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Sunday, January 7, 2018

Overstated Capital of Philippine Banks as of September 30, 2017

On July 25, 2012, the Bangko Sentral ng Pilipinas (BSP) encouraged banks that continue to reflect unbooked losses or "deferred charges" on their balance sheets to charge those losses against retained earnings.  This implies that the BSP now considers that these banks have amassed so much in Stockholder's Equity (SE) and Retained Earnings (RE) that "they can now afford to absorb higher charges without impairing their capital and also without making their shareholders unhappy."

But can these banks do so? The answer is: yes but only for some banks.  As can be seen from the table below, six banks have Deferred Charges as of September 30, 2017:


  1. Bataan Development Bank (Deferred Charges of 6.12% of SE)
  2. City Savings Bank (Deferred Charges of 5.56% of SE)
  3. China Bank Savings Inc (Deferred Charges of 1.68% of SE)
  4. Bank of Commerce (Deferred Charges of 0.39% of SE)
  5. Card SME Bank, Inc. (Deferred Charges of 0.17% of SE)
  6. Wealth Development Bank Corporation (Deferred Charges of 0.06% of SE)

It must be noted that two of these banks were ranked as  distressed (highlighted in yellow) as of June 30, 2017:
  1. China Bank Savings (Distressed Ratio of 122.82%)
  2. Bataan Development Bank (Distressed Ratio of 110.43%)


For more information on distressed banks, please see the previous blog post: "The Top Distressed Philippine Banks as of June 30, 2017.



Retained Earnings

Only four banks have sufficient Retained Earnings (RE) to absorb their unbooked losses as of September 30, 2017:
  1. Bataan Development Bank (30.31% of RE)
  2. City Savings Bank (7.62% of RE)
  3. Wealth Development Bank Corporation (5.58% of RE)
  4. CARD SME Bank (1.67% of RE)


Two of the banks with  Deferred Charges have negative Retained Earnings.  As such, they do not have the capacity to absorb additional losses.

  1. Bank of Commerce (Retained Earnings of - Php 614.71 million vs. Deferred Charges of Php 61.19 million).
  2. China Bank Savings (Retained Earnings of - Php 1.36 billion vs. Deferred Charges of Php 151.56 million)
 
 
Philippine Banking System
Deferred Charges Not Yet Written Down
Impact on Stockholder's Equity
In Php
September 30, 2017
















Bank Type of Bank Deferred Charges Unbooked Losses Total Deferred Charges Stockholder's Equity Adjusted SE Impact on SE
BATAAN DEVELOPMENT BANK Thrift 5,121,096.06 0.00 5,121,096.06 83,685,275.51 78,564,179.45 6.12%
CITY SAVINGS BANK Thrift 707,115,154.38 0.00 707,115,154.38 12,706,877,725.77 11,999,762,571.39 5.56%
CHINA BANK SAVINGS INC Thrift 151,559,537.11 0.00 151,559,537.11 9,020,020,772.21 8,868,461,235.10 1.68%
BANK OF COMMERCE U/KB 61,185,676.94 0.00 61,185,676.94 15,611,461,237.37 15,550,275,560.43 0.39%
CARD SME BANK INC A THRIFT BANK Thrift 1,506,470.61 0.00 1,506,470.61 877,516,443.55 876,009,972.94 0.17%
WEALTH DEVELOPMENT BANK CORPORATION Thrift 855,268.23 0.00 855,268.23 1,474,494,842.00 1,473,639,573.77 0.06%
Grand Total
927,343,203.33 0.00 927,343,203.33 39,774,056,296.41 38,846,713,093.08 2.33%








































Philippine Banking System


Deferred Charges Not Yet Written Down


Impact on Retained Earnings


In Php


September 30, 2017


















Bank Total Deferred Charges RE Adjusted RE Impact on RE


BATAAN DEVELOPMENT BANK 5,121,096.06 16,897,248.93 11,776,152.87 30.31%


CITY SAVINGS BANK 707,115,154.38 9,277,095,921.61 8,569,980,767.23 7.62%


WEALTH DEVELOPMENT BANK CORPORATION 855,268.23 15,339,878.33 14,484,610.10 5.58%


CARD SME BANK INC A THRIFT BANK 1,506,470.61 89,948,415.40 88,441,944.79 1.67%


BANK OF COMMERCE 61,185,676.94 -614,714,285.87 -675,899,962.81 -9.95%


CHINA BANK SAVINGS INC 151,559,537.11 -1,363,405,443.59 -1,514,964,980.70 -11.12%


Grand Total 927,343,203.33 7,421,161,734.81 6,493,818,531.48 12.50%


Monday, January 1, 2018

The Financial Strength of Philippine Banks according to BSP: From Weakest to Strongest - As of September 30, 2017

A bank's Capital Adequacy Ratio is a measure of a bank's capital and financial strength. BSP requires Philippine banks to measure their capital adequacy in at least three defined ratios:

  1. Total Capital Adequacy Ratio
  2. Tier One Capital Adequacy Ratio
  3. Common Tier One Adequacy Ratio.

For a more detailed understanding of these ratios, you can consult BSP's own implementation guidelines, Investopedia.com, or numerous past posts about this subject.

