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Monday, June 15, 2015

Overstated Capital of Philippine Banks as of December 31, 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 December 31, 2014:

  1. Planters Development Bank (Deferred Charges of 65.44% of SE)
  2. United Coconut Planters Bank (Deferred Charges of 51.57% of SE)
  3. Bataan Development Bank (Deferred Charges of 14.31% of SE)
  4. City Savings Bank (Deferred Charges of 5.96% of SE)
  5. Bank of Commerce (Deferred Charges of 2.64% of SE)
  6. Card SME Bank, Inc. (Deferred Charges of 0.79% of SE)
  7. Wealth Development Bank Corporation (Deferred Charges of 0.62% of SE)
  8. Banco De Oro Unibank, Inc. (Deferred Charges of 0.04% 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 September 30, 2014:

  1. United Coconut Planters Bank (Distressed Ratio of 301.17%)
  2. Planters Development Bank  (Distressed Ratio of 209.85%)
  3. Bank of Commerce (Distressed Ratio of 186.75%)
  4. Bataan Development Bank (Distressed Ratio of 144.11%)

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

  1. Planters Development Bank (Deferred Charges of 65.44% of SE)
  2. United Coconut Planters Bank (Deferred Charges of 51.57% 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 December 31, 2014:

  1. Card SME Bank Inc. (Deferred Charges 47.66% of RE)
  2. City Savings Bank (Deferred Charges 11.84% of RE)
  3. Wealth Development Bank Corporation (Deferred Charges 2.76% of RE)
  4. Banco De Oro Unibank (Deferred Charges of 0.13% 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 1240.95% of RE)
  2. United Coconut Planters Bank (Deferred Charges of 293.83% of RE)
  3. Bataan Development Bank (Deferred Charges of 144.35% 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 4.285 billion vs. Deferred Charges of Php 411.796 million.


Philippine Banking System
Deferred Charges Not Yet Written Down
Impact on Stockholder's Equity
In Php
December 31, 2014
















Bank Type of Bank Deferred Charges Unbooked Losses Total Deferred Charges Stockholder's Equity Adjusted SE Impact on SE
PLANTERS DEVELOPMENT BANK Thrift 1,431,771,653.38 0.00 1,431,771,653.38 2,187,804,734.29 756,033,080.91 65.44%
UNITED COCONUT PLANTERS BANK U/KB 9,841,900,553.53 0.00 9,841,900,553.53 19,085,612,213.74 9,243,711,660.21 51.57%
BATAAN DEVELOPMENT BANK Thrift 10,240,410.34 0.00 10,240,410.34 71,576,468.39 61,336,058.05 14.31%
CITY SAVINGS BANK Thrift 355,856,047.88 0.00 355,856,047.88 5,971,597,899.22 5,615,741,851.34 5.96%
BANK OF COMMERCE U/KB 411,796,414.53 0.00 411,796,414.53 15,588,633,047.75 15,176,836,633.22 2.64%
CARD SME BANK INC A THRIFT BANK Thrift 3,006,866.96 0.00 3,006,866.96 380,897,597.73 377,890,730.77 0.79%
WEALTH DEVELOPMENT BANK CORPORATION Thrift 2,553,644.54 0.00 2,553,644.54 413,815,470.23 411,261,825.69 0.62%
BDO UNIBANK INC U/KB 67,771,718.95 0.00 67,771,718.95 179,059,857,129.42 178,992,085,410.47 0.04%
FARMERS SAVINGS & LOAN BANK INC Thrift 4,826.61 0.00 4,826.61 107,747,607.25 107,742,780.64 0.00%
Grand Total
12,124,902,136.72 0.00 12,124,902,136.72 222,867,542,168.02 210,742,640,031.30 5.44%

Philippine Banking System
Deferred Charges Not Yet Written Down
Impact on Retained Earnings
In Php
December 31, 2014










Bank Total Deferred Charges RE Adjusted RE Impact on RE
PLANTERS DEVELOPMENT BANK 1,431,771,653.38 115,377,483.78 -1,316,394,169.60 1240.95%
UNITED COCONUT PLANTERS BANK 9,841,900,553.53 3,349,568,824.03 -6,492,331,729.50 293.83%
BATAAN DEVELOPMENT BANK 10,240,410.34 7,094,070.48 -3,146,339.86 144.35%
CARD SME BANK INC A THRIFT BANK 3,006,866.96 6,308,551.11 3,301,684.15 47.66%
CITY SAVINGS BANK 355,856,047.88 3,006,314,332.62 2,650,458,284.74 11.84%
WEALTH DEVELOPMENT BANK CORPORATION 2,553,644.54 92,488,259.05 89,934,614.51 2.76%
BDO UNIBANK INC 67,771,718.95 51,123,654,299.37 51,055,882,580.42 0.13%
FARMERS SAVINGS & LOAN BANK INC 4,826.61 41,778,127.35 41,773,300.74 0.01%
BANK OF COMMERCE 411,796,414.53 -4,285,048,695.43 -4,696,845,109.96 -9.61%
Grand Total 12,124,902,136.72 53,457,535,252.36 41,332,633,115.64 22.68%

Source: www.bsp.gov.ph

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