An 80% Minimum NPL Coverage Ratio will Result in a Severe Undercapitalization of Some Philippine Banks - December 31, 2016

In a previous blog post called "Are Philippine Banks Under Provisioning Loan Losses? - As of December 31, 2016", we discussed the current aggregate Loan Loss Reserves (LLR) as a percentage of Total Loan Portfolio (TLP), which stood at 2.02% as of December 31, 2016, is below the historic average of 4.14% for the last thirty-four years.  Despite NPLs being at or near historic lows, some banks still have not adequately provisioned for loan losses.  Their NPL Coverage Ratios are below the ideal ratio of 100% and even below the suggested minimum of 80% NPL Coverage Ratio.

As the table below suggests, it seems that around 41 banks (highlighted in yellow, failed banks in red) fall into this deficiency.

Philippine Banking System
NPL Coverage Ratio
December 31, 2016
Bank	Loan Loss Provisions	Gross NPLs	NPL Coverage Ratio
PHIL POSTAL SAVINGS BANK INC	333,047,322.48	2,105,663,775.71	15.82%
CITYSTATE SAVINGS BANK INC	28,194,883.83	119,756,629.16	23.54%
EQUICOM SAVINGS BANK INC	146,840,980.06	601,715,967.86	24.40%
LUZON DEVELOPMENT BANK	140,505,149.80	544,175,490.99	25.82%
MARITIME SAVINGS BANK CORPORATION	6,948,645.24	24,652,054.39	28.19%
LIFE SAVINGS BANK INC	4,875,321.67	14,205,894.15	34.32%
WORLD PARTNERS BANK (A THRIFT BANK)	43,933,367.98	107,415,667.13	40.90%
PHIL STAR DEVELOPMENT BANK INC	8,584,607.75	19,238,385.28	44.62%
OPTIMUM DEVELOPMENT BANK INC	44,215,809.90	90,959,273.89	48.61%
CHINA BANK SAVINGS INC	2,173,488,033.39	4,293,974,170.33	50.62%
MALAYAN BANK SAVINGS AND MORT BANK INC	294,054,415.63	574,727,293.20	51.16%
ENTERPRISE BANK INC (A THRIFT BANK)	121,353,813.66	232,694,561.97	52.15%
BANK ONE SAVINGS AND TRUST CORP.	12,136,266.46	23,101,952.55	52.53%
PAMPANGA DEVELOPMENT BANK	26,936,446.48	49,744,868.65	54.15%
MALASIQUI PROGRESSIVE SLB, INC	6,951,706.48	12,713,229.25	54.68%
1ST VALLEY BANK INC A DEVELOPMENT BANK	191,949,568.34	346,548,011.68	55.39%
WEALTH DEVELOPMENT BANK CORPORATION	133,572,223.76	240,199,722.90	55.61%
RCBC SAVINGS BANK INC	2,069,453,414.48	3,715,336,441.78	55.70%
METRO CEBU PUBLIC SAVINGS BANK	12,188,817.06	21,100,005.39	57.77%
PRODUCERS SAVINGS BANK CORPORATION	180,254,314.44	311,505,684.33	57.87%
UNIVERSITY SAVINGS BANK INC	42,642,434.66	72,145,206.72	59.11%
CENTURY SAVINGS BANK CORPORATION	21,061,844.89	34,734,041.96	60.64%
STANDARD CHARTERED BANK	1,296,634,374.95	2,123,003,347.70	61.08%
AL-AMANAH ISLAMIC INVESTMENT BANK OF THE PHILS	4,030,509.10	6,509,512.97	61.92%
PENBANK INC (A PDB) (FORMERLY: PENINSULA RB INC)	93,435,088.93	146,519,151.74	63.77%
UCPB SAVINGS BANK	622,663,549.91	975,156,384.32	63.85%
PNB SAVINGS BANK	549,213,325.97	829,192,484.27	66.23%
STERLING BANK OF ASIA INC (A SAVINGS BANK)	636,882,137.36	936,700,031.78	67.99%
ANZ BANKING GROUP LTD	277,452,243.24	404,087,064.26	68.66%
EAST WEST BANKING CORP	5,654,352,021.70	8,227,387,109.25	68.73%
NORTHPOINT DEV'T BANK INC	85,299,972.67	122,915,455.83	69.40%
BUSINESS AND CONSUMERS BANK (A DB)	10,375,153.50	13,970,890.80	74.26%
BATAAN DEVELOPMENT BANK	23,381,061.33	31,340,481.42	74.60%
BANK OF MAKATI (A SAVINGS BANK) INC	1,690,714,265.05	2,243,073,464.02	75.37%
PHILIPPINE RESOURCES SAVINGS BANKING CORPORATION (PR SAVINGS	724,420,435.39	955,755,336.48	75.80%
BANGKO KABAYAN INC (A PRIVATE DEVELOPMENT BANK)	30,270,872.06	39,444,210.03	76.74%
PHILIPPINE VETERANS BANK	1,462,735,170.55	1,898,738,872.12	77.04%
UNITED COCONUT PLANTERS BANK	4,694,474,678.64	5,989,286,726.79	78.38%
DUNGGANON BANK (A MICROFINANCE THRIFT BANK) INC	22,353,345.69	28,178,352.90	79.33%
INTER-ASIA DEVELOPMENT BANK	6,196,487.82	7,566,983.61	81.89%
HIYAS BANKING CORPORATION	28,859,545.81	34,826,424.16	82.87%
