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Monday, May 19, 2014

The Near Death Experience of Planters Development Bank

On September 18, 2013, China Banking Corporation (China Bank) signed a Share Purchase Agreement (SPA) to acquire 84.77% of the shares of Planters Development Bank (Planters), which was successfully closed on January 15, 2014.  China Bank is expected to acquire the remaining 15.23% shares some time in 2014.

The transaction valued Planters at at a Php 1.863 billion, which represents a premium of 100% over Planters' audited book value of Php 919 million (Php 3.597 billion before PFRS-related adjustments) as of December 31, 2012.

Restatement

On January 6, 2014, Planters' book value was reduced by Php 336.6 million to just Php 582.4 million as of December 31, 2012 as a result of a restatement of the bank's financial statements.  As a result of the restatement, Planters' transaction value of Php 1.863 billion represents a 219% premium over Planters restated audited book value of Php 582.4 billion as of December 31, 2012.

Planters Bank's audited equity of Php 3.597 billion as of December 31, 2012 was reduced by prior period adjustments totaling Php 3.015 billion to:


  1. recognize, in full, the provision for impairment losses on Non-Performing Assets (NPAs);
  2. reverse the deferred charges on NPAs sold; and 
  3. charge the loss on litigation against current operations.


The adjustments are detailed as follows:



December 31, 2012

In Php '000
Equity
As previously reported 3,597,551


Correction of the accounting for:
Deferred credit for impairment and credit losses on NPAs of Active Bank -1,051,600
Losses on sale to:
SPV AMC -512,360
SPV PAGTI -1,438,309
Deferred Tax Assets 88,258
PAS 19 -101,133
Total Prior Period Adjustments -3,015,144


As Restated 582,407

Some of these losses were previously detailed in a series of previous blog posts beginning with "BSP's Ampaw Accounting System" and ending with "Overstated Capital of Philippine Banks as of December 31, 2013". 

Renewed Asset Sales

In 2012, the board of Planters approved a program to dispose the bank's non-performing assets.  The NPA disposal program involved the following:

  1. True Sale of NPAs to Philippine Asset Growth Two, Inc. (PAGTI);
  2. Discounted Sale of NPAs to the General Public;
  3. Planned Sale of Government Securities pledged with PDIC
PAGTI

On November 28, 2012, Planters entered into an Asset Sale and Purchase Agreement (ASPA) with PAGTI, an SPV Asset Management Company (SPV-AMC) that was incorporated on September 7, 2012 and financed by a consortium of investors, notably debt investors such as the International Finance Corporation (IFC) , ACP Investments Ltd., and OPIF Corporation and equity investors such as Altus Capital Partners, Inc.  The PAGTI SPV was set up to invest, manage, and acquire non-performing assets of banks and other financial institutions.

PAGTI acquired investment properties and non-performing loans with a carrying value of Php 2.542 billion from Planters for only Php 1.10 billion, resulting in a realized loss of Php 1.44 billion for Planters.  Under a Monetary Board Resolution No. 2172 dated December 26, 2012, the BSP allowed Planters to defer and amortize the loss on the sale of the NPAs, beginning in 2013.  So, while other banks such as PNB and PBCom were busy eliminating deferred charges during the same time period, Planters was adding even more deferred charges. However, the Monetary Board reduced the deferral period to only 5 years instead of the usual ten years.

Planters Development Bank
Deferred Charges of NPA Sale to PAGTI SPV
Under M.B. 2172 (New) and R.A. 9182 (Old)














M.B. 2172
R.A. 9182

Cumulative Write Down

Cumulative Write Down
Year In % In Php Billion
Year In % In Php Billion
2013 7.00% 0.10
2013 5.00% 0.07
2014 25.00% 0.36
2014 10.00% 0.14
2015 44.00% 0.63
2015 15.00% 0.22
2016 71.00% 1.02
2016 25.00% 0.36
2017 100.00% 1.44
2017 35.00% 0.50




2018 45.00% 0.65




2019 55.00% 0.79




2020 70.00% 1.01




2021 85.00% 1.22




2022 100.00% 1.44



The reduction in the deferral period is very significant, because it would accelerate the write downs in equity significantly and, presumably, give Planters less time to make up for these losses, minimizing its usefulness.  If Planters had been granted a ten-year deferral period, Planters would only have to realize a loss of Php 70 million in 2013 and another Php 70 million in 2014.  Instead, it would recognize roughly Php 100 million in losses in 2013 and another Php 260 million in losses in 2014.

