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Sunday, July 15, 2018

Overstated Capital of Philippine Banks as of March 31, 2018

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 March 31, 2018:

  1. Bataan Development Bank (Deferred Charges of 4.51% of SE)
  2. City Savings Bank (Deferred Charges of 3.08% of SE)
  3. Bank of Commerce (Deferred Charges of 0.12% of SE)
  4. Card SME Bank, Inc. (Deferred Charges of 0.12% of SE)
  5. Wealth Development Bank Corporation (Deferred Charges of 0.06% of SE)

It must be noted that China Bank Savings Inc, which had Deferred Charges of around Php 18.91 million as of December 31, 2017, no longer has these Deferred Charges on its balance sheet as of March 31, 2018. It must also be noted that one of these banks were ranked as  distressed (highlighted in yellow) as of December 31, 2017:


  1. Bataan Development Bank (Distressed Ratio of 107.89%)


For more information on distressed banks, please see the previous blog post: "The Top Distressed Philippine Banks as of December 31, 2017.



Retained Earnings

Only four banks have sufficient Retained Earnings (RE) to absorb their unbooked losses as of March 31, 2018:


  1. Bataan Development Bank (17.11% of RE)
  2. City Savings Bank (3.47% of RE)
  3. Wealth Development Bank Corporation (1.09% of RE)
  4. CARD SME Bank (0.39% of RE)

One of the banks with  Deferred Charges has negative Retained Earnings.  As such, it does not have the capacity to absorb additional losses.


  1. Bank of Commerce (Retained Earnings of - Php 262.94 million vs. Deferred Charges of Php 18.76 million)




Sunday, July 8, 2018

The Financial Strength of Philippine Banks according to BSP: From Weakest to Strongest - As of March 31, 2018

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 March 31, 2018, the banks that failed to meet BSP's recommended minimum capital requirements are as follows:



 TOTAL CAR:
  1. Overseas Filipino Bank (formerly Philippine Postal Savings Bank) (Total CAR of -22.51)
  2. Northpoint Development Bank (Total CAR of 0.00)
  3. United Coconut Planters Bank (Total CAR of 7.39)
  4. The Palawan Bank (Total CAR of 8.08)
TIER ONE CAR

Seven banks reported Tier One CAR of 0.00 as of March 31, 2017. One bank, Overseas Filipino Bank (formerly Philippine Postal Savings Bank) reported a Tier One CAR of negative 22.51. Of those that did report Tier One CAR greater than 0.00, six banks have less than the BSP-recommended Tier One CARs of 10.00. These banks are:

  1. Card SME Bank (Tier One CAR of 3.92)
  2. The Palawan Bank (Tier One CAR of 6.36)
  3. Sterling Bank of Asia (Tier One CAR of 7.35)
  4. United Coconut Planters Bank (Tier One CAR of 7.39)
  5. Luzon Development Bank (Tier One CAR of 9.36)
  6. China Bank Savings Inc (Tier One CAR of 9.89)
 
 
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.  Forty-seven banks reported their CET1 Ratio as 0.00 for March 31, 2018.

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

  1. Philippine Veterans Bank (Common Equity Tier One CAR of 9.40)
  2. China Bank Savings Inc (Common Equity Tier One CAR of 9.89)

The Total CAR, Tier 1 CAR, and Common Equity Tier 1 CAR of Philippine Banks as of March 31, 2018 is as follows:(Banks that do not meet BSP's minimum capital requirements are highlighted in yellow):
 
