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 Commerce. For 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)

For more information of these Deferred Charges, please consult four previous blog posts: "Can Philippine Universal and Commercial Banks Charge their Unbooked Losses Against Retained Earnings? - June 30, 2012", "Can Philippine Commercial Banks Charge their Unbooked Losses Against Retained Earnings?", "Philippine Commercial Banks with Overstated Capital as of December 31, 2011" and "BSP's Ampaw Accounting System".

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