Discounted Sales of NPAs to the General Public

Under the approved NPA disposal program, the bank intended to implement a special sale of its NPAs at a 30% to 50% discount sometime in 2013.  The special sale was expected to involve NPAs totaling Php 1.202 billion and generate a minimum of Php 530.39 in cash and a minimum of Php 422.01 in losses.

Planters Development Bank
Discounted Sale to the General Public
Discounts of 30% to 50%






NPAs Amount Discount
NPAs

Investment Properties 456.49 37.99%
NPLs 745.04 62.01%
Total NPAs 1,201.53 100.00%



Expected Cash Proceeds 530.39 44.14%



Allowance for Impairment Losses 249.13 20.73%
Expected Loss 422.01 35.12%


Planters pursued the special sale of its non-performing investment properties. As of September 30, Planters disposed of Php 906.67 million of its investment properties, exceeding the planned sale of Php 456.49 million.  The bank realized a loss of Php 465.38 million on these investment properties.

The bank, however, was not able to dispose of Php 745.04 million worth of NPLs that consisted mostly of loans under litigation which will take years to resolve.  As a result, the bank no longer plans to pursue its NPL disposal program.

The bank still carries around Php 2.67 billion of net NPLs on its books as of September 30, 2013.


Planned Sale of Government Securities Pledged with PDIC

On December 5, 2012, the bank secured the consent of the PDIC for the early settlement of the Php 1.27 billion in Financial Assistance granted in 2002.  This transaction was expected to generate trading gains of Php 0.88 billion. In 2013, the bank disposed of the government securities pledged with PDIC, realizing a gain of Php 912.36 million, which was used to offset the allowance for impairment losses on the NPA Disposal Program and the allowance for credit and impairment losses from the discounted sale to the general public.

Financial Maneuvers minimize Losses

As a result of all these financial maneuvers that took place in 2013, Planters realized a loss of only Php 16.443 million (Total Comprehensive Loss of Php 29.645 million) in the nine months up to September 30, 2013.  Its equity base declined to Php 544.034 million as of September 30, 2013 from Php 582.407 million as of December 31, 2012.

Further Losses Ahead

The bank still maintains Php 745.04 million of non-performing loans that it cannot seem to sell even at a planned 30% to 50% discount.  The losses the bank will realize on these NPLs are therefore much greater because the value of these loans is much closer to zero.

Needless to say, the bank remains distressed.


As can be seen from the chart above, Planters has consistently been considered distressed.  In fact, it has consistently ranked as one of the Top Distressed Philippine Banks.


Its NPL Coverage Ratio remains way below ideal.




If Planters Development Bank were to adequately provision for their large NPLs, up to 50% of the bank's capital could be wiped out.






It has continued to lose money. 







Its Capital Adequacy Ratios have fallen way below BSP's recommended minimum to very critical levels.




It's Stockholder Equity net of Deferred Charges/Unbooked Losses, according to its Published Statements of Condition (which does not include all PFRS adjustments), will eventually hit zero.





China Bank to the Rescue?

Had the bank remained independent, it certainly would have failed, if not in 2013 or by 2015 at the latest.  Its failure would have marked on of the biggest bank failures in recent history. Its failure would have dwarfed that of any recent bank failure by a factor of almost three times.





Planters's acquisition by China Bank will bolster the bank's stability now that it is subsidiary of a much stronger bank.  The acquisition will also result in a much needed infusion of at least Php 1.3 billion in additional equity in order to bring its capital adequacy ratios to a minimum of 10%.

Whether or not the transaction was engineered by the regulatory authorities, Planters has nevertheless been rescued from the brink of death.

Sources for all data are China Bank Financial Statements on www.pse.gov.ph and Planters Development Bank's Financial Statements on www.plantersbank.com.ph and www.bsp.gov.ph.

Monday, May 12, 2014

The Myth of Regulatory Capital

On  March 24, 2014, the Bangko Sentral ng Pilipinas (BSP) assigned a lower risk weighting on dollar denominated bonds issued by the Philippine government, otherwise known as "ROPs", from 100% to just 50%.  The adjustment will be applied on the regulatory capital of stand-alone thrift bnks, rural banks, and cooperative banks. This adjustment was made after the country was awarded investment grade rating of "BBB-" last year and before the country's sovereign debt was again upgraded to "BBB", one notch above minimum investment grade this year.