MAYBANK PHILIPPINES INCORPORATED	1,700,075,880.09	2,036,189,716.30	83.49%
CITY SAVINGS BANK INC	1,341,372,690.55	1,530,120,230.40	87.66%
BATAAN SAVINGS AND LOAN BANK	1,595,044.62	1,808,578.20	88.19%
PHILIPPINE BUSINESS BANK INC A SAVINGS BANK	1,182,951,000.48	1,322,295,019.15	89.46%
LEGAZPI SAVINGS BANK INC	401,890,347.92	447,417,498.87	89.82%
DUMAGUETE CITY DEV BANK INC	18,933,844.50	20,850,370.14	90.81%
LEMERY SAVINGS & LOAN BANK, INC.	2,738,284.63	2,987,856.52	91.65%
BPI FAMILY SAVINGS BANK INC	6,971,409,756.08	7,497,941,572.20	92.98%
QUEEN CITY DEVELOPMENT BANK INC OR QUEENBANK A THRIFT BANK	20,622,537.49	22,071,051.75	93.44%
HONGKONG & SHANGHAI BANKING CORP	748,260,867.39	797,673,955.04	93.81%
PHIL BANK OF COMMUNICATIONS	2,159,595,324.29	2,259,014,990.06	95.60%
CORDILLERA SAVINGS BANK INC	14,015,675.60	14,588,524.39	96.07%
PHIL SAVINGS BANK	4,468,782,709.06	4,531,110,557.04	98.62%
BPI DIRECT BANKO INC A SAVINGS BANK	540,016,696.62	547,319,743.95	98.67%
YUANTA SAVINGS BANK PHILIPPINES INC	111,191,258.04	112,039,320.83	99.24%
SUN SAVINGS BANK INC	15,438,316.50	15,103,167.59	102.22%
ROBINSONS BANK CORPORATION	708,610,993.75	691,088,663.30	102.54%
FIRST CONSOLIDATED BANK INC (A PDB)	630,486,394.06	590,763,111.01	106.72%
VILLAGE BANK INC (A THRIFT BANK)	21,809,265.59	20,037,722.29	108.84%
FARMERS SAVINGS & LOAN BANK INC	25,477,401.82	22,696,612.39	112.25%
UNION BANK OF THE PHILS	8,777,174,140.57	7,778,178,634.93	112.84%
BANK OF COMMERCE	2,083,915,313.03	1,777,798,286.62	117.22%
ASIA UNITED BANK CORPORATION	1,916,602,888.31	1,475,266,303.18	129.92%
PHIL NATIONAL BANK	11,645,626,722.87	8,771,559,273.58	132.77%
DEVELOPMENT BANK OF THE PHIL	6,615,553,742.00	4,802,651,348.83	137.75%
MERCHANTS SAVINGS & LOAN ASSN INC	21,430,018.40	15,291,332.84	140.14%
THE PALAWAN BANK (PALAWAN DB) INC	21,908,732.90	14,849,692.88	147.54%
LAND BANK OF THE PHILIPPINES	10,634,578,515.79	7,173,190,275.55	148.25%
BDO UNIBANK INC	24,450,320,470.09	15,854,555,894.59	154.22%
CHINA BANKING CORP	5,823,531,628.37	3,728,985,069.67	156.17%
HSBC SAVINGS BANK(PHILS) INC	100,965,502.80	63,448,045.28	159.13%
CTBC BANK (PHILIPPINES) CORP	745,517,901.51	460,786,467.63	161.79%
BANK OF CHINA LIMITED-MANILA BRANCH	329,957,085.86	189,040,895.91	174.54%
CARD SME BANK INC A THRIFT BANK	85,236,684.08	48,473,003.59	175.84%
BANK OF THE PHIL ISLANDS	14,289,383,788.97	7,688,633,689.58	185.85%
KEB HANA BANK - MANILA BRANCH	52,723,292.43	28,022,199.88	188.15%
RIZAL COMM'L BANKING CORP	3,619,363,187.41	1,913,419,749.01	189.16%
PHIL TRUST COMPANY	2,264,032,428.42	1,172,897,983.43	193.03%
SECURITY BANK CORP	4,464,914,745.62	1,956,583,647.77	228.20%
QUEZON COCONUT BANK INC (A THRIFT BANK)	1,225,133.86	440,570.84	278.08%
METROPOLITAN BANK & TCO	13,049,114,638.69	3,683,099,014.74	354.30%
CITIBANK, N.A.	3,828,457,128.45	869,608,224.33	440.25%
BANGKOK BANK PUBLIC CO LTD	369,607,500.00	43,936,941.43	841.22%
ING BANK N.V.	106,771,914.09	101.44	105256224.46%
BANK OF AMERICA N.A.	27,700,000.00	0.00	NA
BDO PRIVATE BANK, INC.	182,621,734.84	0.00	NA
CATHAY UNITED BANK CO LTD - MANILA BRANCH	10,880,436.94	0.00	NA
DEUTSCHE BANK AG	77,821,547.23	0.00	NA
FIRST COMMERCIAL BANK LTD MANILA BRANCH	0.00	0.00	NA
INDUSTRIAL BANK OF KOREA MANILA BRANCH	10,271,834.32	0.00	NA
ISLA BANK(A THRIFT BANK) INC	4,290,580.33	0.00	NA
JP MORGAN CHASE BANK NATIONAL ASSN.	19,265,114.78	0.00	NA
MEGA INT'L COMM'L BANK CO LTD	410,834,943.20	0.00	NA
MIZUHO BANK LTD - MANILA BRANCH	349,964,606.89	0.00	NA
SHINHAN BANK - MANILA BRANCH	5,330,996.00	0.00	NA
SUMITOMO MITSUI BANKING CORPORATION-MANILA BRANCH	82,338,553.67	0.00	NA
THE BNK OF TOKYO-MITSUBISHI UFJ LTD	388,210,030.46	0.00	NA
Grand Total	161,909,651,400.37	130,563,795,522.67	124.01%

