Can Philippine Banks Charge their Unbooked Losses Against Retained Earnings? - June 30, 2013

Last 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 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 eleven banks have the Stockholders Equity (SE) to absorb these Deferred Charges as of June 30, 2013:

1. Planters Development Bank (Deferred Charges of 53.88% of SE)
2. United Coconut Planters Bank (Deferred Charges of 48.08% of SE)
3. Bataan Development Bank (Deferred Charges of 25.16% of SE)
4. Citibank Savings Inc. (Deferred Charges of 7.57% of SE)
5. Bank of Commerce (Deferred Charges of 5.14% of SE)
6. Card SME Bank, Inc. (Deferred Charges of 2.17% of SE)
7. City Savings Bank, Inc. (Deferred Charges of 1.79% of SE)
8. Wealth Development Bank Corporation (Deferred Charges of 1.15% of SE)
9. Security Bank Savings Corporation (0.12% of SE)
10. Banco De Oro Unibank, Inc. (Deferred Charges of 0.11% of SE)
11. Farmers Savings and Loan Bank (Deferred Charges of 0.00% of SE)

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

1. United Coconut Planters Bank (Distressed Ratio of 529.04%)
2. Planters Development Bank  (Distressed Ratio of 257.29%)
3. Bataan Development Bank (Distressed Ratio of 213.99%)
4. Bank of Commerce (Distressed Ratio of 173.39%)
5. Farmers Savings and Loan Bank (Distressed Ratio of 169.98%)
6. Security Bank Savings Corporation (Distressed Ratio of 110.40%)

For more information on distressed banks, please see the previous blog post: "The Top Distressed Philippine Banks as of March 31, 2013.

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

1. Planters Development Bank (Deferred Charges of 53.88% of SE)
2. United Coconut Planters Bank (Deferred Charges of 48.08% of SE)
3. Bataan Development Bank (Deferred Charges of 25.16% of SE)

Naturally, these banks are considered distressed.

Retained Earnings

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

1. Planters Development Bank (Deferred Charges of 94.63% of RE)
2. Wealth Development Bank Corporation (Deferred Charges of 6.75% of RE)
3. City Savings Bank, Inc. (Deferred Charges of 2.22% of RE)
4. Banco De Oro Unibank (Deferred Charges of 0.52% of RE)
5. Farmers Savings and Loan Bank, Inc. (Deferred Charges of 0.01% of RE)

For two of the banks, Deferred Charges will exceed their Retained Earnings:

1. Bataan Development Bank (Deferred Charges of 664.68% of RE)
2. United Coconut Planters Bank (Deferred Charges of 162.08% of RE)

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

1. Card SME Bank (Retained Earnings of - Php 6.437 million vs. Deferred Charges of Php 4.888 million)
2. Bank of Commerce (Retained Earnings of - PhP 4.298 million vs. Deferred Charges of Php 0.832 million)
3. Citibank Savings Inc. (Retained Earnings of - Php 2.714 million vs. Deferred Charges of Php 113,884 million)
4. Security Bank Savings Corporation (Retained Earnings of - Php 914.300 million vs. Deferred Charges of Php 1.308 million) 

For more information of these Deferred Charges, please consult the previous blog posts:"Can Philippine Banks Charge their Unbooked Losses Against Retained Earnings? - March 31, 2013", "Can Philippine Universal and Commercial Banks Charge their Unbooked Losses Against Retained Earnings? - December 31, 2012" and "Can Philippine Thrift Banks Charge their Unbooked Losses Against Retained Earnings? - December 31, 2012"

