BPI Direct Savings
Bank, Inc.
Financial Statements
As at and for the years ended December 31, 2012 and 2011
Independent Auditor’s Report
To the Board of Directors and Shareholder of
BPI Direct Savings Bank, Inc.
8th Floor, BPI Card Center
Paseo de Roxas corner Dela Rosa Sts.
Makati City
Report on the Financial Statements
We have audited the accompanying financial statements of BPI Direct Savings Bank, Inc., which comprise
the statements of condition as at December 31, 2012 and 2011, and the statements of income, statements
of total comprehensive income, statements of changes in capital funds and statements of cash flows for the
years then ended, and a summary of significant accounting policies and other explanatory information.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in
accordance with Philippine Financial Reporting Standards, and for such internal control as management
determines is necessary to enable the preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these financial statements based on our audits. We
conducted our audits in accordance with Philippine Standards on Auditing. Those standards require that
we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
the financial statements. The procedures selected depend on the auditor’s judgment, including the
assessment of the risks of material misstatement of the financial statements, whether due to fraud or
error. In making those risk assessments, the auditor considers internal control relevant to the entity’s
preparation and fair presentation of the financial statements in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of
the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies
used and the reasonableness of accounting estimates made by management, as well as evaluating the
overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
audit opinion.
BPI Direct Savings Bank, Inc.
Statements of Condition
December 31, 2012 and 2011
(All amounts in Philippine Peso)
Notes
2012
2011
513,271,951
231,249,303
RESOURCES
DUE FROM OTHER BANKS
5
INTERBANK CALL LOANS RECEIVABLE
5
DUE FROM BANGKO SENTRAL NG PILIPINAS
5, 6
-
267,100,125
2,782,508,039
1,902,232,126
AVAILABLE-FOR-SALE SECURITIES, net
7
122,431,311
27,376
HELD-TO-MATURITY SECURITIES
8
718,688,192
814,689,215
LOANS AND ADVANCES, net
9
5,335,739,474
4,643,402,042
11,048,526
5,515,265
ASSETS HELD FOR SALE
BANK PREMISES, FURNITURE, FIXTURES
AND EQUIPMENT, net
10
929,547
2,130,650
DEFERRED INCOME TAX ASSETS, net
11
35,223,037
20,591,119
OTHER RESOURCES, net
Total resources
12
11,177,077
9,531,017,154
18,628,998
7,905,566,219
LIABILITIES AND CAPITAL FUNDS
DEPOSIT LIABILITIES
13
8,675,410,456
7,101,345,111
ACCRUED TAXES, INTEREST AND OTHER
EXPENSES
14
34,035,869
31,879,359
15
7,046,538
8,716,492,863
11,929,357
7,145,153,827
374,533,300
439,764,115
226,876
814,524,291
9,531,017,154
374,533,300
385,855,716
23,376
760,412,392
7,905,566,219
OTHER LIABILITIES
Total liabilities
CAPITAL FUNDS
Share capital
Surplus
Accumulated other comprehensive income
Total capital funds
Total liabilities and capital funds
16
(The notes on pages 1 to 42 are integral part of these financial statements)
BPI Direct Savings Bank, Inc.
Statements of Income
For the years ended December 31, 2012 and 2011
(All amounts in Philippine Peso)
INTEREST INCOME
Loans and advances
Deposits with banks
Held-to-maturity securities
Interbank call loans receivable
Available-for-sale securities
Gross receipts tax
INTEREST EXPENSE ON DEPOSITS
NET INTEREST INCOME
PROVISION FOR IMPAIRMENT
NET INTEREST INCOME AFTER PROVISION
FOR IMPAIRMENT
OTHER INCOME (CHARGES)
Profit on assets sold
Miscellaneous income
Gross receipts tax
OTHER EXPENSES
Compensation and fringe benefits
Occupancy and equipment-related expenses
Other operating expenses
INCOME BEFORE PROVISION FOR INCOME TAX
PROVISION FOR INCOME TAX
Current
Deferred
NET INCOME FOR THE YEAR
Notes
2012
2011
9
408,118,405
65,917,418
50,208,151
8,021,854
3,786,068
(26,613,741)
509,438,155
107,783,651
401,654,504
359,200,652
53,327,307
37,737,904
11,613,542
(23,081,490)
438,797,915
98,157,113
340,640,802
47,446,582
38,470,021
354,207,922
302,170,781
13
9,12
17
20,21
18
288,443
49,765,145
(3,501,029)
46,552,559
6,430,317
39,266,754
(3,200,043)
42,497,028
50,582,522
12,617,923
117,864,844
181,065,289
219,695,192
57,815,624
10,459,760
85,230,963
153,506,347
191,161,462
80,469,628
(14,682,835)
65,786,793
153,908,399
61,021,634
(3,693,925)
57,327,709
133,833,753
19
11
(The notes on pages 1 to 42 are integral part of these financial statements)
BPI Direct Savings Bank, Inc.
Statements of Total Comprehensive Income
For the years ended December 31, 2012 and 2011
(All amounts in Philippine Peso)
NET INCOME FOR THE YEAR
OTHER COMPREHENSIVE INCOME (LOSS)
Net change in fair value reserve on
available-for-sale securities, net of tax effect
TOTAL COMPREHENSIVE INCOME
FOR THE YEAR
Note
2012
153,908,399
11,16
203,500
154,111,899
(The notes on pages 1 to 42 are integral part of these financial statements)
2011
133,833,753
(168)
133,833,585
BPI Direct Savings Bank, Inc.
Statements of Changes in Capital Funds
For the years ended December 31, 2012 and 2011
(All amounts in Philippine Peso)
Balance, January 1, 2011
Comprehensive income
Net income for the year
Other comprehensive loss
Net change in fair value reserve on
available-for-sale securities
Total comprehensive income for the year
Balance, December 31, 2011
Comprehensive income
Net income for the year
Other comprehensive income
Net change in fair value reserve on
available-for-sale securities, net of
tax effect
Total comprehensive income for the year
Transaction with owners
Cash dividends
Total transaction with owners
Balance, December 31, 2012
Share capital
(Note 16)
374,533,300
-
Surplus
(Note 16)
252,021,963
Accumulated
other
comprehensive
income
(Note 16)
23,544
Total
626,578,807
133,833,753
-
133,833,753
133,833,753
385,855,716
(168)
(168)
23,376
(168)
133,833,585
760,412,392
-
153,908,399
-
153,908,399
-
153,908,399
203,500
203,500
203,500
154,111,899
(100,000,000)
(100,000,000)
439,764,115
226,876
(100,000,000)
(100,000,000)
814,524,291
374,533,300
374,533,300
(The notes on pages 1 to 42 are integral part of these financial statements)
BPI Direct Savings Bank, Inc.
Statements of Cash Flows
For the years ended December 31, 2012 and 2011
(All amounts in Philippine Peso)
Notes
CASH FLOWS FROM OPERATING ACTIVITIES
Income before income tax
Adjustments for:
Provision for impairment
Depreciation and amortization
Interest income
Interest expense
Interest received
Interest paid
Operating income before changes in operating assets
and liabilities
Changes in operating assets and liabilities
(Increase) decrease in:
Due from Bangko Sentral ng Pilipinas
Loans and advances
Other resources
Assets held for sale
Increase (decrease) in:
Deposit liabilities
Accrued taxes, interest and other expenses
Other liabilities
Net cash provided by (used in) operations
Income tax paid
Net cash from (used in) operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of:
Available-for-sale securities
Held-to-maturity securities
Maturities of held-to-maturity securities
Additions to bank premises, furniture, fixtures and
equipment
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Cash dividends
Net cash used in financing activities
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS
CASH AND CASH EQUIVALENTS
January 1
December 31
9,12
10
2012
2011
219,695,192
191,161,462
47,446,582
1,912,714
(536,051,896)
107,783,651
534,551,854
(106,467,242)
38,470,021
1,572,105
(461,879,405)
98,157,113
446,476,666
(97,325,120)
268,870,855
216,632,842
5,6
9
12
137,000,000
(733,653,466)
7,252,921
(5,533,261)
(42,000,000)
(2,084,287,522)
17,269,907
1,514,029
13
14
15
1,574,065,345
840,100
(4,882,819)
1,243,959,675
(80,469,628)
1,163,490,047
1,858,900,349
5,333,150
(11,592,103)
(38,229,348)
(45,869,033)
(84,098,381)
7
8
8
(121,500,000)
90,920,000
(355,036,168)
2,497,356
10
(711,611)
(31,291,611)
(828,361)
(353,367,173)
16
(100,000,000)
(100,000,000)
1,032,198,436
(437,465,554)
5
2,263,581,554
3,295,779,990
(The notes on pages 1 to 42 are integral part of these financial statements)
2,701,047,108
2,263,581,554
BPI Direct Savings Bank, Inc.
