Overstated Capital of Philippine Banks as of March 31, 2017

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, 2017:

1. Bataan Development Bank (Deferred Charges of 7.95% of SE)
2. City Savings Bank (Deferred Charges of 6.46% of SE)
3. China Bank Savings Inc (Deferred Charges of 4.55% of SE)
4. United Coconut Planters Bank (Deferred Charges of 6.51% of SE)
5. Bank of Commerce (Deferred Charges of 0.81% of SE)
6. Card SME Bank, Inc. (Deferred Charges of 0.28% of SE)
7. Wealth Development Bank Corporation (Deferred Charges of 0.06% of SE)

It must be noted that three of these banks were ranked as  distressed (highlighted in yellow) as of December 31, 2016:

1. United Coconut Planters Bank (Distressed Ratio of 359.43%)
2. China Bank Savings (Distressed Ratio of 120.92%)
3. Bataan Development Bank (Distressed Ratio of 115.42%)

For more information on distressed banks, please see the previous blog post: "The Top Distressed Philippine Banks as of December 31, 2016.



Retained Earnings

Only five banks have sufficient Retained Earnings (RE) to absorb their unbooked losses as of March 31, 2017:

1. Bataan Development Bank (37.18% of RE)
2. City Savings Bank (7.84% of RE)
3. United Coconut Planters Bank (6.94% of RE)
4. Wealth Development Bank Corporation (6.29% of RE)
5. CARD SME Bank (1.56% 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 3.97 billion vs. Deferred Charges of Php 103.61 million).
2. China Bank Savings (Retained Earnings of - Php 1.36 billion vs. Deferred Charges of Php 416.85 million)

Philippine Banking System
Deferred Charges Not Yet Written Down
Impact on Stockholder's Equity
In Php
March 31, 2017
Bank	Type of Bank	Deferred Charges	Unbooked Losses	Total Deferred Charges	Stockholder's Equity	Adjusted SE	Impact on SE
BATAAN DEVELOPMENT BANK	Thrift	6,169,529.00	0.00	6,169,529.00	77,568,284.11	71,398,755.11	7.95%
CITY SAVINGS BANK	Thrift	727,696,423.88	0.00	727,696,423.88	11,258,212,430.01	10,530,516,006.13	6.46%
CHINA BANK SAVINGS INC	Thrift	416,852,894.01	0.00	416,852,894.01	9,163,202,511.71	8,746,349,617.70	4.55%
UNITED COCONUT PLANTERS BANK	U/KB	301,996,199.58	0.00	301,996,199.58	17,451,124,244.88	17,149,128,045.30	1.73%
BANK OF COMMERCE	U/KB	103,610,227.34	0.00	103,610,227.34	15,153,876,740.35	15,050,266,513.01	0.68%
CARD SME BANK INC A THRIFT BANK	Thrift	1,862,174.96	0.00	1,862,174.96	730,971,718.18	729,109,543.22	0.25%
WEALTH DEVELOPMENT BANK CORPORATION	Thrift	810,202.50	0.00	810,202.50	1,428,158,118.24	1,427,347,915.74	0.06%
Grand Total		1,558,997,651.27	0.00	1,558,997,651.27	55,263,114,047.48	53,704,116,396.21	2.82%
Philippine Banking System
Deferred Charges Not Yet Written Down
Impact on Retained Earnings
In Php
March 31, 2017
Bank	Total Deferred Charges	RE	Adjusted RE	Impact on RE
BATAAN DEVELOPMENT BANK	6,169,529.00	16,594,818.75	10,425,289.75	37.18%
CITY SAVINGS BANK	727,696,423.88	9,277,098,942.00	8,549,402,518.12	7.84%
UNITED COCONUT PLANTERS BANK	301,996,199.58	4,354,224,523.92	4,052,228,324.34	6.94%
WEALTH DEVELOPMENT BANK CORPORATION	810,202.50	12,878,740.83	12,068,538.33	6.29%
CARD SME BANK INC A THRIFT BANK	1,862,174.96	119,380,894.60	117,518,719.64	1.56%
BANK OF COMMERCE	103,610,227.34	-3,863,444,370.18	-3,967,054,597.52	-2.68%
CHINA BANK SAVINGS INC	416,852,894.01	-1,363,213,531.71	-1,780,066,425.72	-30.58%
Grand Total	1,558,997,651.27	8,553,520,018.21	6,994,522,366.94	18.23%