Overstated Capital of Philippine Banks as of March 31, 2018

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 March 31, 2018:

1. Bataan Development Bank (Deferred Charges of 4.51% of SE)
2. City Savings Bank (Deferred Charges of 3.08% of SE)
3. Bank of Commerce (Deferred Charges of 0.12% of SE)
4. Card SME Bank, Inc. (Deferred Charges of 0.12% of SE)
5. Wealth Development Bank Corporation (Deferred Charges of 0.06% of SE)

It must be noted that China Bank Savings Inc, which had Deferred Charges of around Php 18.91 million as of December 31, 2017, no longer has these Deferred Charges on its balance sheet as of March 31, 2018. It must also be noted that one of these banks were ranked as  distressed (highlighted in yellow) as of December 31, 2017:

1. Bataan Development Bank (Distressed Ratio of 107.89%)

For more information on distressed banks, please see the previous blog post: "The Top Distressed Philippine Banks as of December 31, 2017.



Retained Earnings

Only four banks have sufficient Retained Earnings (RE) to absorb their unbooked losses as of March 31, 2018:

1. Bataan Development Bank (17.11% of RE)
2. City Savings Bank (3.47% of RE)
3. Wealth Development Bank Corporation (1.09% of RE)
4. CARD SME Bank (0.39% of RE)

One of the banks with  Deferred Charges has negative Retained Earnings.  As such, it does not have the capacity to absorb additional losses.

1. Bank of Commerce (Retained Earnings of - Php 262.94 million vs. Deferred Charges of Php 18.76 million)