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Monday, February 2, 2015

Overstated Capital of Philippine Banks as of September 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, nine banks have Deferred Charges as of September 30, 2014:
  1. Planters Development Bank (Deferred Charges of 62.50% of SE)
  2. United Coconut Planters Bank (Deferred Charges of 46.17% of SE)
  3. Bataan Development Bank (Deferred Charges of 14.33% of SE)
  4. City Savings Bank (Deferred Charges of 6.34% of SE)
  5. Bank of Commerce (Deferred Charges of 3.5% of SE)
  6. Card SME Bank, Inc. (Deferred Charges of 1.27% of SE)
  7. Wealth Development Bank Corporation (Deferred Charges of 1.22% of SE)
  8. Banco De Oro Unibank, Inc. (Deferred Charges of 0.05% of SE)
  9. 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 June 30, 2014:

  1. United Coconut Planters Bank (Distressed Ratio of 301.61%)
  2. Planters Development Bank  (Distressed Ratio of 264.76%)
  3. Bank of Commerce (Distressed Ratio of 186.19%)
  4. Bataan Development Bank (Distressed Ratio of 143.41%)

For more information on distressed banks, please see the previous blog post: "The Top Distressed Philippine Banks as of June 30, 2014.

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 June 30, 2014:

  1. Planters Development Bank (Deferred Charges of 62.50% of SE)
  2. United Coconut Planters Bank (Deferred Charges of 46.17% 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 September 30, 2014:

  1. Card SME Bank Inc. (Deferred Charges 19.00% of RE)
  2. City Savings Bank (Deferred Charges 11.37% of RE)
  3. Wealth Development Bank Corporation (Deferred Charges 5.00% of RE)
  4. Banco De Oro Unibank (Deferred Charges of 0.17% of RE)
  5. Farmers Savings and Loan Bank, Inc. (Deferred Charges of 0.01% of RE)
For three of the banks with overstated capital, Deferred Charges will exceed their Retained Earnings:
  1. Planters Development Bank (Deferred Charges of 1313.44% of RE)
  2. Bataan Development Bank (Deferred Charges of 144.71% of RE)
  3. United Coconut Planters Bank (Deferred Charges of 139.22% of RE)

One 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 481.909 million.


Philippine Banking System
Deferred Charges Not Yet Written Down
Impact on Stockholder's Equity
In Php
September 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 1,515,408,409.58 0.00 1,515,408,409.58 2,424,611,329.33 909,202,919.75 62.50%
UNITED COCONUT PLANTERS BANK U/KB 9,841,900,553.53 0.00 9,841,900,553.53 21,317,547,899.98 11,475,647,346.45 46.17%
BATAAN DEVELOPMENT BANK Thrift 10,130,048.56 0.00 10,130,048.56 70,712,367.08 60,582,318.52 14.33%
CITY SAVINGS BANK Thrift 341,674,720.56 0.00 341,674,720.56 5,391,556,126.25 5,049,881,405.69 6.34%
BANK OF COMMERCE U/KB 481,909,436.16 0.00 481,909,436.16 13,769,767,063.00 13,287,857,626.84 3.50%
CARD SME BANK INC A THRIFT BANK Thrift 4,330,651.59 0.00 4,330,651.59 340,293,067.27 335,962,415.68 1.27%
WEALTH DEVELOPMENT BANK CORPORATION Thrift 4,623,323.40 0.00 4,623,323.40 378,812,404.40 374,189,081.00 1.22%
BDO UNIBANK INC U/KB 86,254,914.97 0.00 86,254,914.97 172,404,002,715.04 172,317,747,800.07 0.05%
FARMERS SAVINGS & LOAN BANK INC Thrift 3,640.67 0.00 3,640.67 114,330,836.72 114,327,196.05 0.00%
Grand Total
12,286,235,699.02 0.00 12,286,235,699.02 216,211,633,809.07 203,925,398,110.05 5.68%
































































Philippine Banking System


Deferred Charges Not Yet Written Down


Impact on Retained Earnings


In Php


September 30, 2014


















Bank Unbooked Losses RE Adjusted RE Impact on RE


PLANTERS DEVELOPMENT BANK 1,515,408,409.58 115,377,483.78 -1,400,030,925.80 1313.44%


BATAAN DEVELOPMENT BANK 10,130,048.56 7,000,070.48 -3,129,978.08 144.71%


UNITED COCONUT PLANTERS BANK 9,841,900,553.53 7,069,173,592.75 -2,772,726,960.78 139.22%


CARD SME BANK INC A THRIFT BANK 4,330,651.59 22,792,110.51 18,461,458.92 19.00%


CITY SAVINGS BANK 341,674,720.56 3,006,314,332.62 2,664,639,612.06 11.37%


WEALTH DEVELOPMENT BANK CORPORATION 4,623,323.40 92,488,259.05 87,864,935.65 5.00%


BDO UNIBANK INC 86,254,914.97 51,149,005,424.32 51,062,750,509.35 0.17%


FARMERS SAVINGS & LOAN BANK INC 3,640.67 41,778,247.35 41,774,606.68 0.01%


BANK OF COMMERCE 481,909,436.16 -4,756,968,407.08 -5,238,877,843.24 -10.13%


Grand Total 12,286,235,699.02 56,746,961,113.78 44,460,725,414.76 21.65%




Source: www.bsp.gov.ph

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