This measure has the intended effect of boosting a bank's capital adequacy ratios.  As detailed in previous blog posts concerning the capital adequacy of Philippine banks, capital adequacy ratios are generally defined as:
Capital Adequacy Ratio = (Regulatory Capital/Risk Weighted Assets)
Since dollar denominated ROPs are now deemed "safer" by virtue of the Philippine's upgraded sovereign rating, regulators have assigned a lower risk weight to those bonds and therefore require less backing by equity.  The lower the risk  weight assigned to ROPs will encourage banks to invest in even more ROPs because those assets are now deemed safe by bank regulators such as the BSP.

But are assets such as ROPs really safer?  For one, they expose the bank to increased foreign exchange risk, especially as the Philippine Peso continues its medium term appreciation against the dollar.  As the Philippine Peso appreciates against the dollar, the bank can buy more dollar assets with fewer pesos.  Therefore, dollar denominated assets will become even cheaper.  This is not hypothetical. It is happening as we speak.



From 2005 to 2013, the Philippine Peso Dollar Exchange Rate dropped from a high of Php 56.04 to the dollar as of 2005 to just Php 42.23 to the dollar as of 2013, a drop of almost 25%.  The country's upgraded sovereign ratings are bound to attract more dollar inflows into the country in the form of Foreign Direct Investments (FDIs) and Portfolio Inflows.  The continued growth in OFW Remittances will also lead to a further appreciation of the Philippine Peso.









The continued appreciation of the Philippine Peso against the dollar will cheapen the value of dollar based assets and lead to losses in a bank's ROP holdings and, possibly, capital.

Basel III Leverage Ratio

Basel III rules also proposed a minimum level for equity relative to total assets.  Under Basel III rules, this leverage ratio is set to a minimum of just 3 percent.  Critics have said this number is outrageously low because it is too easy for a business to experience a 3 percent to 5 percent decline in assets during a typical economic downturn. Setting the bar so low, they say, will lead to even more bank failures and taxpayer bailouts.   Academics have called for a tripling of this ratio to at least 10 percent, to increase the financial stability of the banking system.

Given these requirements, at least three banks will not be able to meet the proposed Basel III minimum of 3 percent as of December 2013.  These are as follows:


  1. Deutsche Bank (Leverage Ratio of 2.75%)
  2. Citibank, N.A. (Leverage Ratio of 2.77%)
  3. Bank of America N.A. (Leverage Ratio of 2.80%)
By setting the the minimum leverage ratio to 10 percent, twenty-eight more banks will not be able to meet this requirement:

  1. HongKong & Shanghai Banking Corporation (Leverage Ratio of 3.01%)
  2. JP Morgan Chase Bank National Association (Leverage Ratio of 3.81%)
  3. ANZ Banking Group Ltd (Leverage Ratio of 3.84%)
  4. Mizuho Bank Ltd - Manila Branch (Leverage Ratio of 3.99%)
  5. The Bank of Tokyo-Mitsubishi UFJ Ltd (Leverage  Ratio of 4.23%)
  6. Standard Chartered Bank (Leverage Ratio of 4.38%)
  7. Planters Development Bank (Leverage Ratio of 5.16%)
  8. Korea Exchange Bank (Leverage Ratio of 5.76%)
  9. Sterling Bank of Asia Inc. (Leverage Ratio of 6.15%)
  10. China Bank Savings Inc. (Leverage Ratio of 6.77%)
  11. Wealth Development Bank Corporation (Leverage Ratio of 6.97%)
  12. United Coconut Planters Bank (Leverage Ratio of 7.14%)
  13. Bank of China Limited - Manila Branch (Leverage Ratio of 7.45%)
  14. Philippine Bank of Communications (Leverage Ratio of 7.53%)
  15. Mega International Commercial Bank Co Ltd. (Leverage Ratio of 7.54%)
  16. The Palawan Bank Inc. (Leverage Ratio of 7.77%)
  17. Internationale Nederlanden Groep Bank (Leverage Ratio of 7.85%)
  18. Equicom Savings Bank Inc. (Leverage Ratio of 7.85%)
  19. BPI Family Savings Bank Inc. (Leverage Ratio of 8.14%)
  20. BPI Direct Savings Bank Inc (Leverage Ratio of 8.37%)
  21. Land Bank of the Philippines (Leverage Ratio of 8.59%)
  22. Allied Savings Bank (Leverage Ratio of 8.82%)
  23. Philippine Postal Savings Bank Inc. (Leverage Ratio of 9.08%)
  24. Development Bank of the Philippines (Leverage Ratio of 9.34%)
  25. The Real Bank Inc. (Leverage Ratio of 9.53%)
  26. Enterprise Bank Inc. (Leverage Ratio of 9.74%)
  27. BPI Globe Banko (Leverage Ratio of 9.82%)
  28. HSBC Savings Bank (Phils) Inc. (Leverage Ratio of 9.98%)
Here's a complete list below:


