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Wednesday, September 21, 2011

The Texas Ratio of Select Philippine Banks

Editor's Note:  This blog was inspired by the spectacular failure of Banco Filipino Savings and Mortgage Bank for the second time in its 38 years of existence.  This blog post and other blog posts like it attempt to describe why the bank failed.  But it also attempts to assess what other Philippine Banks have the potential to fail in the not too distant future. To see blog posts on other banks, click on the Banco Filipino Graphic at the top of the blog or click on the blog archive on the right hand column, or simply go to

The Texas Ratio is a measure of a bank's credit problems. The higher the Texas ratio, the more severe the bank's credit troubles. The Texas Ratio was developed by Gerald Cassidy and other analysts at RBC Capital Markets as an early warning system to identify potential problem banks. According to, it was originally applied to banks in Texas in the 1980s. Mr. Cassidy noticed that when problem assets grew to more than 100% of capital, most of the Texas banks in that precarious position ended up going under. A similar pattern occurred in the New England banking sector during the recession of the early 1990s.

The Texas Ratio is calculated by dividing the bank's distressed assets (Non-performing Loans + Acquired Real Estate, plus Deferred Charges such as unbooked losses) by the sum of its tangible common equity capital and allowances for impairment and credit losses.

Tangible common equity is the subset of shareholders' equity that strips out preferred shares or other forms of hybrid equity capital as well as goodwill or other intangible assets. It measures a company's financial strength because it indicates how much equity the common stockholders would have left in the event of a company's liquidation. A bank's tangible common equity plus its allowances for impairment and credit losses indicates the size of the bank's capital cushion, or its ability to absorb losses. Banks tended to fail when their Texas Ratio reached 1:1; or 100% of the bank's capital cushion.

The following table indicates the Texas Ratio for selected Philippine banks using the figures indicated in their audited financial statements as of December 31, 2010. The exceptions to this are Asiatrust Development Bank, whose last published audited financial statement was as of June 30, 2009, and Bank of Commerce, Land Bank of the Philippines, and Philippine Veterans Bank, whose last published audited financial statements were as of December 31, 2009.

Texas Ratio
Philippine Bank of Communications
Export and Industry Bank
United Coconut Planters Bank
Planters Development Bank
Asiatrust Development Bank
Bank of Commerce
Rizal Commercial Banking Corporation
Philippine Veterans Bank
Philippine National Bank
Union Bank of the Philippines
Security Bank Corporation
Allied Banking Corporation
Asia United Bank
Rural Bank of Makati
Metropolitan Bank and Trust Company
BDO Unibank, Inc.
Development Bank of the Philippines
Bank of the Philippine Islands
Land Bank of the Philippines
Philippine Trust Company
Philippine Savings Bank
China Banking Corporation
Citystate Savings Bank

As indicated in the table above, eight banks have a Texas Ratio greater than 1:1. Of these, five banks have Texas Ratios greater than 2:1. The top three banks on the above list have Texas Ratios greater than 5:1, which indicates extremely severe credit problems at these banks.

Recent Developments

Bank of Commerce:

In May 2009, San Miguel Corporation's property arm and retirement fund have acquired a 51% stake in Bank of Commerce with an additional equity infusion of PHP 2 billion. As of December 31, 2010, Bank of Commerce's Capital Funds was increased to PHP 12.5 billion from PHP 6.7 billion in year-end 2009.

Export and Industry Bank (EIB):

On July 30, 2010, the board of Export and Industry Bank (EIB)approved the sale of all EIB's bank assets to Banco De Oro Unibank, Inc. As of April 13, 2011, PDIC gave its approval for the transaction.

Philippine Bank of Communications:

On July 27, 2011, the group of Roberto Ongpin acquired a 97.28% stake in Philippine Bank of Communications from the Chung, Luy, and Nubla families for PHP 4.68 billion.


This list only serves as a screening guide. It is not a definitive guide and must be taken in the context of other factors. Readers are suggested to make their own investigations and verify the figures presented. Both BSP and PDIC have their own problem bank screening systems that are much more sophisticated in scope and design, given that they have more access to information over the banks they regulate.


  1. What is the Texas Ratio for One Network Bank?

  2. It's hard to tell because I don't have access to the notes to their audited financial statements. Check out their website: Also, I can't find their published statement of condition in

    But from the information that's out there, their NPLs are only 5% of the total loan portfolio and they don't have much in terms of acquired assets. The result is an estimated Texas Ratio of .20 - right along with China Bank. So for now, it looks healthy relative to all the others. However, this may change with improved information.

  3. Hi - thanks for sharing your diligent research.
    As for Bank of Commerce, the published Texas Ratio is 1.13 as of 12/31/2009. But you also said "As of December 31, 2010, Bank of Commerce's Capital Funds was increased to PHP 12.5 billion from PHP 6.7 billion in year-end 2009."

    Question 1: Can I assume that the NEW Texas Ratio for BoC is now halved and is appx 0.6 ?
    Question 2: should I be concerned about Boc?
    Thank You In Advance

    1. You are looking at data that is more than six months old. Take a look at this:

  4. Elsewhere on this blogspot, you list Bank of Commerce as distressed. However, Bank of Commerce was bought earlier this month by Malaysian banking giant CIMB. Since, I can assume CIMB did their due diligence, does this purchase mean that Bank of Commerce is no longer distressed?
    Thank You

    1. I still classify it as distressed. One possible reason why the San Miguel Group sold it to CIMB was that they needed to put in more money to support the bank. CIMB will have to put in more money, write off bad loans, or a combination of both to raise BoC from distressed levels. Presumably, they should have realized this when they bought it. Presumably, they should have the money to backstop the bank.

  5. Do you have the latest texas ratio of these banks? I am specifically interested on Bank of Makati (formerly Rural Bank of Makati)?

  6. They still have not updated their financial statements: