A Simple Stress Test of Philippine Banks as of June 30, 2016

Editor's Note: This is an updated version of an earlier blog post A Simple Stress Test of Philippine Banks as of June 30, 2016

Editor's Note: For the purposes of this article, Philippine Banks or the Philippine Banking System refers to the Philippine Commercial and Universal Banking System and the Philippine Thrift Banking System.  We are ignoring the Philippine Rural and Cooperative Banking System whose asset base is tiny in comparison to the whole banking system (Php 205.91 billion or 1.64% of the Php 12,545.76 billion in assets held in the Philippine Banking System as of June 30, 2016).


In an April 9, 2012 article entitled "Stress Test Proves Strength of PH Banks", "Philippine banks are seen to survive a disaster in which the various lenders are forced to write off loans as large as PhP 36 billion without asking shareholders, the central bank, or the national government for bailout money."  This assertion stems from a recent stress test conducted by the Bangko Sentral ng Pilipinas (BSP) on all 55 regular and commercial and expanded license banks.

For Philippine Banks, these NPLs currently comprise PhP 133.50 billion or 9.25% of the PhP 1,442.59 billion in Stockholders Equity (SE) as of June 30, 2016.  So, writing off 50% of the Philippine Banks NPLs would reduce their aggregate stockholder's equity by a little less than 5%.

Naturally, some banks would be more affected than others. For more information regarding this, please read "The Top Distressed Philippine Banks as of June 30, 2016").

The stockholder's equity of eleven banks would be severely affected.  These banks are:

1. MBank Philippines (83.74% decline in SE)
2. Philippine Postal Savings Bank Inc (71.17% decline in SE)
3. Luzon Development Bank (59.31% decline in SE)
4. Equicom Savings Bank (51.02% decline in SE)
5. Legazpi Savings Bank Inc (45.58% decline in SE)
6. Opportunity Kauswagan Bank Inc (44.18% decline in SE)
7. Philippine Resources Savings Banking Corporation (40.93% decline in SE)
8. Enterprise Bank Inc (35.44% decline in SE)
9. Bataan Development Bank (32.63% decline in SE)
10. China Bank Savings Inc (32.58% decline in SE)
11. World Partners Bank (31.31% decline in SE)