Raising the NPL Coverage Ratio to a minimum of 80% will entail additional loan loss provisions for some banks that could eat into a substantial chunk (20% or more) of their Stockholder's Equity.  Based on the table below, seven banks will be severely affected:

Philippine Banking System
Impact on SE of Minimum Loan Loss Provisions
December 31, 2016
Bank	Gross NPLs	Minimum Loan Loss Provisions at 80% NPL Coverage Ratio	Stockholder's Equity	Impact on SE
PHIL POSTAL SAVINGS BANK INC	2,105,663,775.71	1,684,531,020.57	1,003,426,168.74	-134.69%
LUZON DEVELOPMENT BANK	544,175,490.99	435,340,392.79	350,396,970.60	-84.14%
WORLD PARTNERS BANK (A THRIFT BANK)	107,415,667.13	85,932,533.70	60,443,031.24	-69.49%
EQUICOM SAVINGS BANK INC	601,715,967.86	481,372,774.29	652,349,264.94	-51.28%
MARITIME SAVINGS BANK CORPORATION	24,652,054.39	19,721,643.51	37,146,334.12	-34.39%
ENTERPRISE BANK INC (A THRIFT BANK)	232,694,561.97	186,155,649.58	273,953,562.02	-23.65%
MALAYAN BANK SAVINGS AND MORT BANK INC	574,727,293.20	459,781,834.56	1,004,218,467.21	-16.50%
CHINA BANK SAVINGS INC	4,293,974,170.33	3,435,179,336.26	9,156,290,253.10	-13.78%
LIFE SAVINGS BANK INC	14,205,894.15	11,364,715.32	66,516,103.17	-9.76%
PAMPANGA DEVELOPMENT BANK	49,744,868.65	39,795,894.92	133,860,245.35	-9.61%
CITYSTATE SAVINGS BANK INC	119,756,629.16	95,805,303.33	737,224,113.70	-9.17%
RCBC SAVINGS BANK INC	3,715,336,441.78	2,972,269,153.42	10,404,065,960.55	-8.68%
PHIL STAR DEVELOPMENT BANK INC	19,238,385.28	15,390,708.22	93,400,200.78	-7.29%
METRO CEBU PUBLIC SAVINGS BANK	21,100,005.39	16,880,004.31	64,435,089.21	-7.28%
MALASIQUI PROGRESSIVE SLB, INC	12,713,229.25	10,170,583.40	52,140,796.94	-6.17%
1ST VALLEY BANK INC A DEVELOPMENT BANK	346,548,011.68	277,238,409.34	1,442,686,809.84	-5.91%
UCPB SAVINGS BANK	975,156,384.32	780,125,107.46	2,742,614,192.92	-5.74%
PENBANK INC (A PDB) (FORMERLY: PENINSULA RB INC)	146,519,151.74	117,215,321.39	457,096,842.49	-5.20%
STANDARD CHARTERED BANK	2,123,003,347.70	1,698,402,678.16	8,629,977,138.18	-4.66%
STERLING BANK OF ASIA INC (A SAVINGS BANK)	936,700,031.78	749,360,025.42	2,495,553,616.49	-4.51%
WEALTH DEVELOPMENT BANK CORPORATION	240,199,722.90	192,159,778.32	1,311,900,631.99	-4.47%
PRODUCERS SAVINGS BANK CORPORATION	311,505,684.33	249,204,547.46	1,585,786,138.30	-4.35%
NORTHPOINT DEV'T BANK INC	122,915,455.83	98,332,364.66	343,580,397.41	-3.79%
UNIVERSITY SAVINGS BANK INC	72,145,206.72	57,716,165.38	412,031,156.93	-3.66%
OPTIMUM DEVELOPMENT BANK INC	90,959,273.89	72,767,419.11	851,577,817.81	-3.35%
EAST WEST BANKING CORP	8,227,387,109.25	6,581,909,687.40	34,222,509,373.79	-2.71%
BATAAN DEVELOPMENT BANK	31,340,481.42	25,072,385.14	77,178,559.44	-2.19%
PHILIPPINE RESOURCES SAVINGS BANKING CORPORATION (PR SAVINGS	955,755,336.48	764,604,269.18	1,915,584,496.80	-2.10%
BANK OF MAKATI (A SAVINGS BANK) INC	2,243,073,464.02	1,794,458,771.22	6,358,015,586.16	-1.63%
PHILIPPINE VETERANS BANK	1,898,738,872.12	1,518,991,097.70	4,139,442,922.32	-1.36%
ANZ BANKING GROUP LTD	404,087,064.26	323,269,651.41	4,150,338,569.51	-1.10%
BANK ONE SAVINGS AND TRUST CORP.	23,101,952.55	18,481,562.04	575,219,918.21	-1.10%
PNB SAVINGS BANK	829,192,484.27	663,353,987.42	11,498,657,172.27	-0.99%
BUSINESS AND CONSUMERS BANK (A DB)	13,970,890.80	11,176,712.64	84,502,772.49	-0.95%
CENTURY SAVINGS BANK CORPORATION	34,734,041.96	27,787,233.57	971,015,155.84	-0.69%
UNITED COCONUT PLANTERS BANK	5,989,286,726.79	4,791,429,381.43	17,592,468,014.29	-0.55%
AL-AMANAH ISLAMIC INVESTMENT BANK OF THE PHILS	6,509,512.97	5,207,610.38	298,726,619.97	-0.39%
BANGKO KABAYAN INC (A PRIVATE DEVELOPMENT BANK)	39,444,210.03	31,555,368.02	460,453,624.72	-0.28%
DUNGGANON BANK (A MICROFINANCE THRIFT BANK) INC	28,178,352.90	22,542,682.32	106,910,119.62	-0.18%
FIRST COMMERCIAL BANK LTD MANILA BRANCH	0.00	0.00	2,061,230,424.92	0.00%
INTER-ASIA DEVELOPMENT BANK	7,566,983.61	6,053,586.89	62,495,742.15	0.23%
SHINHAN BANK - MANILA BRANCH	0.00	0.00	2,168,774,838.27	0.25%
BATAAN SAVINGS AND LOAN BANK	1,808,578.20	1,446,862.56	58,266,576.10	0.25%
LEMERY SAVINGS & LOAN BANK, INC.	2,987,856.52	2,390,285.22	79,181,809.28	0.44%
QUEEN CITY DEVELOPMENT BANK INC OR QUEENBANK A THRIFT BANK	22,071,051.75	17,656,841.40	658,121,861.20	0.45%