Notes to Financial Statements
As at and for the years ended December 31, 2012 and 2011
(All amounts are shown in Philippine Peso, unless otherwise stated)
Note 1 - General information
BPI Direct Savings Bank, Inc. (the “Bank”) was incorporated in the Philippines and registered with the
Securities and Exchange Commission (SEC) on September 26, 1986 primarily to engage in and carry
on the general business of savings and mortgage banking.
The Bank is a wholly-owned subsidiary of Bank of the Philippine Islands (BPI or the “Parent Bank”), a
domestic commercial bank with an expanded banking license, which is also its ultimate parent.
th
The Bank has its principal place of business at the 8 Floor, BPI Card Center, Paseo de Roxas, Makati
City.
The Bank has 68 and 70 regular employees as at December 31, 2012 and 2011, respectively.
These financial statements have been approved and authorized for issuance by the Board of Directors
on March 26, 2013. There were no material events that occurred subsequent to March 26, 2013 until
April 3, 2013.
Note 2 - Summary of significant accounting policies
The principal accounting policies applied in the preparation of the Bank’s financial statements are set out
below. These policies have been consistently applied to both years presented, unless otherwise stated.
2.1 Basis of preparation
The principal accounting policies applied in the preparation of these financial statements are set out
below. These policies have been consistently applied to both years presented, unless otherwise
stated.
The financial statements of the Bank have been prepared in accordance with Philippine Financial
Reporting Standards (PFRS). The term PFRS in general includes all applicable PFRS, Philippine
Accounting Standards (PAS), and interpretations of the Philippine Interpretations Committee (PIC),
Standing Interpretations Committee (SIC) and International Financial Reporting Interpretations
Committee (IFRIC) which have been approved by the Financial Reporting Standards Council (FRSC)
and adopted by the SEC.
The financial statements comprise the statement of condition, statement of income and statement of
total comprehensive income shown as two statements, statement of changes in capital funds, the
statement of cash flows and the notes.
These financial statements of the Bank have been prepared under the historical cost convention, as
modified by the revaluation of available-for-sale securities.
The preparation of these financial statements in conformity with PFRS requires the use of certain
critical accounting estimates. It also requires management to exercise its judgment in the process of
applying the Bank’s accounting policies. Changes in assumptions may have a significant impact on the
financial statements in the period the assumptions changed. Management believes that the underlying
assumptions are appropriate and that the Bank’s financial statements therefore present the financial
position and results fairly. The areas involving higher degree of judgment or complexity, or areas
where assumptions and estimates are significant to the financial statements are disclosed in Note 4.
2.2 New standards, interpretations and amendments to published standards
(a) New and amended standards adopted by the Bank
There are no new and amended PFRS or IFRIC interpretations that are effective for the first time for
the financial year beginning January 1, 2012 that have a significant impact on the Bank’s financial
statements.
(b) New standards, amendments and interpretations not early adopted by the Bank
A number of new standards, amendments and interpretations to published standards are effective for
annual periods beginning after January 1, 2012, and have not been early adopted by the Bank.
None of these is expected to have a significant effect on the Bank’s financial statements except as set
out below:
(2)

PAS 1 (Amendment), Financial Statement Presentation - Other Comprehensive Income
(effective July 1, 2012). The main change resulting from these amendments is a requirement
for entities to group items presented in other comprehensive income on the basis of whether
they are potentially reclassifiable to profit or loss subsequently (reclassification adjustments).
The amendments do not address which items are presented in other comprehensive income.
The Bank will apply the amendment beginning January 1, 2013. The adoption is not expected
to have a significant impact on the financial statements but will result in changes in
presentation in the Bank’s statement of total comprehensive income.

PAS 19 (Amendment), Employee Benefits (effective January 1, 2013). These amendments
eliminate the corridor approach and calculate finance costs on a net funding basis. They would
also require recognition of all actuarial gains and losses in other comprehensive income as
they occur and of all past service costs in profit or loss. The amendments replace interest cost
and expected return on plan assets with a net interest amount that is calculated by applying
the discount rate to the net defined benefit liability (asset). The Bank is yet to assess the full
impact of the amendments and intends to adopt the amendment beginning January 1, 2013.

PFRS 9, Financial Instruments (effective January 1, 2015). This new standard addresses the
classification, measurement and recognition of financial assets and financial liabilities. It
replaces the parts of PAS 39 that relate to the classification and measurement of financial
instruments. PFRS 9 requires financial assets to be classified into two measurement
categories: those measured as at fair value and those measured at amortized cost. The
determination is made at initial recognition. The classification depends on the entity’s business
model for managing its financial instruments and the contractual cash flow characteristics of
the instrument. For financial liabilities, the standard retains most of the PAS 39 requirements.
The main change is that, in cases where the fair value option is taken for financial liabilities,
part of the fair value change due to an entity’s own credit risk is recorded in other
comprehensive income rather than profit or loss, unless this creates an accounting mismatch.
The Bank is yet to assess the full impact of PFRS 9 and intends to adopt PFRS 9 beginning
January 1, 2015. The Bank will also consider the impact of the remaining phases of PFRS 9
when issued.

PFRS 13, Fair Value Measurement (effective January 1, 2013). This new standard aims to
improve consistency and reduce complexity by providing a clarified definition of fair value and
a single source of fair value measurement and disclosure requirements for use across PFRS.
The requirements, which are largely aligned with IFRS and US GAAP, do not extend the use of
fair value accounting but provide guidance on how it should be applied where its use is already
required or permitted by other standards within PFRS or US GAAP. The Bank will adopt PFRS
13 effective January 1, 2013 but it is not expected to have a significant impact on the Bank’s
financial statements as the current fair value measurement of its financial instruments is
already consistent with the requirements of the new standard.
There are no other standards, amendments and interpretations to published standards that are not yet
effective that are expected to have a material impact on the Bank’s financial statements.
2.2
Cash and cash equivalents
Cash and cash equivalents consist of due from other banks, interbank call loans receivable, due from
Bangko Sentral ng Pilipinas (BSP) with maturities of less than three months from the date of acquisition
and that are subject to insignificant risk of changes in value.
2.3
Financial assets
2.3.1
Classification
The Bank classifies its financial assets in the following categories: fair value through profit or loss,
loans and receivables, held-to-maturity securities and available-for-sale securities. Management
determines the classification of its financial assets at initial recognition, depending on the purpose for
which the assets were acquired.
As at December 31, 2012 and 2011, the Bank has no financial assets classified at fair value through
profit or loss.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are
not quoted in an active market and with no intention of trading.
(3)
Significant accounts falling under this category are due from other banks, interbank call loans
receivable, due from BSP, loans and advances and accrued interest receivable and accounts
receivable under other resources.
Held-to-maturity securities
Held-to-maturity securities are non-derivative financial assets with fixed or determinable payments and
fixed maturities that the Bank’s management has the positive intention and ability to hold to maturity. If
the Bank were to sell other than an insignificant amount of held-to-maturity assets, the entire category
would be reclassified as available-for-sale. Held-to-maturity securities are classified as such in the
statement of condition.
Available-for-sale securities
Available-for-sale securities are non-derivatives that are either designated in this category or not
classified in any of the other categories. Available-for-sale securities are classified as such in the
statement of condition.
2.3.2
Recognition and measurement
Loans and receivables are recognized when cash is advanced to the borrowers. Regular-way
purchases and sales of held-to-maturity and available-for-sale securities are recognized on trade-date,
the date on which the Bank commits to purchase or sell the asset.
Financial assets are initially recognized at fair value plus transaction costs for all financial assets not
carried at fair value through profit or loss.
Loans and receivables and held-to-maturity securities are subsequently carried at amortized cost using
the effective interest method. Available-for-sale securities are subsequently carried at fair value.
Gains and losses arising from changes in the fair value of available-for-sale securities are recognized
directly in the statement of changes in capital funds, until the financial asset is derecognized or
impaired at which time the cumulative gain or loss previously recognized in statement of changes in
capital funds is recognized in the statement of income. However, interest calculated on these
securities using the effective interest method and foreign currency gains and losses on monetary
assets classified as available-for-sale are recognized in the statement of income. Dividends on equity
instruments are recognized in the statement of income when the Bank’s right to receive payment is
established.