Philippine Banking System
NPL as % of SE
June 30, 2016
	NPL	SE	NPL/SE
Bank	(In PHP)	(In PHP)	(In %)
MBANK PHILIPPINES (A THRIFT BANK) INC	43,962,199.62	26,250,003.83	167.48%
PHIL POSTAL SAVINGS BANK INC	1,536,950,165.58	1,079,783,540.02	142.34%
LUZON DEVELOPMENT BANK	494,353,264.19	416,733,280.45	118.63%
EQUICOM SAVINGS BANK INC	630,278,538.32	617,618,682.91	102.05%
LEGAZPI SAVINGS BANK INC	452,148,179.99	496,033,557.31	91.15%
OPPORTUNITY KAUSWAGAN BANK INC (A MICROFINANCE THRIFT BANK)	65,330,857.95	73,940,034.23	88.36%
PHILIPPINE RESOURCES SAVINGS BANKING CORPORATION (PR SAVINGS	1,488,786,917.29	1,818,789,489.75	81.86%
ENTERPRISE BANK INC (A THRIFT BANK)	203,795,569.05	287,486,149.99	70.89%
BATAAN DEVELOPMENT BANK	49,870,042.34	76,414,810.12	65.26%
CHINA BANK SAVINGS INC	4,597,231,811.04	7,054,809,000.64	65.16%
WORLD PARTNERS BANK (A THRIFT BANK)	79,014,643.18	126,181,955.23	62.62%
THE PALAWAN BANK (PALAWAN DB) INC	20,480,768.99	36,850,127.77	55.58%
MARITIME SAVINGS BANK CORPORATION	32,410,761.69	64,368,210.04	50.35%
SAMPAGUITA SAVINGS BANK INC	22,793,200.13	53,089,012.16	42.93%
PAMPANGA DEVELOPMENT BANK	54,236,611.11	130,535,813.44	41.55%
BANK OF MAKATI (A SAVINGS BANK) INC	2,532,282,531.41	6,196,653,328.78	40.87%
WEALTH DEVELOPMENT BANK CORPORATION	188,858,007.72	462,431,438.60	40.84%
PENBANK INC (A PDB) (FORMERLY: PENINSULA RB INC)	148,090,024.00	372,746,052.35	39.73%
STERLING BANK OF ASIA INC (A SAVINGS BANK)	998,463,824.41	2,623,486,972.12	38.06%
METRO CEBU PUBLIC SAVINGS BANK	18,411,436.08	49,669,560.96	37.07%
PHILIPPINE VETERANS BANK	1,622,350,451.99	4,677,546,607.90	34.68%
MALAYAN BANK SAVINGS AND MORT BANK INC	346,183,356.28	1,000,604,640.85	34.60%
UNITED COCONUT PLANTERS BANK	6,911,986,469.19	20,492,870,335.85	33.73%
1ST VALLEY BANK INC A DEVELOPMENT BANK	441,108,498.96	1,350,989,567.78	32.65%
RCBC SAVINGS BANK INC	3,199,420,755.50	9,808,451,111.88	32.62%
STANDARD CHARTERED BANK	2,284,530,263.09	7,044,888,340.11	32.43%
PHIL STAR DEVELOPMENT BANK INC	27,476,658.77	86,146,274.96	31.90%
BPI FAMILY SAVINGS BANK INC	7,159,565,168.62	23,624,397,916.83	30.31%
CITYSTATE SAVINGS BANK INC	172,898,179.50	586,187,817.86	29.50%
FARMERS SAVINGS & LOAN BANK INC	32,517,022.88	116,195,352.51	27.98%
NORTHPOINT DEV'T BANK INC	90,582,110.63	327,525,602.44	27.66%
UCPB SAVINGS BANK	661,234,335.20	2,536,794,737.15	26.07%
VILLAGE BANK INC (A THRIFT BANK)	20,141,994.78	78,319,006.45	25.72%
EAST WEST BANKING CORP	7,912,724,772.09	31,081,202,028.55	25.46%
PHIL SAVINGS BANK	4,530,087,688.77	18,887,583,220.42	23.98%
PHIL BANK OF COMMUNICATIONS	2,290,272,280.26	9,980,233,673.56	22.95%
PRODUCERS SAVINGS BANK CORPORATION	347,199,257.38	1,524,859,772.80	22.77%
LIFE SAVINGS BANK INC	14,292,306.20	63,937,372.87	22.35%
DUNGGANON BANK (A MICROFINANCE THRIFT BANK) INC	23,281,894.32	104,271,063.48	22.33%
MAYBANK PHILIPPINES INC	2,669,115,822.47	12,018,493,278.79	22.21%
MALASIQUI PROGRESSIVE SLB, INC	11,269,279.25	52,340,717.60	21.53%
PHILIPPINE BUSINESS BANK INC A SAVINGS BANK	1,408,994,771.06	9,023,492,360.04	15.61%
DEVELOPMENT BANK OF THE PHIL	6,911,247,997.24	45,419,872,891.40	15.22%
UNION BANK OF THE PHILS	8,218,543,573.33	56,577,745,065.55	14.53%
INTER-ASIA DEVELOPMENT BANK	8,643,105.28	59,872,165.36	14.44%
BUSINESS AND CONSUMERS BANK (A DB)	12,553,457.91	88,300,237.85	14.22%
CITY SAVINGS BANK INC	1,334,979,051.51	9,647,530,174.49	13.84%
FIRST CONSOLIDATED BANK INC (A PDB)	465,383,904.95	3,598,622,190.10	12.93%
BPI DIRECT SAVINGS BANK INC	214,944,591.75	1,690,812,387.49	12.71%