INDUSTRIAL BANK OF KOREA MANILA BRANCH	0.00	0.00	2,198,377,005.93	0.47%
CATHAY UNITED BANK CO LTD - MANILA BRANCH	0.00	0.00	2,114,994,246.49	0.51%
MAYBANK PHILIPPINES INCORPORATED	2,036,189,716.30	1,628,951,773.04	11,719,746,835.36	0.61%
SUMITOMO MITSUI BANKING CORPORATION-MANILA BRANCH	0.00	0.00	12,851,999,724.51	0.64%
ISLA BANK(A THRIFT BANK) INC	0.00	0.00	664,937,840.86	0.65%
HIYAS BANKING CORPORATION	34,826,424.16	27,861,139.33	152,412,656.01	0.66%
HONGKONG & SHANGHAI BANKING CORP	797,673,955.04	638,139,164.03	14,640,228,446.42	0.75%
DUMAGUETE CITY DEV BANK INC	20,850,370.14	16,680,296.11	262,995,356.70	0.86%
CITY SAVINGS BANK INC	1,530,120,230.40	1,224,096,184.32	10,416,035,951.50	1.13%
PHILIPPINE BUSINESS BANK INC A SAVINGS BANK	1,322,295,019.15	1,057,836,015.32	9,727,579,253.15	1.29%
ROBINSONS BANK CORPORATION	691,088,663.30	552,870,930.64	11,896,303,900.32	1.31%
BANK OF AMERICA N.A.	0.00	0.00	2,091,322,952.20	1.32%
JP MORGAN CHASE BANK NATIONAL ASSN.	0.00	0.00	1,387,778,439.51	1.39%
MERCHANTS SAVINGS & LOAN ASSN INC	15,291,332.84	12,233,066.27	623,919,318.51	1.47%
QUEZON COCONUT BANK INC (A THRIFT BANK)	440,570.84	352,456.67	58,788,484.15	1.48%
CORDILLERA SAVINGS BANK INC	14,588,524.39	11,670,819.51	135,032,013.61	1.74%
SUN SAVINGS BANK INC	15,103,167.59	12,082,534.07	183,535,477.61	1.83%
KEB HANA BANK - MANILA BRANCH	28,022,199.88	22,417,759.90	1,641,319,668.78	1.85%
YUANTA SAVINGS BANK PHILIPPINES INC	112,039,320.83	89,631,456.66	992,092,118.96	2.17%
DEUTSCHE BANK AG	0.00	0.00	3,115,188,633.13	2.50%
HSBC SAVINGS BANK(PHILS) INC	63,448,045.28	50,758,436.22	1,797,588,220.73	2.79%
SECURITY BANK CORP	1,956,583,647.77	1,565,266,918.22	96,540,680,277.62	3.00%
ASIA UNITED BANK CORPORATION	1,475,266,303.18	1,180,213,042.54	23,274,345,137.40	3.16%
RIZAL COMM'L BANKING CORP	1,913,419,749.01	1,530,735,799.21	62,605,257,771.28	3.34%
PHIL BANK OF COMMUNICATIONS	2,259,014,990.06	1,807,211,992.05	10,241,013,449.75	3.44%
BDO PRIVATE BANK, INC.	0.00	0.00	5,143,261,112.34	3.55%
BPI FAMILY SAVINGS BANK INC	7,497,941,572.20	5,998,353,257.76	25,553,872,912.78	3.81%
FIRST CONSOLIDATED BANK INC (A PDB)	590,763,111.01	472,610,488.81	3,875,459,099.11	4.07%
UNION BANK OF THE PHILS	7,778,178,634.93	6,222,542,907.94	62,333,297,322.59	4.10%
BANK OF COMMERCE	1,777,798,286.62	1,422,238,629.30	15,364,502,813.09	4.31%
ING BANK N.V.	101.44	81.15	2,462,697,042.68	4.34%
PHIL SAVINGS BANK	4,531,110,557.04	3,624,888,445.63	18,768,152,432.53	4.50%
PHIL NATIONAL BANK	8,771,559,273.58	7,017,247,418.86	101,836,861,242.86	4.54%
CHINA BANKING CORP	3,728,985,069.67	2,983,188,055.74	57,408,773,230.53	4.95%
BANK OF THE PHIL ISLANDS	7,688,633,689.58	6,150,906,951.66	160,549,310,710.50	5.07%
METROPOLITAN BANK & TCO	3,683,099,014.74	2,946,479,211.79	187,399,541,656.32	5.39%
BDO UNIBANK INC	15,854,555,894.59	12,683,644,715.67	216,327,723,797.18	5.44%
CTBC BANK (PHILIPPINES) CORP	460,786,467.63	368,629,174.10	6,904,788,639.67	5.46%
BPI DIRECT BANKO INC A SAVINGS BANK	547,319,743.95	437,855,795.16	1,791,106,416.26	5.70%
LAND BANK OF THE PHILIPPINES	7,173,190,275.55	5,738,552,220.44	85,380,060,082.56	5.73%
PHIL TRUST COMPANY	1,172,897,983.43	938,318,386.74	23,045,761,182.07	5.75%
FARMERS SAVINGS & LOAN BANK INC	22,696,612.39	18,157,289.91	119,179,639.67	6.14%
DEVELOPMENT BANK OF THE PHIL	4,802,651,348.83	3,842,121,079.06	44,124,381,091.38	6.29%
MIZUHO BANK LTD - MANILA BRANCH	0.00	0.00	5,512,514,270.26	6.35%
CARD SME BANK INC A THRIFT BANK	48,473,003.59	38,778,402.87	709,899,560.31	6.54%
VILLAGE BANK INC (A THRIFT BANK)	20,037,722.29	16,030,177.83	81,902,520.23	7.06%
BANK OF CHINA LIMITED-MANILA BRANCH	189,040,895.91	151,232,716.73	2,532,809,223.93	7.06%
THE BNK OF TOKYO-MITSUBISHI UFJ LTD	0.00	0.00	4,679,489,410.20	8.30%
LEGAZPI SAVINGS BANK INC	447,417,498.87	357,933,999.10	497,881,105.80	8.83%
BANGKOK BANK PUBLIC CO LTD	43,936,941.43	35,149,553.14	3,164,745,771.55	10.57%
MEGA INT'L COMM'L BANK CO LTD	0.00	0.00	1,841,609,590.34	22.31%
CITIBANK, N.A.	869,608,224.33	695,686,579.46	12,835,851,416.84	24.41%
THE PALAWAN BANK (PALAWAN DB) INC	14,849,692.88	11,879,754.30	39,202,654.77	25.58%
Grand Total	130,563,795,522.67	104,451,036,418.14	1,463,519,874,590.22	3.93%

