state regulators.
Within 45 days of the agreement signed Thursday, the board of directors must hire an independent consultant acceptable to the Reserve Bank “to conduct a review of all of Doral’s management and staffing needs of and the qualifications and performance of all senior management, and to prepare a written report of findings and recommendations.”
The review seeks to develop a suitable management structure that is adequately staffed by qualified and trained personnel, the agreement stated.
The management review must include identifying which and how many senior officers are needed to properly manage and supervise Doral’s day-to-day affairs. Furthermore each senior officer will be evaluated to determine whether they “possesses the ability, experience, and other qualifications to competently perform present and anticipated duties.”
The review must also identify “present and future management and staffing needs for each area of Doral, particularly in the areas of credit risk management, credit administration, and problem asset workout.”
Doral’s board must then submit the review to the Federal Reserve for final approval.
Credit risk management
Regarding this matter, within 60 days, Doral must submit to the Reserve Bank a plan to strengthen credit risk management practices for loans held by the company, outlining strategies to minimize credit losses and reduce the level of problem assets. The plan must also discuss procedures for the timely and accurate identification of problem loans.
The agreement also requires taking steps related to managing credit that addresses taking a closer look at borrower capacities and repayment sources and that establishes stricter standards for when reappraisals and reevaluations of collateral must be conducted.
Doral is also required to submit to the Reserve Bank an acceptable written program for the effective grading of it’s loan portfolio, providing for policies, procedures, and processes for the timely and ongoing grading of loans.
Finally, the agreement also bans Doral from “directly or indirectly, extend, renew, or restructure any credit to or for the benefit of any borrower, including any related interest of the borrower, whose loans or other extensions of credit,” are identified in an inspection the Federal Reserve conducted in November 2011.
The only exception to that order is if the activity is necessary to improved and protect Doral’s interests, the agreement stated. However, the process must be documented and subject to a comprehensive credit analysis “indicating that the borrower has the willingness and ability to repay the debt as supported by an adequate workout plan.”
Within three months, Doral must submit to the Reserve Bank its plan to improve it’s position through repayment, amortization, liquidation, additional collateral, or other means on each loan, relationship, or other asset in excess of $250,000.
Doral is not allowed to declare or pay any dividends without the prior written approval of the Reserve Bank.