CORDILLERA SAVINGS BANK INC	16,133,117.87	128,118,236.29	12.59%
DUMAGUETE CITY DEV BANK INC	31,101,011.91	259,383,929.02	11.99%
BANK OF COMMERCE	1,886,506,044.85	16,120,363,636.35	11.70%
ASIA UNITED BANK CORPORATION	2,547,367,758.05	22,328,646,145.65	11.41%
HIYAS BANKING CORPORATION	16,135,287.17	153,556,300.98	10.51%
TONGYANG SAVINGS BANK INC	104,687,339.74	997,837,310.34	10.49%
SUN SAVINGS BANK INC	15,076,384.11	147,125,611.71	10.25%
ANZ BANKING GROUP LTD	405,496,014.93	4,459,614,163.33	9.09%
LAND BANK OF THE PHILIPPINES	8,111,482,236.93	89,509,759,381.33	9.06%
CHINA BANKING CORP	4,911,880,180.52	56,760,891,371.70	8.65%
PHIL NATIONAL BANK	8,768,808,377.16	101,991,665,858.76	8.60%
MICROFINANCE MAXIMUM SB INC	2,225,328.29	27,201,833.13	8.18%
BANK OF CHINA LIMITED-MANILA BRANCH	189,040,895.91	2,509,376,554.41	7.53%
BDO UNIBANK INC	14,719,008,662.34	210,553,087,345.60	6.99%
CTBC BANK (PHILIPPINES) CORP	472,679,805.76	6,909,861,506.35	6.84%
HONGKONG & SHANGHAI BANKING CORP	895,618,873.66	14,083,308,897.26	6.36%
OPTIMUM DEVELOPMENT BANK INC	53,012,292.60	834,991,689.81	6.35%
CITIBANK, N.A.	826,105,236.33	13,195,119,475.10	6.26%
CARD SME BANK INC A THRIFT BANK	38,629,666.38	625,967,923.15	6.17%
ROBINSONS BANK CORPORATION	736,544,892.86	12,505,253,121.59	5.89%
BANK ONE SAVINGS AND TRUST CORP.	33,065,795.27	567,161,360.14	5.83%
LEMERY SAVINGS & LOAN BANK, INC.	4,490,116.81	77,879,493.47	5.77%
PNB SAVINGS BANK	634,871,221.72	11,350,401,870.37	5.59%
TOWER DEVELOPMENT BANK	6,685,537.47	122,922,006.80	5.44%
UNIVERSITY SAVINGS BANK INC	20,846,206.47	406,893,388.71	5.12%
PACIFIC ACE SAVINGS BANK INC	3,585,558.79	71,492,675.46	5.02%
BANK OF THE PHIL ISLANDS	7,354,653,970.24	155,419,085,585.79	4.73%
PHIL TRUST COMPANY	1,158,050,201.78	27,611,676,868.06	4.19%
CENTURY SAVINGS BANK CORPORATION	36,913,862.74	959,425,221.30	3.85%
HSBC SAVINGS BANK(PHILS) INC	68,072,101.26	1,859,904,358.34	3.66%
QUEEN CITY DEVELOPMENT BANK INC OR QUEENBANK A THRIFT BANK	21,263,240.90	659,437,226.47	3.22%
RIZAL COMM'L BANKING CORP	1,916,664,973.55	59,840,254,207.15	3.20%
BATAAN SAVINGS AND LOAN BANK	1,611,819.28	58,410,077.30	2.76%
MERCHANTS SAVINGS & LOAN ASSN INC	15,073,857.84	609,565,996.94	2.47%
SECURITY BANK CORP	1,601,550,101.28	93,932,303,300.77	1.71%
QUEZON COCONUT BANK INC (A THRIFT BANK)	893,105.94	58,165,977.68	1.54%
BANGKOK BANK PUBLIC CO LTD	46,936,941.43	3,145,983,487.39	1.49%
METROPOLITAN BANK & TCO	2,804,893,015.34	189,600,494,988.66	1.48%
KOREA EXCHANGE BANK	23,050,189.24	1,595,156,751.76	1.45%
AL-AMANAH ISLAMIC INVESTMENT BANK OF THE PHILS	1,092,048.97	325,874,434.98	0.34%
ING BANK N.V.	96.12	2,472,191,232.05	0.00%
BANK OF AMERICA N.A.	0.00	2,091,322,952.20	0.00%
BDO PRIVATE BANK, INC.	0.00	6,248,101,950.43	0.00%
CATHAY UNITED BANK CO LTD - MANILA BRANCH	0.00	2,126,668,534.24	0.00%
DEUTSCHE BANK AG	0.00	2,796,792,647.79	0.00%
INDUSTRIAL BANK OF KOREA MANILA BRANCH	0.00	2,154,923,095.34	0.00%
ISLA BANK(A THRIFT BANK) INC	0.00	661,817,655.38	0.00%
JP MORGAN CHASE BANK NATIONAL ASSN.	0.00	1,393,814,359.76	0.00%
MEGA INT'L COMM'L BANK CO LTD	0.00	1,835,756,115.78	0.00%
MIZUHO BANK LTD - MANILA BRANCH	0.00	2,709,835,334.13	0.00%
SHINHAN BANK - MANILA BRANCH	0.00	2,189,431,028.38	0.00%
SUMITOMO MITSUI BANKING CORPORATION-MANILA BRANCH	0.00	12,957,803,323.13	0.00%
THE BNK OF TOKYO-MITSUBISHI UFJ LTD	0.00	4,554,581,554.75	0.00%
UNITED OVERSEAS BANK LIMITED MANILA BRANCH	0.00	2,411,407,664.26	0.00%
Grand Total	133,503,081,743.06	1,442,592,023,950.64	9.25%

