Philippine Banks Deteriorate Slightly in the 4th Qtr. of 2017

Editor's Note: The Philippine Deposit Insurance Corporation (PDIC) advised consumers to wisely choose the banks where they will deposit their money. The trouble is, most depositors don't and can't read financial statements before they open a bank account. The regulators, whose job is to safeguard the public's money, have not done a good job recently.  In the past ten years, two commercial banks, twenty-one thrift banks, and a staggering 187 rural banks have collapsed, often quite suddenly and without warning. Regulators do have a problem bank list that they do not divulge to the public, for fear of sparking another bank run. So who can the public turn to, to advise them where to put their money? No one, except the banks themselves who will always promote their self-interests. This analysis is an attempt to fill in that knowledge gap, by screening out the weaker banks that seem ready to implode at any given moment.

Editor's Note: The ratio of Distressed Assets to Total Capital Cushion is a variant of the famous Texas Ratio, which was widely used by US financial regulators to predict bank failure during the US Savings and Loan Crisis in the 1980s and early 1990s. The basic premise is that a bank with Distressed Assets greater than its Capital Cushion is in danger of insolvency because a significant drop in the value of  the Distressed Assets will eat into a significant amount of the bank's capital.  For a more detailed discussion of this ratio, please visit a previous blog post: The Texas Ratio of Select Philippine Banks 


Based on the individual Published Statements of Condition for the Philippine Banking Industry (from www.bsp.gov.ph), Total Distressed Assets of Philippine Banks increased by Php 15.17 billion or 2.29% from September 30, 2017 to December 31, 2017.  This increase was offset by the increase of their Total Capital Cushion of Php 28.69 billion or 1.68% during the same period. As a result, the Ratio of Total Distressed Assets to Total Capital Cushion of Philippine Commercial Banks increased by a marginal 0.56%, from 38.84% as of September 30, 2017 to 39.06% as of December 31, 2017. On a year on year basis, the Distressed Asset Ratio has dropped 1.82 percentage points from 40.88% as of September 30, 2017 to just 39.06% as of December 31, 2017.

The list of Philippine Banks classified as distressed as of December 31, 2017 are as follows:

1.     Bank of China Limited - Manila Branch (Distressed Ratio of 523.65%)
2.     United Coconut Planters Bank (Distressed Ratio of 428.67%)
3.     Inter-Asia Development Bank (Distressed Ratio of 417.73%)
4.     Philippine Postal Savings Bank Inc (Distressed Ratio of 234.46%)
5.     Luzon Development Bank (Distressed Ratio of 205.77%)
6.     Malayan Bank Savings and Mortgage Bank Inc (Distressed Ratio of 167.21%)
7.     Philippine Resources Savings Banking Corporation (Distressed Ratio of 163.70%)
8.     Yuanta Savings Bank Philippines (Distressed Ratio of 153.33%)
9.     Enterprise Bank Inc (Distressed Ratio of 130.39%)
10.     Equicom Savings Bank (Distressed Ratio of 110.84%)
11.     Bataan Development Bank (Distressed Ratio of 107.89%)

As a group, the distressed banks showed a significant increase in their Total Distressed Assets/Total Capital Cushion Ratios.  This ratio now stands at 318.39% as of December 31, 2017, up from 248.86% as of September 30, 2017. 

Departures

1.  China Bank Savings Inc left the Distressed Banks list with a Distressed Ratio of 95.43% as of December 31, 2017 from a Distressed Ratio of 126.64% as of September 30, 2017.
2. Maximum Savings Bank left the Distressed Banks list with a Distressed Ratio of 34.48% as of December 31, 2017 from a Distressed Ratio of 105.70% as of September 30, 2017. The bank improved its capital base from a negative Php 31.57 million in capital cushion as of September 30, 2017 to a positive Php 110.51 million as of December 31, 2017, indicating a significant capital infusion that stabilized the bank.
3. Village Bank Inc was reclassified as a Rural Bank as of December 31, 2017. When it was still classified as a Thrift Bank, it had a Distressed Ratio of 276.06 as of September 30, 2017.

Source: www.bsp.gov.ph

Disclaimer:

This list only serves as a screening guide.  It is not a definitive guide and must be taken in the context of other factors.  The figures are based on the individual banks' statement of condition as of September 30, 2017 and December 31, 2017 as published in the BSP website (www.bsp.gov.ph). For this analysis, no attempt was made to go through the audited financial statements of each bank. Readers are suggested to make their own investigations and verify the figures presented. Both BSP and PDIC have their own problem bank screening systems that are much more sophisticated in scope and design, given that they have more access to information over the banks they regulate.