The basic idea behind these ratios is that the higher the ratio, the more solid the bank is in financial strength, the greater it's ability to absorb losses.  BSP's own minimum for most of these ratios is 6.00 but it generally recommends a minimum of 10.00, especially for large and more systemically important banks (those that are Too Big To Fail or TBTF for short).


Every quarter, several Philippine Banks do not meet these guidelines. As of September 30, 2017, the banks that failed to meet BSP's recommended minimum capital requirements are as follows:


TOTAL CAR:
  1. Bataan Savings and Loan Bank (Total CAR of 0.00)
  2. Merchants Savings & Loan Association Inc (Total CAR of 0.00)
  3.  Philippine Postal Savings Bank Inc (Total CAR of 6.71)
  4. United Coconut Planters Bank (Total CAR of 8.01)
  5. The Palawan Bank (Total CAR of 9.34)
 
TIER ONE CAR

Nine banks reported Tier One CAR of 0.00 as of September 30, 2017.  Of those that did report Tier One CAR greater than 0.00, five have less than the BSP-recommended Tier One CARs of 10.00. These banks are:

  1. Card SME Bank (Tier One CAR of 3.82)
  2. Philippine Postal Savings Bank Inc (Tier One CAR of 6.37)
  3. Sterling Bank of Asia Inc (Tier One CAR of 7.81)
  4. United Coconut Planters Bank (Tier One CAR of 8.01)
  5. The Palawan Bank (Tier One CAR of 9.44)
 
COMMON EQUITY TIER ONE CAR


The BSP's reporting guidelines on the Common Equity Tier One CAR (CET1) only took effect as of January 1, 2014.  Banks only started reporting this ratio in their Published Statements of Condition for June 30, 2014.  Fifty-one banks reported their CET1 Ratio as 0.00 for September 30, 2017.

However, of those banks that did report a CET1 Ratio other than 0.00, zero banks reported CET1 Ratios below BSP's recommended ratio.

The Total CAR, Tier 1 CAR, and Common Equity Tier 1 CAR of Philippine Banks as of September 30, 2017 is as follows:(Banks that do not meet BSP's minimum capital requirements are highlighted in yellow):