Are NPLs the Right Numbers to Look At?

In a financial crisis, a loan that is current can very well become past due, and a past due loan can become a non-performing loan, and a non-performing loan can become a loan write-off.  The real number to look at are the loans that the banks and BSP already consider doubtful: Classified Loans.

Investopedia.com defines "Classified Loans" as:

"Any bank loan that is in danger of default. Classified loans have unpaid interest and principal outstanding, and it is unclear whether the bank will be able to recoup the loan proceeds from the borrower. Banks usually categorize such loans as adversely classified assets on their books."

The US Federal Deposit Insurance Corporation (FDIC), similar to our very own Philippine Deposit Insurance Corporation (PDIC), defines Classified Loans as:

"Loans classified Loss are considered uncollectible and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the loan has absolutely no recovery or salvage value but rather it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be effected in the future."

In Circular #0247 dated May 19, 2000, BSP defines Classified Loans as loans which possess the following characteristics:

1. Loans especially mentioned because they have potential weaknesses that deserve Management's close attention;
2. Substandard Loans are loans which appear to involve a substantial and unreasonable degree of risk to the institution because of unfavorable record or unsatisfactory characteristics;
3. Doubtful Loans are Substandard Loans with the added characteristics that existing facts, conditions, and values make collection or liquidation in full highly improbable and in which substantial loss is probable;
4. Loss loans are loans that are considered uncollectible or worthless and are of such little value that their continuance as bankable assets is not warranted although the loans may have some recovery or salvage value.

The circular mandates that an allowance for probable losses should be set up in accordance with the following schedule:

1. Loans Especially Mentioned: 5%
2. Substandard - Secured: 6% - 25%
3. Substandard - Unsecured: 25%
4. Doubtful: 50%
5. Loss: 100%

As of June 30, 2016, "Classified Loans and Other Risky Assets" of the Philippine Banks amounted to PhP 357.86 billion or almost 3 times the size of the Philippine Banking System's NPLs of PhP 133.50 billion for the same period.  Consequently, any write-offs of Classified Loans will have three times the impact of an NPL write-off.