Philippine Banking System
Leverage Ratio
December 31, 2013
In Php












Bank Type of Bank Tier One CAR Stockholder's Equity Total Assets Leverage Ratio
DEUTSCHE BANK AG U/KB 30.11 2,038,174,079.87 74,214,652,906.05 2.75%
CITIBANK, N.A. U/KB 19.79 7,545,425,770.57 272,163,431,213.25 2.77%
BANK OF AMERICA N.A. U/KB 56.09 596,946,705.20 21,298,895,740.76 2.80%
HONGKONG & SHANGHAI BANKING CORPORATION U/KB 15.45 5,856,722,324.95 194,684,954,066.14 3.01%
JP MORGAN CHASE BANK NATIONAL ASSOCIATION U/KB 56.55 1,556,917,580.74 40,862,867,323.12 3.81%
ANZ BANKING GROUP LTD U/KB 15.07 2,312,184,822.81 60,268,878,128.13 3.84%
MIZUHO BANK LTD - MANILA BRANCH U/KB 25.49 1,319,435,712.15 33,075,587,406.69 3.99%
THE BANK OF TOKYO-MITSUBISHI UFJ LTD U/KB 22.63 2,284,664,024.91 53,964,684,850.83 4.23%
STANDARD CHARTERED BANK U/KB 12.32 3,310,605,442.92 75,545,876,916.72 4.38%
PLANTERS DEVELOPMENT BANK Thrift 3.02 2,709,190,353.46 52,503,279,053.97 5.16%
KOREA EXCHANGE BANK U/KB 29.81 618,026,086.10 10,732,391,289.96 5.76%
STERLING BANK OF ASIA INC (A SAVINGS BANK) Thrift 9.86 1,617,042,495.35 26,306,521,089.55 6.15%
CHINA BANK SAVINGS INC Thrift 8.47 1,048,818,111.09 15,495,203,303.04 6.77%
WEALTH DEVELOPMENT BANK CORPORATION Thrift 13.09 363,668,842.05 5,218,187,289.19 6.97%
UNITED COCONUT PLANTERS BANK U/KB 10.26 18,923,327,348.00 265,212,700,969.26 7.14%
BANK OF CHINA LIMITED-MANILA BRANCH U/KB 24.38 746,794,923.86 10,020,010,083.29 7.45%
PHIL BANK OF COMMUNICATIONS U/KB 11.83 4,884,526,700.64 64,880,131,571.78 7.53%
MEGA INTERNATIONAL COMMERCIAL BANK CO LTD U/KB 32.98 757,011,827.28 10,042,902,285.31 7.54%
THE PALAWAN BANK (PALAWAN DB) INC Thrift 5.57 26,205,515.71 337,456,689.88 7.77%
INTERNATIONALE NEDERLANDEN GROEP BK U/KB 40.19 3,132,011,905.89 39,910,565,005.06 7.85%
EQUICOM SAVINGS BANK INC Thrift 0.00 498,166,589.96 6,342,813,241.89 7.85%
BPI FAMILY SAVINGS BANK INC Thrift 13.23 17,631,547,816.22 216,669,278,454.84 8.14%
BPI DIRECT SAVINGS BANK INC Thrift 17.38 972,616,889.68 11,614,273,687.82 8.37%
LAND BANK OF THE PHILIPPINES U/KB 13.98 72,317,804,694.85 841,852,855,245.16 8.59%
ALLIED SAVINGS BANK Thrift 25.19 966,841,559.87 10,967,258,502.52 8.82%
PHILIPPINE POSTAL SAVINGS BANK INC Thrift 11.59 655,747,468.09 7,218,444,717.15 9.08%
DEVELOPMENT BANK OF THE PHILIPPINES U/KB 16.75 40,750,998,289.34 436,426,249,862.13 9.34%
THE REAL BANK (A THRIFT BANK) INC Thrift 5.43 806,215,196.88 8,456,827,409.73 9.53%
ENTERPRISE BANK INC (A THRIFT BANK) Thrift 0.00 206,730,309.57 2,123,253,372.47 9.74%
BPI GLOBE BANKO INC A SAVINGS BANK Thrift 14.76 222,466,942.65 2,265,778,587.87 9.82%
HSBC SAVINGS BANK (PHILS) INC Thrift 30.62 2,825,066,001.29 28,302,818,313.58 9.98%
BDO UNIBANK INC U/KB 13.22 163,633,762,916.89 1,629,852,640,147.34 10.04%
BANK OF THE PHILIPPINE ISLANDS U/KB 12.15 99,164,800,917.73 965,619,575,199.67 10.27%
RCBC SAVINGS BANK INC Thrift 15.96 6,899,395,315.46 66,886,181,220.24 10.32%