Philippine Banking System
Deferred Charges Not Yet Written Down
Impact on Stockholder's Equity
In Php
June 30, 2013
Bank	Type of Bank	Deferred Charges	Unbooked Losses	Total Deferred Charges	SE	Adjusted SE	Impact on SE
PLANTERS DEVELOPMENT BANK	Thrift Bank	1,854,485,204.61	0.00	1,854,485,204.61	3,441,566,343.20	1,587,081,138.59	53.88%
UNITED COCONUT PLANTERS BANK	U/KB	9,841,900,553.53	0.00	9,841,900,553.53	20,469,896,934.55	10,627,996,381.02	48.08%
BATAAN DEVELOPMENT BANK	Thrift Bank	16,965,155.73	0.00	16,965,155.73	67,429,814.21	50,464,658.48	25.16%
CITIBANK SAVINGS INC	Thrift Bank	113,883,505.12	0.00	113,883,505.12	1,505,092,916.36	1,391,209,411.24	7.57%
BANK OF COMMERCE	U/KB	832,474,544.31	0.00	832,474,544.31	16,207,283,504.94	15,374,808,960.63	5.14%
CARD SME BANK INC A THRIFT BANK	Thrift Bank	4,888,069.97	0.00	4,888,069.97	225,355,623.11	220,467,553.14	2.17%
CITY SAVINGS BANK INC	Thrift Bank	46,786,327.05	0.00	46,786,327.05	2,616,360,671.62	2,569,574,344.57	1.79%
WEALTH DEVELOPMENT BANK CORPORATION	Thrift Bank	4,438,500.08	0.00	4,438,500.08	386,675,687.50	382,237,187.42	1.15%
SECURITY BANK SAVINGS CORPORATION	Thrift Bank	1,308,127.45	0.00	1,308,127.45	1,103,700,790.10	1,102,392,662.65	0.12%
BDO UNIBANK, INC.	U/KB	178,670,895.07	0.00	178,670,895.07	157,961,876,170.48	157,783,205,275.41	0.11%
FARMERS SAVINGS & LOAN BANK INC	Thrift Bank	3,287.31	0.00	3,287.31	102,665,008.26	102,661,720.95	0.00%
AL-AMANAH ISLAMIC INVESTMENT BANK OF THE PHILIPPINES	U/KB	0.00	0.00	0.00	417,807,663.99	417,807,663.99	0.00%
ALLIED SAVINGS BANK	Thrift Bank	0.00	0.00	0.00	970,670,969.63	970,670,969.63	0.00%
ANZ BANKING GROUP LTD.	U/KB	0.00	0.00	0.00	2,638,076,062.74	2,638,076,062.74	0.00%
ASIA UNITED BANK CORPORATION	U/KB	0.00	0.00	0.00	18,004,493,277.37	18,004,493,277.37	0.00%
BANGKOK BANK PUBLIC CO. LTD.	U/KB	0.00	0.00	0.00	1,151,237,103.16	1,151,237,103.16	0.00%
BANK OF AMERICA, N.A.	U/KB	0.00	0.00	0.00	596,946,705.20	596,946,705.20	0.00%
BANK OF CHINA LIMITED-MANILA BRANCH	U/KB	0.00	0.00	0.00	702,151,897.91	702,151,897.91	0.00%
BANK OF THE PHILIPPINE ISLANDS	U/KB	0.00	0.00	0.00	96,984,409,795.53	96,984,409,795.53	0.00%
BANK ONE SAVINGS AND TRUST CORP.	Thrift Bank	0.00	0.00	0.00	534,632,634.91	534,632,634.91	0.00%
BATAAN SAVINGS AND LOAN BANK	Thrift Bank	0.00	0.00	0.00	75,794,949.19	75,794,949.19	0.00%
BDO ELITE SAVINGS BANK INC	Thrift Bank	0.00	0.00	0.00	1,587,282,037.51	1,587,282,037.51	0.00%
BDO PRIVATE BANK, INC.	U/KB	0.00	0.00	0.00	5,876,167,394.59	5,876,167,394.59	0.00%
BPI DIRECT SAVINGS BANK INC	Thrift Bank	0.00	0.00	0.00	872,759,218.43	872,759,218.43	0.00%
BPI FAMILY SAVINGS BANK INC	Thrift Bank	0.00	0.00	0.00	17,933,631,550.55	17,933,631,550.55	0.00%
BPI GLOBE BANKO INC A SAVINGS BANK	Thrift Bank	0.00	0.00	0.00	347,672,013.20	347,672,013.20	0.00%
BUSINESS AND CONSUMERS BANK (A DB)	Thrift Bank	0.00	0.00	0.00	79,466,088.60	79,466,088.60	0.00%
CENTURY SAVINGS BANK CORPORATION	Thrift Bank	0.00	0.00	0.00	908,388,275.05	908,388,275.05	0.00%
CHINA BANK SAVINGS INC	Thrift Bank	0.00	0.00	0.00	1,149,391,251.67	1,149,391,251.67	0.00%
CHINA BANKING CORPORATION	U/KB	0.00	0.00	0.00	41,282,070,248.73	41,282,070,248.73	0.00%
CHINATRUST (PHILS.) COMMERCIAL BANK CORPORATION	U/KB	0.00	0.00	0.00	6,416,703,004.47	6,416,703,004.47	0.00%
CITIBANK, N.A.	U/KB	0.00	0.00	0.00	7,307,790,974.29	7,307,790,974.29	F
