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You think Philippine banks are not affected by the ongoing subprime
mortgage crisis and bank failures in America? Think again.
Local banks have begun to absorb losses from
their securities investments. The losses, per recent international
banking rules, have to be reflected immediately in their balance
sheet, in what is called the market-to-market rule. In business, if
you are taking losses or trying to get cash from your company, you
charge those to your first line of defense—your capital or equity.
As a result, the first quarter statements of
condition of major Philippine banks have begun to show significant
declines in their net worth or equity in the first quarter this year
from their yearend 2007 levels.
The biggest drop, a steep 94 percent, was
reported by the United Coconut Planters Bank (UCPB). Its equity was
almost wiped out because of a horrendous P33.58 billion erosion in
its net worth, from P35.91 billion in December 2007 to just P2.33
billion in the first quarter of 2008.
Once among the largest universal banks, UCPB has
been under government sequestration and management by presidential
appointees. Their record leaves much to be desired and is
characterized by incredible bad business decisions and equally bad
loans.
The money lost by UCPB through the years is
enough to modernize Philippine agriculture, solve the rice shortage,
and spare the administration of massive loss of political capital.
UCPB has had no less than two massive equity infusions, each
amounting to P20 billion. All that taxpayers’ money has gone to
naught, thanks to gross mismanagement of the last two decades.
The UCPB case is the best proof that government
should not be in business and should not take over and manage
Meralco.
Among the large and reputable banks, the
Ayala-owned and managed Bank of the Philippine Islands (BPI) also
suffered a deterioration in net worth. Its equity as of March 31,
2008, showed a decline of P5.7 billion, or 8.5 percent from its
yearend level of P67.24 billion to P61.52 billion.
In the whole of 2007, BPI even reported an 8.6
percent, or P5.6 billion improvement in capital funds. Apparently,
that gain was wiped out in just three months, an indication of how
volatile banking has become.
BPI suffered a P39.66 billion or 6.43 percent
cut in its resources in March at P577.34 billion from P617 billion
in December. In its capital, BPI took a P2.287 billion reduction in
its reserves and another P3.59 billion cut in its surplus, resulting
in a P6 billion erosion in capital funds.
The bank said it paid a P5.1 billion cash
dividends on February 20, 2008, thus the reduction in capital
surplus.
In the first quarter, BPI reported a P385
million impairment losses—P234 million from consumer banking and
P125 million from corporate banking. On the SEC question of changes
in estimates of amounts reported in prior financial years “if
those changes have a material effect in the current interim
period,” the bank said. “In compliance with PFRS, the bank
adopted certain accounting and measurement method in 2007. Those
changes did not materially affect the current interim period.”
BPI declared a 20-percent stock dividend on
April 23, 2008.
The next biggest equity drop among the private
and listed banks was reported by Banco de Oro, by P3.05 billion, or
5.11 percent, from P59.8 billion in December 2007 to P56.75 billion
in March this year.
Far behind and fourth in equity decline is
state-owned Land Bank of the Philippines. Its net worth was shaved
by P1.82 billion to P35.7 billion from P37.5 billion in December, a
drop of almost 5 percent.
The flagship Metrobank of George Ty took a minor
P839 million hit. Its capital went down a minuscule 1.25 percent,
from P66.99 billion in December to P66.15 billion in March.
Metrobank remains the biggest Philippine bank in terms of net worth.
Metro is also No. 1 in terms of assets with P666.29 billion
resources as of end-March 2008 despite a P40.59 billion, or 5.74
percent, decline from the yearend value of P706.88 billion.
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