Philippine Banking System
TOTAL CAR
September 30, 2017









Bank Type of Bank Total CAR
BATAAN SAVINGS AND LOAN BANK Thrift Bank 0.00
MERCHANTS SAVINGS & LOAN ASSN INC Thrift Bank 0.00
PHIL POSTAL SAVINGS BANK INC Thrift Bank 6.71
UNITED COCONUT PLANTERS BANK U/KB 8.01
THE PALAWAN BANK (PALAWAN DB) INC Thrift Bank 9.34
EQUICOM SAVINGS BANK INC Thrift Bank 10.96
VILLAGE BANK INC (A THRIFT BANK) Thrift Bank 11.01
LUZON DEVELOPMENT BANK Thrift Bank 11.35
CHINA BANK SAVINGS INC Thrift Bank 11.61
ENTERPRISE BANK INC (A THRIFT BANK) Thrift Bank 11.84
BANK OF THE PHIL ISLANDS U/KB 11.93
PHIL NATIONAL BANK U/KB 11.95
PHILIPPINE VETERANS BANK U/KB 12.60
EAST WEST BANKING CORP U/KB 12.61
STERLING BANK OF ASIA INC (A SAVINGS BANK) Thrift Bank 12.82
LAND BANK OF THE  PHILIPPINES U/KB 12.83
WORLD PARTNERS BANK (A THRIFT BANK) Thrift Bank 13.49
RCBC SAVINGS BANK INC Thrift Bank 13.60
THE BNK OF TOKYO-MITSUBISHI UFJ LTD U/KB 13.65
ASIA UNITED BANK CORPORATION U/KB 14.03
PHIL SAVINGS BANK Thrift Bank 14.19
MAYBANK PHILIPPINES INC U/KB 14.20
MIZUHO BANK LTD - MANILA BRANCH U/KB 14.24
BDO UNIBANK INC U/KB 14.57
UNION BANK OF THE PHILS U/KB 14.66
PHILIPPINE BUSINESS BANK INC A SAVINGS BANK Thrift Bank 14.89
METROPOLITAN BANK & TRUST CO U/KB 15.10
CHINA BANKING CORP U/KB 15.20
RIZAL COMM'L BANKING CORP U/KB 15.48
DEVELOPMENT BANK OF THE PHIL U/KB 15.50
BANK OF CHINA LIMITED U/KB 15.83
STANDARD CHARTERED BANK U/KB 15.93
PHIL BANK OF COMMUNICATIONS U/KB 16.06
UCPB SAVINGS BANK Thrift Bank 16.18
PRODUCERS SAVINGS BANK CORPORATION Thrift Bank 16.32
BPI FAMILY SAVINGS BANK INC Thrift Bank 16.57
CITY SAVINGS BANK INC Thrift Bank 16.58
MALAYAN BANK SAVINGS AND MORT BANK INC Thrift Bank 16.94
ANZ BANKING GROUP LTD U/KB 17.17
DEUTSCHE BANK AG U/KB 17.32
BANGKO KABAYAN INC Thrift Bank 17.57
CITIBANK, N.A. U/KB 17.63
BANK OF MAKATI (A SAVINGS BANK) INC Thrift Bank 17.71
SECURITY BANK CORP U/KB 17.90
FARMERS SAVINGS & LOAN BANK INC Thrift Bank 18.10
BDO PRIVATE BANK, INC. U/KB 18.23
BATAAN DEVELOPMENT BANK Thrift Bank 18.25
KEB HANA BANK - MANILA BRANCH U/KB 18.40
PHILIPPINE RESOURCES SAVINGS BANKING CORPORATION (PR SAVINGS Thrift Bank 18.84
CTBC BANK (PHILIPPINES) CORP U/KB 19.46
CARD SME BANK INC A THRIFT BANK Thrift Bank 20.26
MEGA INT'L COMM'L BANK CO LTD U/KB 20.36
HONGKONG & SHANGHAI BANKING CORP U/KB 20.44
CITYSTATE SAVINGS BANK INC Thrift Bank 20.59
BANK OF COMMERCE U/KB 20.71
PENBANK INC (A PDB) (FORMERLY: PENINSULA RB INC) Thrift Bank 20.74
INTER-ASIA DEVELOPMENT BANK Thrift Bank 21.25
HIYAS BANKING CORPORATION Thrift Bank 21.56
ROBINSONS BANK CORPORATION U/KB 21.59
1ST VALLEY BANK INC A DEVELOPMENT BANK Thrift Bank 22.39
MARITIME SAVINGS BANK CORPORATION Thrift Bank 22.53
WEALTH DEVELOPMENT BANK CORPORATION Thrift Bank 22.96
SUN SAVINGS BANK INC Thrift Bank 23.62
BUSINESS AND CONSUMERS BANK (A DB) Thrift Bank 25.71
PNB SAVINGS BANK Thrift Bank 26.22
DUMAGUETE CITY DEV BANK INC Thrift Bank 26.87
JP MORGAN CHASE BANK NATIONAL ASSN. U/KB 27.47
LEGAZPI SAVINGS BANK INC Thrift Bank 28.23
FIRST CONSOLIDATED BANK INC (A PDB) Thrift Bank 28.80
UNIVERSITY SAVINGS BANK INC Thrift Bank 29.47
LIFE SAVINGS BANK INC Thrift Bank 30.11
BPI DIRECT BANKO INC Thrift Bank 32.58
METRO CEBU PUBLIC SAVINGS BANK Thrift Bank 33.59
PAMPANGA DEVELOPMENT BANK Thrift Bank 33.91
QUEEN CITY DEVELOPMENT BANK INC OR QUEENBANK A THRIFT BANK Thrift Bank 33.92
LEMERY SAVINGS & LOAN BANK, INC. Thrift Bank 34.94
HSBC SAVINGS BANK PHILIPPINES Thrift Bank 36.38
BANGKOK BANK PUBLIC CO LTD U/KB 37.68
CORDILLERA SAVINGS BANK INC Thrift Bank 38.46
PHIL TRUST COMPANY U/KB 41.12
MALASIQUI PROGRESSIVE SLB, INC Thrift Bank 42.29
NORTHPOINT DEV'T BANK INC Thrift Bank 42.83
BANK OF AMERICA N.A. U/KB 44.87
PACIFIC ACE SAVINGS BANK INC Thrift Bank 52.43
ALLBANK Thrift Bank 56.11
YUANTA SAVINGS BANK PHILIPPINES INC Thrift Bank 56.93
BANK ONE SAVINGS AND TRUST CORP. Thrift Bank 58.91
QUEZON COCONUT BANK INC (A THRIFT BANK) Thrift Bank 59.28
PHIL STAR DEVELOPMENT BANK INC Thrift Bank 62.25
CENTURY SAVINGS BANK CORPORATION Thrift Bank 79.74
SUMITOMO MITSUI BANKING CORPORATION - MANILA BRANCH U/KB 87.30
SHINHAN BANK - MANILA BRANCH U/KB 91.29
HUA NAN COMMERCIAL BANK LTD MANILA BRANCH U/KB 96.73
AL-AMANAH ISLAMIC INVESTMENT BANK OF THE PHILS U/KB 97.82
INDUSTRIAL BANK OF KOREA MANILA BRANCH U/KB 108.61
UNITED OVERSEAS BANK LIMITED MANILA BRANCH U/KB 120.03
ISLA BANK(A THRIFT BANK) INC Thrift Bank 129.62
CATHAY UNITED BANK CO LTD - MANILA BRANCH U/KB 172.88
FIRST COMMERCIAL BANK U/KB 297.80
ING BANK N.V. U/KB NA
MICROFINANCE MAXIMUM SB INC Thrift Bank NA



