Can Philippine Thrift Banks Charge their Unbooked Losses Against Retained Earnings? - June 30, 2012

Last July 25, 2012, the Bangko Sentral ng Pilipinas (BSP) encouraged banks, particularly Universal and Commercial 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 retained earnings 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. As can be seen from the table below, all seven banks with Deferred Charges have the Stockholders Equity (SE) to absorb these Deferred Charges:

1. Bataan Development Bank (Deferred Charges of 18.18% of SE)
2. Planters Development Bank (Deferred Charges of 16.27% of SE)
3. Citibank Savings, Inc. (Deferred Charges of 10.46% of SE)
4. Card SME Bank (Deferred Charges of 3.23% of SE)
5. Wealth Bank (Deferred Charges of 1.99% of SE)
6. Security Bank Savings Corporation (Deferred Charges of 0.20% of SE)
7. Farmers Savings & Loan Bank (Deferred Charges of 0.00% of SE)

It must be noted that three of these banks are considered borderline insolvent (highlighted in yellow):

1. Bataan Development Bank
2. Planters Development Bank
3. Farmers Savings & Loan Bank

For more information on distressed banks, please see the previous blog post: "Philippine Thrift Banks Continue to Improve in the 2nd Quarter of 2012".

Retained Earnings

Only two banks have sufficient Retained Earnings (RE) to absorb their unbooked losses:

1. Wealth Bank (Deferred Charges of 11.88% of RE)
2. Security Bank Savings Corporation (Deferred Charges of 0.20% of RE)

For one bank, Deferred Charges will impact 25% or more of its Retained Earnings:

1. Planters Development Bank (Deferred Charges of 28.40% of RE)

For one bank, Deferred Charges will exceed their Retained Earnings:

1. Bataan Development Bank (Deferred Charges of 196.61% of RE)

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

1. Citibank Savings Inc. (Retained Earnings of - PhP 2.373 billion vs. Deferred Charges of PhP 190.165 million)
2. Card SME Bank Inc. (Retained Earnings of - PhP 41.963 million vs. Deferred Charges of PhP 5.777 million)

For more information of these Deferred Charges, please consult three previous blog posts:"Can Philippine Thrift Banks Charge their Unbooked Losses Against Retained Earnings?", "Philippine Thrift Banks with Overstated Capital as of Year End 2011" and "BSP's Ampaw Accounting System".