Philippine Banking System
Classified Loans vs. NPLs
June 30, 2016
	Classified Loans	NPL	Classified Loans/NPL
Bank	(In PHP)	(In PHP)	(In %)
ING BANK N.V.	47,000,000.00	96.12	48897211.82%
BANK OF CHINA LIMITED-MANILA BRANCH	10,664,194,397.49	189,040,895.91	5641.21%
CITIBANK, N.A.	25,966,454,000.00	826,105,236.33	3143.24%
VILLAGE BANK INC (A THRIFT BANK)	610,347,221.61	20,141,994.78	3030.22%
INTER-ASIA DEVELOPMENT BANK	202,075,521.18	8,643,105.28	2338.00%
QUEZON COCONUT BANK INC (A THRIFT BANK)	12,555,036.83	893,105.94	1405.77%
AL-AMANAH ISLAMIC INVESTMENT BANK OF THE PHILS	14,086,000.00	1,092,048.97	1289.87%
TONGYANG SAVINGS BANK INC	1,020,991,248.48	104,687,339.74	975.28%
DUMAGUETE CITY DEV BANK INC	276,517,000.00	31,101,011.91	889.09%
TOWER DEVELOPMENT BANK	53,560,740.44	6,685,537.47	801.14%
KOREA EXCHANGE BANK	176,672,292.23	23,050,189.24	766.47%
QUEEN CITY DEVELOPMENT BANK INC OR QUEENBANK A THRIFT BANK	149,471,136.66	21,263,240.90	702.96%
BANK ONE SAVINGS AND TRUST CORP.	218,871,933.41	33,065,795.27	661.93%
METROPOLITAN BANK & TCO	17,825,134,148.27	2,804,893,015.34	635.50%
SECURITY BANK CORP	9,018,000,000.00	1,601,550,101.28	563.08%
BANK OF COMMERCE	10,065,492,835.37	1,886,506,044.85	533.55%
PHIL TRUST COMPANY	5,880,000,000.00	1,158,050,201.78	507.75%
UNIVERSITY SAVINGS BANK INC	102,015,746.87	20,846,206.47	489.37%
CENTURY SAVINGS BANK CORPORATION	162,025,405.22	36,913,862.74	438.93%
RIZAL COMM'L BANKING CORP	7,258,404,080.76	1,916,664,973.55	378.70%
CORDILLERA SAVINGS BANK INC	60,425,214.35	16,133,117.87	374.54%
PHIL NATIONAL BANK	32,371,617,179.25	8,768,808,377.16	369.17%
METRO CEBU PUBLIC SAVINGS BANK	63,870,009.25	18,411,436.08	346.90%
MALAYAN BANK SAVINGS AND MORT BANK INC	1,195,792,427.35	346,183,356.28	345.42%
BDO UNIBANK INC	50,422,685,028.31	14,719,008,662.34	342.57%
OPTIMUM DEVELOPMENT BANK INC	171,718,103.39	53,012,292.60	323.92%
UCPB SAVINGS BANK	1,969,292,529.00	661,234,335.20	297.82%
ASIA UNITED BANK CORPORATION	7,426,180,127.13	2,547,367,758.05	291.52%
PHIL SAVINGS BANK	13,006,228,439.23	4,530,087,688.77	287.11%
UNION BANK OF THE PHILS	21,826,937,614.67	8,218,543,573.33	265.58%
FARMERS SAVINGS & LOAN BANK INC	85,319,563.89	32,517,022.88	262.38%
CHINA BANKING CORP	12,534,507,177.71	4,911,880,180.52	255.19%
UNITED COCONUT PLANTERS BANK	17,194,349,897.69	6,911,986,469.19	248.76%
PHILIPPINE VETERANS BANK	3,631,445,992.29	1,622,350,451.99	223.84%
LAND BANK OF THE PHILIPPINES	18,072,769,930.85	8,111,482,236.93	222.80%
RCBC SAVINGS BANK INC	6,940,955,925.00	3,199,420,755.50	216.94%
ROBINSONS BANK CORPORATION	1,526,179,000.00	736,544,892.86	207.21%
PHIL STAR DEVELOPMENT BANK INC	56,485,902.82	27,476,658.77	205.58%
BATAAN DEVELOPMENT BANK	102,400,000.00	49,870,042.34	205.33%
FIRST CONSOLIDATED BANK INC (A PDB)	954,971,278.19	465,383,904.95	205.20%
BANK OF THE PHIL ISLANDS	14,803,824,719.81	7,354,653,970.24	201.29%
PENBANK INC (A PDB) (FORMERLY: PENINSULA RB INC)	290,978,607.52	148,090,024.00	196.49%
LEGAZPI SAVINGS BANK INC	883,980,000.00	452,148,179.99	195.51%
CHINA BANK SAVINGS INC	7,441,174,124.03	4,597,231,811.04	161.86%
PRODUCERS SAVINGS BANK CORPORATION	546,153,369.38	347,199,257.38	157.30%
WORLD PARTNERS BANK (A THRIFT BANK)	120,868,152.33	79,014,643.18	152.97%
LIFE SAVINGS BANK INC	21,699,201.69	14,292,306.20	151.82%
STANDARD CHARTERED BANK	3,352,384,983.69	2,284,530,263.09	146.74%
BPI FAMILY SAVINGS BANK INC	10,458,582,051.58	7,159,565,168.62	146.08%
LUZON DEVELOPMENT BANK	714,304,189.95	494,353,264.19	144.49%
PHILIPPINE RESOURCES SAVINGS BANKING CORPORATION (PR SAVINGS	2,151,108,159.79	1,488,786,917.29	144.49%
DEVELOPMENT BANK OF THE PHIL	9,931,792,689.81	6,911,247,997.24	143.70%
DUNGGANON BANK (A MICROFINANCE THRIFT BANK) INC	32,889,200.79	23,281,894.32	141.27%
BANK OF MAKATI (A SAVINGS BANK) INC	3,416,513,265.06	2,532,282,531.41	134.92%
PHIL POSTAL SAVINGS BANK INC	2,035,294,247.79	1,536,950,165.58	132.42%
MARITIME SAVINGS BANK CORPORATION	42,810,508.92	32,410,761.69	132.09%
STERLING BANK OF ASIA INC (A SAVINGS BANK)	1,313,560,000.00	998,463,824.41	131.56%
PNB SAVINGS BANK	825,209,246.77	634,871,221.72	129.98%
MAYBANK PHILIPPINES INC	3,451,753,341.22	2,669,115,822.47	129.32%
BPI DIRECT SAVINGS BANK INC	268,446,318.20	214,944,591.75	124.89%
EQUICOM SAVINGS BANK INC	765,123,690.52	630,278,538.32	121.39%
SUN SAVINGS BANK INC	17,728,744.48	15,076,384.11	117.59%
WEALTH DEVELOPMENT BANK CORPORATION	220,770,843.41	188,858,007.72	116.90%
CTBC BANK (PHILIPPINES) CORP	532,991,003.38	472,679,805.76	112.76%
CITY SAVINGS BANK INC	1,493,097,051.49	1,334,979,051.51	111.84%
SAMPAGUITA SAVINGS BANK INC	25,086,739.31	22,793,200.13	110.06%
EAST WEST BANKING CORP	8,692,840,178.42	7,912,724,772.09	109.86%
1ST VALLEY BANK INC A DEVELOPMENT BANK	462,840,583.11	441,108,498.96	104.93%
PHILIPPINE BUSINESS BANK INC A SAVINGS BANK	1,455,126,000.00	1,408,994,771.06	103.27%
LEMERY SAVINGS & LOAN BANK, INC.	4,501,153.76	4,490,116.81	100.25%
BANGKOK BANK PUBLIC CO LTD	46,936,941.43	46,936,941.43	100.00%
BATAAN SAVINGS AND LOAN BANK	1,611,819.28	1,611,819.28	100.00%
HIYAS BANKING CORPORATION	16,135,287.17	16,135,287.17	100.00%
MALASIQUI PROGRESSIVE SLB, INC	11,269,279.25	11,269,279.25	100.00%
OPPORTUNITY KAUSWAGAN BANK INC (A MICROFINANCE THRIFT BANK)	65,330,857.95	65,330,857.95	100.00%
PAMPANGA DEVELOPMENT BANK	47,394,335.63	54,236,611.11	87.38%
HONGKONG & SHANGHAI BANKING CORP	606,414,574.10	895,618,873.66	67.71%
HSBC SAVINGS BANK(PHILS) INC	31,154,265.11	68,072,101.26	45.77%
PHIL BANK OF COMMUNICATIONS	172,523,615.64	2,290,272,280.26	7.53%
ANZ BANKING GROUP LTD	1,769,242.46	405,496,014.93	0.44%
BUSINESS AND CONSUMERS BANK (A DB)	0.00	12,553,457.91	0.00%
CARD SME BANK INC A THRIFT BANK	0.00	38,629,666.38	0.00%
CITYSTATE SAVINGS BANK INC	0.00	172,898,179.50	0.00%
ENTERPRISE BANK INC (A THRIFT BANK)	0.00	203,795,569.05	0.00%
MBANK PHILIPPINES (A THRIFT BANK) INC	0.00	43,962,199.62	0.00%
MERCHANTS SAVINGS & LOAN ASSN INC	0.00	15,073,857.84	0.00%
MICROFINANCE MAXIMUM SB INC	0.00	2,225,328.29	0.00%
NORTHPOINT DEV'T BANK INC	0.00	90,582,110.63	0.00%
PACIFIC ACE SAVINGS BANK INC	0.00	3,585,558.79	0.00%
THE PALAWAN BANK (PALAWAN DB) INC	0.00	20,480,768.99	0.00%
BANK OF AMERICA N.A.	5,514,000.00	0.00	NA
BDO PRIVATE BANK, INC.	0.00	0.00	NA
CATHAY UNITED BANK CO LTD - MANILA BRANCH	0.00	0.00	NA
DEUTSCHE BANK AG	0.00	0.00	NA
INDUSTRIAL BANK OF KOREA MANILA BRANCH	0.00	0.00	NA
ISLA BANK(A THRIFT BANK) INC	0.00	0.00	NA
JP MORGAN CHASE BANK NATIONAL ASSN.	0.00	0.00	NA
MEGA INT'L COMM'L BANK CO LTD	1,349,033,330.00	0.00	NA
MIZUHO BANK LTD - MANILA BRANCH	200,890,236.71	0.00	NA
SHINHAN BANK - MANILA BRANCH	0.00	0.00	NA
SUMITOMO MITSUI BANKING CORPORATION-MANILA BRANCH	0.00	0.00	NA
THE BNK OF TOKYO-MITSUBISHI UFJ LTD	187,678,730.00	0.00	NA
UNITED OVERSEAS BANK LIMITED MANILA BRANCH	0.00	0.00	NA
Grand Total	357,855,088,966.13	133,503,081,743.06	268.05%

