Philippine Real Estate and Construction Loans Are Even More Out of Whack As of September 2015!

It sure looks that way, judging from this chart:

It looks like Real Estate and Construction Loans as a percentage of Total Loan Portfolio (TLP) rocketed past its historical range of 12.6% to 16.6% of TLP sometime in 2011.  That ratio peaked at 20.55% as of September 2013 but has bottomed out at 18.61% of TLP as of December 2014. In the last nine months of the year, this ratio has climbed back up to 19.96% as of September 2015.

Now, are we up to the levels of the previous real estate boom? (as in mid 1990s to 1997?) Honestly, we don't know.  BSP data only goes as far back as 1999 when the previous real estate bubble had already burst and the financial system was most likely deleveraging as evidenced in this chart.

Construction Gross Value as a Percentage of GDP Has Is at a 25 Year High! - Updated as of 3rd Qtr. 2015

Has the Philippine Real Estate Bubble Already Burst?

Is There a Real Estate Bubble in the Philippines?

Are Philippine Real Estate Loans Out of Whack?

Overstated Capital of Philippine Banks as of June 30, 2015

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 retained earnings 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, nine banks have Deferred Charges as of June 30, 2015:

1. United Coconut Planters Bank (Deferred Charges of 41.09% of SE)
2. Planters Development Bank (Deferred Charges of 35.22% of SE)
3. Bataan Development Bank (Deferred Charges of 11.77% of SE)
4. City Savings Bank (Deferred Charges of 5.70% of SE)
5. Bank of Commerce (Deferred Charges of 1.76% of SE)
6. Card SME Bank, Inc. (Deferred Charges of 0.53% of SE)
7. Wealth Development Bank Corporation (Deferred Charges of 0.32% of SE)
8. Banco De Oro Unibank, Inc. (Deferred Charges of 0.02% of SE)
9. Farmers Savings and Loan Bank (Deferred Charges of 0.00% of SE)

It must be noted that five of these banks were ranked as  distressed (highlighted in yellow) as of March 31, 2015:

1. United Coconut Planters Bank (Distressed Ratio of 318.99%)
2. Planters Development Bank  (Distressed Ratio of 247.76%)
3. Bank of Commerce (Distressed Ratio of 184.10%)
4. Bataan Development Bank (Distressed Ratio of 138.11%)
5. Wealth Development Bank Corporation (Distressed Ratio of 106.91%)

For more information on distressed banks, please see the previous blog post: "The Top Distressed Philippine Banks as of March 31, 2015.

For two of the banks, the immediate booking their Deferred Charges will only serve to impair 25% or more of their Stockholders Equity as of June 30, 2015:

1. United Coconut Planters Bank (Deferred Charges of 41.09% of SE)
2. Planters Development Bank (Deferred Charges of 35.22% of SE)

Naturally, these banks are considered distressed.

Retained Earnings

Only five banks have sufficient Retained Earnings (RE) to absorb their unbooked losses as of March 31, 2015:

1. City Savings Bank (Deferred Charges 8.50% of RE)
2. Card SME Bank Inc (Deferred Charges 2.65% of RE)
3. Wealth Development Bank Corporation (Deferred Charges 1.61% of RE)
4. BDO Unibank (Deferred Charges of 0.05% of RE)
5. Farmers Savings and Loan Bank, Inc. (Deferred Charges of 0.00% of RE)

For one bank with overstated capital, Deferred Charges will exceed their Retained Earnings:

1. United Coconut Planters Bank (Deferred Charges of 133.17% 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 4.392 billion vs. Deferred Charges of Php 267.970 million.
2. Planters Development Bank (Retained Earnings of - PhP 778.768 million vs. Deferred Charges of Php 1.245 billion