WORLD PARTNERS BANK (A THRIFT BANK) Thrift 15.22 97,350,763.11 925,078,269.01 10.52%
CITY SAVINGS BANK INC Thrift 10.42 3,155,445,882.46 29,956,746,061.62 10.53%
CHINA BANKING CORPORATION U/KB 14.79 41,787,498,261.93 396,058,016,978.86 10.55%
SECURITY BANK SAVINGS CORPORATION Thrift 11.17 1,063,659,584.16 10,018,155,817.85 10.62%
PENBANK INC (A PDB) (FORMERLY: PENINSULA RB INC) Thrift 15.70 242,349,904.07 2,199,243,201.14 11.02%
UNION BANK OF THE PHILIPPINES U/KB 18.79 40,738,622,254.61 364,232,630,707.94 11.18%
PHILIPPINE VETERANS BANK U/KB 20.18 6,209,367,453.06 55,397,258,009.99 11.21%
METROPOLITAN BANK & TRUST CO U/KB 13.11 130,413,414,436.45 1,132,034,652,714.64 11.52%
BANK OF COMMERCE U/KB 22.75 13,817,646,787.11 118,110,965,430.80 11.70%
PHILIPPINE SAVINGS BANK Thrift 13.81 15,121,817,848.77 128,875,485,446.47 11.73%
ROBINSONS BANK CORPORATION U/KB 22.69 5,172,343,787.97 43,265,780,829.76 11.95%
SECURITY BANK CORPORATION U/KB 14.37 40,658,066,501.58 339,939,872,201.80 11.96%
OPPORTUNITY KAUSWAGAN BANK INC (A MICROFINANCE THRIFT BANK) Thrift 43.63 61,638,110.53 515,334,163.82 11.96%
HIYAS BANKING CORPORATION Thrift 17.10 161,385,481.39 1,317,967,796.34 12.25%
RIZAL COMMERCIAL BANKING CORP U/KB 15.10 45,974,823,788.29 366,451,937,446.26 12.55%
LUZON DEVELOPMENT BANK Thrift 15.03 481,131,559.05 3,645,815,026.70 13.20%
PHILIPPINE NATIONAL BANK U/KB 15.37 75,851,044,114.67 573,238,142,360.19 13.23%
COMSAVINGS BANK Thrift 14.91 230,763,397.64 1,742,425,212.41 13.24%
PRODUCERS SAVINGS BANK CORPORATION Thrift 18.07 1,182,102,090.12 8,908,232,739.41 13.27%
EAST WEST BANKING CORP U/KB 13.83 19,118,256,899.86 140,253,643,927.45 13.63%
MAYBANK PHILIPPINES INC U/KB 19.52 10,219,650,372.27 73,792,170,989.42 13.85%
BANGKOK BANK PUBLIC CO LTD U/KB 87.79 1,170,854,993.88 7,974,314,412.68 14.68%
PHILIPPINE BUSINESS BANK INC A SAVINGS Thrift 23.58 7,110,533,709.94 48,072,915,514.00 14.79%
BDO PRIVATE BANK, INC. U/KB 37.57 6,182,595,239.49 40,317,361,546.39 15.33%
MALAYAN BANK SAVINGS AND MORT BANK INC Thrift 20.77 1,097,017,961.88 7,061,316,921.73 15.54%
VILLAGE BANK INC (A THRIFT BANK) Thrift 16.76 74,607,045.44 473,491,618.80 15.76%
1ST VALLEY BANK INC A DEVELOPMENT BANK Thrift 0.00 1,024,055,944.77 6,264,553,894.95 16.35%
CITIBANK SAVINGS INC Thrift 15.76 1,588,734,573.60 9,695,392,116.14 16.39%
PHILIPPINE RESOURCES SAVINGS BANKING Thrift 14.70 1,600,287,621.08 9,689,627,536.29 16.52%
PHILIPPINE TRUST COMPANY U/KB 35.53 20,441,716,930.88 121,281,545,645.20 16.85%
ASIA UNITED BANK CORPORATION U/KB 18.15 18,014,404,268.37 105,070,308,550.26 17.15%
DUMAGUETE CITY DEVELOPMENT BANK INC Thrift 23.39 216,227,266.65 1,220,883,864.05 17.71%
FARMERS SAVINGS & LOAN BANK INC Thrift 17.03 114,015,222.56 640,248,499.38 17.81%
BATAAN DEVELOPMENT BANK Thrift 19.61 68,240,142.11 345,728,091.19 19.74%
FIRST CONSOLIDATED BANK INC (A PDB) Thrift 23.09 2,189,760,426.95 10,499,857,685.52 20.86%