Philippine Banking System
Tier One CAR
September 30, 2017









Bank Type of Bank Tier One CAR
1ST VALLEY BANK INC A DEVELOPMENT BANK Thrift Bank 0.00
BATAAN SAVINGS AND LOAN BANK Thrift Bank 0.00
BUSINESS AND CONSUMERS BANK (A DB) Thrift Bank 0.00
ENTERPRISE BANK INC (A THRIFT BANK) Thrift Bank 0.00
EQUICOM SAVINGS BANK INC Thrift Bank 0.00
INTER-ASIA DEVELOPMENT BANK Thrift Bank 0.00
MARITIME SAVINGS BANK CORPORATION Thrift Bank 0.00
MERCHANTS SAVINGS & LOAN ASSN INC Thrift Bank 0.00
ALLBANK Thrift Bank 0.00
CARD SME BANK INC A THRIFT BANK Thrift Bank 3.82
PHIL POSTAL SAVINGS BANK INC Thrift Bank 6.37
STERLING BANK OF ASIA INC (A SAVINGS BANK) Thrift Bank 7.81
UNITED COCONUT PLANTERS BANK U/KB 8.01
THE PALAWAN BANK (PALAWAN DB) INC Thrift Bank 9.44
EAST WEST BANKING CORP U/KB 10.38
LUZON DEVELOPMENT BANK Thrift Bank 10.47
CHINA BANK SAVINGS INC Thrift Bank 10.56
VILLAGE BANK INC (A THRIFT BANK) Thrift Bank 10.64
ASIA UNITED BANK CORPORATION U/KB 10.77
BANK OF THE PHIL ISLANDS U/KB 11.02
PHIL NATIONAL BANK U/KB 11.20
PHIL SAVINGS BANK Thrift Bank 11.36
DEVELOPMENT BANK OF THE PHIL U/KB 11.40
UNION BANK OF THE PHILS U/KB 11.76
RIZAL COMM'L BANKING CORP U/KB 11.78
LAND BANK OF THE  PHILIPPINES U/KB 12.01
PHILIPPINE VETERANS BANK U/KB 12.07
METROPOLITAN BANK & TRUST CO U/KB 12.19
RCBC SAVINGS BANK INC Thrift Bank 12.85
THE BNK OF TOKYO-MITSUBISHI UFJ LTD U/KB 12.86
PHIL BANK OF COMMUNICATIONS U/KB 13.07
BDO UNIBANK INC U/KB 13.11
MAYBANK PHILIPPINES INC U/KB 13.25
WORLD PARTNERS BANK (A THRIFT BANK) Thrift Bank 13.26
MIZUHO BANK LTD - MANILA BRANCH U/KB 13.28
PHILIPPINE BUSINESS BANK INC A SAVINGS BANK Thrift Bank 13.99
PHILIPPINE RESOURCES SAVINGS BANKING CORPORATION (PR SAVINGS Thrift Bank 14.24
CHINA BANKING CORP U/KB 14.40
UNIVERSITY SAVINGS BANK INC Thrift Bank 14.73
BANK OF CHINA LIMITED U/KB 15.24
UCPB SAVINGS BANK Thrift Bank 15.38
STANDARD CHARTERED BANK U/KB 15.46
SECURITY BANK CORP U/KB 15.61
BPI FAMILY SAVINGS BANK INC Thrift Bank 15.71
PRODUCERS SAVINGS BANK CORPORATION Thrift Bank 15.81
CITY SAVINGS BANK INC Thrift Bank 15.85
MALAYAN BANK SAVINGS AND MORT BANK INC Thrift Bank 16.45
ANZ BANKING GROUP LTD U/KB 16.65
DEUTSCHE BANK AG U/KB 16.76
CITIBANK, N.A. U/KB 16.91
BANGKO KABAYAN INC Thrift Bank 17.05
BANK OF MAKATI (A SAVINGS BANK) INC Thrift Bank 17.71
KEB HANA BANK - MANILA BRANCH U/KB 17.92
BDO PRIVATE BANK, INC. U/KB 17.98
CTBC BANK (PHILIPPINES) CORP U/KB 18.59
BATAAN DEVELOPMENT BANK Thrift Bank 19.27
MEGA INT'L COMM'L BANK CO LTD U/KB 19.41
HONGKONG & SHANGHAI BANKING CORP U/KB 19.76
FARMERS SAVINGS & LOAN BANK INC Thrift Bank 19.80
PENBANK INC (A PDB) (FORMERLY: PENINSULA RB INC) Thrift Bank 19.95
CITYSTATE SAVINGS BANK INC Thrift Bank 19.97
BANK OF COMMERCE U/KB 19.99
ROBINSONS BANK CORPORATION U/KB 20.78
HIYAS BANKING CORPORATION Thrift Bank 21.20
WEALTH DEVELOPMENT BANK CORPORATION Thrift Bank 22.15
SUN SAVINGS BANK INC Thrift Bank 22.75
PNB SAVINGS BANK Thrift Bank 25.49
DUMAGUETE CITY DEV BANK INC Thrift Bank 26.38
JP MORGAN CHASE BANK NATIONAL ASSN. U/KB 27.27
LEGAZPI SAVINGS BANK INC Thrift Bank 27.52
FIRST CONSOLIDATED BANK INC (A PDB) Thrift Bank 27.91
LIFE SAVINGS BANK INC Thrift Bank 29.93
BPI DIRECT BANKO INC Thrift Bank 32.84
QUEEN CITY DEVELOPMENT BANK INC OR QUEENBANK A THRIFT BANK Thrift Bank 33.44
METRO CEBU PUBLIC SAVINGS BANK Thrift Bank 33.52
LEMERY SAVINGS & LOAN BANK, INC. Thrift Bank 34.53
HSBC SAVINGS BANK PHILIPPINES Thrift Bank 35.67
BANGKOK BANK PUBLIC CO LTD U/KB 36.70
CORDILLERA SAVINGS BANK INC Thrift Bank 37.96
PHIL TRUST COMPANY U/KB 40.78
MALASIQUI PROGRESSIVE SLB, INC Thrift Bank 42.29
NORTHPOINT DEV'T BANK INC Thrift Bank 42.42
BANK OF AMERICA N.A. U/KB 44.35
YUANTA SAVINGS BANK PHILIPPINES INC Thrift Bank 56.93
BANK ONE SAVINGS AND TRUST CORP. Thrift Bank 58.30
QUEZON COCONUT BANK INC (A THRIFT BANK) Thrift Bank 58.49
PHIL STAR DEVELOPMENT BANK INC Thrift Bank 62.15
PACIFIC ACE SAVINGS BANK INC Thrift Bank 74.25
CENTURY SAVINGS BANK CORPORATION Thrift Bank 78.81
SUMITOMO MITSUI BANKING CORPORATION - MANILA BRANCH U/KB 86.33
SHINHAN BANK - MANILA BRANCH U/KB 90.78
HUA NAN COMMERCIAL BANK LTD MANILA BRANCH U/KB 96.73
AL-AMANAH ISLAMIC INVESTMENT BANK OF THE PHILS U/KB 97.36
INDUSTRIAL BANK OF KOREA MANILA BRANCH U/KB 107.87
UNITED OVERSEAS BANK LIMITED MANILA BRANCH U/KB 119.32
ISLA BANK(A THRIFT BANK) INC Thrift Bank 129.23
PAMPANGA DEVELOPMENT BANK Thrift Bank 148.20
CATHAY UNITED BANK CO LTD - MANILA BRANCH U/KB 171.94
FIRST COMMERCIAL BANK U/KB 297.46
ING BANK N.V. U/KB NA
MICROFINANCE MAXIMUM SB INC Thrift Bank NA