Source: www.bsp.gov.ph

Out of the seven banks highlighted in yellow, 6 banks have been regularly listed as one of the "The Top Distressed Philippine Banks as of December 31, 2016".

Philippine Postal Savings Bank Inc faces a shortfall of 134.69% of its stated stockholder's equity of Php 1,003.43 million if it were to increase its loan loss provisions to meet a minimum NPL Coverage Ratio of 80%.

Are Philippine Banks Under Provisioning Loan Losses? - As of December 31, 2016

Are Philippine banks under provisioning loan losses?

On the face of it, no.

At 1.40% as of December 31, 2016, NPLs as a percentage of Total Loan Portfolios are at historic lows.

The NPL Coverage Ratio is at historic highs at 144.67% as of December 31, 2016. 

However, NPLs can go much higher than current levels.  Over the past thirty-four years, NPLs as a percentage of Total Loan Portfolios averaged 8.78% for Philippine Universal and Commercial Banks. Moreover, Loan Loss Reserves (LLR) as a percentage of Total Loan Portfolio (TLP) have averaged 4.68% for the past thirty years.  As can be seen from the chart below, loan loss reserves hit a peak of 22.23% of TLP in 1986, an outlier.  Without this outlier, LLR/TLP average is 4.14% for the past thirty-four years.

As of December 31, 2016, LLR/TLP stands at 2.02%, which is below the historical average of 4.14%, indicating that Philippine banks are under-provisioning for loan losses, given historical norms. If Philippine banks were to maintain higher loan loss provisions to conform to historical averages, bank earnings will suffer but will be better provisioned for future losses.


Now, which banks have not adequately provisioned for loan losses at their current NPL levels, which are at historic lows? Those highlighted in yellow (below 80% NPL Coverage Ratio) are prime candidates.