2.3.3
Reclassification
The Bank may choose to reclassify financial assets that would meet the definition of loans and
receivables out of the available-for-sale category if the Bank has the intention and ability to hold these
financial assets for the foreseeable future or until maturity at the date of reclassification.
Reclassifications are made at fair value as of the reclassification date. Fair value becomes the new
cost or amortized cost as applicable, and no reversals of fair value gains or losses recorded before
reclassification date are subsequently made. Effective interest rates for financial assets reclassified to
loans and receivables and held-to-maturity categories are determined at the reclassification date.
Further increases in estimates of cash flows adjust effective interest rates prospectively.
(4)
2.3.4
Derecognition
A financial asset is derecognized when the contractual right to receive the cash flows from the asset
has ceased to exist or the asset has been transferred and substantially all the risks and rewards of
ownership of the asset are also transferred (that is, if substantially all the risks and rewards have not
been transferred, the Bank tests control to ensure that continuing involvement on the basis of any
retained powers of control does not prevent derecognition).
2.3.5
Impairment
Assets carried at amortized cost
The Bank assesses at each reporting date whether there is objective evidence that a financial asset or
group of financial assets is impaired. A financial asset or a group of financial assets is impaired and
impairment losses are incurred only if there is objective evidence of impairment as a result of one or
more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or
events) has an impact on the estimated future cash flows of the financial asset or group of financial
assets that can be reliably estimated.
The criteria that the Bank uses to determine that there is objective evidence of impairment include:






Delinquency in contractual payments of principal or interest;
Cash flow difficulties experienced by the borrower;
Breach of loan covenants or conditions;
Initiation of bankruptcy proceedings;
Deterioration of the borrower’s competitive position; and
Deterioration in the value of collateral.
The Bank first assesses whether objective evidence of impairment exists individually for financial
assets that are individually significant, and collectively for financial assets that are not individually
significant. If the Bank determines that no objective evidence of impairment exists for an individually
assessed financial asset, whether significant or not, it includes the asset in a group of financial assets
with similar credit risk characteristics and collectively assesses them for impairment. Financial assets
that are individually assessed for impairment and for which an impairment loss is or continues to be
recognized are not included in a collective assessment of impairment.
The amount of impairment loss is measured as the difference between the financial asset’s carrying
amount and the present value of estimated future cash flows discounted at the asset’s original effective
interest rate (recoverable amount). The calculation of recoverable amount of a collateralized financial
asset reflects the cash flows that may result from foreclosure less costs of obtaining and selling the
collateral, whether or not foreclosure is probable. Impairment loss is recognized in the statement of
income and the carrying amount of the asset is reduced through the use of an allowance.
For purposes of a collective evaluation of impairment, financial assets are grouped on the basis of
similar credit risk characteristics (i.e., on the basis of the Bank’s grading process that considers asset
type, industry, geographical location, collateral type, past-due status and other relevant factors). Those
characteristics are relevant to the estimation of future cash flows for groups of such assets by being
indicative of the debtors’ ability to pay all amounts due according to the contractual terms of the assets
being evaluated.
(5)
Future cash flows in a group of financial assets that are collectively evaluated for impairment are
estimated on the basis of the contractual cash flows of the assets in the Bank and historical loss
experience for assets with credit risk characteristics similar to those in the Bank. Historical loss
experience is adjusted on the basis of current observable data to reflect the effects of current
conditions that did not affect the period on which the historical loss experience is based and to remove
the effects of conditions in the historical period that do not currently exist. The methodology and
assumptions used for estimating future cash flows are reviewed regularly to reduce any differences
between loss estimates and actual loss experience.
When a loan is uncollectible, it is written off against the related provision for loan impairment. Such
loans are written off after all the necessary procedures have been completed and the amount of the
loss has been determined.
If in a subsequent period, the amount of the impairment loss decreases and the decrease can be
related objectively to an event occurring after the impairment was recognized (such as an improvement
in the debtor’s credit rating), the previously recognized impairment loss is reversed by adjusting the
allowance account. The amount of the reversal is recognized in the statement of income as a reduction
of impairment losses for the year.
Assets classified as available-for-sale
The Bank assesses at each reporting date whether there is evidence that a debt security classified as
available-for-sale is impaired. For an equity security classified as available-for-sale, a significant or
prolonged decline in the fair value below cost is considered in determining whether the securities are
impaired. The cumulative loss (difference between the acquisition cost and the current fair value) is
removed from capital funds and recognized in the statement of income when the asset is determined to
be impaired. If in a subsequent period, the fair value of a debt instrument previously impaired
increases and the increase can be objectively related to an event occurring after the impairment loss
was recognized, the impairment loss is reversed through the statement of income. Reversal of
impairment losses recognized previously on equity instruments is made directly to capital funds.
Renegotiated loans
Loans that are either subject to individual or collective impairment assessment and whose terms have
been renegotiated are no longer considered to be past due but are treated as new loans.
2.4
Financial liabilities
2.4.1
Classification
The Bank classifies its financial liabilities in the following categories: financial liabilities at fair value
through profit or loss, and financial liabilities at amortized cost.
Financial liabilities at fair value through profit or loss
This category comprises two sub-categories: financial liabilities classified as held for trading, and
financial liabilities designated by the Bank as at fair value through profit or loss upon initial recognition.
(6)
A financial liability is classified as held for trading if it is acquired or incurred principally for the purpose
of selling or repurchasing it in the near term or if it is part of a portfolio of identified financial instruments
that are managed together and for which there is evidence of a recent actual pattern of short-term
profit-taking. Derivatives are also categorized as held for trading unless they are designated and
effective as hedging instruments.
As at December 31, 2012 and 2011, the Bank has no financial liabilities that are designated at fair
value through profit loss.
Other liabilities measured at amortized cost
Financial liabilities that are not classified as at fair value through profit or loss fall into this category and
are measured at amortized cost.
Financial liabilities measured at amortized cost include deposit liabilities, accrued interest and other
expenses, and other liabilities, primarily accounts payable.
2.4.2
Recognition and measurement
Initial recognition and measurement
Financial liabilities at amortized cost are initially recognized at fair value plus transaction costs.
Subsequent measurement
Financial liabilities are measured at amortized cost using the effective interest method.
2.4.3
Derecognition
Financial liabilities are derecognized when they have been redeemed or otherwise extinguished
(i.e. when the obligation is discharged or is cancelled or has expired). Collateral (shares and bonds)
furnished by the Bank under standard repurchase agreements and securities lending and borrowing
transactions is not derecognized because the Bank retains substantially all the risks and rewards on
the basis of the predetermined repurchase price, and the criteria for derecognition are therefore not
met.
2.5
Determination of fair values of financial instruments
For financial instruments traded in active markets, the determination of fair values of financial assets
and financial liabilities is based on quoted market prices or dealer price quotations. This includes listed
equity securities and quoted debt instruments on major exchanges and broker quotes mainly from
Bloomberg.
A financial instrument is regarded as quoted in an active market if quoted prices are readily and
regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory
agency, and those prices represent actual and regularly occurring market transactions on an arm’s
length basis. If the above criteria are not met, the market is regarded as being inactive. Indications that
a market is inactive are when there is a wide bid-offer spread or significant increase in the
bid-offer spread or there are few recent transactions.
(7)
For all other financial instruments, fair value is determined using valuation techniques. In these
techniques, fair values are estimated from observable data in respect of similar financial instruments,
using models to estimate the present value of expected future cash flows or other valuation techniques,
using inputs (for example, LIBOR yield curve, FX rates, volatilities and counterparty spreads) existing
at reporting dates. The Bank uses widely recognized valuation models for determining fair values of
non-standardized financial instruments of lower complexity, such as options or interest rate and
currency swaps. For these financial instruments, inputs into models are generally market observable.
In cases when the fair value of unlisted equity instruments cannot be determined reliably, the
instruments are carried at cost less impairment. The fair value for loans and advances as well as
liabilities to banks and customers are determined using a present value model on the basis of
contractually agreed cash flows, taking into account credit quality, liquidity and costs. The fair values of
contingent liabilities and irrevocable loan commitments correspond to their carrying amounts.
2.6
Offsetting of financial instruments
Financial assets and liabilities are offset and the net amount reported in the statement of condition
when there is a legally enforceable right to offset the recognized amounts and there is an intention to
settle on a net basis, or realize the asset and settle the liability simultaneously.