 
Philippine Banking System
TOTAL CAR
March 31, 2018









Bank Type of Bank Total CAR
OVERSEAS FILIPINO BANK Thrift Bank -22.51
NORTHPOINT DEV'T BANK INC Thrift Bank 0.00
UNITED COCONUT PLANTERS BANK U/KB 7.39
THE PALAWAN BANK (PALAWAN DB) INC Thrift Bank 8.08
LUZON DEVELOPMENT BANK Thrift Bank 10.23
CHINA BANK SAVINGS INC Thrift Bank 10.82
EQUICOM SAVINGS BANK INC Thrift Bank 11.09
LAND BANK OF THE  PHILIPPINES U/KB 11.22
PHILIPPINE VETERANS BANK U/KB 11.41
MAXIMUM SAVINGS BANK Thrift Bank 11.95
STERLING BANK OF ASIA INC (A SAVINGS BANK) Thrift Bank 11.97
PHIL NATIONAL BANK U/KB 12.06
BANK OF THE PHIL ISLANDS U/KB 12.14
ENTERPRISE BANK INC (A THRIFT BANK) Thrift Bank 12.40
MUFG BANK INC U/KB 12.56
EAST WEST BANKING CORP U/KB 13.03
UNION BANK OF THE PHILS U/KB 13.56
RCBC SAVINGS BANK INC Thrift Bank 13.70
UCPB SAVINGS BANK Thrift Bank 13.74
PHIL SAVINGS BANK Thrift Bank 13.75
METROPOLITAN BANK & TRUST CO U/KB 13.79
BDO UNIBANK INC U/KB 13.80
CHINA BANKING CORP U/KB 14.07
PHILIPPINE BUSINESS BANK INC A SAVINGS BANK Thrift Bank 14.15
PRODUCERS SAVINGS BANK CORPORATION Thrift Bank 14.36
RIZAL COMM'L BANKING CORP U/KB 14.42
MIZUHO BANK LTD - MANILA BRANCH U/KB 15.12
PHIL BANK OF COMMUNICATIONS U/KB 15.21
MAYBANK PHILIPPINES INC U/KB 15.64
DEVELOPMENT BANK OF THE PHIL U/KB 15.70
FARMERS SAVINGS & LOAN BANK INC Thrift Bank 15.92
CITYSTATE SAVINGS BANK INC Thrift Bank 16.10
MALAYAN BANK SAVINGS AND MORT BANK INC Thrift Bank 16.22
ASIA UNITED BANK CORPORATION U/KB 16.53
CITIBANK, N.A. U/KB 16.73
METRO CEBU PUBLIC SAVINGS BANK Thrift Bank 16.73
BPI FAMILY SAVINGS BANK INC Thrift Bank 16.80
BANGKO KABAYAN INC Thrift Bank 16.91
KEB HANA BANK - MANILA BRANCH U/KB 17.11
CITY SAVINGS BANK INC Thrift Bank 17.17
BANK OF COMMERCE U/KB 17.54
SECURITY BANK CORP U/KB 18.01
STANDARD CHARTERED BANK U/KB 18.19
BANK OF MAKATI (A SAVINGS BANK) INC Thrift Bank 18.28
DEUTSCHE BANK AG U/KB 18.31
BDO PRIVATE BANK, INC. U/KB 18.55
CTBC BANK (PHILIPPINES) CORP U/KB 18.79
ROBINSONS BANK CORPORATION U/KB 18.88
CARD SME BANK INC A THRIFT BANK Thrift Bank 18.97
HONGKONG & SHANGHAI BANKING CORP U/KB 19.07
BATAAN DEVELOPMENT BANK Thrift Bank 19.23
ANZ BANKING GROUP LTD U/KB 19.39
