Overstated Capital of Philippine Banks as of September 30, 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 Stockholder's Equity (SE) and Retained Earnings (RE) 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, six banks have Deferred Charges as of September 30, 2017:

1. Bataan Development Bank (Deferred Charges of 6.12% of SE)
2. City Savings Bank (Deferred Charges of 5.56% of SE)
3. China Bank Savings Inc (Deferred Charges of 1.68% of SE)
4. Bank of Commerce (Deferred Charges of 0.39% of SE)
5. Card SME Bank, Inc. (Deferred Charges of 0.17% of SE)
6. Wealth Development Bank Corporation (Deferred Charges of 0.06% of SE)

It must be noted that two of these banks were ranked as  distressed (highlighted in yellow) as of June 30, 2017:

1. China Bank Savings (Distressed Ratio of 122.82%)
2. Bataan Development Bank (Distressed Ratio of 110.43%)

For more information on distressed banks, please see the previous blog post: "The Top Distressed Philippine Banks as of June 30, 2017.



Retained Earnings

Only four banks have sufficient Retained Earnings (RE) to absorb their unbooked losses as of September 30, 2017:

1. Bataan Development Bank (30.31% of RE)
2. City Savings Bank (7.62% of RE)
3. Wealth Development Bank Corporation (5.58% of RE)
4. CARD SME Bank (1.67% 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 614.71 million vs. Deferred Charges of Php 61.19 million).
2. China Bank Savings (Retained Earnings of - Php 1.36 billion vs. Deferred Charges of Php 151.56 million)

 
 

Philippine Banking System
Deferred Charges Not Yet Written Down
Impact on Stockholder's Equity
In Php
September 30, 2017
Bank	Type of Bank	Deferred Charges	Unbooked Losses	Total Deferred Charges	Stockholder's Equity	Adjusted SE	Impact on SE
BATAAN DEVELOPMENT BANK	Thrift	5,121,096.06	0.00	5,121,096.06	83,685,275.51	78,564,179.45	6.12%
CITY SAVINGS BANK	Thrift	707,115,154.38	0.00	707,115,154.38	12,706,877,725.77	11,999,762,571.39	5.56%
CHINA BANK SAVINGS INC	Thrift	151,559,537.11	0.00	151,559,537.11	9,020,020,772.21	8,868,461,235.10	1.68%
BANK OF COMMERCE	U/KB	61,185,676.94	0.00	61,185,676.94	15,611,461,237.37	15,550,275,560.43	0.39%
CARD SME BANK INC A THRIFT BANK	Thrift	1,506,470.61	0.00	1,506,470.61	877,516,443.55	876,009,972.94	0.17%
WEALTH DEVELOPMENT BANK CORPORATION	Thrift	855,268.23	0.00	855,268.23	1,474,494,842.00	1,473,639,573.77	0.06%
Grand Total		927,343,203.33	0.00	927,343,203.33	39,774,056,296.41	38,846,713,093.08	2.33%
Philippine Banking System
Deferred Charges Not Yet Written Down
Impact on Retained Earnings
In Php
September 30, 2017
Bank	Total Deferred Charges	RE	Adjusted RE	Impact on RE
BATAAN DEVELOPMENT BANK	5,121,096.06	16,897,248.93	11,776,152.87	30.31%
CITY SAVINGS BANK	707,115,154.38	9,277,095,921.61	8,569,980,767.23	7.62%
WEALTH DEVELOPMENT BANK CORPORATION	855,268.23	15,339,878.33	14,484,610.10	5.58%
CARD SME BANK INC A THRIFT BANK	1,506,470.61	89,948,415.40	88,441,944.79	1.67%
BANK OF COMMERCE	61,185,676.94	-614,714,285.87	-675,899,962.81	-9.95%
CHINA BANK SAVINGS INC	151,559,537.11	-1,363,405,443.59	-1,514,964,980.70	-11.12%
Grand Total	927,343,203.33	7,421,161,734.81	6,493,818,531.48	12.50%