CITYSTATE SAVINGS BANK INC	Thrift Bank	0.00	0.00	0.00	797,606,384.96	797,606,384.96	0.00%
COMSAVINGS BANK	Thrift Bank	0.00	0.00	0.00	336,787,294.99	336,787,294.99	0.00%
CORDILLERA SAVINGS BANK INC	Thrift Bank	0.00	0.00	0.00	99,002,411.81	99,002,411.81	0.00%
DEUTSCHE BANK AG	U/KB	0.00	0.00	0.00	2,154,472,213.73	2,154,472,213.73	0.00%
DEVELOPMENT BANK OF THE PHILIPPINES	U/KB	0.00	0.00	0.00	40,019,086,743.04	40,019,086,743.04	0.00%
DUMAGUETE CITY DEV BANK INC	Thrift Bank	0.00	0.00	0.00	205,618,290.98	205,618,290.98	0.00%
DUNGGANON BANK (A MICROFINANCE THRIFT	Thrift Bank	0.00	0.00	0.00	84,752,873.74	84,752,873.74	0.00%
EAST WEST BANKING CORPORATION	U/KB	0.00	0.00	0.00	18,367,165,525.46	18,367,165,525.46	0.00%
EQUICOM SAVINGS BANK INC	Thrift Bank	0.00	0.00	0.00	474,402,836.24	474,402,836.24	0.00%
FIRST CONSOLIDATED BANK INC (A PDB)	Thrift Bank	0.00	0.00	0.00	1,984,315,768.51	1,984,315,768.51	0.00%
HIYAS BANKING CORPORATION	Thrift Bank	0.00	0.00	0.00	159,435,298.25	159,435,298.25	0.00%
HSBC SAVINGS BANK(PHILS) INC	Thrift Bank	0.00	0.00	0.00	2,779,512,080.98	2,779,512,080.98	0.00%
ILOILO CITY DEVELOPMENT BANK	Thrift Bank	0.00	0.00	0.00	72,516,124.72	72,516,124.72	0.00%
INTERNATIONALE NEDERLANDEN GROEP BK	U/KB	0.00	0.00	0.00	2,978,631,660.50	2,978,631,660.50	0.00%
ISLA BANK (A THRIFT BANK) INC	Thrift Bank	0.00	0.00	0.00	639,029,859.97	639,029,859.97	0.00%
JP MORGAN CHASE BANK, N.A.	U/KB	0.00	0.00	0.00	2,112,614,494.20	2,112,614,494.20	0.00%
KOREA EXCHANGE BANK	U/KB	0.00	0.00	0.00	535,093,060.19	535,093,060.19	0.00%
LAND BANK OF THE PHILIPPINES	U/KB	0.00	0.00	0.00	74,490,631,217.21	74,490,631,217.21	0.00%
LEGAZPI SAVINGS BANK, INC.	Thrift Bank	0.00	0.00	0.00	184,484,675.09	184,484,675.09	0.00%
LEMERY SAVINGS & LOAN BANK, INC.	Thrift Bank	0.00	0.00	0.00	67,666,272.11	67,666,272.11	0.00%
LIFE SAVINGS BANK INC	Thrift Bank	0.00	0.00	0.00	64,480,923.50	64,480,923.50	0.00%
LUZON DEVELOPMENT BANK	Thrift Bank	0.00	0.00	0.00	422,218,858.87	422,218,858.87	0.00%
MALASIQUI PROGRESSIVE SLB, INC	Thrift Bank	0.00	0.00	0.00	53,228,171.60	53,228,171.60	0.00%
MALAYAN BANK SAVINGS AND MORT BANK INC	Thrift Bank	0.00	0.00	0.00	1,081,422,213.27	1,081,422,213.27	0.00%
MARITIME SAVINGS BANK CORPORATION	Thrift Bank	0.00	0.00	0.00	66,536,138.15	66,536,138.15	0.00%
MAYBANK PHILIPPINES, INC.	U/KB	0.00	0.00	0.00	10,011,074,288.81	10,011,074,288.81	0.00%
MEGA INTERNATIONAL COMMERCIAL BANK CO., LTD.	U/KB	0.00	0.00	0.00	690,973,487.79	690,973,487.79	0.00%
MERCHANTS SAVINGS & LOAN ASSN INC	Thrift Bank	0.00	0.00	0.00	518,764,567.97	518,764,567.97	0.00%
METRO CEBU PUBLIC SAVINGS BANK	Thrift Bank	0.00	0.00	0.00	64,176,816.41	64,176,816.41	0.00%
METROPOLITAN BANK & TRUST COMPANY	Thrift Bank	0.00	0.00	0.00	129,811,488,118.47	129,811,488,118.47	0.00%
MICROFINANCE MAXIMUM SB INC	Thrift Bank	0.00	0.00	0.00	59,380,718.51	59,380,718.51	0.00%
MIZUHO CORPORATE BANK, LTD. - MANILA BRANCH	U/KB	0.00	0.00	0.00	1,441,815,862.96	1,441,815,862.96	0.00%
NORTHPOINT DEVELOPMENT BANK INC	Thrift Bank	0.00	0.00	0.00	74,784,706.83	74,784,706.83	0.00%
OPPORTUNITY KAUSWAGAN BANK INC (A MICROFINANCE THRIFT BANK)	Thrift Bank	0.00	0.00	0.00	65,785,965.21	65,785,965.21	0.00%
OPTIMUM DEVELOPMENT BANK INC	Thrift Bank	0.00	0.00	0.00	712,005,019.73	712,005,019.73	0.00%
PACIFIC ACE SAVINGS BANK INC	Thrift Bank	0.00	0.00	0.00	74,197,418.90	74,197,418.90	0.00%
PAMPANGA DEVELOPMENT BANK	Thrift Bank	0.00	0.00	0.00	113,624,759.84	113,624,759.84	0.00%