Philippine Thrift Banking System
Deferred Charges Not Yet Written Down
Impact on Stockholders Equity
In Php
June 30, 2012
Bank	Unbooked Losses	SE	Adjusted SE	Impact on SE
Bataan Development Bank	12,793,520.73	70,387,217.02	57,593,696.29	18.18%
Planters Development Bank	639,513,631.59	3,931,756,700.13	3,292,243,068.54	16.27%
Citibank Savings Inc.	190,165,383.13	1,818,756,670.18	1,628,591,287.05	10.46%
Card SME Bank Inc. (A Thrift Bank)	5,777,110.37	179,116,409.99	173,339,299.62	3.23%
Wealth Bank - A Development Bank	7,030,637.31	353,186,841.84	346,156,204.53	1.99%
Security Bank Savings Corporation	1,619,206.37	795,088,386.40	793,469,180.03	0.20%
Farmers Savings & Loan Bank	1,663.18	100,549,296.43	100,547,633.25	0.00%
Allied Savings Bank	0.00	976,492,885.94	976,492,885.94	0.00%
Bank One Savings and Trust Corp.	0.00	520,315,658.47	520,315,658.47	0.00%
Bataan SLA	0.00	77,808,302.16	77,808,302.16	0.00%
BDO Elite Savings Bank	0.00	1,527,059,062.56	1,527,059,062.56	0.00%
BPI Direct Savings Bank	0.00	801,926,465.90	801,926,465.90	0.00%
BPI Family Savings Bank	0.00	14,481,315,010.85	14,481,315,010.85	0.00%
BPI Globe Banko Inc. Savings Bank	0.00	360,144,746.12	360,144,746.12	0.00%
Business & Consumers Bank	0.00	78,446,370.26	78,446,370.26	0.00%
Century Savings Bank	0.00	883,428,855.96	883,428,855.96	0.00%
China Bank Savings	0.00	1,134,231,220.75	1,134,231,220.75	0.00%
City Savings Bank	0.00	1,977,741,378.55	1,977,741,378.55	0.00%
CityState Savings Bank	0.00	773,945,359.88	773,945,359.88	0.00%
Comsavings Bank	0.00	350,468,111.01	350,468,111.01	0.00%
Cordillera Savings Bank	0.00	97,381,465.00	97,381,465.00	0.00%
Dumaguete City Development Bank	0.00	203,578,072.13	203,578,072.13	0.00%
Dungganon Bank	0.00	62,917,082.13	62,917,082.13	0.00%
Equicom SB	0.00	461,617,258.29	461,617,258.29	0.00%
First Consolidated Bank	0.00	1,671,795,340.03	1,671,795,340.03	0.00%
Hiyas Savings & Loan Bank	0.00	157,846,553.87	157,846,553.87	0.00%
HSBC Savings Bank (Phils) Inc.	0.00	2,938,428,344.64	2,938,428,344.64	0.00%
Iloilo City Development Bank	0.00	62,433,690.20	62,433,690.20	0.00%
Isla Bank (A Thrift Bank) Inc.	0.00	630,420,695.84	630,420,695.84	0.00%
Legazpi Savings Bank Inc.	0.00	178,699,023.83	178,699,023.83	0.00%
Lemery Savings & Loan Bank, Inc.	0.00	69,169,391.20	69,169,391.20	0.00%
Life Savings Bank	0.00	63,317,167.29	63,317,167.29	0.00%
Luzon Development Bank	0.00	382,298,596.47	382,298,596.47	0.00%
Malasiqui Progressive SLB, Inc.	0.00	49,198,079.06	49,198,079.06	0.00%
Malayan Bank Savings & Mortgage Bank	0.00	975,332,768.21	975,332,768.21	0.00%
Maritime SLA	0.00	65,402,781.73	65,402,781.73	0.00%
Merchants Savings & Loan Association Inc.	0.00	658,930,240.51	658,930,240.51	0.00%
Metro Cebu Public Savings Bank	0.00	60,255,751.33	60,255,751.33	0.00%
Microfinance Maximum SB (Maxbank)	0.00	62,353,596.96	62,353,596.96	0.00%
Northpoint Development Bank	0.00	50,002,124.18	50,002,124.18	0.00%
Opportunity Kauswagan Bank	0.00	87,108,376.48	87,108,376.48	0.00%
Optimum Development Bank	0.00	660,520,247.44	660,520,247.44	0.00%
Pacific Ace Savings Bank	0.00	72,319,136.67	72,319,136.67	0.00%
Pampanga Development Bank	0.00	105,904,741.40	105,904,741.40	0.00%
Penbank, Inc.	0.00	260,723,835.90	260,723,835.90	0.00%
Philippine Business Bank	0.00	3,922,725,430.38	3,922,725,430.38	0.00%
Philippine Postal Savings Bank	0.00	688,770,339.88	688,770,339.88	0.00%
Philippine Resources Savings Banking Corporation	0.00	1,195,719,804.03	1,195,719,804.03	0.00%
Philippine Savings Bank	0.00	13,303,936,411.40	13,303,936,411.40	0.00%
Pridestar Development Bank	0.00	67,743,003.08	67,743,003.08	0.00%
Producers Savings Bank	0.00	701,811,191.57	701,811,191.57	0.00%
Progress SLA	0.00	84,103,829.68	84,103,829.68	0.00%
Quezon Coconut Producers SLB Inc.	0.00	57,580,765.13	57,580,765.13	0.00%
RCBC Savings Bank	0.00	6,792,900,833.67	6,792,900,833.67	0.00%
Sampaguita SLA	0.00	64,708,123.36	64,708,123.36	0.00%
Silangan Savings and Loan Bank, Inc.	0.00	9,740,651.89	9,740,651.89	0.00%
Sterling Bank of Asia Inc.	0.00	1,633,872,061.27	1,633,872,061.27	0.00%
Sun Savings Bank	0.00	72,644,822.80	72,644,822.80	0.00%
The Queen City Development Bank	0.00	669,119,640.27	669,119,640.27	0.00%
Tong Yang Savings Bank Inc.	0.00	407,756,152.68	407,756,152.68	0.00%
Tower Development Bank	0.00	113,529,745.58	113,529,745.58	0.00%
UCPB Savings Bank	0.00	2,125,681,500.16	2,125,681,500.16	0.00%
United Overseas Bank Philippines	0.00	704,856,569.14	704,856,569.14	0.00%
University Savings Bank	0.00	205,163,329.73	205,163,329.73	0.00%
Village SLA, Inc.	0.00	70,653,647.74	70,653,647.74	0.00%
World Partners Bank (A Thrift Bank)	0.00	157,957,368.73	157,957,368.73	0.00%
Real Bank (A Thrift Bank) Inc.	NA	NA	NA	NA
Grand Total	856,901,152.68	74,331,094,533.36	73,474,193,380.68	1.15%

Source: www.bsp.gov.ph

Deferred Charges Not Yet Written Down
Impact on Retained Earnings
In PHP
June 30, 2012
Bank	Unbooked Losses	RE	Adjusted RE	Impact on RE
Bataan Development Bank	12,793,520.73	6,506,937.24	-6,286,583.49	196.61%
Planters Development Bank	639,513,631.59	2,251,768,609.03	1,612,254,977.44	28.40%
Wealth Bank - A Development Bank	7,030,637.31	59,174,895.50	52,144,258.19	11.88%
Security Bank Savings Corporation	1,619,206.37	795,088,386.40	793,469,180.03	0.20%
Citibank Savings Inc.	190,165,383.13	-2,373,027,012.86	-2,563,192,395.99	-8.01%
Card SME Bank Inc. (A Thrift Bank)	5,777,110.37	-36,186,335.58	-41,963,445.95	-15.96%
Grand Total	856,899,489.50	703,325,479.73	-153,574,009.77	121.84%

Source: www.bsp.gov.ph