2.7
Bank premises, furniture, fixtures and equipment
Bank premises, furniture, fixtures and equipment are stated at historical cost less accumulated
depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the
items.
Subsequent costs are included in the asset’s carrying amount or are recognized as a separate asset,
as appropriate, only when it is probable that future economic benefits associated with the item will flow
to the Bank and the cost of the item can be measured reliably. All other repairs and maintenance are
charged to the statement of income during the financial year in which they are incurred.
Depreciation on furniture, fixtures and equipment is calculated using the straight-line method to allocate
their cost less residual values over the useful lives of three to five years.
Major renovations are depreciated over the remaining useful life of the related asset.
An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s
carrying amount is greater than its estimated recoverable amount. The recoverable amount is the
higher of an asset’s fair value less costs to sell or value in use.
The carrying amount of an asset is derecognized upon disposal or when no future economic benefits
are expected from its use or disposal. When assets are derecognized, their cost, accumulated
depreciation and amortization are eliminated from the accounts. Gains and losses on disposals are
determined by comparing proceeds with carrying amount and are included in the statement of income.
(8)
2.8
Foreclosed assets
Assets foreclosed shown as assets held for sale in the statement of condition are accounted for at the
lower of cost and fair value less cost to sell similar to the principles of PFRS 5. The cost of assets
foreclosed includes the carrying amount of the related loan less allowance for impairment at the time of
foreclosure. Impairment loss is recognized for any subsequent write-down of the asset to fair value
less cost to sell.
2.9
Accrued expenses and other liabilities
Accrued expenses and other liabilities are recognized in the period in which the related money, goods or
services are received or when a legally enforceable claim against the Bank is established.
2.10
Provisions for legal or contractual obligations
Provisions are recognized when the Bank has a present legal or constructive obligation as a result of past
events; it is probable that an outflow of resources will be required to settle the obligation; and the amount
has been reliably estimated. Provisions are not recognized for future operating losses.
Where there are a number of similar obligations, the likelihood that an outflow will be required in
settlement is determined by considering the class of obligations as a whole. A provision is recognized
even if the likelihood of an outflow with respect to any one item is included in the same class of
obligations may be small.
Provisions are measured at the present value of the expenditures expected to be required to settle the
obligation using a pre-tax rate that reflects the current market assessments of the time value of money
and the risk specific to the obligation. The increase in the provision due to the passage of time is
recognized as interest expense.
2.11
Interest income and expense
Interest income and expense are recognized in the statement of income for all interest-bearing financial
instruments using the effective interest method.
When calculating the effective interest rate, the Bank estimates cash flows considering all contractual
terms of the financial instrument but does not consider future credit losses. The calculation includes all
fees paid or received between parties to the contract that are an integral part of the effective interest
rate, transaction costs and all other premiums or discounts.
Once a financial asset or a group of similar financial assets has been written down as a result of an
impairment loss, interest income is recognized using the rate of interest used to discount future cash
flows for the purpose of measuring impairment loss.
2.12
Fee and commission income
Fees and commissions, mainly representing service fees presented among miscellaneous income, are
generally recognized on an accrual basis when the service has been provided.
(9)
2.13
Foreign currency translation
Functional and presentation currency
Items in the financial statements of the Bank are measured using the currency of the primary economic
environment in which it operates (the “functional currency”). The financial statements are presented in
Philippine Peso, which is the Bank’s functional and presentation currency.
Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates
prevailing at the dates of the transactions or valuations where items are remeasured. Foreign
exchange gains and losses resulting from the settlement of such transactions and from the translation
at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are
recognized in the statement of income.
2.14
Income taxes
Current income tax
Income tax payable is calculated on the basis of the applicable tax law in the respective jurisdiction and is
recognized as an expense for the year except to the extent that current tax related to items (for example,
current tax on available-for-sale investments) are charged or credited in other comprehensive income or
directly to capital funds.
The Bank has substantial income from its investment in government securities subject to final withholding
tax. Such income is presented at its gross amount and the tax paid or withheld is included in current
provision for income tax.
Deferred income tax
Deferred income tax is provided in full, using the liability method, on temporary differences arising
between the tax bases of assets and liabilities and their carrying amounts in the financial statements.
The deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in
a transaction, other than a business combination, that at the time of the transaction affects neither
accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that
have been enacted or substantively enacted by the reporting date and are expected to apply when the
related deferred income tax asset is realized or the deferred income tax liability is settled.
The Bank reassesses at each reporting date the need to recognize a previously unrecognized deferred
income tax asset.
(10)
Recent tax law and regulation
RR No. 19-2011, issued in December 2011, prescribed the New Income Tax Form No. 1702. This
regulation further requires the inclusion of supplementary schedules of receipts/fees, costs of services,
non-operating and taxable other income, itemized deduction (if the taxpayer did not avail of OSD), taxes
and licenses, and other information in the notes to the financial statements.
2.15
Employee benefits
Pension benefits
BPI and its subsidiaries, which include the Bank, have a unified defined benefit plan that shares risks
among entities within the BPI Group. A defined benefit plan is a pension plan that defines an amount
of pension benefit that an employee will receive on retirement, usually dependent on one or more
factors such as age, years of service and compensation. The plan is funded through payments to
trustee-administered funds, determined by periodic actuarial calculations and compensation.
The liability recognized in the statement of condition in respect of defined benefit pension plans is the
present value of the defined benefit obligation at the reporting date less the fair value of plan assets,
together with adjustments for unrecognized actuarial gains or losses and past service costs. The
defined benefit obligation is calculated annually by independent actuaries using the projected unit
credit method. The present value of the defined benefit obligation is determined by discounting the
estimated future cash outflows using interest rates of government bonds that are denominated in the
currency in which the benefits will be paid, and that have terms to maturity approximating the terms of
the related pension liability.
Cumulative actuarial gains and losses arising from experience adjustments and changes in actuarial
assumptions in excess of the greater of 10% of the value of plan assets or 10% of the defined benefit
obligation are spread to income over the employees’ expected average remaining working lives.
Past-service costs are recognized immediately in income, unless the changes to the pension plan are
conditional on the employees remaining in service for a specified period of time (the vesting period).
In this case, the past-service costs are amortized on a straight-line basis over the vesting period.
Where the calculation results in a benefit to the Bank, the recognized asset is limited to the net total of
any unrecognized actuarial losses and past service costs, and the present value of any reductions in
future contributions to the plan.
For individual financial reporting purposes, the unified plan assets are allocated among the BPI Group
entities, including the Bank, based on the level of the defined benefit obligation attributable to each
entity to arrive at the net liability or asset that should be recognized in the individual financial
statements.
Profit-sharing and bonus plans
The Bank recognizes a liability and an expense for bonuses and profit-sharing, based on a formula that
takes into consideration the profit attributable to the Bank’s shareholders after certain adjustments.
The Bank recognizes a provision where contractually obliged or where there is a past practice that has
created a constructive obligation.
(11)
Termination benefits
Termination benefits are payable when employment is terminated before the normal retirement date, or
whenever an employee accepts voluntary redundancy in exchange for these benefits. The Bank
recognizes termination benefits when it is demonstrably committed to either terminating the
employment of current employees according to a detailed formal plan without possibility of withdrawal,
or providing termination benefits as a result of an offer made to encourage voluntary redundancy.
2.16
Share capital
Common shares are classified as equity.
Incremental costs directly attributable to the issue of new shares are shown in capital funds as a
deduction from the proceeds, net of tax.
2.17
Dividends on common shares
Dividends are recognized as a liability in the Bank’s financial statements in the year in which they are
approved by the Board of Directors and the BSP.
2.18
Leases
Bank is the lessee
Leases in which substantially all risks and rewards of ownership are retained by the lessor are
classified as operating leases. Payments, including prepayments, made under the operating leases are
charged to the statement of income on a straight-line basis over the period of the lease.
Bank is the lessor
Properties leased out under operating leases are included in investment property in the statement of
condition. Rental income is recognized in the statement of income on a straight-line basis over the
period of the lease.
2.19
Subsequent events (or Events after the reporting date)
Post year-end events that provide additional information about the Bank’s financial position at reporting
date (adjusting events) are reflected in the financial statements. Post year-end events that are not
adjusting events are disclosed in the notes to financial statements when material.