PENBANK INC (A PDB) (FORMERLY: PENINSULA RB INC)	Thrift Bank	0.00	0.00	0.00	60,776,082.37	60,776,082.37	0.00%
PHILIPPINE BANK OF COMMUNICATIONS	U/KB	0.00	0.00	0.00	5,368,160,351.75	5,368,160,351.75	0.00%
PHILIPPINE BUSINESS BANK INC (A SAVINGS BANK)	Thrift Bank	0.00	0.00	0.00	7,154,855,472.70	7,154,855,472.70	0.00%
PHILIPPINE NATIONAL BANK	U/KB	0.00	0.00	0.00	75,389,633,814.34	75,389,633,814.34	0.00%
PHILIPPINE POSTAL SAVINGS BANK INC	Thrift Bank	0.00	0.00	0.00	753,072,008.18	753,072,008.18	0.00%
PHILIPPINE RESOURCES SAVINGS BANKING CORPORATION	Thrift Bank	0.00	0.00	0.00	1,444,810,331.28	1,444,810,331.28	0.00%
PHILIPPINE SAVINGS BANK	Thrift Bank	0.00	0.00	0.00	16,431,300,642.56	16,431,300,642.56	0.00%
PHILIPPINE TRUST COMPANY	U/KB	0.00	0.00	0.00	19,325,487,937.77	19,325,487,937.77	0.00%
PHILIPPINE VETERANS BANK	U/KB	0.00	0.00	0.00	7,274,715,194.50	7,274,715,194.50	0.00%
PRIDE STAR DEVELOPMENT BANK INC	Thrift Bank	0.00	0.00	0.00	69,952,802.55	69,952,802.55	0.00%
PRODUCERS SAVINGS BANK CORPORATION	Thrift Bank	0.00	0.00	0.00	1,143,633,294.44	1,143,633,294.44	0.00%
PROGRESS SAVINGS AND LOAN BANK INC	Thrift Bank	0.00	0.00	0.00	83,851,283.88	83,851,283.88	0.00%
QUEEN CITY DEVELOPMENT BANK INC	Thrift Bank	0.00	0.00	0.00	665,872,938.03	665,872,938.03	0.00%
QUEZON COCONUT BANK INC (A THRIFT BANK)	Thrift Bank	0.00	0.00	0.00	58,137,795.88	58,137,795.88	0.00%
RCBC SAVINGS BANK INC	Thrift Bank	0.00	0.00	0.00	7,446,561,848.19	7,446,561,848.19	0.00%
RIZAL COMMERCIAL BANKING CORPORATION	U/KB	0.00	0.00	0.00	45,733,731,017.79	45,733,731,017.79	0.00%
ROBINSONS BANK CORPORATION	U/KB	0.00	0.00	0.00	5,593,386,942.73	5,593,386,942.73	0.00%
SAMPAGUITA SAVINGS BANK INC	Thrift Bank	0.00	0.00	0.00	56,198,308.44	56,198,308.44	0.00%
SECURITY BANK CORPORATION	U/KB	0.00	0.00	0.00	38,031,802,693.36	38,031,802,693.36	0.00%
SILANGAN SAVINGS & LOAN BANK INC	Thrift Bank	0.00	0.00	0.00	10,024,231.84	10,024,231.84	0.00%
STANDARD CHARTERED BANK	U/KB	0.00	0.00	0.00	2,436,791,613.93	2,436,791,613.93	0.00%
STERLING BANK OF ASIA INC (A SAVINGS BANK)	Thrift Bank	0.00	0.00	0.00	1,855,253,921.92	1,855,253,921.92	0.00%
SUN SAVINGS BANK INC	Thrift Bank	0.00	0.00	0.00	107,378,430.56	107,378,430.56	0.00%
THE BANK OF TOKYO-MITSUBISHI UFJ LTD	U/KB	0.00	0.00	0.00	2,045,511,752.87	2,045,511,752.87	0.00%
THE HONGKONG & SHANGHAI BANKING CORPORATION	U/KB	0.00	0.00	0.00	5,581,816,737.16	5,581,816,737.16	0.00%
THE REAL BANK (A THRIFT BANK) INC	Thrift Bank	0.00	0.00	0.00	954,716,904.11	954,716,904.11	0.00%
TONG YANG SAVINGS BANK INC	Thrift Bank	0.00	0.00	0.00	370,323,576.74	370,323,576.74	0.00%
TOWER DEVELOPMENT BANK	Thrift Bank	0.00	0.00	0.00	115,297,510.57	115,297,510.57	0.00%
UCPB SAVINGS BANK	Thrift Bank	0.00	0.00	0.00	2,481,150,558.49	2,481,150,558.49	0.00%
UNION BANK OF THE PHILIPPINES	U/KB	0.00	0.00	0.00	40,873,093,422.58	40,873,093,422.58	0.00%
UNITED OVERSEAS BANK PHILIPPINES	Thrift Bank	0.00	0.00	0.00	675,479,081.15	675,479,081.15	0.00%
UNIVERSITY SAVINGS BANK INC	Thrift Bank	0.00	0.00	0.00	213,182,990.10	213,182,990.10	0.00%
VILLAGE BANK INC (A THRIFT BANK)	Thrift Bank	0.00	0.00	0.00	74,691,166.15	74,691,166.15	0.00%
WORLD PARTNERS BANK (A THRIFT BANK)	Thrift Bank	0.00	0.00	0.00	102,977,631.01	102,977,631.01	0.00%
Grand Total		12,895,804,170.23	0.00	12,895,804,170.23	993,777,859,994.47	980,882,055,824.24	1.30%

