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Monday, January 13, 2014

A Short Analysis of Recent Bank Failures since the Failure of Banco Filipino - Updated

Today, news reports came out that the Cavite-based Silangan Savings and Loan Bank, Inc. was closed by regulators BSP last Thursday, January 9, 2014.  The bank was small, having just 1,367 deposit accounts and Php 72.49 million in deposit liabilities as of September 30, 2013.  According to the news reports, less than 1% of those deposits are uninsured, leaving an overwhelming 99% of deposits accounts intact but inconvenienced by the closure.

This bank is the third bank (thrift bank or larger) to fail since the spectacular demise of Banco Filipino on March 17, 2011.  There have also been numerous failures of rural and cooperative banks but data on those banks is hard, if not impossible, for an outsider to obtain.

The three banks that failed are as follows:

  1. LBC Development Bank (closed September 9, 2011)
  2. Export and Industry Bank (closed April 27, 2012)
  3. Silangan Savings and Loan Bank (closed January 9, 2014)
Here is a table of some of their relevant information and ratios:

Recent Philippine Bank Failures/Closures
Since March 17, 2011 (Outside of Banco Filipino)

LBC Development Bank Export and Industry Bank Silangan Savings and Loan Bank
Date of Failure/Closure September 9, 2011 April 27, 2012 January 9, 2014

Latest Published Statement of Condition from BSP June 30, 2011 June 30, 2011 September 30, 2013

Capital Adequacy Ratio

Total CAR (BSP Minimum 10.00%) 6.59 -5.12 10.18
Tier 1 CAR (BSP Minimum 10.00%) 6.55 -5.11 10.18


Gross NPLs/Gross TLP 32.32% 7.89% 54.09%
Gross NPLs/SE 69.73% 14.26% 192.93%


DOSRI/TLP 2.16% 0.09% 9.26%
DOSRI/SE 4.65% 0.17% 33.03%
DOSRI Past Due/DOSRI 0.00% 0.00% 100.00%

Classified Loans

Classified Loans/Gross NPLs 226.21% 79.94% 82.88%
Classified Loans/Total Capital Cushion 90.65% 6.57% 30.98%

Distressed Assets

Distressed Assets/Total Capital Cushion 781.95% 862.13% 124.22%

* Some ratios are based on Net Total Loan Portfolio and not Gross Total Loan Portfolio


Nothing in Common

Based on the table above, the bank had very little in common that can be pinpointed as a source of failure.  Two banks, LBC Development Bank (LBC) and Export and Industry Bank (EIB) , had Capital Adequacy Ratios below the BSP minimum standard of 10.00 but Silangan Savings and Loan Bank (Silangan), the most recent bank to fail, had Capital Adequacy Ratios of at least 10.00 as of September 30, 2013.

In terms of NPLs, both LBC and Silangan had relatively high NPL ratios but EIB did not. Likewise, LBC and EIB had very little in terms of reported DOSRI loans but Silangan had a high level of DOSRI loans.  Moreover, 100% of its DOSRI Loans were past due.  As it turned out, both LBC and EIB had strong indications of fraud and self-dealing.  Is this the case with Silangan? Maybe so but it's too early to tell.

The same holds true for their level of Classified Loans.  They all had varying levels of Classified Loans relative to their NPLs and relative to their Total Capital Cushion.

So What Did They Have In Common: High Levels of Distressed Assets:

At the time of failure, all three banks had high levels of Distressed Assets relative to their Total Capital Cushion.  All of their Distressed Asset Ratios were above 100% and were flagged as borderline insolvent.


LBC had a distressed ratio of 781.95% right before closure because a lot of their assets were in the form of "Other Assets" instead of Loans. LBC was highlighted as a distressed bank (using its December 31, 2010 financial statements) with this blog post: "LBC Development Bank bites the dust, Are there other LBC's out there waiting to implode?" and with this blog post: "Are there other banks ready to implode? - Thrift Bank Edition as of March 31, 2011"


EIB's Distressed Ratio was high because it had a very high level of unbooked losses masquerading as assets.  In reality, it had a negative capital base since 2005 and had never recovered since then. EIB was highlighted  several times, beginning with this blog post: "Slight Deterioration in the Solvency of Listed Philippine Banks", and this one, "Export and Industry Bank Becomes Even More Insolvent! - September 30, 2011", and lastly this one, "Time is Running Out for Export and Industry Bank"


As can be seen from the chart above.  Silangan, the most recent failure, had a Distressed Asset Ratio of just 124.22% as of September 30, 2013 (latest available Published Statement of Condition).  The bank had been flagged as borderline insolvent at least a year earlier, since June 30, 2012, with a Distressed Asset Ratio of 112.16% (See this blog post: "The Top Distressed Philippine Banks as of June 30, 2012".  This ratio continued to climb above this level, reaching a peak of 125.55% by the second quarter of 2013.  This stood roughly at par with Philippine National Bank and higher than Philippine Veterans Bank.  There are at least 26 banks with Distressed Asset Ratios higher than Silangan's.  That list can be found here.

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