CITYSTATE SAVINGS BANK INC Thrift 31.10 771,935,670.79 3,601,119,911.50 21.44%
NORTHPOINT DEV'T BANK INC Thrift 19.23 74,030,797.44 329,273,963.59 22.48%
UCPB SAVINGS BANK Thrift 24.87 2,645,570,961.14 11,732,985,528.07 22.55%
CTBC BANK (PHILIPPINES) CORPORATION U/KB 25.23 6,359,806,854.09 28,044,833,934.33 22.68%
CARD SME BANK INC A THRIFT BANK Thrift 264.25 274,434,454.71 1,138,619,582.27 24.10%
LIFE SAVINGS BANK INC Thrift 64.98 66,553,066.52 264,988,322.46 25.12%
METRO CEBU PUBLIC SAVINGS BANK Thrift 26.73 63,038,890.96 235,683,203.20 26.75%
BATAAN SAVINGS AND LOAN BANK Thrift 0.00 71,501,666.95 265,631,633.30 26.92%
SUN SAVINGS BANK INC Thrift 45.66 104,623,612.45 387,296,756.96 27.01%
CORDILLERA SAVINGS BANK INC Thrift 32.20 103,395,121.60 366,379,075.97 28.22%
BUSINESS AND CONSUMERS BANK (A DB) Thrift 0.00 80,500,827.25 264,552,919.40 30.43%
INTER-ASIA DEVELOPMENT BANK Thrift 0.00 52,276,134.45 166,741,479.31 31.35%
LEMERY SAVINGS & LOAN BANK, INC. Thrift 32.59 68,914,048.64 206,497,218.12 33.37%
UNIVERSITY SAVINGS BANK INC Thrift 50.81 213,776,498.41 637,163,163.52 33.55%
MARITIME SAVINGS BANK CORPORATION Thrift 0.00 67,829,316.54 189,908,799.18 35.72%
TONG YANG SAVINGS BANK INC Thrift 46.38 390,716,494.64 1,087,744,632.58 35.92%
QUEEN CITY DEVELOPMENT BANK INC OR QUEENBANK A THRIFT BANK Thrift 50.03 656,548,271.48 1,689,703,626.28 38.86%
PAMPANGA DEVELOPMENT BANK Thrift 116.10 117,192,461.70 298,445,823.43 39.27%
MICROFINANCE MAXIMUM SB INC Thrift 42.65 45,791,031.87 111,392,173.10 41.11%
BANK ONE SAVINGS AND TRUST CORP. Thrift 71.47 542,290,082.23 1,316,418,205.93 41.19%
UNITED OVERSEAS BANK PHILIPPINES Thrift 137.02 700,169,994.52 1,672,721,520.15 41.86%
PACIFIC ACE SAVINGS BANK INC Thrift 51.79 75,606,367.84 176,267,986.18 42.89%
OPTIMUM DEVELOPMENT BANK INC Thrift 0.00 713,108,078.00 1,640,989,224.73 43.46%
MALASIQUI PROGRESSIVE SLB, INC Thrift 45.80 54,034,929.02 116,699,139.87 46.30%
TOWER DEVELOPMENT BANK Thrift 110.08 112,560,495.06 234,526,741.66 47.99%
DUNGGANON BANK (A MICROFINANCE THRIFT Thrift 49.61 84,914,347.98 147,224,952.75 57.68%
QUEZON COCONUT BANK INC (A THRIFT BANK) Thrift 58.83 58,839,248.19 101,881,184.62 57.75%
AL-AMANAH ISLAMIC INVESTMENT BANK OF THE PHILS U/KB 132.08 392,277,101.62 678,514,389.01 57.81%
PROGRESS SAVINGS AND LOAN BANK INC Thrift 58.76 83,008,094.43 139,951,494.60 59.31%
PRIDE STAR DEVELOPMENT BANK INC Thrift 68.06 69,890,199.26 115,298,962.30 60.62%
ISLA BANK (A THRIFT BANK) INC Thrift 235.60 648,121,453.33 1,067,267,523.59 60.73%
MERCHANTS SAVINGS & LOAN ASSOCIATION INC Thrift 69.59 488,242,200.45 802,706,719.05 60.82%
SAMPAGUITA SAVINGS BANK INC Thrift 60.09 56,674,898.04 85,206,018.05 66.52%
MBANK PHILIPPINES Thrift 79.24 125,138,767.06 158,760,908.29 78.82%
CENTURY SAVINGS BANK CORPORATION Thrift 89.51 911,497,011.92 1,126,045,152.51 80.95%
BDO ELITE SAVINGS BANK INC Thrift 527.45 1,592,542,542.62 1,595,912,515.12 99.79%
Grand Total