Source: www.bsp.gov.ph

Philippine Banking System
Deferred Charges Not Yet Written Down
Impact on Retained Earnings
In Php
June 30, 2013
Bank	Unbooked Losses	RE	Adjusted RE	Impact on RE
BATAAN DEVELOPMENT BANK	16,965,155.73	2,552,367.77	-14,412,787.96	664.68%
UNITED COCONUT PLANTERS BANK	9,841,900,553.53	6,072,377,000.13	-3,769,523,553.40	162.08%
PLANTERS DEVELOPMENT BANK	1,854,485,204.61	1,959,724,386.02	105,239,181.41	94.63%
WEALTH DEVELOPMENT BANK CORPORATION	4,438,500.08	65,710,269.24	61,271,769.16	6.75%
CITY SAVINGS BANK INC	46,786,327.05	2,106,371,414.79	2,059,585,087.74	2.22%
BDO UNIBANK, INC.	178,670,895.07	34,499,955,481.52	34,321,284,586.45	0.52%
FARMERS SAVINGS & LOAN BANK INC	3,287.31	33,093,490.13	33,090,202.82	0.01%
SECURITY BANK SAVINGS CORPORATION	1,308,127.45	-914,299,921.67	-915,608,049.12	-0.14%
CITIBANK SAVINGS INC	113,883,505.12	-2,714,137,849.52	-2,828,021,354.64	-4.20%
BANK OF COMMERCE	832,474,544.31	-4,297,945,777.88	-5,130,420,322.19	-19.37%
CARD SME BANK INC A THRIFT BANK	4,888,069.97	-6,436,878.43	-11,324,948.40	-75.94%
Grand Total	12,895,804,170.23	36,806,963,982.10	23,911,159,811.87	35.04%

Source: www.bsp.gov.ph