Philippine Banking System
Common Tier 1 Ratio
September 30, 2017









Bank Type of Bank Common Tier 1 Ratio
1ST VALLEY BANK INC A DEVELOPMENT BANK Thrift Bank 0.00
ALLBANK Thrift Bank 0.00
BANGKO KABAYAN INC Thrift Bank 0.00
BANK OF AMERICA N.A. U/KB 0.00
BANK OF CHINA LIMITED U/KB 0.00
BANK OF MAKATI (A SAVINGS BANK) INC Thrift Bank 0.00
BANK ONE SAVINGS AND TRUST CORP. Thrift Bank 0.00
BATAAN DEVELOPMENT BANK Thrift Bank 0.00
BATAAN SAVINGS AND LOAN BANK Thrift Bank 0.00
BUSINESS AND CONSUMERS BANK (A DB) Thrift Bank 0.00
CARD SME BANK INC A THRIFT BANK Thrift Bank 0.00
CENTURY SAVINGS BANK CORPORATION Thrift Bank 0.00
CITYSTATE SAVINGS BANK INC Thrift Bank 0.00
CORDILLERA SAVINGS BANK INC Thrift Bank 0.00
DUMAGUETE CITY DEV BANK INC Thrift Bank 0.00
ENTERPRISE BANK INC (A THRIFT BANK) Thrift Bank 0.00
EQUICOM SAVINGS BANK INC Thrift Bank 0.00
FARMERS SAVINGS & LOAN BANK INC Thrift Bank 0.00
FIRST CONSOLIDATED BANK INC (A PDB) Thrift Bank 0.00
HIYAS BANKING CORPORATION Thrift Bank 0.00
INTER-ASIA DEVELOPMENT BANK Thrift Bank 0.00
ISLA BANK(A THRIFT BANK) INC Thrift Bank 0.00
LEMERY SAVINGS & LOAN BANK, INC. Thrift Bank 0.00
LIFE SAVINGS BANK INC Thrift Bank 0.00
LUZON DEVELOPMENT BANK Thrift Bank 0.00
MALASIQUI PROGRESSIVE SLB, INC Thrift Bank 0.00
MALAYAN BANK SAVINGS AND MORT BANK INC Thrift Bank 0.00
MARITIME SAVINGS BANK CORPORATION Thrift Bank 0.00
METRO CEBU PUBLIC SAVINGS BANK Thrift Bank 0.00
NORTHPOINT DEV'T BANK INC Thrift Bank 0.00
PACIFIC ACE SAVINGS BANK INC Thrift Bank 0.00
PAMPANGA DEVELOPMENT BANK Thrift Bank 0.00
PENBANK INC (A PDB) (FORMERLY: PENINSULA RB INC) Thrift Bank 0.00
PHIL BANK OF COMMUNICATIONS U/KB 0.00
PHIL POSTAL SAVINGS BANK INC Thrift Bank 0.00
PHIL STAR DEVELOPMENT BANK INC Thrift Bank 0.00
PHILIPPINE BUSINESS BANK INC A SAVINGS BANK Thrift Bank 0.00
PHILIPPINE RESOURCES SAVINGS BANKING CORPORATION (PR SAVINGS Thrift Bank 0.00
PRODUCERS SAVINGS BANK CORPORATION Thrift Bank 0.00
QUEEN CITY DEVELOPMENT BANK INC OR QUEENBANK A THRIFT BANK Thrift Bank 0.00
QUEZON COCONUT BANK INC (A THRIFT BANK) Thrift Bank 0.00
STERLING BANK OF ASIA INC (A SAVINGS BANK) Thrift Bank 0.00
SUN SAVINGS BANK INC Thrift Bank 0.00
THE PALAWAN BANK (PALAWAN DB) INC Thrift Bank 0.00
UNITED COCONUT PLANTERS BANK U/KB 0.00
UNITED OVERSEAS BANK LIMITED MANILA BRANCH U/KB 0.00
UNIVERSITY SAVINGS BANK INC Thrift Bank 0.00
VILLAGE BANK INC (A THRIFT BANK) Thrift Bank 0.00
WEALTH DEVELOPMENT BANK CORPORATION Thrift Bank 0.00
WORLD PARTNERS BANK (A THRIFT BANK) Thrift Bank 0.00