1,000,788,644,101.93 9,783,019,880,757.83 10.23%




The Philippine Banking System, as a whole, has a Leverage Ratio of 10.23% as of December 31, 2013.  However, this ratio does not factor in banks with overstated capital. Once this is accounted for, the problem becomes even more acute for certain banks like:


  1. Planters Development Bank (Adjusted Leverage Ratio of 1.86%)
  2. United Coconut Planters Bank (Adjusted Leverage Ratio of 3.56%)
  3. Wealth Development Bank Corporation (Adjusted Leverage Ratio of 6.90%)


Philippine Banking System
Leverage Ratios of Banks with Overstated Capital
December 31, 2013
In Php




















Bank Type of Bank Tier One CAR Stockholder's Equity Unbooked Losses Adjusted SE Total Assets Unbooked Losses Adjusted Total Assets Adj. Leverage Ratio
PLANTERS DEVELOPMENT BANK Thrift 3.02 2,709,190,353.46 1,766,318,678.15 942,871,675.31 52,503,279,053.97 1,766,318,678.15 50,736,960,375.82 1.86%
UNITED COCONUT PLANTERS BANK U/KB 10.26 18,923,327,348.00 9,841,900,553.53 9,081,426,794.47 265,212,700,969.26 9,841,900,553.53 255,370,800,415.73 3.56%
WEALTH DEVELOPMENT BANK CORPORATION Thrift 13.09 363,668,842.05 3,841,403.12 359,827,438.93 5,218,187,289.19 3,841,403.12 5,214,345,886.07 6.90%
BDO UNIBANK INC U/KB 13.22 163,633,762,916.89 141,704,503.03 163,492,058,413.86 1,629,852,640,147.34 141,704,503.03 1,629,710,935,644.31 10.03%
CITY SAVINGS BANK INC Thrift 10.42 3,155,445,882.46 77,957,177.94 3,077,488,704.52 29,956,746,061.62 77,957,177.94 29,878,788,883.68 10.30%
BANK OF COMMERCE U/KB 22.75 13,817,646,787.11 692,248,501.05 13,125,398,286.06 118,110,965,430.80 692,248,501.05 117,418,716,929.75 11.18%
CITIBANK SAVINGS INC Thrift 15.76 1,588,734,573.60 64,387,850.64 1,524,346,722.96 9,695,392,116.14 64,387,850.64 9,631,004,265.50 15.83%
BATAAN DEVELOPMENT BANK Thrift 19.61 68,240,142.11 12,083,877.40 56,156,264.71 345,728,091.19 12,083,877.40 333,644,213.79 16.83%
FARMERS SAVINGS & LOAN BANK INC Thrift 17.03 114,015,222.56 6,045.94 114,009,176.62 640,248,499.38 6,045.94 640,242,453.44 17.81%
CARD SME BANK INC A THRIFT BANK Thrift 264.25 274,434,454.71 5,081,135.45 269,353,319.26 1,138,619,582.27 5,081,135.45 1,133,538,446.82 23.76%
Grand Total