Philippine Banking System
NPL Coverage Ratio
December 31, 2016
Bank	Loan Loss Provisions	Gross NPLs	NPL Coverage Ratio
PHIL POSTAL SAVINGS BANK INC	333,047,322.48	2,105,663,775.71	15.82%
CITYSTATE SAVINGS BANK INC	28,194,883.83	119,756,629.16	23.54%
EQUICOM SAVINGS BANK INC	146,840,980.06	601,715,967.86	24.40%
LUZON DEVELOPMENT BANK	140,505,149.80	544,175,490.99	25.82%
MARITIME SAVINGS BANK CORPORATION	6,948,645.24	24,652,054.39	28.19%
LIFE SAVINGS BANK INC	4,875,321.67	14,205,894.15	34.32%
WORLD PARTNERS BANK (A THRIFT BANK)	43,933,367.98	107,415,667.13	40.90%
PHIL STAR DEVELOPMENT BANK INC	8,584,607.75	19,238,385.28	44.62%
OPTIMUM DEVELOPMENT BANK INC	44,215,809.90	90,959,273.89	48.61%
CHINA BANK SAVINGS INC	2,173,488,033.39	4,293,974,170.33	50.62%
MALAYAN BANK SAVINGS AND MORT BANK INC	294,054,415.63	574,727,293.20	51.16%
ENTERPRISE BANK INC (A THRIFT BANK)	121,353,813.66	232,694,561.97	52.15%
BANK ONE SAVINGS AND TRUST CORP.	12,136,266.46	23,101,952.55	52.53%
PAMPANGA DEVELOPMENT BANK	26,936,446.48	49,744,868.65	54.15%
MALASIQUI PROGRESSIVE SLB, INC	6,951,706.48	12,713,229.25	54.68%
1ST VALLEY BANK INC A DEVELOPMENT BANK	191,949,568.34	346,548,011.68	55.39%
WEALTH DEVELOPMENT BANK CORPORATION	133,572,223.76	240,199,722.90	55.61%
RCBC SAVINGS BANK INC	2,069,453,414.48	3,715,336,441.78	55.70%
METRO CEBU PUBLIC SAVINGS BANK	12,188,817.06	21,100,005.39	57.77%
PRODUCERS SAVINGS BANK CORPORATION	180,254,314.44	311,505,684.33	57.87%
UNIVERSITY SAVINGS BANK INC	42,642,434.66	72,145,206.72	59.11%
CENTURY SAVINGS BANK CORPORATION	21,061,844.89	34,734,041.96	60.64%
STANDARD CHARTERED BANK	1,296,634,374.95	2,123,003,347.70	61.08%
AL-AMANAH ISLAMIC INVESTMENT BANK OF THE PHILS	4,030,509.10	6,509,512.97	61.92%
PENBANK INC (A PDB) (FORMERLY: PENINSULA RB INC)	93,435,088.93	146,519,151.74	63.77%
UCPB SAVINGS BANK	622,663,549.91	975,156,384.32	63.85%
PNB SAVINGS BANK	549,213,325.97	829,192,484.27	66.23%
STERLING BANK OF ASIA INC (A SAVINGS BANK)	636,882,137.36	936,700,031.78	67.99%
ANZ BANKING GROUP LTD	277,452,243.24	404,087,064.26	68.66%
EAST WEST BANKING CORP	5,654,352,021.70	8,227,387,109.25	68.73%
NORTHPOINT DEV'T BANK INC	85,299,972.67	122,915,455.83	69.40%
BUSINESS AND CONSUMERS BANK (A DB)	10,375,153.50	13,970,890.80	74.26%
BATAAN DEVELOPMENT BANK	23,381,061.33	31,340,481.42	74.60%
BANK OF MAKATI (A SAVINGS BANK) INC	1,690,714,265.05	2,243,073,464.02	75.37%
PHILIPPINE RESOURCES SAVINGS BANKING CORPORATION (PR SAVINGS	724,420,435.39	955,755,336.48	75.80%
BANGKO KABAYAN INC (A PRIVATE DEVELOPMENT BANK)	30,270,872.06	39,444,210.03	76.74%
PHILIPPINE VETERANS BANK	1,462,735,170.55	1,898,738,872.12	77.04%
UNITED COCONUT PLANTERS BANK	4,694,474,678.64	5,989,286,726.79	78.38%
DUNGGANON BANK (A MICROFINANCE THRIFT BANK) INC	22,353,345.69	28,178,352.90	79.33%
INTER-ASIA DEVELOPMENT BANK	6,196,487.82	7,566,983.61	81.89%
HIYAS BANKING CORPORATION	28,859,545.81	34,826,424.16	82.87%
MAYBANK PHILIPPINES INCORPORATED	1,700,075,880.09	2,036,189,716.30	83.49%
CITY SAVINGS BANK INC	1,341,372,690.55	1,530,120,230.40	87.66%
BATAAN SAVINGS AND LOAN BANK	1,595,044.62	1,808,578.20	88.19%
PHILIPPINE BUSINESS BANK INC A SAVINGS BANK	1,182,951,000.48	1,322,295,019.15	89.46%
LEGAZPI SAVINGS BANK INC	401,890,347.92	447,417,498.87	89.82%
DUMAGUETE CITY DEV BANK INC	18,933,844.50	20,850,370.14	90.81%