PHILIPPINE RESOURCES SAVINGS BANKING CORPORATION (PR SAVINGS Thrift Bank 19.90
INTER-ASIA DEVELOPMENT BANK Thrift Bank 20.20
PENBANK INC (A PDB) (FORMERLY: PENINSULA RB INC) Thrift Bank 20.63
BPI DIRECT BANKO INC Thrift Bank 20.85
WEALTH DEVELOPMENT BANK CORPORATION Thrift Bank 21.76
1st VALLEY BANK INC A DEVELOPMENT BANK Thrift Bank 22.72
PNB SAVINGS BANK Thrift Bank 22.82
MEGA INT'L COMM'L BANK CO LTD U/KB 23.00
HIYAS BANKING CORPORATION Thrift Bank 23.01
JP MORGAN CHASE BANK NATIONAL ASSN. U/KB 25.63
BUSINESS AND CONSUMERS BANK (A DB) Thrift Bank 25.88
UNIVERSITY SAVINGS BANK INC Thrift Bank 26.89
DUMAGUETE CITY DEV BANK INC Thrift Bank 27.76
PACIFIC ACE SAVINGS BANK INC Thrift Bank 28.09
SUN SAVINGS BANK INC Thrift Bank 28.23
FIRST CONSOLIDATED BANK INC (A PDB) Thrift Bank 29.76
LEGAZPI SAVINGS BANK INC Thrift Bank 30.34
HSBC SAVINGS BANK PHILIPPINES Thrift Bank 32.65
LIFE SAVINGS BANK INC Thrift Bank 33.35
QUEEN CITY DEVELOPMENT BANK INC OR QUEENBANK A THRIFT BANK Thrift Bank 34.58
PHIL TRUST COMPANY U/KB 35.29
LEMERY SAVINGS & LOAN BANK, INC. Thrift Bank 36.92
MALASIQUI PROGRESSIVE SLB, INC Thrift Bank 37.84
MERCHANTS SAVINGS & LOAN ASSN INC Thrift Bank 39.67
CORDILLERA SAVINGS BANK INC Thrift Bank 39.82
PAMPANGA DEVELOPMENT BANK Thrift Bank 44.97
BANGKOK BANK PUBLIC CO LTD U/KB 45.98
BANK OF CHINA LIMITED U/KB 50.13
YUANTA SAVINGS BANK PHILIPPINES INC Thrift Bank 51.21
ALLBANK Thrift Bank 52.51
ING BANK N.V. U/KB 52.78
PHIL STAR DEVELOPMENT BANK INC Thrift Bank 53.27
BANK OF AMERICA N.A. U/KB 59.37
QUEZON COCONUT BANK INC (A THRIFT BANK) Thrift Bank 59.84
BANK ONE SAVINGS AND TRUST CORP. Thrift Bank 62.67
SUMITOMO MITSUI BANKING CORPORATION - MANILA BRANCH U/KB 65.69
SHINHAN BANK - MANILA BRANCH U/KB 68.06
AL-AMANAH ISLAMIC INVESTMENT BANK OF THE PHILS U/KB 68.12
CENTURY SAVINGS BANK CORPORATION Thrift Bank 76.43
INDUSTRIAL BANK OF KOREA MANILA BRANCH U/KB 84.89
ISLA BANK(A THRIFT BANK) INC Thrift Bank 121.87
UNITED OVERSEAS BANK LIMITED MANILA BRANCH U/KB 135.36
FIRST COMMERCIAL BANK U/KB 293.14
HUA NAN COMMERCIAL BANK LTD MANILA BRANCH U/KB 335.44
CATHAY UNITED BANK CO LTD - MANILA BRANCH U/KB 433.15
BATAAN SAVINGS AND LOAN BANK Thrift Bank NA
MARITIME SAVINGS BANK CORPORATION Thrift Bank NA