Note 3 - Financial risk and capital management
Risk management in the Bank covers all perceived areas of risk exposure, even as it continuously
endeavors to uncover hidden risks. Capital management is understood to be a facet of risk
management. The Board of Directors is the Bank’s principal risk and capital manager, and the Bank’s
only strategic risk taker. The Board of Directors provides written policies for overall risk management, as
well as written procedures for the management of foreign exchange risk, interest rate risk, credit risk,
equity risk, and contingency risk, among others.
(12)
The primary objective of the Bank is the generation of recurring acceptable returns to shareholders’
capital. To this end, the Bank’s policies, business strategies, and business activities are directed towards
the generation of cash flows that are in excess of its fiduciary and contractual obligations to its depositors,
and to its various other funders and stakeholders.
To generate acceptable returns to its shareholders’ capital, the Bank understands that it has to bear risk,
that risk-taking is inherent in its business. Risk is understood by the Bank as the uncertainty in its future
incomes - an uncertainty that emanates from the possibility of incurring losses that are due to unplanned
and unexpected drops in revenues, increases in expenses, impairment of asset values, or increases in
liabilities.
The possibility of incurring losses is, however, compensated by the possibility of earning more than
expected incomes. Risk-taking is, therefore, not entirely a bad step to be avoided. Risk-taking presents
opportunities if risks are accounted, deliberately taken, and are kept within rationalized limits.
The Risk Management Office (RMO) is responsible for the management of market and liquidity risks. Its
objective is to minimize adverse impacts on the Bank’s financial performance due to the unpredictability
of financial markets. Market and credit risks management in the Bank is carried out through policies
approved by the Risk Management Committee (RMC) and the Board of Directors. In addition, Internal
Audit is responsible for the independent review of risk assessment measures and procedures and the
control environment. For risk management purposes, risks emanating from Treasury activities are
managed independently.
The most important risks that the Bank manages are credit risk, liquidity risk, market risk and other
operational risks. Market risk includes currency exchange risk, interest rate risk and other price risks.
3.1
Credit risk
The Bank takes on exposure to credit risk, which is the risk that a counterparty will cause a financial loss
to the Bank by failing to discharge an obligation. Significant changes in the economy, or in the prospects
of a particular industry segment that may represent a concentration in the Bank’s portfolio, could result in
losses that are different from those provided for at the reporting date. Management therefore carefully
manages its exposure to credit risk.
Credit exposures arise principally in loans and advances, due from BSP, due from other banks, interbank
call loans receivable and accrued interest receivable and accounts receivable under other resources and
debt securities consisting of investments in available-for-sale and held-to-maturity securities. The Credit
Policy Group works with the Credit Committee in managing credit risks, and reports are regularly
provided to the Board of Directors.
(13)
3.1.1
Credit risk management
Loans and advances
In measuring credit risk of loan and advances at a counterparty level, the Bank considers three
components (i) the probability of default by the client or counterparty on its contractual obligations;
(ii) current exposures to the counterparty and its likely future development; and (iii) the likely recovery
ratio on the defaulted obligations. In the evaluation process, the Bank also considers the conditions of
the industry/sector to which the counterparty is exposed, other existing exposures to the group where
the counterparty may be related, as well as the client and Bank’s fallback position assuming the worstcase scenario. Outstanding and potential credit exposures are reviewed to likewise ensure that they
conform to existing internal credit policies.
The Bank assesses the probability of default of individual counterparties using internal rating tools
tailored to the various categories of counterparty. The Bank has internal credit risk rating systems
designed for corporate, SMEs, and retail accounts. For corporate and SMEs, the rating system is a
10-point scale that measures the borrower’s credit risk based on quantitative and qualitative factors.
The ratings of individual exposures may subsequently migrate between classes as the assessment of
their probabilities of default changes. For retail, the consumer credit scoring system is a formula-based
model for evaluating each credit application against a set of characteristics that experience has shown
to be relevant in predicting repayment. The Bank regularly validates the performance of the rating
systems and their predictive power with regard to default events, and enhances them if necessary.
The Bank’s internal ratings are mapped to the following standard BSP classifications:
i.
Unclassified - these are loans that do not have a greater-than-normal risk and do not possess the
characteristics of loans classified below. The counterparty has the ability to satisfy the obligation in
full and therefore minimal loss, if any, is anticipated.
ii.
Loans especially mentioned - these are loans that have potential weaknesses that deserve
management’s close attention. These potential weaknesses, if left uncorrected, may affect the
repayment of the loan and thus increase the credit risk of the Bank.
iii. Substandard - these are loans which appear to involve a substantial degree of risk to the Bank
because of unfavorable record or unsatisfactory characteristics. Further, these are loans with welldefined weaknesses which may include adverse trends or development of a financial, managerial,
economic or political nature, or a significant deterioration in collateral.
iv. Doubtful - these are loans which have the weaknesses similar to those of the Substandard
classification with added characteristics that existing facts, conditions, and values make collection
or liquidation in full highly improbable and substantial loss is probable.
v.
(14)
Loss - these are loans which are considered uncollectible and of such little value that their
continuance as bankable assets is not warranted although the loans may have some recovery or
salvage value.
Debt securities and other bills
For debt securities, external ratings such as Standard & Poor’s, Moody’s and Fitch’s ratings or their
equivalent are used by the Bank for managing credit risk exposures. Investments in these securities
and bills are viewed as a way to gain better credit quality mix and at the same time, maintain a readily
available source to meet funding requirements.
3.1.2
Risk limit control and mitigation policies
The Bank manages, limits, and controls concentrations of credit risk wherever they are identified - in
particular, to individual counterparties and groups, and to industries.
The Bank structures the levels of credit risk it undertakes by placing limits on the amount of risk
accepted in relation to one borrower, or groups of borrowers, and to geographical and industry
segments. Such risks are monitored on a regular basis and subject to an annual or more frequent
review, when considered necessary. Limits on large exposures and credit concentration are approved
by the Board of Directors.
The exposure to any one borrower is further restricted by sub-limits covering on- and off-balance sheet
exposures. Actual exposures against limits are monitored regularly.
Exposure to credit risk is also managed through regular analysis of the ability of borrowers and
potential borrowers to meet interest and capital repayment obligations and by changing these lending
limits where appropriate.
The Bank employs a range of policies and practices to mitigate credit risk. One of the most traditional
and common practice in mitigating credit risk is requiring security for loans and advances. The Bank
implements guidelines on the acceptability of specific classes of collateral for credit risk mitigation. The
principal collateral types for loans and advances are:
 Mortgages over real estate properties and chattels; and
 Hold-out on financial instruments such as debt securities, deposits, and equities.
In order to minimize credit loss, the Bank seeks additional collateral from the counterparty when
impairment indicators are observed for the relevant individual loans and advances.
3.1.3
Maximum exposure to credit risk
Credit risk exposures relating to financial assets at December 31 are as follows:
Due from other banks
Interbank call loans receivable
Due from BSP
Available-for-sale securities
Held-to-maturity securities
Loans and advances
Other resources, net
(15)
2012
513,271,951
2,782,508,039
122,404,103
718,688,192
5,335,739,474
6,037,869
2011
231,249,303
267,100,125
1,902,232,126
814,689,215
4,643,402,042
12,870,007
The exposures set out above are based on net carrying amounts, and represents a worst case scenario
of credit risk exposure to the Bank at December 31, 2012 and 2011, without taking into account any
collateral held or other credit enhancements attached.
3.1.4
Impairment and provisioning policies
The Bank’s credit-quality mapping on loans and advances is based on the standard BSP loan
classifications (Note 3.1.1). Impairment provisions, however, are recognized for financial reporting
purposes only for losses that have been incurred at the reporting date based on objective evidence of
impairment (Note 2.3.5).
The table below shows the percentage of the Bank’s loans and advances and the related allowance for
impairment at December 31:
Unclassified
Loans especially mentioned
Substandard
Doubtful accounts
Loss
2012
Loans and
Impairment
advances (%) provision (%)
96.71
0.54
0.00
0.00
1.67
22.79
1.50
66.40
0.12
100.00
100.00
2011
Loans and
Impairment
advances (%) provision (%)
98.14
0.55
0.00
0.00
0.83
24.53
1.01
54.17
0.02
100.00
100.00
Management is confident in its ability to continue to control and sustain minimal exposure to credit risk of
the Bank resulting from its loan and advances portfolio based on the following:




(16)
In 2012, 96.71% of the loans and advances portfolio is categorized in the top two grades of the
internal rating system (2011 - 98.14%);
Mortgage loans are backed by collateral;
In 2012, 96.49% of the loans and advances portfolio are considered to be neither past due nor
impaired (2011 - 97.91%); and
The Bank continues to implement stringent selection process upon granting loans and advances.