This level of classified loans should be measured against the bank's "capital cushion" or its ability to absorb losses.  Capital Cushion is normally defined as a bank's "Tangible Common Equity" plus its Loan Loss Reserves.  Tangible Common Equity (TCE) refers to the subset of shareholders' equity that is not preferred equity and not intangible assets.  So it excludes such items as Hybrid equity (like preferred shares) and goodwill.

By this measure, the level of "Classified Loans and other Risky Assets" amounts to Php 357.86 billion or 23.91% of the Php 1.50 trillion in Total Capital Cushion of Philippine Banks as of June 30, 2016.

Philippine Banking System
Classified Loans as % of Total Capital Cushion
June 30, 2016
	Classified Loans	Total Capital Cushion	Classified Loans/Total Capital Cushion
Bank	(In Php)	(In Php)	(In %)
VILLAGE BANK INC (A THRIFT BANK)	610,347,221.61	98,494,178.93	619.68%
BANK OF CHINA LIMITED-MANILA BRANCH	10,664,194,397.49	2,635,845,380.78	404.58%
INTER-ASIA DEVELOPMENT BANK	202,075,521.18	59,995,124.07	336.82%
UNITED COCONUT PLANTERS BANK	17,194,349,897.69	11,457,421,212.57	150.07%
PHIL POSTAL SAVINGS BANK INC	2,035,294,247.79	1,377,028,468.11	147.80%
CITIBANK, N.A.	25,966,454,000.00	18,855,820,098.26	137.71%
METRO CEBU PUBLIC SAVINGS BANK	63,870,009.25	58,302,220.66	109.55%
BATAAN DEVELOPMENT BANK	102,400,000.00	97,417,468.47	105.11%
LUZON DEVELOPMENT BANK	714,304,189.95	681,252,849.24	104.85%
DUMAGUETE CITY DEV BANK INC	276,517,000.00	270,074,160.98	102.39%
MALAYAN BANK SAVINGS AND MORT BANK INC	1,195,792,427.35	1,180,263,058.09	101.32%
LEGAZPI SAVINGS BANK INC	883,980,000.00	884,259,426.32	99.97%
CHINA BANK SAVINGS INC	7,441,174,124.03	7,562,884,881.59	98.39%
EQUICOM SAVINGS BANK INC	765,123,690.52	810,441,670.86	94.41%
TONGYANG SAVINGS BANK INC	1,020,991,248.48	1,104,181,017.06	92.47%
PHILIPPINE RESOURCES SAVINGS BANKING CORPORATION (PR SAVINGS	2,151,108,159.79	2,605,539,908.46	82.56%
UCPB SAVINGS BANK	1,969,292,529.00	2,924,384,249.64	67.34%
MEGA INT'L COMM'L BANK CO LTD	1,349,033,330.00	2,077,386,784.75	64.94%
PENBANK INC (A PDB) (FORMERLY: PENINSULA RB INC)	290,978,607.52	455,827,192.36	63.84%
FARMERS SAVINGS & LOAN BANK INC	85,319,563.89	135,742,889.86	62.85%
PHIL STAR DEVELOPMENT BANK INC	56,485,902.82	92,159,764.82	61.29%
MARITIME SAVINGS BANK CORPORATION	42,810,508.92	71,452,966.96	59.91%
RCBC SAVINGS BANK INC	6,940,955,925.00	11,669,892,977.02	59.48%
PHIL SAVINGS BANK	13,006,228,439.23	22,348,225,366.90	58.20%
BANK OF COMMERCE	10,065,492,835.37	17,766,487,799.14	56.65%
WORLD PARTNERS BANK (A THRIFT BANK)	120,868,152.33	218,273,345.93	55.37%
PHILIPPINE VETERANS BANK	3,631,445,992.29	6,782,018,450.78	53.55%
BANK OF MAKATI (A SAVINGS BANK) INC	3,416,513,265.06	7,252,754,185.59	47.11%
OPPORTUNITY KAUSWAGAN BANK INC (A MICROFINANCE THRIFT BANK)	65,330,857.95	142,355,582.61	45.89%
CORDILLERA SAVINGS BANK INC	60,425,214.35	133,164,213.82	45.38%
STERLING BANK OF ASIA INC (A SAVINGS BANK)	1,313,560,000.00	3,092,696,092.40	42.47%
TOWER DEVELOPMENT BANK	53,560,740.44	126,857,901.88	42.22%
WEALTH DEVELOPMENT BANK CORPORATION	220,770,843.41	556,021,224.86	39.71%
STANDARD CHARTERED BANK	3,352,384,983.69	8,447,476,654.25	39.69%
BANK ONE SAVINGS AND TRUST CORP.	218,871,933.41	585,519,717.87	37.38%
BPI FAMILY SAVINGS BANK INC	10,458,582,051.58	28,125,967,373.76	37.18%
UNIVERSITY SAVINGS BANK INC	102,015,746.87	276,673,352.60	36.87%
SAMPAGUITA SAVINGS BANK INC	25,086,739.31	71,185,553.24	35.24%
UNION BANK OF THE PHILS	21,826,937,614.67	62,547,687,972.49	34.90%
PRODUCERS SAVINGS BANK CORPORATION	546,153,369.38	1,583,706,929.50	34.49%
LIFE SAVINGS BANK INC	21,699,201.69	66,570,981.15	32.60%
PAMPANGA DEVELOPMENT BANK	47,394,335.63	153,766,308.90	30.82%
ASIA UNITED BANK CORPORATION	7,426,180,127.13	24,627,249,496.23	30.15%
1ST VALLEY BANK INC A DEVELOPMENT BANK	462,840,583.11	1,541,073,749.58	30.03%