204,648,466,522.95 12,605,529,726.25 192,042,936,796.70 2,112,674,507,241.16 12,605,529,726.25 2,100,068,977,514.91 9.14%


A lot of the foreign banks figure prominently in the list of Philippine Banks with very low leverage ratios.  Deutsche Bank AG, for instance, which has an impregnable Tier One CAR of 30.11 as of December 31, 2013 (BSP Minimum is 10), has a leverage ratio of only 2.75% - the lowest among all Philippine Banks.  Citibank, N.A. fares no better with a leverage ratio of just 2.77%.  The same goes for Bank of America N.A., with a leverage ratio of 2.80% - again below the Basel III minimum ratio of 3 percent.  Most of the foreign banks with branches in the Philippines have leverage ratios below the suggested minimum of 10 percent.

Their parent companies are just as undercapitalized.  Again, Deutsche Bank AG, the global bank, has a leverage ratio of only 2.68% as of December 31, 2013.  Indeed, Deutsche Bank was cited by Thomas Hoenig, the Vice Chairman of the Federal Deposit Insurance Corporation (FDIC), as "horribly undercapitalized".  All of these foreign banks can boast of regulatory capital levels way above the minimum.  Both local Manila Branches and their parent companies have Tier One CARs of at least 9% or more.  But given the next economic downturn, that fortress balance sheet will prove to be just a myth for most.

Philippine Banking System
Leverage Ratios of Foreign Banks
December 31, 2013
In Currency Millions





















Local Manila Branch Parent Company

Date Tier One CAR Leverage Ratio Currency Date Stockholder's Equity Total Assets Leverage Ratio Tier 1 Capital
DEUTSCHE BANK AG 12/31/13 30.11 2.75% EUR Million 12/31/13 54,003.00 2,012,329.00 2.68% 9.7
MIZUHO BANK LTD - MANILA BRANCH 12/31/13 25.49 3.99% Yen Million 09/30/13 5,929,823.00 177,411,062.00 3.34% 11.59
INTERNATIONALE NEDERLANDEN GROEP BK 12/31/13 40.19 7.85% EUR Million 12/31/13 43,940.00 1,076,602.00 4.08% 11.7
THE BANK OF TOKYO-MITSUBISHI UFJ LTD 12/31/13 22.63 4.23% Yen Million 12/31/13 12,629,201.00 258,441,754.00 4.89% 12.11
ANZ BANKING GROUP LTD 12/31/13 15.07 3.84% AUD $ Million 12/31/13 45,615.00 702,991.00 6.49% 9.9
HONGKONG & SHANGHAI BANKING CORP 12/31/13 15.45 3.01% US$ Million 12/31/13 181,871.00 2,671,318.00 6.81% 13.6
STANDARD CHARTERED BANK 12/31/13 12.32 4.38% US$ Million 12/31/13 46,246,000.00 674,380,000.00 6.86% 11.8
BANK OF CHINA LIMITED-MANILA BRANCH 12/31/13 24.38 7.45% CNY Millions 12/31/13 961,477,000.00 13,874,299,000.00 6.93% 9.69
JP MORGAN CHASE BANK NATIONAL ASSOCIATION. 12/31/13 56.55 3.81% US$ Million 12/31/13 211,178.00 2,415,689.00 8.74% 10.7
CITIBANK, N.A. 12/31/13 19.79 2.77% US$ Million 12/31/13 204,339.00 1,880,382.00 10.87% 10.5
BANK OF AMERICA N.A. 12/31/13 56.09 2.80% US$ Million 12/31/13 232,685.00 2,102,273.00 11.07% 12.44
BANGKOK BANK PUBLIC CO LTD 12/31/13 87.79 14.68% Baht Thousands 12/31/13 296,051.70 2,596,507.20 11.40% 14.4