3.1.5
Credit quality of loans and advances
(i)
Loans and advances
Loans and advances at December 31 are summarized as follows:
Neither past due nor impaired
Past due but not impaired
Past due and impaired
Allowance for impairment
2012
2011
5,254,147,608 4,606,969,411
12,496,249
8,591,891
178,892,943
89,560,888
5,445,536,800 4,705,122,190
(109,797,326)
(61,720,148)
5,335,739,474 4,643,402,042
There were no renegotiated loans and advances in 2012 and 2011.
Neither past due nor impaired
Loans and advances that were neither past due nor impaired consist mainly of accounts with
unclassified rating and no provision for impairment is required as a result of management’s
assessment of the portfolio on an individual and collective basis.
Details of these accounts at December 31 are as follows:
2012
Corporate entities
Large corporate customers
Small and medium enterprises
Retail customers:
Real estate mortgages
Auto loans
2011
285,316,115
117,260,527
262,271,870
58,991,195
4,716,116,551
135,454,415
5,254,147,608
4,137,570,518
148,135,828
4,606,969,411
Past due but not impaired
The table below presents the gross amount of loans and advances that were past due but not impaired at
December 31. Collateralized past due loans are not considered impaired when the cash flows that may
result from foreclosure of the related collateral are higher than the carrying amount of the loans.
Past due up to 30 days
Past due 31 - 90 days
Fair value of collateral
(17)
2012
5,224,656
7,271,593
12,496,249
14,281,427
2011
2,755,993
5,835,898
8,591,891
9,819,304
Past due and impaired
Loans and advances that were past due and impaired represent accounts that are aged more than 90
days past due, amounting to P178,892,943 (2011 - P 89,560,888). Fair value of collaterals supporting
past due and impaired real estate mortgage loans amounted to P204,449,078 (2011 - P 102,355,301).
As at December 31, 2012, loans under this category substantially represent real estate mortgage and
auto loans, and are thus subjected to collective impairment assessment.
(ii)
Other financial assets
Due from BSP and interbank call loans receivable
Due from BSP at December 31, 2012 amounting to P 2,782,508,039 (2011 - P 1,902,232,126) are made
with sovereign counterparty and are considered fully performing.
Interbank call loans receivable amounting to P267,100,125 in 2011 represents reverse repurchase
agreements is also made with sovereign counterparty and is considered fully performing.
Due from other banks and interbank call loans receivable
Due from other banks at December 31, 2012 amounting to P513,271,951 (2011 - P231,249,303) are
made with Parent bank and BPI Family Savings Bank, a related party under common control and
considered fully performing.
Available-for-sale and Held-to-maturity securities
The table below presents the ratings at December 31 of debt securities, treasury bills and other
government securities classified under available-for-sale and held-to-maturity securities based on
Standard & Poor’s:
Available-for-sale
December 31, 2012
Aaa
BB+
Lower than ADecember 31, 2011
Lower than A-
99,213,243
23,190,860
-
Held-to-maturity
718,688,192
814,689,215
Other financial assets
The Bank’s other financial assets (shown under other resources) as at December 31, 2012 and 2011
consist mainly of accounts receivable and accrued interest and fees receivable from various unrated
counterparties. These are considered to be fully performing except for the P199,000 impaired accounts.
(18)
3.1.6
Repossessed or foreclosed collateral
The Bank acquired assets by taking possession of collaterals held as security for loans and advances.
As at December 31, 2012, the Bank acquired assets by taking possession of collaterals held as security
for loans and advances with carrying amount of P11,048,526 (2011 - P 5,515,265). The related
foreclosed collaterals have aggregate fair value of P23,336,934 (2011 - P 10,849,141). Foreclosed
collaterals include real estate (land, building, and improvements), auto and chattel.
Repossessed properties are sold as soon as practicable and are classified as assets held for sale in the
statement of condition.
3.1.7
Risk concentration of financial assets with credit risk exposure
The Bank’s main credit exposures based on carrying amounts and categorized by industry sectors are
summarized below:
Financial
Institutions
At December 31, 2012
Due from other banks
513,271,951
Due from BSP
2,782,508,039
Available-for-sale
122,404,103
Held-to-maturity
718,688,192
Loans and advances,
net
Other resources,net
4,136,872,285
At December 31,
2011
Due from other banks
231,249,303
Interbank call loans
receivable
267,100,125
Due from BSP
1,902,232,126
Held-to-maturity
814,689,215
Loans and advances,
net
Other resources
3,215,270,769
Manufacturing
23,922,493
23,922,493
Business
Services and
Real Estate
-
Private
Households
-
828,407,911 4,254,944,066
828,407,911 4,254,944,066
Others
-
Less Allowance
-
338,262,330 (109,797,326)
6,236,869
(199,000)
344,499,199 (109,996,326)
5,335,739,474
6,037,869
9,478,649,628
-
-
-
-
231,249,303
-
-
-
-
-
267,100,125
1,902,232,126
814,689,215
28,345,598
28,345,598
816,630,135 3,445,858,638
816,630,135 3,445,858,638
414,287,819
12,870,007
427,157,826
(61,720,148)
(61,720,148)
The Bank is exposed to market risk, the risk that the fair value or future cash flows of a financial
instrument will fluctuate because of changes in market prices.
Market risk is managed by the RMC guided by policies and procedures approved by the RMC and
confirmed by the Board of Directors.
Interest rate risk
There are two types of interest rate risk - (i) fair value interest risk and (ii) cash flow interest risk. Fair
value interest rate risk is the risk that the fair value of a financial instrument will fluctuate because of
changes in market interest rates. Cash flow interest rate risk is the risk that the future cash flows of a
financial instrument will fluctuate because of changes in market interest rates.
(19)
513,271,951
2,782,508,039
122,404,103
718,688,192
-
3.2 Market risk
3.2.1
Total
4,643,402,042
12,870,007
7,871,542,818
The Bank takes on exposure to the effects of fluctuations in the prevailing levels of market interest rates
on both its fair value and cash flow risks. Interest margins may increase as a result of such changes but
may also result in losses in the event that unexpected movements arise.
The Board of Directors sets limits on the level of mismatch of interest rate repricing that may be
undertaken, which is monitored daily by the Risk Management Office.
Interest rate risk in the banking book arises from the Bank’s core banking activities. The main source of
this type of interest rate risk is repricing risk, which reflects the fact that the Bank’s assets and liabilities
are of different maturities and are priced at different interest rates.
The table below summarizes the Bank’s exposure to interest rate risk, categorized by the earlier of
contractual repricing or maturity dates.
Up to 1 year
As at December 31, 2012
Assets
Due from other banks
Due from BSP
Available-for-sale
Held-to-maturity
Loans and advances, net
Other resources
Total financial assets
Liabilities
Deposit liabilities
Accrued interest and
other expenses
Other liabilities
Total financial liabilities
Total interest repricing gap
As at December 31, 2011
Assets
Due from other banks
Interbank call loans and
receivable
Due from BSP
Held-to-maturity
Loans and advances, net
Other resources
Total financial assets
Liabilities
Deposit liabilities
Accrued interest and
other expenses
Other liabilities
Total financial liabilities
Total interest repricing gap
(20)
2,564,604,724
2,564,604,724
1,600,517,449
3,582,280
1,604,099,729
960,504,995
1,882,624,374
1,882,624,374
1,045,602,475
2,729,808
1,048,332,283
834,292,091
Over 1 year and
up to 3 years
999,485,272
999,485,272
999,485,272
536,727,808
536,727,808
536,727,808
Over
3 years
Non-repricing
1,562,889,764
1,562,889,764
513,271,951
2,782,508,039
122,404,103
718,688,192
208,759,714
6,037,869
4,351,669,868
513,271,951
2,782,508,039
122,404,103
718,688,192
5,335,739,474
6,037,869
9,478,649,628
7,074,893,007
8,675,410,456
8,405,224
3,830,211
7,087,128,442
(2,735,458,574)
11,987,504
3,830,211
8,691,228,171
787,421,457
1,562,889,764
2,045,443,134
2,045,443,134
2,045,443,134
Total
231,249,303
231,249,303
267,100,125
1,902,232,126
814,689,215
178,606,726
12,870,007
3,406,747,502
267,100,125
1,902,232,126
814,689,215
4,643,402,042
12,870,007
7,871,542,818
6,055,742,636
7,101,345,111
9,819,749
7,794,420
6,073,356,805
(2,666,609,302)
12,549,557
7,794,420
7,121,689,088
749,853,731
3.2.2
Foreign exchange risk
The Bank takes on exposure to the effects of fluctuations in the prevailing exchange rates on its foreign
currency financial position and cash flows.