LEMERY SAVINGS & LOAN BANK, INC.	2,738,284.63	2,987,856.52	91.65%
BPI FAMILY SAVINGS BANK INC	6,971,409,756.08	7,497,941,572.20	92.98%
QUEEN CITY DEVELOPMENT BANK INC OR QUEENBANK A THRIFT BANK	20,622,537.49	22,071,051.75	93.44%
HONGKONG & SHANGHAI BANKING CORP	748,260,867.39	797,673,955.04	93.81%
PHIL BANK OF COMMUNICATIONS	2,159,595,324.29	2,259,014,990.06	95.60%
CORDILLERA SAVINGS BANK INC	14,015,675.60	14,588,524.39	96.07%
PHIL SAVINGS BANK	4,468,782,709.06	4,531,110,557.04	98.62%
BPI DIRECT BANKO INC A SAVINGS BANK	540,016,696.62	547,319,743.95	98.67%
YUANTA SAVINGS BANK PHILIPPINES INC	111,191,258.04	112,039,320.83	99.24%
SUN SAVINGS BANK INC	15,438,316.50	15,103,167.59	102.22%
ROBINSONS BANK CORPORATION	708,610,993.75	691,088,663.30	102.54%
FIRST CONSOLIDATED BANK INC (A PDB)	630,486,394.06	590,763,111.01	106.72%
VILLAGE BANK INC (A THRIFT BANK)	21,809,265.59	20,037,722.29	108.84%
FARMERS SAVINGS & LOAN BANK INC	25,477,401.82	22,696,612.39	112.25%
UNION BANK OF THE PHILS	8,777,174,140.57	7,778,178,634.93	112.84%
BANK OF COMMERCE	2,083,915,313.03	1,777,798,286.62	117.22%
ASIA UNITED BANK CORPORATION	1,916,602,888.31	1,475,266,303.18	129.92%
PHIL NATIONAL BANK	11,645,626,722.87	8,771,559,273.58	132.77%
DEVELOPMENT BANK OF THE PHIL	6,615,553,742.00	4,802,651,348.83	137.75%
MERCHANTS SAVINGS & LOAN ASSN INC	21,430,018.40	15,291,332.84	140.14%
THE PALAWAN BANK (PALAWAN DB) INC	21,908,732.90	14,849,692.88	147.54%
LAND BANK OF THE PHILIPPINES	10,634,578,515.79	7,173,190,275.55	148.25%
BDO UNIBANK INC	24,450,320,470.09	15,854,555,894.59	154.22%
CHINA BANKING CORP	5,823,531,628.37	3,728,985,069.67	156.17%
HSBC SAVINGS BANK(PHILS) INC	100,965,502.80	63,448,045.28	159.13%
CTBC BANK (PHILIPPINES) CORP	745,517,901.51	460,786,467.63	161.79%
BANK OF CHINA LIMITED-MANILA BRANCH	329,957,085.86	189,040,895.91	174.54%
CARD SME BANK INC A THRIFT BANK	85,236,684.08	48,473,003.59	175.84%
BANK OF THE PHIL ISLANDS	14,289,383,788.97	7,688,633,689.58	185.85%
KEB HANA BANK - MANILA BRANCH	52,723,292.43	28,022,199.88	188.15%
RIZAL COMM'L BANKING CORP	3,619,363,187.41	1,913,419,749.01	189.16%
PHIL TRUST COMPANY	2,264,032,428.42	1,172,897,983.43	193.03%
SECURITY BANK CORP	4,464,914,745.62	1,956,583,647.77	228.20%
QUEZON COCONUT BANK INC (A THRIFT BANK)	1,225,133.86	440,570.84	278.08%
METROPOLITAN BANK & TCO	13,049,114,638.69	3,683,099,014.74	354.30%
CITIBANK, N.A.	3,828,457,128.45	869,608,224.33	440.25%
BANGKOK BANK PUBLIC CO LTD	369,607,500.00	43,936,941.43	841.22%
ING BANK N.V.	106,771,914.09	101.44	105256224.46%
BANK OF AMERICA N.A.	27,700,000.00	0.00	NA
BDO PRIVATE BANK, INC.	182,621,734.84	0.00	NA
CATHAY UNITED BANK CO LTD - MANILA BRANCH	10,880,436.94	0.00	NA
DEUTSCHE BANK AG	77,821,547.23	0.00	NA
FIRST COMMERCIAL BANK LTD MANILA BRANCH	0.00	0.00	NA
INDUSTRIAL BANK OF KOREA MANILA BRANCH	10,271,834.32	0.00	NA
ISLA BANK(A THRIFT BANK) INC	4,290,580.33	0.00	NA
JP MORGAN CHASE BANK NATIONAL ASSN.	19,265,114.78	0.00	NA
MEGA INT'L COMM'L BANK CO LTD	410,834,943.20	0.00	NA
MIZUHO BANK LTD - MANILA BRANCH	349,964,606.89	0.00	NA
SHINHAN BANK - MANILA BRANCH	5,330,996.00	0.00	NA
SUMITOMO MITSUI BANKING CORPORATION-MANILA BRANCH	82,338,553.67	0.00	NA
THE BNK OF TOKYO-MITSUBISHI UFJ LTD	388,210,030.46	0.00	NA
Grand Total	161,909,651,400.37	130,563,795,522.67	124.01%