YUANTA SAVINGS BANK PHILIPPINES INC Thrift Bank 0.00
EAST WEST BANKING CORP U/KB 10.38
PHILIPPINE VETERANS BANK U/KB 10.51
CHINA BANK SAVINGS INC Thrift Bank 10.56
ASIA UNITED BANK CORPORATION U/KB 10.77
BANK OF THE PHIL ISLANDS U/KB 11.02
PHIL NATIONAL BANK U/KB 11.20
PHIL SAVINGS BANK Thrift Bank 11.36
DEVELOPMENT BANK OF THE PHIL U/KB 11.40
UNION BANK OF THE PHILS U/KB 11.76
RIZAL COMM'L BANKING CORP U/KB 11.78
LAND BANK OF THE  PHILIPPINES U/KB 12.01
METROPOLITAN BANK & TRUST CO U/KB 12.19
BDO UNIBANK INC U/KB 12.83
RCBC SAVINGS BANK INC Thrift Bank 12.85
THE BNK OF TOKYO-MITSUBISHI UFJ LTD U/KB 12.86
MAYBANK PHILIPPINES INC U/KB 13.25
MIZUHO BANK LTD - MANILA BRANCH U/KB 13.28
BDO PRIVATE BANK, INC. U/KB 13.74
CHINA BANKING CORP U/KB 14.40
UCPB SAVINGS BANK Thrift Bank 15.38
STANDARD CHARTERED BANK U/KB 15.46
SECURITY BANK CORP U/KB 15.61
BPI FAMILY SAVINGS BANK INC Thrift Bank 15.71
CITY SAVINGS BANK INC Thrift Bank 15.85
ANZ BANKING GROUP LTD U/KB 16.65
DEUTSCHE BANK AG U/KB 16.76
CITIBANK, N.A. U/KB 16.91
KEB HANA BANK - MANILA BRANCH U/KB 17.92
CTBC BANK (PHILIPPINES) CORP U/KB 18.59
MEGA INT'L COMM'L BANK CO LTD U/KB 19.41
HONGKONG & SHANGHAI BANKING CORP U/KB 19.76
BANK OF COMMERCE U/KB 19.99
ROBINSONS BANK CORPORATION U/KB 20.78
PNB SAVINGS BANK Thrift Bank 25.48
JP MORGAN CHASE BANK NATIONAL ASSN. U/KB 27.27
LEGAZPI SAVINGS BANK INC Thrift Bank 27.52
BPI DIRECT BANKO INC Thrift Bank 32.84
HSBC SAVINGS BANK PHILIPPINES Thrift Bank 35.67
BANGKOK BANK PUBLIC CO LTD U/KB 36.70
PHIL TRUST COMPANY U/KB 40.78
MERCHANTS SAVINGS & LOAN ASSN INC Thrift Bank 46.53
SUMITOMO MITSUI BANKING CORPORATION - MANILA BRANCH U/KB 86.33
SHINHAN BANK - MANILA BRANCH U/KB 90.78
HUA NAN COMMERCIAL BANK LTD MANILA BRANCH U/KB 96.73
AL-AMANAH ISLAMIC INVESTMENT BANK OF THE PHILS U/KB 97.36
INDUSTRIAL BANK OF KOREA MANILA BRANCH U/KB 107.87
CATHAY UNITED BANK CO LTD - MANILA BRANCH U/KB 171.94
FIRST COMMERCIAL BANK U/KB 297.46
ING BANK N.V. U/KB NA
MICROFINANCE MAXIMUM SB INC Thrift Bank NA


Sunday, December 17, 2017

A Simple Stress Test of Philippine Banks as of June 30, 2017

In an April 9, 2012 article entitled "Stress Test Proves Strength of PH Banks", "Philippine banks are seen to survive a disaster in which the various lenders are forced to write off loans as large as PhP 36 billion without asking shareholders, the central bank, or the national government for bailout money."  This assertion stems from a recent stress test conducted by the Bangko Sentral ng Pilipinas (BSP) on all 55 regular and commercial and expanded license banks.