The table below summarizes the Bank’s exposure to foreign currency exchange rate risk relative to its
financial assets denominated in United States Dollar (US Dollar) at December 31.
2012
Financial assets
Due from other banks
Other resources
Financial liabilities
Deposit liabilities
Accrued interest
Other liabilities
Net assets - December 31
2011
261,548,468
32,532
261,581,000
116,748,262
17,668
116,765,930
260,929,783
1,602
419,282
261,350,668
230,333
116,393,044
142
420,845
116,814,031
48,101
At December 31, 2012, if the Philippine Peso had weakened/strengthened by 5% (2011 - 5%) against the
US Dollar based on historical information in the last five years with all other variables held constant, net
income and capital funds as at and for the year ended December 31, 2012 would have been P474,394
(2011 - P105,649) higher/lower, mainly as a result of foreign exchange gains/losses on translation of US
Dollar-denominated deposits with other banks and deposit liabilities.
3.2.3
Price risk
The Bank’s investment securities held under Available-for-Sale and Held-to-Maturity Securities are mainly
in the form of debt securities which are exposed to credit (Note 3.1.7) and interest rate (Note 3.2.1) risks.
These securities are not exposed to equity price risk.
3.3 Liquidity risk
Liquidity risk is the risk that the Bank is unable to meet its payment obligations associated with its
financial liabilities when they fall due and to replace funds when they are withdrawn. The consequence
may be the failure to meet obligations to repay depositors and fulfill commitments to lend.
3.3.1
Liquidity risk management process
The Bank’s liquidity management process, as carried out within the Bank and monitored by the RMC
and the Risk Management Office includes:




(21)
Day-to-day funding, managed by monitoring future cash flows to ensure that requirements can be
met. This includes replenishment of funds as they mature or are borrowed by customers;
Maintaining a portfolio of highly marketable assets that can easily be liquidated as protection
against any unforeseen interruption to cash flow;
Monitoring balance sheet liquidity ratios against internal and regulatory requirements;
Managing the concentration and profile of debt maturities; and

Performing periodic liquidity stress testing on the Bank’s liquidity position by assuming a faster rate
of withdrawals in its deposit base.
Monitoring and reporting take the form of cash flow measurement and projections for the next day,
week and month as these are key periods for liquidity management. The starting point for those
projections is an analysis of the contractual maturity of the financial liabilities and the expected
collection date of the financial assets.
3.3.2
Funding approach
Sources of liquidity are regularly reviewed by the Bank to maintain a wide diversification by currency,
geography, counterparty, product, and term.
3.3.3
Maturity analysis
The table below presents the maturity profile of non-derivative financial instruments based on
undiscounted cash flows, which the Bank uses to manage the inherent liquidity risk. The analysis takes
into account the maturity grouping is based on the remaining period from the end of the reporting
period to the contractual maturity date or, if earlier, the expected date the financial asset will be
realized or the financial liability will be settled.
Up to 1 year
As at December 31, 2012
Financial assets
Due from other banks
Due from BSP
Available-for-sale securities
Held-to-maturity securities
Loans and advances, net
Other resources, net
Total financial assets
Financial liabilities
Deposit liabilities
Other liabilities
Total financial liabilities
Total maturity gap
(22)
Over 1 up to
3 years
Over 3 years
Total
513,271,951
2,782,508,039
8,239,393
68,663,119
88,363,957
6,037,869
3,467,084,328
36,679,750
421,954,750
493,584,275
952,218,775
147,677,500
555,333,333
5,029,782,042
5,732,792,875
513,271,951
2,782,508,039
192,596,643
1,045,951,202
5,611,730,274
6,037,869
10,152,095,978
8,681,556,706
3,830,211
8,685,386,917
(5,218,302,589)
952,218,775
5,732,792,875
8,681,556,706
3,830,211
8,685,386,917
1,466,709,061
As at December 31, 2011
Financial assets
Due from BSP
Due from other banks
Interbank loans receivable
Held-to-maturity securities
Loans and advances, net
Other resources, net
Total financial assets
Financial liabilities
Deposit liabilities
Other liabilities
Total financial liabilities
Total maturity gap
Up to 1 year
Over 1 up to
3 years
Over 3 years
1,902,232,126
231,249,303
267,100,125
166,358,124
43,059,070
12,870,007
2,622,868,755
748,821,061
321,162,337
1,069,983,398
4,690,336,066
4,690,336,066
1,902,232,126
231,249,303
267,100,125
915,179,185
5,054,557,473
12,870,007
8,383,188,219
7,105,271,178
7,794,420
7,113,065,598
(4,490,196,843)
1,069,983,398
4,690,336,066
7,105,271,178
7,794,420
7,113,065,598
1,270,122,621
Total
3.4 Fair values of financial assets and liabilities
The table below summarizes the carrying amounts and fair values of those financial assets and
liabilities at December 31 not presented in the statement of condition at fair value.
Carrying Value
2012
2011
Financial assets
Due from other banks
Interbank call loans
receivable
Due from BSP
Available-for-sale securities
Held-to-maturity securities
Loans and advances, net
Other resources, net
Financial liabilities
Deposit liabilities
Accrued interest
Other liabilities
Fair Value
2012
2011
513,271,951
231,249,303
513,271,951
231,249,303
2,782,508,039
122,431,311
718,688,192
5,335,739,474
6,037,868
267,100,125
1,902,232,126
27,376
814,689,215
4,643,402,042
12,870,008
2,782,508,039
122,431,311
811,302,262
6,097,987,970
6,037,868
267,100,125
1,902,232,126
27,376
889,451,368
5,306,745,191
12,870,008
8,675,410,456
11,925,222
3,830,211
7,101,345,111
12,549,557
7,794,420
8,675,410,456
11,925,222
3,830,211
7,101,345,111
12,549,557
7,794,420
Due from BSP and other banks; Interbank call loans receivable
The fair value of floating rate placements and overnight deposits approximates their carrying amount.
The estimated fair value of fixed interest bearing deposits is based on discounted cash flows using
prevailing money-market interest rates for debts with similar credit risk and remaining maturity.
(23)
Investment securities
Fair values of held-to-maturity and available-for-sale securities are based on market prices. Where this
information is not available, fair value is estimated using quoted market prices for securities with similar
credit, maturity and yield characteristics.
Loans and advances
The estimated fair value of loans and advances represents the discounted amount of estimated future
cash flows expected to be received. Expected cash flows are discounted at current market rates to
determine fair value.
Financial liabilities
The estimated fair value of deposits with no stated maturity, which includes non-interest-bearing
deposits, is the amount repayable on demand.
The estimated fair value of fixed interest-bearing deposits is based on discounted cash flows using
interest rates for new debts with similar remaining maturity.
Other resources/liabilities
Carrying amounts of other resources/liabilities which have no definite repayment dates are assumed to
be their fair values.
3.5 Fair value hierarchy
PFRS 7 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation
techniques are observable or unobservable. Observable inputs reflect market data obtained from
independent sources; unobservable inputs reflect the Bank’s market assumptions. These two types of
inputs have created the following fair value hierarchy:

Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities. This level
includes listed equity securities and debt instruments on exchanges (for example, Philippine Stock
Exchange, Inc., Philippine Dealing and Exchange Corp., etc.) and exchanges traded derivatives
like futures (for example, NASDAQ, S&P 500).

Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset
or liability, either directly (that is, as prices) or indirectly (that is, derived from prices).

Level 3 - Inputs for the asset or liability that are not based on observable market data
(unobservable inputs). This level includes equity investments and debt instruments with significant
unobservable components. This hierarchy requires the use of observable market data when
available. The Bank considers relevant and observable market prices in its valuations where
possible.
As at December 31, 2012, the Bank has available-for-sale financial assets in the form of debt and
equity securities that fall under Level 1 amounting to P122,431,311 (2011 - P 27,376). The Bank has
no other significant financial instruments that fall under the Levels 2 and 3 of fair value categories as at
December 31, 2012.
