Overstated Capital of Philippine Banks as of March 31, 2016

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, seven banks have Deferred Charges as of March 31, 2016:

1. United Coconut Planters Bank (Deferred Charges of 24.53% of SE)
2. Bataan Development Bank (Deferred Charges of 13.42% of SE)
3. China Bank Savings Inc (Deferred Charges of 13.06% of SE)
4. City Savings Bank (Deferred Charges of 6.39% of SE)
5. Bank of Commerce (Deferred Charges of 1.19% of SE)
6. Wealth Development Bank Corporation (Deferred Charges of 0.61% of SE)
7. Card SME Bank, Inc. (Deferred Charges of 0.42% of SE)

It must be noted that four of these banks were ranked as  distressed (highlighted in yellow) as of December 31, 2015:

1. United Coconut Planters Bank (Distressed Ratio of 429.17%)
2. China Bank Savings Inc  (Distressed Ratio of 166.75%)
3. Bank of Commerce (Distressed Ratio of 152.62%)
4. Bataan Development Bank (Distressed Ratio of 128.57)

For more information on distressed banks, please see the previous blog post: "The Top Distressed Philippine Banks as of December 31, 2015.



Retained Earnings

Only five banks have sufficient Retained Earnings (RE) to absorb their unbooked losses as of March 31, 2016:

1. United Coconut Planters Bank (85.25% of RE)
2. Bataan Development Bank (67.02% of RE)
3. CARD SME Bank (58.98% of RE)
4. City Savings Bank (Deferred Charges (7.93% of RE)
5. Wealth Development Bank Corporation (4.96% 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 4.134 billion vs. Deferred Charges of Php 188.459 million.
2. China Bank Savings Inc (Retained Earnings of - PhP 2.334 billion vs. Deferred Charges of Php 925.865 million

Philippine Banking System
Deferred Charges Not Yet Written Down
Impact on Stockholder's Equity
In Php
March 31, 2016
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	4,690,746,199.58	0.00	4,690,746,199.58	19,119,359,922.50	14,428,613,722.92	24.53%
BATAAN DEVELOPMENT BANK	Thrift	10,075,723.35	0.00	10,075,723.35	75,058,838.36	64,983,115.01	13.42%
CHINA BANK SAVINGS INC	Thrift	925,864,975.09	0.00	925,864,975.09	7,091,924,010.19	6,166,059,035.10	13.06%
CITY SAVINGS BANK	Thrift	591,045,626.57	0.00	591,045,626.57	9,245,302,494.26	8,654,256,867.69	6.39%
BANK OF COMMERCE	U/KB	188,459,328.14	0.00	188,459,328.14	15,809,033,366.75	15,620,574,038.61	1.19%
WEALTH DEVELOPMENT BANK CORPORATION	Thrift	2,718,615.84	0.00	2,718,615.84	445,256,651.07	442,538,035.23	0.61%
CARD SME BANK INC A THRIFT BANK	Thrift	2,370,926.96	0.00	2,370,926.96	567,016,771.25	564,645,844.29	0.42%
Grand Total		6,411,281,395.53	0.00	6,411,281,395.53	52,352,952,054.38	45,941,670,658.85	12.25%
Philippine Banking System
Deferred Charges Not Yet Written Down
Impact on Retained Earnings
In Php
March 31, 2016
Bank	Total Deferred Charges	RE	Adjusted RE	Impact on RE
UNITED COCONUT PLANTERS BANK	4,690,746,199.58	5,502,464,990.27	811,718,790.69	85.25%
BATAAN DEVELOPMENT BANK	10,075,723.35	15,034,484.77	4,958,761.42	67.02%
CARD SME BANK INC A THRIFT BANK	2,370,926.96	4,019,918.26	155,472,000.38	58.98%
CITY SAVINGS BANK	591,045,626.57	7,451,333,917.84	6,860,288,291.27	7.93%
WEALTH DEVELOPMENT BANK CORPORATION	2,718,615.84	54,854,483.82	52,135,867.98	4.96%
BANK OF COMMERCE	188,459,328.14	-4,134,443,031.21	-4,322,902,359.35	-4.56%
CHINA BANK SAVINGS INC	925,864,975.09	-2,334,483,319.89	-3,260,348,294.98	-39.66%
Grand Total	6,411,281,395.53	6,558,781,443.86	301,323,057.41	97.75%

Source: www.bsp.gov.ph