Philippine Banking System
Tier One CAR
March 31, 2018









Bank Type of Bank Tier One CAR
OVERSEAS FILIPINO BANK Thrift Bank -22.51
1st VALLEY BANK INC A DEVELOPMENT BANK Thrift Bank 0.00
ALLBANK 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
NORTHPOINT DEV'T BANK INC Thrift Bank 0.00
CARD SME BANK INC A THRIFT BANK Thrift Bank 3.92
THE PALAWAN BANK (PALAWAN DB) INC Thrift Bank 6.36
STERLING BANK OF ASIA INC (A SAVINGS BANK) Thrift Bank 7.35
UNITED COCONUT PLANTERS BANK U/KB 7.39
LUZON DEVELOPMENT BANK Thrift Bank 9.36
CHINA BANK SAVINGS INC Thrift Bank 9.89
LAND BANK OF THE  PHILIPPINES U/KB 10.39
PHILIPPINE VETERANS BANK U/KB 10.76
EAST WEST BANKING CORP U/KB 10.83
UNION BANK OF THE PHILS U/KB 10.85
RIZAL COMM'L BANKING CORP U/KB 10.92
METROPOLITAN BANK & TRUST CO U/KB 11.01
PHIL SAVINGS BANK Thrift Bank 11.03
BANK OF THE PHIL ISLANDS U/KB 11.24
PHIL NATIONAL BANK U/KB 11.27
MUFG BANK INC U/KB 11.83
DEVELOPMENT BANK OF THE PHIL U/KB 11.84
MAXIMUM SAVINGS BANK Thrift Bank 11.87
MAYBANK PHILIPPINES INC U/KB 12.13
BDO UNIBANK INC U/KB 12.33
PHIL BANK OF COMMUNICATIONS U/KB 12.37
ASIA UNITED BANK CORPORATION U/KB 12.83
UCPB SAVINGS BANK Thrift Bank 12.94
CHINA BANKING CORP U/KB 13.18
PHILIPPINE BUSINESS BANK INC A SAVINGS BANK Thrift Bank 13.22
UNIVERSITY SAVINGS BANK INC Thrift Bank 13.44
RCBC SAVINGS BANK INC Thrift Bank 13.52
PRODUCERS SAVINGS BANK CORPORATION Thrift Bank 13.79
MIZUHO BANK LTD - MANILA BRANCH U/KB 14.17
PHILIPPINE RESOURCES SAVINGS BANKING CORPORATION (PR SAVINGS Thrift Bank 15.04
CITYSTATE SAVINGS BANK INC Thrift Bank 15.42
MALAYAN BANK SAVINGS AND MORT BANK INC Thrift Bank 15.70
SECURITY BANK CORP U/KB 15.70
FARMERS SAVINGS & LOAN BANK INC Thrift Bank 15.92
BPI FAMILY SAVINGS BANK INC Thrift Bank 15.94
CITIBANK, N.A. U/KB 15.98
KEB HANA BANK - MANILA BRANCH U/KB 16.56
BANGKO KABAYAN INC Thrift Bank 16.63
METRO CEBU PUBLIC SAVINGS BANK Thrift Bank 16.70
BANK OF COMMERCE U/KB 16.86
CITY SAVINGS BANK INC Thrift Bank 16.88
DEUTSCHE BANK AG U/KB 17.59
STANDARD CHARTERED BANK U/KB 17.71
CTBC BANK (PHILIPPINES) CORP U/KB 17.93
ROBINSONS BANK CORPORATION U/KB 18.00
BANK OF MAKATI (A SAVINGS BANK) INC Thrift Bank 18.28
HONGKONG & SHANGHAI BANKING CORP U/KB 18.45
BDO PRIVATE BANK, INC. U/KB 18.52
ANZ BANKING GROUP LTD U/KB 18.97
PENBANK INC (A PDB) (FORMERLY: PENINSULA RB INC) Thrift Bank 19.84
BPI DIRECT BANKO INC Thrift Bank 19.98
WEALTH DEVELOPMENT BANK CORPORATION Thrift Bank 20.82
BATAAN DEVELOPMENT BANK Thrift Bank 21.25
MEGA INT'L COMM'L BANK CO LTD U/KB 22.06
PNB SAVINGS BANK Thrift Bank 22.20
HIYAS BANKING CORPORATION Thrift Bank 22.63
JP MORGAN CHASE BANK NATIONAL ASSN. U/KB 25.47
DUMAGUETE CITY DEV BANK INC Thrift Bank 27.28
SUN SAVINGS BANK INC Thrift Bank 27.33
PACIFIC ACE SAVINGS BANK INC Thrift Bank 27.99
FIRST CONSOLIDATED BANK INC (A PDB) Thrift Bank 29.22
LEGAZPI SAVINGS BANK INC Thrift Bank 29.59
HSBC SAVINGS BANK PHILIPPINES Thrift Bank 31.93
LIFE SAVINGS BANK INC Thrift Bank 33.11
QUEEN CITY DEVELOPMENT BANK INC OR QUEENBANK A THRIFT BANK Thrift Bank 33.89
PHIL TRUST COMPANY U/KB 34.94
LEMERY SAVINGS & LOAN BANK, INC. Thrift Bank 36.51
MALASIQUI PROGRESSIVE SLB, INC Thrift Bank 37.84
MERCHANTS SAVINGS & LOAN ASSN INC Thrift Bank 39.03
CORDILLERA SAVINGS BANK INC Thrift Bank 39.30
BANGKOK BANK PUBLIC CO LTD U/KB 45.01
BANK OF CHINA LIMITED U/KB 49.24
YUANTA SAVINGS BANK PHILIPPINES INC Thrift Bank 51.21
ING BANK N.V. U/KB 52.41
PHIL STAR DEVELOPMENT BANK INC Thrift Bank 53.19
BANK OF AMERICA N.A. U/KB 58.64
QUEZON COCONUT BANK INC (A THRIFT BANK) Thrift Bank 59.16
BANK ONE SAVINGS AND TRUST CORP. Thrift Bank 62.03
SUMITOMO MITSUI BANKING CORPORATION - MANILA BRANCH U/KB 64.72
SHINHAN BANK - MANILA BRANCH U/KB 67.45
AL-AMANAH ISLAMIC INVESTMENT BANK OF THE PHILS U/KB 67.47
CENTURY SAVINGS BANK CORPORATION Thrift Bank 75.03
INDUSTRIAL BANK OF KOREA MANILA BRANCH U/KB 84.05
ISLA BANK(A THRIFT BANK) INC Thrift Bank 121.44
UNITED OVERSEAS BANK LIMITED MANILA BRANCH U/KB 134.56
PAMPANGA DEVELOPMENT BANK Thrift Bank 207.71
FIRST COMMERCIAL BANK U/KB 292.35
HUA NAN COMMERCIAL BANK LTD MANILA BRANCH U/KB 335.44
CATHAY UNITED BANK CO LTD - MANILA BRANCH U/KB 432.43
BATAAN SAVINGS AND LOAN BANK Thrift Bank NA
MARITIME SAVINGS BANK CORPORATION Thrift Bank NA