For more information of these Deferred Charges, please consult the previous blog posts: "Overstated Capital of Philippine Banks as of March 31, 2015", "Overstated Capital of Philippine Banks as of December 31, 2014", "Overstated Capital of Philippine Banks as of June 30, 2014", "Overstated Capital of Philippine Banks as of March 31, 2014", "Overstated Capital of Philippine Banks as of December 31, 2013", "Overstated Capital of Philippine Banks as of September 30, 2013", "Can Philippine Banks Charge Their Unbooked Losses Against Retained Earnings? - June 30, 2013, "Can Philippine Banks Charge their Unbooked Losses Against Retained Earnings? - March 31, 2013", "Can Philippine Universal and Commercial Banks Charge their Unbooked Losses Against Retained Earnings? - December 31, 2012" and "Can Philippine Thrift Banks Charge their Unbooked Losses Against Retained Earnings? - December 31, 2012".

Philippine Banking System
Deferred Charges Not Yet Written Down
Impact on Stockholder's Equity
In Php
June 30, 2015
Bank	Type of Bank	Deferred Charges	Unbooked Losses	Total Deferred Charges	Stockholder's Equity	Adjusted SE	Impact on SE
UNITED COCONUT PLANTERS BANK	U/KB	8,284,746,199.58	0.00	8,284,746,199.58	20,164,093,497.57	11,879,347,297.99	41.09%
PLANTERS DEVELOPMENT BANK	Thrift	1,244,698,024.42	0.00	1,244,698,024.42	3,534,513,968.74	2,289,815,944.32	35.22%
BATAAN DEVELOPMENT BANK	Thrift	9,121,706.71	0.00	9,121,706.71	77,468,452.70	68,346,745.99	11.77%
CITY SAVINGS BANK	Thrift	412,076,073.66	0.00	412,076,073.66	7,232,735,528.05	6,820,659,454.39	5.70%
BANK OF COMMERCE	U/KB	267,969,900.77	0.00	267,969,900.77	15,262,313,934.88	14,994,344,034.11	1.76%
CARD SME BANK INC A THRIFT BANK	Thrift	2,752,490.96	0.00	2,752,490.96	518,521,095.02	515,768,604.06	0.53%
WEALTH DEVELOPMENT BANK CORPORATION	Thrift	1,304,760.90	0.00	1,304,760.90	412,087,784.99	410,783,024.09	0.32%
BDO UNIBANK INC	U/KB	30,805,326.91	0.00	30,805,326.91	179,821,847,506.88	179,791,042,179.97	0.02%
FARMERS SAVINGS & LOAN BANK INC	Thrift	1,685.98	0.00	1,685.98	108,608,004.16	108,606,318.18	0.00%
Grand Total		10,253,476,169.89	0.00	10,253,476,169.89	227,132,189,772.99	216,878,713,603.10	4.51%
Philippine Banking System
Deferred Charges Not Yet Written Down
Impact on Retained Earnings
In Php
June 30, 2015
Bank	Total Deferred Charges	RE	Adjusted RE	Impact on RE
UNITED COCONUT PLANTERS BANK	8,284,746,199.58	6,221,225,545.82	-2,063,520,653.76	133.17%
BATAAN DEVELOPMENT BANK	9,121,706.71	9,152,329.02	30,622.31	99.67%
CITY SAVINGS BANK	412,076,073.66	4,849,480,670.85	4,437,404,597.19	8.50%
CARD SME BANK INC A THRIFT BANK	2,752,490.96	103,920,278.26	101,167,787.30	2.65%
WEALTH DEVELOPMENT BANK CORPORATION	1,304,760.90	81,060,644.78	79,755,883.88	1.61%
BDO UNIBANK INC	30,805,326.91	65,933,566,296.69	65,902,760,969.78	0.05%
FARMERS SAVINGS & LOAN BANK INC	1,685.98	42,209,998.68	42,208,312.70	0.00%
BANK OF COMMERCE	267,969,900.77	-4,391,977,419.49	-4,659,947,320.26	-6.10%
PLANTERS DEVELOPMENT BANK	1,244,698,024.42	-778,768,212.07	-2,023,466,236.49	-159.83%
Grand Total	10,253,476,169.89	72,069,870,132.54	61,816,393,962.65	14.23%

Source: www.bsp.gov.ph