Overstated Capital of Philippine Banks as of June 30, 2014

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 June 30, 2014:

1. Planters Development Bank (Deferred Charges of 57.72% of SE)
2. United Coconut Planters Bank (Deferred Charges of 47.13% of SE)
3. Bataan Development Bank (Deferred Charges of 15.47% of SE)
4. City Savings Bank (Deferred Charges of 5.94% of SE)
5. Bank of Commerce (Deferred Charges of 4.00% of SE)
6. Card SME Bank, Inc. (Deferred Charges of 1.52% of SE)
7. Wealth Development Bank Corporation (Deferred Charges of 0.46% of SE)
8. Citibank Savings Inc. (Deferred Charges of 0.36% of SE)
9. Banco De Oro Unibank, Inc. (Deferred Charges of 0.06% of SE)
10. Farmers Savings and Loan Bank (Deferred Charges of 0.00% of SE)

It must be noted that four of these banks were ranked as  distressed (highlighted in yellow) as of March 31, 2014:

1. United Coconut Planters Bank (Distressed Ratio of 302.59%)
2. Planters Development Bank  (Distressed Ratio of 228.23%)
3. Bank of Commerce (Distressed Ratio of 184.73%)
4. Bataan Development Bank (Distressed Ratio of 143.59%)

For more information on distressed banks, please see the previous blog post: "The Top Distressed Philippine Banks as of December 31, 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 March 31, 2014:

1. Planters Development Bank (Deferred Charges of 56.20% of SE)
2. United Coconut Planters Bank (Deferred Charges of 49.51% of SE)

Naturally, these banks are considered distressed.

Retained Earnings

Only five banks have sufficient Retained Earnings (RE) to absorb their unbooked losses as of June 30, 2014:

1. Card SME Bank Inc. (Deferred Charges 12.73% of RE)
2. City Savings Bank (Deferred Charges 9.70% of RE)
3. Wealth Development Bank Corporation (Deferred Charges 1.96% of RE)
4. Banco De Oro Unibank (Deferred Charges of 0.20% of RE)
5. Farmers Savings and Loan Bank, Inc. (Deferred Charges of 0.01% of RE)

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

1. Planters Development Bank (Deferred Charges of 1328.36% of RE)
2. Bataan Development Bank (Deferred Charges of 152.10% of RE)
3. United Coconut Planters Bank (Deferred Charges of 139.35% of RE)

Two of the banks with  Deferred Charges has negative Retained Earnings.  As such, it does not have the capacity to absorb additional losses.

1. Bank of Commerce (Retained Earnings of - PhP 4.757 billion vs. Deferred Charges of Php 552.022 million)
2. Citibank Savings Inc (Retained Earnings of -Php 3.208 billion vs. Deferred Charges of Php 3.334 million)

For more information of these Deferred Charges, please consult the previous blog posts: "Overstated Capital of Philippine Banks as of March 31, 2014", "Overstated Capital of Philippine Banks as of December 31, 2013", "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
June 30, 2014
Bank	Type of Bank	Deferred Charges	Unbooked Losses	Total Deferred Charges	Stockholder's Equity	Adjusted SE	Impact on SE
PLANTERS DEVELOPMENT BANK	Thrift	1,599,045,165.77	0.00	1,599,045,165.77	2,770,525,271.24	1,171,480,105.47	57.72%
UNITED COCONUT PLANTERS BANK	U/KB	9,841,900,553.53	0.00	9,841,900,553.53	20,882,259,694.88	11,040,359,141.35	47.13%
BATAAN DEVELOPMENT BANK	Thrift	10,647,213.40	0.00	10,647,213.40	68,845,166.07	58,197,952.67	15.47%
CITY SAVINGS BANK	Thrift	291,596,969.29	0.00	291,596,969.29	4,907,979,643.50	4,616,382,674.21	5.94%
BANK OF COMMERCE	U/KB	552,022,457.79	0.00	552,022,457.79	13,804,019,099.41	13,251,996,641.62	4.00%
CARD SME BANK INC A THRIFT BANK	Thrift	4,498,412.49	0.00	4,498,412.49	296,679,524.16	292,181,111.67	1.52%
WEALTH DEVELOPMENT BANK CORPORATION	Thrift	1,812,602.18	0.00	1,812,602.18	390,594,149.30	388,781,547.12	0.46%
CITIBANK SAVINGS INC	Thrift	3,333,605.06	0.00	3,333,605.06	920,744,421.35	917,410,816.29	0.36%
BDO UNIBANK INC	U/KB	104,738,110.99	0.00	104,738,110.99	168,097,783,002.20	167,993,044,891.21	0.06%
FARMERS SAVINGS & LOAN BANK INC	Thrift	2,573.87	0.00	2,573.87	116,029,094.22	116,026,520.35	0.00%
Grand Total		12,409,597,664.37	0.00	12,409,597,664.37	212,255,459,066.33	199,845,861,401.96	5.85%

Philippine Banking System
Deferred Charges Not Yet Written Down
Impact on Retained Earnings
In Php
June 30, 2014
Bank	Unbooked Losses	RE	Adjusted RE	Impact on RE
BANK OF COMMERCE	552,022,457.79	-4,757,113,725.10	-5,309,136,182.89	-11.60%
CITIBANK SAVINGS INC	3,333,605.06	-3,207,981,923.16	-3,211,315,528.22	-0.10%
FARMERS SAVINGS & LOAN BANK INC	2,573.87	41,770,524.14	41,767,950.27	0.01%
BDO UNIBANK INC	104,738,110.99	51,161,686,064.58	51,056,947,953.59	0.20%
WEALTH DEVELOPMENT BANK CORPORATION	1,812,602.18	92,488,259.05	90,675,656.87	1.96%
CITY SAVINGS BANK	291,596,969.29	3,006,314,332.62	2,714,717,363.33	9.70%
CARD SME BANK INC A THRIFT BANK	4,498,412.49	35,342,429.47	30,844,016.98	12.73%
UNITED COCONUT PLANTERS BANK	9,841,900,553.53	7,062,799,390.45	-2,779,101,163.08	139.35%
BATAAN DEVELOPMENT BANK	10,647,213.40	7,000,070.48	-3,647,142.92	152.10%
PLANTERS DEVELOPMENT BANK	1,599,045,165.77	120,377,483.78	-1,478,667,681.99	1328.36%
Grand Total	12,409,597,664.37	53,562,682,906.31	41,153,085,241.94	23.17%

Source: www.bsp.gov.ph