Philippine Banking System
Common Tier 1 Ratio
December 31, 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
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
MAXIMUM SAVINGS BANK Thrift Bank 0.00
METRO CEBU PUBLIC SAVINGS BANK Thrift Bank 0.00
NORTHPOINT DEV'T BANK INC Thrift Bank 0.00
OVERSEAS FILIPINO BANK 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 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
WEALTH DEVELOPMENT BANK CORPORATION Thrift Bank 0.00
YUANTA SAVINGS BANK PHILIPPINES INC Thrift Bank 0.00
PHILIPPINE VETERANS BANK U/KB 9.40
CHINA BANK SAVINGS INC Thrift Bank 9.89
LAND BANK OF THE  PHILIPPINES U/KB 10.39
EAST WEST BANKING CORP U/KB 10.83
UNION BANK OF THE PHILS U/KB 10.85
RIZAL COMM'L BANKING CORP U/KB 10.92
METROPOLITAN BANK & TRUST CO U/KB 11.01
PHIL SAVINGS BANK Thrift Bank 11.03
BANK OF THE PHIL ISLANDS U/KB 11.24
PHIL NATIONAL BANK U/KB 11.27
MUFG BANK INC U/KB 11.83
DEVELOPMENT BANK OF THE PHIL U/KB 11.84
BDO UNIBANK INC U/KB 12.07
MAYBANK PHILIPPINES INC U/KB 12.13
PHIL BANK OF COMMUNICATIONS U/KB 12.37
ASIA UNITED BANK CORPORATION U/KB 12.83
UCPB SAVINGS BANK Thrift Bank 12.94
CHINA BANKING CORP U/KB 13.18
RCBC SAVINGS BANK INC Thrift Bank 13.52
MIZUHO BANK LTD - MANILA BRANCH U/KB 14.17
SECURITY BANK CORP U/KB 15.70
BPI FAMILY SAVINGS BANK INC Thrift Bank 15.94
CITIBANK, N.A. U/KB 15.98
KEB HANA BANK - MANILA BRANCH U/KB 16.56
BANK OF COMMERCE U/KB 16.86
CITY SAVINGS BANK INC Thrift Bank 16.88
DEUTSCHE BANK AG U/KB 17.59
STANDARD CHARTERED BANK U/KB 17.71
CTBC BANK (PHILIPPINES) CORP U/KB 17.93
ROBINSONS BANK CORPORATION U/KB 18.00
HONGKONG & SHANGHAI BANKING CORP U/KB 18.45
BDO PRIVATE BANK, INC. U/KB 18.52
ANZ BANKING GROUP LTD U/KB 18.97
BPI DIRECT BANKO INC Thrift Bank 19.98
MEGA INT'L COMM'L BANK CO LTD U/KB 22.06
PNB SAVINGS BANK Thrift Bank 22.19
JP MORGAN CHASE BANK NATIONAL ASSN. U/KB 25.47
LEGAZPI SAVINGS BANK INC Thrift Bank 29.59
HSBC SAVINGS BANK PHILIPPINES Thrift Bank 31.93
PHIL TRUST COMPANY U/KB 34.94
MERCHANTS SAVINGS & LOAN ASSN INC Thrift Bank 39.03
BANGKOK BANK PUBLIC CO LTD U/KB 45.01
ING BANK N.V. U/KB 52.41
SUMITOMO MITSUI BANKING CORPORATION - MANILA BRANCH U/KB 64.72
SHINHAN BANK - MANILA BRANCH U/KB 67.45
AL-AMANAH ISLAMIC INVESTMENT BANK OF THE PHILS U/KB 67.47
INDUSTRIAL BANK OF KOREA MANILA BRANCH U/KB 84.05
FIRST COMMERCIAL BANK U/KB 292.35
HUA NAN COMMERCIAL BANK LTD MANILA BRANCH U/KB 335.44
CATHAY UNITED BANK CO LTD - MANILA BRANCH U/KB 432.43
BATAAN SAVINGS AND LOAN BANK Thrift Bank NA
MARITIME SAVINGS BANK CORPORATION Thrift Bank NA

