Overstated Capital of Philippine Banks as of December 31, 2013

On 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, ten banks have Deferred Charges as of December 31, 2013:

1. Planters Development Bank (Deferred Charges of 65.20% of SE)
2. United Coconut Planters Bank (Deferred Charges of 52.01% of SE)
3. Bataan Development Bank (Deferred Charges of 17.71% of SE)
4. Bank of Commerce (Deferred Charges of 5.01% of SE)
5. Citibank Savings Inc. (Deferred Charges of 4.05% of SE)
6. City Savings Bank, Inc. (Deferred Charges of 2.47% of SE)
7. Card SME Bank, Inc. (Deferred Charges of 1.85% of SE)
8. Wealth Development Bank Corporation (Deferred Charges of 1.06% of SE)
9. Banco De Oro Unibank, Inc. (Deferred Charges of 0.09% of SE)
10. Farmers Savings and Loan Bank (Deferred Charges of 0.01% of SE)

It must be noted that five of these banks were ranked as  distressed (highlighted in yellow) as of September 30, 2013:

1. United Coconut Planters Bank (Distressed Ratio of 503.82%)
2. Planters Development Bank  (Distressed Ratio of 271.38%)
3. Bataan Development Bank (Distressed Ratio of 205.93%)
4. Farmers Savings and Loan Bank (Distressed Ratio of 171.06%)
5. Bank of Commerce (Distressed Ratio of 168.79%)

For more information on distressed banks, please see the previous blog post: "The Top Distressed Philippine Banks as of September 30, 2013.

For two of the banks, the immediate booking their Deferred Charges will only serve to impair 25% or more of their Stockholders Equity as of December 31, 2013:

1. Planters Development Bank (Deferred Charges of 65.20% of SE)
2. United Coconut Planters Bank (Deferred Charges of 52.01% of SE)

Naturally, these banks are considered distressed.

Retained Earnings

Only six banks have sufficient Retained Earnings (RE) to absorb their unbooked losses as of December 31, 2013:

1. Planters Development Bank (Deferred Charges of 90.13% of RE)
2. City Savings Bank, Inc. (Deferred Charges of 2.47% of RE)
3. Card SME Bank Inc. (Deferred Charges 1.85% of RE)
4. Wealth Development Bank Corporation (Deferred Charges 1.06% of RE)
5. Banco De Oro Unibank (Deferred Charges of 0.09% of RE)
6. Farmers Savings and Loan Bank, Inc. (Deferred Charges of 0.02% of RE)

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

1. United Coconut Planters Bank (Deferred Charges of 285.18% of RE)
2. Bataan Development Bank (Deferred Charges of 278.19% of RE)

Two of the banks with  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 4.298 billion vs. Deferred Charges of Php 692.248 million)
2. Citibank Savings Inc. (Retained Earnings of - Php 2.719 billion vs. Deferred Charges of Php 64.388 million)

For more information of these Deferred Charges, please consult the previous blog posts: "Overstated Capital of Philippine Banks as of September 30, 2013", "Can Philippine Banks Charge Their Unbooked Losses Against Retained Earnings? - June 30, 2013, "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
December 31, 2013
Bank	Type of Bank	Deferred Charges	Unbooked Losses	Total Deferred Charges	Stockholder's Equity	Adjusted SE	Impact on SE
PLANTERS DEVELOPMENT BANK	Thrift	1,766,318,678.15	0.00	1,766,318,678.15	2,709,190,353.46	942,871,675.31	65.20%
UNITED COCONUT PLANTERS BANK	U/KB	9,841,900,553.53	0.00	9,841,900,553.53	18,923,327,348.00	9,081,426,794.47	52.01%
BATAAN DEVELOPMENT BANK	Thrift	12,083,877.40	0.00	12,083,877.40	68,240,142.11	56,156,264.71	17.71%
BANK OF COMMERCE	U/KB	692,248,501.05	0.00	692,248,501.05	13,817,646,787.11	13,125,398,286.06	5.01%
CITIBANK SAVINGS INC	Thrift	64,387,850.64	0.00	64,387,850.64	1,588,734,573.60	1,524,346,722.96	4.05%
CITY SAVINGS BANK INC	Thrift	77,957,177.94	0.00	77,957,177.94	3,155,445,882.46	3,077,488,704.52	2.47%
CARD SME BANK INC A THRIFT BANK	Thrift	5,081,135.45	0.00	5,081,135.45	274,434,454.71	269,353,319.26	1.85%
WEALTH DEVELOPMENT BANK CORPORATION	Thrift	3,841,403.12	0.00	3,841,403.12	363,668,842.05	359,827,438.93	1.06%
BDO UNIBANK INC	U/KB	141,704,503.03	0.00	141,704,503.03	163,633,762,916.89	163,492,058,413.86	0.09%
FARMERS SAVINGS & LOAN BANK INC	Thrift	6,045.94	0.00	6,045.94	114,015,222.56	114,009,176.62	0.01%
Grand Total		12,605,529,726.25	0.00	12,605,529,726.25	204,648,466,522.95	192,042,936,796.70	6.16%

Philippine Banking System
Deferred Charges Not Yet Written Down
Impact on Retained Earnings
In Php
December 31, 2013
Bank	Unbooked Losses	RE	Adjusted RE	Impact on RE
UNITED COCONUT PLANTERS BANK	9,841,900,553.53	3,451,063,719.56	-6,390,836,833.97	285.18%
BATAAN DEVELOPMENT BANK	12,083,877.40	4,343,794.45	-7,740,082.95	278.19%
PLANTERS DEVELOPMENT BANK	1,766,318,678.15	1,959,724,386.02	193,405,707.87	90.13%
CITY SAVINGS BANK INC	77,957,177.94	3,155,445,882.46	3,077,488,704.52	2.47%
CARD SME BANK INC A THRIFT BANK	5,081,135.45	274,434,454.71	269,353,319.26	1.85%
WEALTH DEVELOPMENT BANK CORPORATION	3,841,403.12	363,668,842.05	359,827,438.93	1.06%
BDO UNIBANK INC	141,704,503.03	163,633,762,916.89	163,492,058,413.86	0.09%
FARMERS SAVINGS & LOAN BANK INC	6,045.94	36,056,247.78	36,050,201.84	0.02%
CITIBANK SAVINGS INC	64,387,850.64	-2,719,271,287.77	-2,783,659,138.41	-2.37%
BANK OF COMMERCE	692,248,501.05	-4,298,717,983.36	-4,990,966,484.41	-16.10%
Grand Total	12,605,529,726.25	165,860,510,972.79	153,254,981,246.54	7.60%

Source: www.bsp.gov.ph