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Tuesday, February 12, 2013

Can Philippine Universal and Commercial Banks Charge their Unbooked Losses Against Retained Earnings? - September 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 but only for some banks.  As can be seen from the table below, only five banks have the Stockholders Equity (SE) to absorb these Deferred Charges:

  1. United Coconut Planters Bank (Deferred Charges of 50.77% of SE)
  2. Philippine Bank of Communications (Deferred Charges of 45.99% of SE)
  3. Bank of Commerce (Deferred Charges of 5.82% of SE)
  4. Rizal Commercial Banking Corporation (Deferred Charges of 3.82% of SE)
  5. Banco De Oro Unibank, Inc. (Deferred Charges of 0.16% of SE)

It must be noted that three of these banks are considered borderline insolvent (highlighted in yellow): United Coconut Planters Bank, Philippine Bank of Communications, Bank of CommerceFor more information on distressed banks, please see the previous blog post: "Philippine U/KBs Improve in the 3rd Qtr. of 2012".

For two of the banks, booking their Deferred Charges immediately will only serve to impair 25% or more of their Stockholders Equity:

  1. United Coconut Planters Bank (Deferred Charges of 50.77% of SE)
  2. Philippine Bank of Communications (Deferred Charges of 45.99% of SE)
Naturally, these banks are considered distressed.

Retained Earnings

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

  1. Rizal Commercial Banking Corporation (Deferred Charges of 15.59% of RE)
  2. Banco de Oro Unibank Inc. (Deferred Charges of 0.81% of RE)

For one of the banks, Deferred Charges will exceed their Retained Earnings:
  1. United Coconut Planters Bank (Deferred Charges of 416.14% 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. Bank of Commerce (Retained Earnings of - PhP 3.618 billion vs. Deferred Charges of PhP 1.043 billion)
  2. Philippine Bank of Communications (Retained Earnings of - PhP 4.774 billion vs. Deferred Charges of PhP 3.717 billion)


Philippine Universal and Commercial Banking System
Unbooked Losses and Deferred Charges Not Yet Written Down
Impact on Stockholders Equity
In PhP
September 30, 2012










Bank Unbooked Losses SE Adjusted SE Impact on SE
United Coconut Planters Bank 9,841,900,553.53 19,385,897,395 9,543,996,841.67 50.77%
Philippine Bank of Communications 3,717,471,419.13 8,083,690,578 4,366,219,158.41 45.99%
Bank of Commerce 1,042,813,609.20 17,911,548,955 16,868,735,345.50 5.82%
Rizal Commercial Banking Corporation 1,616,010,396.76 42,302,372,460 40,686,362,063.59 3.82%
Banco De Oro Unibank 234,120,483.13 150,450,853,758 150,216,733,275.22 0.16%
Al-Amanah Islamic Bank of the Philippines 0.00 472,674,446 472,674,445.80 0.00%
Allied Banking Corporation 0.00 18,726,766,267 18,726,766,266.55 0.00%
ANZ Banking Group Ltd 0.00 2,373,395,839 2,373,395,838.64 0.00%
Asia United Bank Corporation 0.00 11,028,570,176 11,028,570,176.41 0.00%
Bangkok Bank Public Co. Ltd 0.00 1,167,640,035 1,167,640,035.38 0.00%
Bank of America N.A. 0.00 596,946,705 596,946,705.20 0.00%
Bank of China Limited - Manila Branch 0.00 584,988,741 584,988,741.14 0.00%
Bank of the Philippine Islands 0.00 91,739,651,562 91,739,651,562.11 0.00%
BDO Private Bank, Inc. 0.00 5,098,086,069 5,098,086,068.85 0.00%
China Banking Corporation 0.00 37,882,503,414 37,882,503,413.76 0.00%
Chinatrust (Philippines) Commercial Banking Corporation 0.00 6,234,024,774 6,234,024,773.66 0.00%
Citibank N.A. 0.00 7,812,821,024 7,812,821,024.26 0.00%
Deutsche Bank AG 0.00 1,863,242,321 1,863,242,321.48 0.00%
Development Bank of the Philippines 0.00 40,856,299,162 40,856,299,161.53 0.00%
East West Banking Corporation 0.00 16,481,579,328 16,481,579,327.51 0.00%
HongKong & Shanghai Banking Corporation 0.00 5,438,663,639 5,438,663,638.78 0.00%
Internationale Nederlanden Groep BK 0.00 2,876,741,574 2,876,741,573.59 0.00%
JP Morgan Chase National Bank Association 0.00 1,863,792,565 1,863,792,565.08 0.00%
Korea Exchange Bank 0.00 595,597,134 595,597,134.03 0.00%
Land Bank of the Philippines 0.00 73,036,897,213 73,036,897,212.95 0.00%
Maybank Philippines Inc. 0.00 5,664,922,891 5,664,922,891.06 0.00%
Mega International Commercial Bank Company Limited 0.00 779,565,356 779,565,356.08 0.00%
Metropolitan Bank & Trust Company 0.00 109,337,191,786 109,337,191,786.37 0.00%
Mizuho Corporate Bank Ltd. - Manila Branch 0.00 1,337,545,845 1,337,545,845.20 0.00%
Philippine National Bank 0.00 30,067,965,289 30,067,965,288.93 0.00%
Philippine Trust Company 0.00 16,338,935,062 16,338,935,061.56 0.00%
Philippine Veterans Bank 0.00 5,722,007,670 5,722,007,669.64 0.00%
Robinsons Bank Corporation 0.00 5,657,648,524 5,657,648,524.35 0.00%
Security Bank Corporation 0.00 36,040,386,614 36,040,386,613.64 0.00%
Standard Chartered Bank 0.00 1,595,531,721 1,595,531,720.80 0.00%
The Bank of Tokyo - Mitsubishi UFJ Ltd 0.00 716,591,348 716,591,348.46 0.00%
Union Bank of the Philippines 0.00 42,897,511,544 42,897,511,543.95 0.00%
Grand Total 16,452,316,461.75 821,021,048,782.89 804,568,732,321.14 2.00%


Philippine Universal and Commercial Banking System
Unbooked Losses and Deferred Charges Not Yet Written Down
Impact on Retained Earnings
In PhP
September 30, 2012










Bank Unbooked Losses Retained Earnings Adjusted RE Impact on RE
United Coconut Planters Bank 9,841,900,553.53 2,365,040,659 -7,476,859,894.20 416.14%
Rizal Commercial Banking Corporation 1,616,010,396.76 10,365,692,547 8,749,682,150.59 15.59%
Banco De Oro Unibank 234,120,483.13 28,896,008,076 28,661,887,592.79 0.81%
Bank of Commerce 1,042,813,609.20 -3,618,391,126 -4,661,204,735.65 -28.82%
Philippine Bank of Communications 3,717,471,419.13 -4,774,481,497 -8,491,952,916.31 -77.86%
Grand Total 16,452,316,461.75 33,233,868,658.97 16,781,552,197.22 49.50%

Source: www.bsp.gov.ph

3 comments:

  1. Hello sir,

    Philippine banks derive much of their earnings growth from their trading operations.

    does this mean that they are trading equities and bonds or does this only represents commission income from trading financial instruments?


    Thanks,

    Renzie

    ReplyDelete
  2. Hi Renzie, I apologize for the late reply. The securities subsidiaries of Philippine banks generally derive commission income from the trading of stocks and bonds for their clients. I think some banks do trade these securities for their own account (generally those with investment banking subsidiaries) but I think they still derive the bulk of their earnings from their lending operations and not their capital market operations. I hope this helps.

    ReplyDelete