Source: www.bsp.gov.ph

The Top Distressed Philippine Banks as of December 31, 2016

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.  A bank that has a Distressed Ratio greater than 100% is flagged as borderline insolvent.  For a more detailed discussion of this ratio, please visit a previous blog post: The Texas Ratio of Select Philippine Banks

This is a list of the top distressed Universal and Commercial (U/KB) as well as Thrift Banks in the Philippines as of December 31, 2016.  It updates a previous blog post: "The Top Distressed Philippine Banks as of September 30, 2016".

To see where your bank stands relative to these banks, please check the previous blog post: "Philippine Banks Improve Slightly in the 4th Qtr of 2016".

The Top Distressed Philippine Banks
Total Distressed Assets/ Total Capital Cushion
December 31, 2016
In Php
	December 31, 2016
Bank	Total Distressed Assets (In PhP)	Total Capital Cushion (In PhP)	Distressed Assets/ Total Capital Cushion (In %)
BANK OF CHINA LIMITED-MANILA BRANCH	15,126,831,458.02	2,672,347,692.15	566.05%
INTER-ASIA DEVELOPMENT BANK	239,393,425.75	60,760,898.70	393.99%
UNITED COCONUT PLANTERS BANK	28,974,612,581.23	8,061,344,680.37	359.43%
PHIL POSTAL SAVINGS BANK INC	2,687,447,627.94	1,362,809,795.55	197.20%
VILLAGE BANK INC (A THRIFT BANK)	179,830,047.40	98,485,627.30	182.60%
MALAYAN BANK SAVINGS AND MORT BANK INC	1,956,205,970.05	1,283,661,051.68	152.39%
ENTERPRISE BANK INC (A THRIFT BANK)	519,127,042.07	382,097,130.25	135.86%
LUZON DEVELOPMENT BANK	870,877,129.17	658,520,505.27	132.25%
PHILIPPINE RESOURCES SAVINGS BANKING CORPORATION (PR SAVINGS	3,075,137,866.11	2,476,919,001.92	124.15%
EQUICOM SAVINGS BANK INC	920,564,320.14	758,995,198.35	121.29%
CHINA BANK SAVINGS INC	11,166,509,804.59	9,234,578,383.26	120.92%
WORLD PARTNERS BANK (A THRIFT BANK)	276,257,129.54	234,701,101.62	117.71%
BATAAN DEVELOPMENT BANK	111,558,649.63	96,657,335.55	115.42%
LEGAZPI SAVINGS BANK INC	935,044,558.32	882,809,922.80	105.92%
YUANTA SAVINGS BANK PHILIPPINES INC	1,123,456,087.91	1,105,008,705.94	101.67%
Grand Total	68,162,853,697.87	29,369,697,030.71	232.09%

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 December 31, 2016 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.