Overstated Capital of Philippine Banks as of September 30, 2015

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, 2015:

1. United Coconut Planters Bank (Deferred Charges of 39.98% of SE)
2. Planters Development Bank (Deferred Charges of 33.57% of SE)
3. Bataan Development Bank (Deferred Charges of 11.50% of SE)
4. City Savings Bank (Deferred Charges of 6.21% of SE)
5. Bank of Commerce (Deferred Charges of 1.52% of SE)
6. Card SME Bank, Inc. (Deferred Charges of 0.47% of SE)
7. Wealth Development Bank Corporation (Deferred Charges of 0.19% of SE)
8. Banco De Oro Unibank, Inc. (Deferred Charges of 0.01% of SE)
9. Farmers Savings and Loan Bank (Deferred Charges of 0.00% of SE)

It must be noted that five of these banks were ranked as  distressed (highlighted in yellow) as of June 30, 2015:

1. United Coconut Planters Bank (Distressed Ratio of 329.00%)
2. Planters Development Bank  (Distressed Ratio of 233.86%)
3. Bank of Commerce (Distressed Ratio of 147.91%)
4. Bataan Development Bank (Distressed Ratio of 135.84%)
5. Wealth Development Bank Corporation (Distressed Ratio of 113.34%)

For more information on distressed banks, please see the previous blog post: "The Top Distressed Philippine Banks as of June 30, 2015.

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 September 30, 2015:

1. United Coconut Planters Bank (Deferred Charges of 39.98% of SE)
2. Planters Development Bank (Deferred Charges of 33.57% 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 March 31, 2015:

1. City Savings Bank (Deferred Charges 10.07% of RE)
2. Card SME Bank Inc (Deferred Charges 4.86% of RE)
3. Wealth Development Bank Corporation (Deferred Charges 1.00% of RE)
4. BDO Unibank (Deferred Charges of 0.02% of RE)
5. Farmers Savings and Loan Bank, Inc. (Deferred Charges of 0.01% of RE)

For two banks with overstated capital, Deferred Charges will exceed their Retained Earnings:

1. United Coconut Planters Bank (Deferred Charges of 131.30% of RE)
2. Bataan Development Bank (Deferred Charges of 103.10% 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 4.389 billion vs. Deferred Charges of Php 229.771 million.
2. Planters Development Bank (Retained Earnings of - PhP 436.012 million vs. Deferred Charges of Php 1.148 billion

Philippine Banking System
Deferred Charges Not Yet Written Down
Impact on Stockholder's Equity
In Php
September 30, 2015
Bank	Type of Bank	Deferred Charges	Unbooked Losses	Total Deferred Charges	Stockholder's Equity	Adjusted SE	Impact on SE
UNITED COCONUT PLANTERS BANK	U/KB	8,284,746,199.58	0.00	8,284,746,199.58	20,719,936,917.67	12,435,190,718.09	39.98%
PLANTERS DEVELOPMENT BANK	Thrift	1,148,009,066.86	0.00	1,148,009,066.86	3,420,157,260.19	2,272,148,193.33	33.57%
BATAAN DEVELOPMENT BANK	Thrift	9,011,344.94	0.00	9,011,344.94	78,385,234.48	69,373,889.54	11.50%
CITY SAVINGS BANK	Thrift	488,441,062.18	0.00	488,441,062.18	7,859,388,416.43	7,370,947,354.25	6.21%
BANK OF COMMERCE	U/KB	229,770,509.95	0.00	229,770,509.95	15,133,153,608.97	14,903,383,099.02	1.52%
CARD SME BANK INC A THRIFT BANK	Thrift	2,625,302.96	0.00	2,625,302.96	555,733,939.98	553,108,637.02	0.47%
WEALTH DEVELOPMENT BANK CORPORATION	Thrift	810,202.50	0.00	810,202.50	422,479,800.69	421,669,598.19	0.19%
BDO UNIBANK INC	U/KB	12,322,130.89	0.00	12,322,130.89	191,548,843,479.44	191,536,521,348.55	0.01%
FARMERS SAVINGS & LOAN BANK INC	Thrift	2,353.28	0.00	2,353.28	111,211,942.89	111,209,589.61	0.00%
Grand Total		10,175,738,173.14	0.00	10,175,738,173.14	239,849,290,600.74	229,673,552,427.60	4.24%
Philippine Banking System
Deferred Charges Not Yet Written Down
Impact on Retained Earnings
In Php
September 30, 2015
Bank	Total Deferred Charges	RE	Adjusted RE	Impact on RE
UNITED COCONUT PLANTERS BANK	8,284,746,199.58	6,309,707,990.17	-1,975,038,209.41	131.30%
BATAAN DEVELOPMENT BANK	9,011,344.94	8,740,127.21	-271,217.73	103.10%
CITY SAVINGS BANK	488,441,062.18	4,849,480,670.85	4,361,039,608.67	10.07%
CARD SME BANK INC A THRIFT BANK	2,625,302.96	53,970,098.26	51,344,795.30	4.86%
WEALTH DEVELOPMENT BANK CORPORATION	810,202.50	81,060,644.78	80,250,442.28	1.00%
BDO UNIBANK INC	12,322,130.89	65,933,566,296.69	65,921,244,165.80	0.02%
FARMERS SAVINGS & LOAN BANK INC	2,353.28	42,209,998.68	42,207,645.40	0.01%
BANK OF COMMERCE	229,770,509.95	-4,388,470,031.01	-4,618,240,540.96	-5.24%
PLANTERS DEVELOPMENT BANK	1,148,009,066.86	-436,011,644.82	-1,584,020,711.68	-263.30%
Grand Total	10,175,738,173.14	72,454,254,150.81	62,278,515,977.67	14.04%

Source: www.bsp.gov.ph