For Philippine Banks, these NPLs currently comprise PhP 141.16 billion or 8.79% of the PhP 1,605.12 billion in Stockholders Equity (SE) as of June 30, 2017.  So, writing off 50% of the Philippine Banks NPLs would reduce their aggregate stockholder's equity by a little less than 5%.

Naturally, some banks would be more affected than others. For more information regarding this, please read The Top Distressed Philippine Banks as of June 30, 2017).

The stockholder's equity of eight banks would be severely affected.  These banks are:



  1. Philippine Postal Savings Bank Inc (137.50% decline in SE)
  2. World Partners Bank (127.26% decline in SE)
  3. Enterprise Bank Inc (50.94% decline in SE)
  4. Luzon Development Bank (49.31% decline in SE)
  5.  Equicom Savings Bank (49.17% decline in SE)
  6. Legazpi Savings Bank Inc (42.33% decline in SE)
  7. Maritime Savings Bank Corporation (27.30% decline in SE)
  8. Philippine Veterans Bank (25.78% decline in SE)


Are NPLs the Right Numbers to Look At?

In a financial crisis, a loan that is current can very well become past due, and a past due loan can become a non-performing loan, and a non-performing loan can become a loan write-off.  The real number to look at are the loans that the banks and BSP already consider doubtful: Classified Loans.

Investopedia.com defines "Classified Loans" as:

"Any bank loan that is in danger of default. Classified loans have unpaid interest and principal outstanding, and it is unclear whether the bank will be able to recoup the loan proceeds from the borrower. Banks usually categorize such loans as adversely classified assets on their books."

The US Federal Deposit Insurance Corporation (FDIC), similar to our very own Philippine Deposit Insurance Corporation (PDIC), defines Classified Loans as:

"Loans classified Loss are considered uncollectible and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the loan has absolutely no recovery or salvage value but rather it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be effected in the future."

In Circular #0247 dated May 19, 2000, BSP defines Classified Loans as loans which possess the following characteristics:
  1. Loans especially mentioned because they have potential weaknesses that deserve Management's close attention;
  2. Substandard Loans are loans which appear to involve a substantial and unreasonable degree of risk to the institution because of unfavorable record or unsatisfactory characteristics;
  3. Doubtful Loans are Substandard Loans with the added characteristics that existing facts, conditions, and values make collection or liquidation in full highly improbable and in which substantial loss is probable;
  4. Loss loans are loans that are considered uncollectible or worthless and are of such little value that their continuance as bankable assets is not warranted although the loans may have some recovery or salvage value.
The circular mandates that an allowance for probable losses should be set up in accordance with the following schedule:
  1. Loans Especially Mentioned: 5%
  2. Substandard - Secured: 6% - 25%
  3. Substandard - Unsecured: 25%
  4. Doubtful: 50%
  5. Loss: 100%
As of June 30, 2017, "Classified Loans and Other Risky Assets" of the Philippine Banks amounted to PhP 355.63 billion or almost 3 times the size of the Philippine Banking System's NPLs of PhP 141.16 billion for the same period.  Consequently, any write-offs of Classified Loans will have almost three times the impact of an NPL write-off.
This level of classified loans should be measured against the bank's "capital cushion" or its ability to absorb losses.  Capital Cushion is normally defined as a bank's "Tangible Common Equity" plus its Loan Loss Reserves.  Tangible Common Equity (TCE) refers to the subset of shareholders' equity that is not preferred equity and not intangible assets.  So it excludes such items as Hybrid equity (like preferred shares) and goodwill.

By this measure, the level of "Classified Loans and other Risky Assets" amounts to Php 355.63 billion or 20.94% of the Php 1.70 trillion in Total Capital Cushion of Philippine Banks as of June 30, 2017.

Stress Test Scenarios

Aggregate

So how will a 10%, 20%, 30%, 40%, and even 50% write-off of Classified Loans affect the Total Capital Cushion of the Philippine Banking System?

In the aggregate, if Classified Loans amount to 20.94% of the banking system's Total Capital Cushion, then it follows that a 10% write-off of Classified Loans will reduce the total capital by 2.09% and a 50% write-off of classified loans will reduce the banking system's Total Capital Cushion by 10.47%.

Individual Banks

A 10% write-off of Classified Loans would severely impact (by 30% or more) the Total Capital Cushion of two banks (severely affected banks highlighted in yellow).