PHIL NATIONAL BANK	32,371,617,179.25	111,781,340,055.77	28.96%
DUNGGANON BANK (A MICROFINANCE THRIFT BANK) INC	32,889,200.79	120,332,918.96	27.33%
PHIL TRUST COMPANY	5,880,000,000.00	21,862,744,639.38	26.90%
MAYBANK PHILIPPINES INC	3,451,753,341.22	13,273,460,867.36	26.00%
EAST WEST BANKING CORP	8,692,840,178.42	34,641,215,021.54	25.09%
FIRST CONSOLIDATED BANK INC (A PDB)	954,971,278.19	3,957,381,599.15	24.13%
LAND BANK OF THE PHILIPPINES	18,072,769,930.85	76,445,571,575.79	23.64%
BDO UNIBANK INC	50,422,685,028.31	224,211,020,346.35	22.49%
QUEEN CITY DEVELOPMENT BANK INC OR QUEENBANK A THRIFT BANK	149,471,136.66	679,589,460.77	21.99%
CHINA BANKING CORP	12,534,507,177.71	59,117,830,809.55	21.20%
QUEZON COCONUT BANK INC (A THRIFT BANK)	12,555,036.83	59,257,121.40	21.19%
DEVELOPMENT BANK OF THE PHIL	9,931,792,689.81	47,921,639,771.50	20.73%
OPTIMUM DEVELOPMENT BANK INC	171,718,103.39	872,676,014.05	19.68%
MALASIQUI PROGRESSIVE SLB, INC	11,269,279.25	60,163,130.22	18.73%
CENTURY SAVINGS BANK CORPORATION	162,025,405.22	947,419,573.39	17.10%
CITY SAVINGS BANK INC	1,493,097,051.49	9,314,328,574.73	16.03%
BPI DIRECT SAVINGS BANK INC	268,446,318.20	1,777,169,034.01	15.11%
PHILIPPINE BUSINESS BANK INC A SAVINGS BANK	1,455,126,000.00	10,125,481,546.95	14.37%
RIZAL COMM'L BANKING CORP	7,258,404,080.76	61,122,834,898.26	11.88%
ROBINSONS BANK CORPORATION	1,526,179,000.00	13,254,717,905.17	11.51%
SUN SAVINGS BANK INC	17,728,744.48	157,678,505.91	11.24%
KOREA EXCHANGE BANK	176,672,292.23	1,579,295,622.91	11.19%
SECURITY BANK CORP	9,018,000,000.00	92,558,782,092.26	9.74%
HIYAS BANKING CORPORATION	16,135,287.17	173,930,899.12	9.28%
METROPOLITAN BANK & TCO	17,825,134,148.27	193,245,467,606.43	9.22%
BANK OF THE PHIL ISLANDS	14,803,824,719.81	161,564,418,183.00	9.16%
CTBC BANK (PHILIPPINES) CORP	532,991,003.38	7,312,712,143.15	7.29%
PNB SAVINGS BANK	825,209,246.77	11,629,696,240.70	7.10%
MIZUHO BANK LTD - MANILA BRANCH	200,890,236.71	3,029,988,262.95	6.63%
LEMERY SAVINGS & LOAN BANK, INC.	4,501,153.76	79,492,740.49	5.66%
HONGKONG & SHANGHAI BANKING CORP	606,414,574.10	14,214,130,886.51	4.27%
AL-AMANAH ISLAMIC INVESTMENT BANK OF THE PHILS	14,086,000.00	354,300,964.25	3.98%
THE BNK OF TOKYO-MITSUBISHI UFJ LTD	187,678,730.00	4,967,420,166.75	3.78%
BATAAN SAVINGS AND LOAN BANK	1,611,819.28	60,558,902.93	2.66%
ING BANK N.V.	47,000,000.00	2,567,685,908.78	1.83%
PHIL BANK OF COMMUNICATIONS	172,523,615.64	10,748,220,252.55	1.61%
HSBC SAVINGS BANK(PHILS) INC	31,154,265.11	1,943,897,034.50	1.60%
BANGKOK BANK PUBLIC CO LTD	46,936,941.43	3,413,773,927.00	1.37%
BANK OF AMERICA N.A.	5,514,000.00	2,123,761,205.20	0.26%
ANZ BANKING GROUP LTD	1,769,242.46	4,503,785,092.02	0.04%
BDO PRIVATE BANK, INC.	0.00	5,863,528,764.61	0.00%
BUSINESS AND CONSUMERS BANK (A DB)	0.00	90,972,723.57	0.00%
CARD SME BANK INC A THRIFT BANK	0.00	613,090,060.61	0.00%
CATHAY UNITED BANK CO LTD - MANILA BRANCH	0.00	2,133,441,578.30	0.00%
CITYSTATE SAVINGS BANK INC	0.00	629,899,590.55	0.00%
DEUTSCHE BANK AG	0.00	2,144,005,611.53	0.00%
ENTERPRISE BANK INC (A THRIFT BANK)	0.00	318,128,721.32	0.00%
INDUSTRIAL BANK OF KOREA MANILA BRANCH	0.00	2,178,746,799.92	0.00%
ISLA BANK(A THRIFT BANK) INC	0.00	667,204,109.68	0.00%
JP MORGAN CHASE BANK NATIONAL ASSN.	0.00	1,406,989,114.78	0.00%
MBANK PHILIPPINES (A THRIFT BANK) INC	0.00	83,155,985.09	0.00%
MERCHANTS SAVINGS & LOAN ASSN INC	0.00	619,754,920.06	0.00%
MICROFINANCE MAXIMUM SB INC	0.00	44,133,295.97	0.00%
NORTHPOINT DEV'T BANK INC	0.00	409,803,569.78	0.00%
PACIFIC ACE SAVINGS BANK INC	0.00	73,474,102.32	0.00%
SHINHAN BANK - MANILA BRANCH	0.00	2,202,516,770.00	0.00%
SUMITOMO MITSUI BANKING CORPORATION-MANILA BRANCH	0.00	13,048,951,437.01	0.00%
THE PALAWAN BANK (PALAWAN DB) INC	0.00	52,090,298.66	0.00%
UNITED OVERSEAS BANK LIMITED MANILA BRANCH	0.00	2,406,326,254.85	0.00%
Grand Total	357,855,088,966.13	1,496,373,185,413.66	23.91%

