Overstated Capital of Philippine Banks as of December 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 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 December 31, 2017:

1. Bataan Development Bank (Deferred Charges of 5.56% of SE)
2. City Savings Bank (Deferred Charges of 4.73% of SE)
3. Bank of Commerce (Deferred Charges of 0.25% of SE)
4. China Bank Savings Inc (Deferred Charges of 0.21% of SE)
5. Card SME Bank, Inc. (Deferred Charges of 0.15% 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 September 30, 2017:

1. China Bank Savings (Distressed Ratio of 126.64%)
2. Bataan Development Bank (Distressed Ratio of 107.33%)

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



Retained Earnings

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

1. Bataan Development Bank (28.55% of RE)
2. City Savings Bank (7.01% of RE)
3. Wealth Development Bank Corporation (5.58% of RE)
4. CARD SME Bank (3.48% 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 259.10 million vs. Deferred Charges of Php 39.97 million).
2. China Bank Savings (Retained Earnings of - Php 1.36 billion vs. Deferred Charges of Php 18.91 million)