  1. Bank of China Limited - Manila Branch (50.48% reduction in Total Capital Cushion)
  2. Inter-Asia Development Bank (38.35% reduction in Total Capital Cushion)

A 20% write-off of Classified Loans will totally wipe out the Total Capital Cushion of one bank and severely impact the Total Capital Cushion of five more banks:


  1. Bank of China Limited - Manila Branch (100.96% reduction in Total Capital Cushion)
  2. Inter-Asia Development Bank (77.70% reduction in Total Capital Cushion)
  3. Philippine Postal Savings Bank Inc (45.21% reduction in Total Capital Cushion)
  4. United Coconut Planters Bank (38.96% reduction in Total Capital Cushion)
  5. Village Bank Inc (34.37% reduction in Total Capital Cushion)


A 30% write-off of Classified Loans will totally wipe out the Total Capital Cushion of two banks and severely affect (reduce by 30% or more) the Total Capital Cushion of nine other banks:


  1. Bank of China Limited - Manila Branch (151.44% reduction in Total Capital Cushion)
  2. Inter-Asia Development Bank (116.55% reduction in Total Capital Cushion)
  3. Philippine Postal Savings Bank Inc (67.81% reduction in Total Capital Cushion)
  4. United Coconut Planters Bank (58.44% reduction in Total Capital Cushion)
  5. Village Bank Inc (51.55% reduction in Total Capital Cushion)
  6. Philippine Resources Savings Banking Corporation (42.59% reduction in Total Capital Cushion)
  7. Malayan Bank Savings and Mortgage Bank (41.77% reduction in Total Capital Cushion)
  8. Yuanta Savings Bank Philippines Inc (36.98% reduction in Total Capital Cushion)
  9. World Partners Bank (34.32% reduction in Total Capital Cushion)
  10. Luzon Development Bank (31.21% reduction in Total Capital Cushion)
  11. Bataan Development Bank (30.77% reduction in Total Capital Cushion)

A 40% write-off of Classified Loans will totally wipe out the Total Capital Cushion of two banks and severely affect (reduce by 30% or more) the Total Capital Cushion of twelve more banks:


  1. Bank of China Limited - Manila Branch (201.92% reduction in Total Capital Cushion)
  2. Inter-Asia Development Bank (155.41% reduction in Total Capital Cushion)
  3. Philippine Postal Savings Bank Inc (90.42% reduction in Total Capital Cushion)
  4. United Coconut Planters Bank (77.91% reduction in Total Capital Cushion)
  5. Village Bank Inc (68.73% reduction in Total Capital Cushion)
  6. Philippine Resources Savings Banking Corporation (56.79% reduction in Total Capital Cushion)
  7. Malayan Bank Savings and Mortgage Bank (55.69% reduction in Total Capital Cushion)
  8. Yuanta Savings Bank Philippines Inc (49.30% reduction in Total Capital Cushion)
  9. World Partners Bank (45.76% reduction in Total Capital Cushion)
  10. Luzon Development Bank (41.61% reduction in Total Capital Cushion)
  11. Bataan Development Bank (41.03% reduction in Total Capital Cushion)
  12. Legazpi Savings Bank Inc ( 33.77% reduction in Total Capital Cushion)
  13. Maritime Savings Bank Corporation (30.20% reduction in Total Capital Cushion)
  14. Equicom Savings Bank Inc (30.03% reduction in Total Capital Cushion)

A 50% write-off of Classified Loans will totally wipe out the Total Capital Cushion of three banks and severely affect (reduce by 30% or more) the Total Capital Cushion of fourteen more banks:



  1. Bank of China Limited - Manila Branch (252.40% reduction in Total Capital Cushion)
  2. Inter-Asia Development Bank (194.26% reduction in Total Capital Cushion)
  3. Philippine Postal Savings Bank Inc (113.02% reduction in Total Capital Cushion)
  4. United Coconut Planters Bank (97.39% reduction in Total Capital Cushion)
  5. Village Bank Inc (85.91% reduction in Total Capital Cushion)
  6. Philippine Resources Savings Banking Corporation (70.99% reduction in Total Capital Cushion)
  7. Malayan Bank Savings and Mortgage Bank (69.62% reduction in Total Capital Cushion)
  8. Yuanta Savings Bank Philippines Inc (61.63% reduction in Total Capital Cushion)
  9. World Partners Bank (57.20% reduction in Total Capital Cushion)
  10. Luzon Development Bank (52.02% reduction in Total Capital Cushion)
  11. Bataan Development Bank (51.29% reduction in Total Capital Cushion)
  12. Legazpi Savings Bank Inc (42.21% reduction in Total Capital Cushion)
  13. Maritime Savings Bank Corporation (37.75% reduction in Total Capital Cushion)
  14. Equicom Savings Bank Inc (37.54% reduction in Total Capital Cushion)
  15. China Bank Savings Inc (37.45% reduction in Total Capital Cushion)
  16. UCPB Savings Bank (31.64% reduction in Total Capital Cushion)
  17. Philippine Savings Bank (30.46% reduction in Total Capital Cushion)


Please bear in mind that a number of these banks are already very weak and are in distress.  Please see a previous blog post: "The Top Distressed Philippine Banks as of June 30, 2017".  Moreover, their capital can be overstated.  See a previous blog post "Overstated Capital of Philippine Banks as of June 30, 2017".  As such, any reduction in their capital cushion could knock down an already weak bank.