Stress Test Scenarios

Aggregate

So how will a 10%, 20%, 30%, 40%, and even 50% write-off of Classified Loans affect the Total Capital Cushion of the Philippine Banking System?

In the aggregate, if Classified Loans amount to 23.91% of the banking system's Total Capital Cushion, then it follows that a 10% write-off of Classified Loans will reduce the total capital by 2.39% and a 50% write-off of classified loans will reduce the banking system's Total Capital Cushion by 11.96%.

Individual Banks

A 10% write-off of Classified Loans would severely impact (by 30% or more) the Total Capital Cushion of three banks (severely affected banks highlighted in yellow).

1. Village Bank Inc (61.97% reduction in Total Capital Cushion)
2. Bank of China Limited - Manila Branch (40.46% reduction in Total Capital Cushion)
3. Inter-Asia Development Bank (33.68% reduction in Total Capital Cushion)

A 20% write-off of Classified Loans will totally wipe out the Total Capital Cushion of one  bank and severely impact the Total Capital Cushion of three more banks:

1. Village Bank Inc (123.94% reduction in Total Capital Cushion)
2. Bank of China Limited - Manila Branch (80.92% reduction in Total Capital Cushion)
3. Inter-Asia Development Bank (67.36% reduction in Total Capital Cushion)
4. United Coconut Planters Bank (30.01% reduction in Total Capital Cushion)

A 30% write-off of Classified Loans will totally wipe out the Total Capital Cushion of three banks and severely affect (reduce by 30% or more) the Total Capital Cushion of eight other banks:

1. Village Bank Inc (185.90% reduction in Total Capital Cushion)
2. Bank of China Limited - Manila Branch (121.38% reduction in Total Capital Cushion)
3. Inter-Asia Development Bank (101.05% reduction in Total Capital Cushion)
4. United Coconut Planters Bank (45.02% reduction in Total Capital Cushion)
5. Philippine Postal Savings Bank Inc (44.34% reduction in Total Capital Cushion)
6. Citibank, N.A. (41.31% reduction in Total Capital Cushion)
7. Metro Cebu Public Savings Bank (32.86% reduction in Total Capital Cushion)
8. Bataan Development Bank (31.53% reduction in Total Capital Cushion)
9. Luzon Development Bank (31.46% reduction in Total Capital Cushion)
10. Dumaguete City Development Bank (30.72% reduction in Total Capital Cushion)
11. Malayan Bank Savings and Mortgage Bank Inc (30.39% reduction in Total Capital Cushion)

A 40% write-off of Classified Loans will totally wipe out the Total Capital Cushion of three banks and severely affect (reduce by 30% or more) the Total Capital Cushion of thirteen more banks:

1. Village Bank Inc (247.87% reduction in Total Capital Cushion)
2. Bank of China Limited - Manila Branch (161.83% reduction in Total Capital Cushion)
3. Inter-Asia Development Bank (134.73% reduction in Total Capital Cushion)
4. United Coconut Planters Bank (60.03% reduction in Total Capital Cushion)
5. Philippine Postal Savings Bank Inc (59.12% reduction in Total Capital Cushion)
6. Citibank, N.A. (55.08% reduction in Total Capital Cushion)
7. Metro Cebu Public Savings Bank (43.82% reduction in Total Capital Cushion)
8. Bataan Development Bank (42.05% reduction in Total Capital Cushion)
9. Luzon Development Bank (41.94% reduction in Total Capital Cushion)
10. Dumaguete City Development Bank (40.95% reduction in Total Capital Cushion)
11. Malayan Bank Savings and Mortgage Bank Inc (40.53% reduction in Total Capital Cushion)
12. Legazpi Savings Bank Inc (39.99% reduction in Total Capital Cushion)
13. China Bank Savings Inc (39.36% reduction in Total Capital Cushion)
14. Equicom Savings Bank Inc (37.76% reduction in Total Capital Cushion)
15. TongYang Savings Bank Inc (36.99% reduction in Total Capital Cushion)
16. Philippine Resources Savings Banking Corporation (33.02% reduction in Total Capital Cushion)

A 50% write-off of Classified Loans will totally wipe out the Total Capital Cushion of three banks and severely affect (reduce by 30% or more) the Total Capital Cushion of eighteen more banks:

1. Village Bank Inc (309.84% reduction in Total Capital Cushion)
2. Bank of China Limited - Manila Branch (202.29% reduction in Total Capital Cushion)
3. Inter-Asia Development Bank (168.41% reduction in Total Capital Cushion)
4. United Coconut Planters Bank (75.04% reduction in Total Capital Cushion)
5. Philippine Postal Savings Bank Inc (73.90% reduction in Total Capital Cushion)
6. Citibank, N.A. (68.86% reduction in Total Capital Cushion)
7. Metro Cebu Public Savings Bank (54.77% reduction in Total Capital Cushion)
8. Bataan Development Bank (52.56% reduction in Total Capital Cushion)
9. Luzon Development Bank (52.46% reduction in Total Capital Cushion)
10. Dumaguete City Development Bank (51.19% reduction in Total Capital Cushion)
11. Malayan Bank Savings and Mortgage Bank Inc (50.66% reduction in Total Capital Cushion)
12. Legazpi Savings Bank Inc (49.98% reduction in Total Capital Cushion)
13. China Bank Savings Inc (49.20% reduction in Total Capital Cushion)
14. Equicom Savings Bank Inc (47.20% reduction in Total Capital Cushion)
15. TongYang Savings Bank Inc (46.23% reduction in Total Capital Cushion)
16. Philippine Resources Savings Banking Corporation (41.28% reduction in Total Capital Cushion)
17. UCPB Savings Bank (33.67% reduction in Total Capital Cushion)
18. Mega International Commercial Bank Co Ltd (32.47% reduction in Total Capital Cushion)
19. Penbank Inc (31.92% reduction in Total Capital Cushion)
20. Farmers Savings & Loan Bank Inc (31.43% reduction in Total Capital Cushion)
21. Philippine Star Development Bank Inc (30.65% reduction in Total Capital Cushion)

Please bear in mind that a number of these banks are already very weak and are in distress.  Please see a previous blog post: "The Top Distressed Philippine Banks as of June 30, 2016".  Moreover, their capital can be overstated.  See a previous blog post "Overstated Capital of Philippine Banks as of June 30, 2016".  As such, any reduction in their capital cushion could knock down an already weak bank.

Source: www.bsp.gov.ph