Overstated Capital of Philippine Banks as of December 31, 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, eight banks have Deferred Charges as of December 31, 2015:

1. Planters Development Bank (Deferred Charges of 33.01% of SE)
2. United Coconut Planters Bank (Deferred Charges of 26.70% of SE)
3. Bataan Development Bank (Deferred Charges of 11.14% of SE)
4. City Savings Bank (Deferred Charges of 6.29% of SE)
5. Bank of Commerce (Deferred Charges of 1.36% of SE)
6. Card SME Bank, Inc. (Deferred Charges of 0.45% of SE)
7. Wealth Development Bank Corporation (Deferred Charges of 0.20% of SE)
8. Farmers Savings and Loan Bank (Deferred Charges of 0.01% of SE)

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

1. United Coconut Planters Bank (Distressed Ratio of 325.14%)
2. Planters Development Bank  (Distressed Ratio of 221.37%)
3. Bank of Commerce (Distressed Ratio of 148.92%)
4. Bataan Development Bank (Distressed Ratio of 132.68)

For more information on distressed banks, please see the previous blog post: "The Top Distressed Philippine Banks as of September 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. Planters Development Bank (Deferred Charges of 33.01% of SE)
2. United Coconut Planters Bank (Deferred Charges of 26.70% of SE)

Naturally, these banks are considered distressed.

Retained Earnings

Only three banks have sufficient Retained Earnings (RE) to absorb their unbooked losses as of September 30, 2015:

1. CARD SME Bank (63.20% of RE)
2. City Savings Bank (Deferred Charges (11.11% of RE)
3. Farmers Savings and Loan Bank, Inc. (Deferred Charges of 0.02% of RE)

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

1. United Coconut Planters Bank (Deferred Charges of 183.25% of RE)
2. Bataan Development Bank (Deferred Charges of 120.85% 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 4.309 billion vs. Deferred Charges of Php 209.672 million.
2. Planters Development Bank (Retained Earnings of - PhP 436.012 million vs. Deferred Charges of Php 1.051 billion.

Philippine Banking System
Deferred Charges Not Yet Written Down
Impact on Stockholder's Equity
In Php
December 31, 2015
Bank	Type of Bank	Deferred Charges	Unbooked Losses	Total Deferred Charges	Stockholder's Equity	Adjusted SE	Impact on SE
PLANTERS DEVELOPMENT BANK	Thrift	1,051,320,109.30	0.00	1,051,320,109.30	3,184,481,331.93	2,133,161,222.63	33.01%
UNITED COCONUT PLANTERS BANK	U/KB	4,690,746,199.58	0.00	4,690,746,199.58	17,569,627,240.59	12,878,881,041.01	26.70%
BATAAN DEVELOPMENT BANK	Thrift	8,680,259.50	0.00	8,680,259.50	77,886,567.78	69,206,308.28	11.14%
CITY SAVINGS BANK	Thrift	539,002,486.21	0.00	539,002,486.21	8,569,924,286.17	8,030,921,799.96	6.29%
BANK OF COMMERCE	U/KB	209,671,603.34	0.00	209,671,603.34	15,372,861,790.21	15,163,190,186.87	1.36%
CARD SME BANK INC A THRIFT BANK	Thrift	2,540,510.96	0.00	2,540,510.96	567,925,344.72	565,384,833.76	0.45%
WEALTH DEVELOPMENT BANK CORPORATION	Thrift	810,202.50	0.00	810,202.50	402,206,774.22	401,396,571.72	0.20%
FARMERS SAVINGS & LOAN BANK INC	Thrift	6,349.72	0.00	6,349.72	111,857,927.21	111,851,577.49	0.01%
Grand Total		6,502,777,721.11	0.00	6,502,777,721.11	45,856,771,262.83	39,353,993,541.72	14.18%
Philippine Banking System
Deferred Charges Not Yet Written Down
Impact on Retained Earnings
In Php
December 31, 2015
Bank	Total Deferred Charges	RE	Adjusted RE	Impact on RE
UNITED COCONUT PLANTERS BANK	4,690,746,199.58	2,559,707,990.17	-2,131,038,209.41	183.25%
BATAAN DEVELOPMENT BANK	8,680,259.50	7,182,700.11	-1,497,559.39	120.85%
CARD SME BANK INC A THRIFT BANK	2,540,510.96	4,019,918.26	1,479,407.30	63.20%
CITY SAVINGS BANK	539,002,486.21	4,849,480,670.85	4,310,478,184.64	11.11%
FARMERS SAVINGS & LOAN BANK INC	6,349.72	42,209,511.48	42,203,161.76	0.02%
BANK OF COMMERCE	209,671,603.34	-4,099,565,590.12	-4,309,237,193.46	-5.11%
PLANTERS DEVELOPMENT BANK	1,051,320,109.30	-436,011,644.82	-1,487,331,754.12	-241.12%
Grand Total	6,501,967,518.61	2,927,023,555.93	-3,574,943,962.68	222.14%

Source: www.bsp.gov.ph