Sunday, May 27, 2018

A Simple Stress Test of Philippine Banks as of December 31, 2017

n 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 138.02 billion or 8.28% of the PhP 1,666.09 billion in Stockholders Equity (SE) as of December 31, 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.

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



  1. Philippine Postal Savings Bank Inc (152.83% decline in SE)
  2. Enterprise Bank Inc (46.66% decline in SE)
  3. Luzon Development Bank (43.65% decline in SE)
  4. Equicom Savings Bank (40.76% of SE)
  5. The Palawan Bank Inc (36.47% decline in SE)
  6. UCPB Savings Bank (35.71% decline in SE) 
  7. Maritime Savings Bank Corporation (31.30% decline in SE)
  8. Legazpi Savings Bank Inc (30.69% decline in SE)
  9. Philippine Veterans Bank (29.68% decline in SE)
Some of these banks are distressed. For more information regarding this, please read The Top Distressed Philippine Banks as of December 31, 2017 ).


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 December 31, 2017, "Classified Loans and Other Risky Assets" of the Philippine Banks amounted to PhP 353.56 billion or more than two times the size of the Philippine Banking System's NPLs of PhP 138.02 billion for the same period.  Consequently, any write-offs of Classified Loans will have more than twice 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 353.56 billion or 20.42% of the Php 1.73 trillion in Total Capital Cushion of Philippine Banks as of December 31, 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 20.42% 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 2.04% and a 50% write-off of classified loans will reduce the banking system's Total Capital Cushion by 10.21%.



Individual Banks

A 10% write-off of Classified Loans would severely impact (by 25% or more) the Total Capital Cushion of three banks (severely affected banks highlighted in yellow).


  1. Bank of China Limited - Manila Branch (52.07% reduction in Total Capital Cushion)
  2. Inter-Asia Development Bank (41.28% reduction in Total Capital Cushion)
  3. United Coconut Planters Bank (28.35% 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 six more banks:

  1. Bank of China Limited - Manila Branch (104.13% reduction in Total Capital Cushion)
  2. Inter-Asia Development Bank (82.56% reduction in Total Capital Cushion)
  3. United Coconut Planters Bank (56.70% reduction in Total Capital Cushion)
  4. Philippine Postal Savings Bank Inc (44.89% reduction in Total Capital Cushion)
  5. Yuanta Savings Bank Philippines (29.26% reduction in Total Capital Cushion)
  6. Luzon Development Bank (26.44% reduction in Total Capital Cushion)
  7. Philippine Resources Savings Banking Corporation (25.69% 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 25% or more) the Total Capital Cushion of eight other banks:
  1. Bank of China Limited - Manila Branch (156.20% reduction in Total Capital Cushion)
  2. Inter-Asia Development Bank (123.84% reduction in Total Capital Cushion)
  3. United Coconut Planters Bank (85.05% reduction in Total Capital Cushion)
  4. Philippine Postal Savings Bank Inc (67.34% reduction in Total Capital Cushion)
  5. Yuanta Savings Bank Philippines Inc (43.90% reduction in Total Capital Cushion)
  6. Luzon Development Bank (39.66% reduction in Total Capital Cushion)
  7. Philippine Resources Savings Banking Corporation (38.53% reduction in Total Capital Cushion)
  8. Malayan Bank Savings and Mortgage Bank (35.94% reduction in Total Capital Cushion)
  9. Bataan Development Bank (30.25% reduction in Total Capital Cushion)
  10. Legazpi Savings Bank (27.06% reduction in Total Capital Cushion)

A 40% write-off of Classified Loans will totally wipe out the Total Capital Cushion of three banks and severely affect (reduce by 25% or more) the Total Capital Cushion of eleven more banks:


  1. Bank of China Limited - Manila Branch (208.26% reduction in Total Capital Cushion)
  2. Inter-Asia Development Bank (165.12% reduction in Total Capital Cushion)
  3. United Coconut Planters Bank (113.40% reduction in Total Capital Cushion)
  4. Philippine Postal Savings Bank Inc (89.78% reduction in Total Capital Cushion)
  5. Yuanta Savings Bank Philippines Inc (58.53% reduction in Total Capital Cushion)
  6. Luzon Development Bank (52.88% reduction in Total Capital Cushion)
  7. Philippine Resources Savings Banking Corporation (51.37% reduction in Total Capital Cushion
  8. Malayan Bank Savings and Mortgage Bank (47.92% reduction in Total Capital Cushion)
  9. Bataan Development Bank (40.34% reduction in Total Capital Cushion)
  10. Legazpi Savings Bank Inc ( 36.08% reduction in Total Capital Cushion)
  11. Maritime Savings Bank Corporation (31.52% reduction in Total Capital Cushion)
  12. Equicom Savings Bank (31.21% reduction in Total Capital Cushion)
  13. Robinsons Bank Corporation (29.20% reduction in Total Capital Cushion)
  14. Philippine Savings Bank (26.34% reduction in Total Capital Cushion)

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


  1. Bank of China Limited - Manila Branch (260.33% reduction in Total Capital Cushion)
  2. Inter-Asia Development Bank (206.40% reduction in Total Capital Cushion)
  3. United Coconut Planters Bank (141.75% reduction in Total Capital Cushion)
  4. Philippine Postal Savings Bank Inc (112.23% reduction in Total Capital Cushion)
  5. Yuanta Savings Bank Philippines Inc (73.16% reduction in Total Capital Cushion)
  6. Luzon Development Bank (66.10% reduction in Total Capital Cushion)
  7. Philippine Resources Savings Banking Corporation (64.22% reduction in Total Capital Cushion
  8. Malayan Bank Savings and Mortgage Bank (59.90% reduction in Total Capital Cushion)
  9. Bataan Development Bank (50.42% reduction in Total Capital Cushion)
  10. Legazpi Savings Bank Inc (45.10% reduction in Total Capital Cushion)
  11. Maritime Savings Bank Corporation (39.40% reduction in Total Capital Cushion)
  12. Equicom Savings Bank (39.01% reduction in Total Capital Cushion)
  13. Robinsons Bank Corporation (36.51% reduction in Total Capital Cushion)
  14. Philippine Savings Bank (32.93% reduction in Total Capital Cushion)
  15. UCPB Savings Bank (30.37% reduction in Total Capital Cushion)
  16. China Bank Savings Inc (27.76% reduction in Total Capital Cushion)
  17. Philippine Veterans Bank (27.13% reduction in Total Capital Cushion)
  18. RCBC Savings Bank (26.82% reduction in Total Capital Cushion)
  19. Penbank Inc (26.34% 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 December 31, 2017".  Moreover, their capital can be overstated.  See a previous blog post "Overstated Capital of Philippine Banks as of December 31, 2017".  As such, any reduction in their capital cushion could knock down an already weak bank.
 
 Source: www.bsp.gov.ph