(24)
3.6 Capital management
The Bank manages its capital following the framework of Basel Committee on Banking Supervision
Accord II (Basel II) and its implementation in the Philippines by the BSP. The BSP through its
Circular 538 requires each bank and its financial affiliated subsidiaries to keep its Capital Adequacy
Ratio (CAR) - the ratio of qualified capital to risk-weighted exposures - to be no less than 10%. In
quantifying its CAR, the Bank currently uses the Standardized Approach (for credit risk and market
risk) and the Basic Indicator Approach (for operational risk). Capital adequacy reports are filed with the
BSP every quarter.
Qualifying capital and risk-weighted assets are computed based on BSP regulations. The qualifying
capital of the Bank consists of core tier 1 capital and tier 2 capital. Tier 1 capital comprises paid-up
share capital, paid-in surplus, surplus including net income for the year, surplus reserves less
deductions such as deferred income tax, unsecured credit accommodations to DOSRI and unrealized
fair value losses on available-for-sale securities. Tier 2 capital includes net unrealized fair value gains
on available-for-sale investments, and general loan loss provisions for BSP reporting purposes.
The table below summarizes the CAR of the Bank under the Basel II framework for the years ended
December 31, 2012 and 2011. The Basel II framework following BSP Circular 538 took effect on
July 1, 2007.
Tier 1 capital
Tier 2 capital
Gross qualifying capital
Less: Required deductions
Total qualifying capital
Risk weighted assets
CAR (%)
2012
719,803,357
37,592,390
757,395,747
757,395,747
2011
687,433,278
30,745,366
718,178,644
718,178,644
4,261,631,662
17.77%
3,405,640,154
21.09%
The Bank has fully complied with the CAR requirement of the BSP at December 31, 2012 and 2011.
Note 4 - Critical accounting estimate
The Bank makes estimates and assumptions that affect the reported amounts of resources and liabilities.
Estimates and assumptions are continually evaluated and are based on historical experience and other
factors, including expectations of future events that are believed to be reasonable under the
circumstances. It is reasonably possible that the outcomes within the next financial year could differ from
assumptions made at reporting date and could result in the adjustment to the carrying amount of affected
assets and liabilities.
(25)
The Bank’s critical accounting estimate mainly relates to impairment losses on loans and advances
(Note 9).The Bank reviews its loan portfolios to assess impairment at least on a monthly basis. In
determining whether an impairment loss should be recorded in the statement of income, the Bank makes
judgments as to whether there is any observable data indicating that there is a measurable decrease in
the estimated future cash flows from a portfolio of loans before the decrease can be identified with an
individual loan in that portfolio. This evidence may include observable data indicating that there has been
an adverse change in the payment status of borrowers in a group, or national or local economic
conditions that correlate with defaults on assets in the group. Management uses estimates based on
historical loss experience for resources with credit risk characteristics and objective evidence of
impairment similar to those in the portfolio when scheduling its future cash flows. The methodology and
assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly
to reduce any differences between loss estimates and actual loss experience. On the basis of existing
knowledge, it is reasonably possible that outcomes within the next financial year, which are different from
the assumptions used, may amount to a material difference compared to this year’s impairment loss. It
is, however, impracticable to estimate the impact of such difference in outcomes.
Note 5 - Cash and cash equivalents
The account at December 31 consists of:
Note
Due from other banks
Interbank call loans receivable
Due from BSP
6
2012
513,271,951
2,782,508,039
3,295,779,990
2011
231,249,303
267,100,125
1,765,232,126
2,263,581,554
Note 6 - Due from Bangko Sentral ng Pilipinas
This account consists of special deposit accounts, classified as cash equivalents, (Note 5) and fixed-term
demand Philippine Peso deposits in compliance with regulatory requirements. Due from BSP in 2011
includes reserve for deposit accounts of P137,000,000 with maturities over 90 days. For the year ended
December 31, 2012, average interest rate on due from BSP is 3.6% (2011 - 4.6%).
Note 7 - Available-for-sale securities, net
The account at December 31 consists of:
2012
Debt securities
Government securities
Private corporate bonds
Others
Accrued interest receivable
Allowance for impairment
(26)
22,942,285
98,812,300
39,620
121,794,205
649,518
(12,412)
122,431,311
2011
39,788
39,788
(12,412)
27,376
The movement in available-for-sale securities is summarized as follows:
Balance, January 1
Additions
Fair value adjustment
Accrued interest receivable
Balance, December 31
2012
27,376
121,500,000
254,417
649,518
122,431,311
2011
27,544
(168)
27,376
For the years ended December 31 2012, interest rates on government securities and private corporate
bonds are 6.13% and 6.27%, respectively.
As at December 31, 2012 and 2011, all available-for-sale securities are considered non-current.
Note 8 - Held-to-maturity securities
Held-to-maturity securities consist mainly of government securities. The movements in the account are
summarized as follows:
Balance, January 1
Additions
Maturities
Amortization of premium
Net change in accrued interest receivable
Balance, December 31
2012
814,689,215
(90,920,000)
205,283
(5,286,306)
718,688,192
2011
457,621,944
355,036,168
(2,497,356)
(6,836,638)
11,365,097
814,689,215
For the years ended December 31, 2012, the average effective interest rate on held-to-maturity
securities is 6.59% (2011 - 6.55%).
Note 9 - Loans and advances, net
The account at December 31 consists of:
2012
Corporate entities
Large corporate customers
Small and medium enterprise
Retail customers
Real estate mortgages
Auto loans
Accrued interest receivable
Unearned discount
Allowance for impairment
(27)
2011
284,850,392
117,618,144
261,696,499
58,845,226
4,878,172,221
152,500,083
5,433,140,840
27,824,959
(15,428,999)
5,445,536,800
(109,797,326)
5,335,739,474
4,214,061,699
173,023,628
4,707,627,052
21,893,411
(24,398,273)
4,705,122,190
(61,720,148)
4,643,402,042
Current
Non-current
2012
86,461,805
5,359,074,995
5,445,536,800
2011
59,739,568
4,645,382,622
4,705,122,190
Details of the loans and advances portfolio at December 31 are as follows:
As to industry or economic sector (in %)
Private household with employed persons
Real estate, renting and other related activities
Wholesale and retail trade
Manufacturing
Others
2012
78.14
15.21
2.20
0.44
4.01
100.00
2011
73.23
17.36
1.44
0.60
7.37
100.00
As to collateral
Secured loans
Real estate mortgage
Chattel mortgage
Others
Unsecured loans
2012
2011
5,184,045,538
141,439,877
3,463,729
5,328,949,144
88,762,697
5,417,711,841
4,445,854,068
152,413,731
4,598,267,799
84,960,980
4,683,228,779
For the years ended December 31, 2012, the average effective interest rates on loans and advances is
8.25% (2011 - 8.77%).
For the years ended December 31, 2012, interest income from loans and advances amounts to
P408,118,405 (2011 - P359,200,652).
The movements in allowance for impairment are as follows:
Balance, January 1
Provision for impairment
Transfers
Balance, December 31
(28)
2012
61,720,148
47,247,582
829,596
109,797,326
2011
25,099,119
36,621,029
61,720,148
Note 10 - Bank premises, furniture, fixtures and equipment
The movements in the account are summarized as follows:
2012
Cost
Balance, January 1
Additions
Balance, December 31
Accumulated depreciation
Balance, January 1
Depreciation
Balance, December 31
Net book value - December 31
2011
10,116,655
711,611
10,828,266
9,288,294
828,361
10,116,655
7,986,005
1,912,714
9,898,719
929,547
6,413,900
1,572,105
7,986,005
2,130,650
Depreciation is included in occupancy and equipment-related expenses in the statement of income.
Note 11 - Deferred income taxes
Deferred income tax assets and liability at December 31 consist of:
Deferred income tax assets
Allowance for impairment
Expense accruals
Total deferred income tax assets
Deferred income tax liability
Fair value gain on available-for-sale securities
Deferred income tax asset, net
2012
2011
33,442,361
1,831,593
35,273,954
19,203,098
1,388,021
20,591,119
(50,917)
35,223,037
20,591,119
Deferred income tax assets (liabilities) are expected to be realized (settled) as follows:
Deferred income tax assets
Amount to be recovered within 12 months
Amount to be recovered after 12 months
Deferred income tax liability
Amount to be settled after 12 months
(29)
2012
2011
1,831,593
33,442,361
35,273,954
703,396
19,887,723
20,591,119
(50,917)
-
The movements in the net deferred income tax assets are summarized below:
2012
20,591,119
14,682,835
(50,917)
35,223,037
At January 1
Income statement credit
Other comprehensive income
MCIT
At December 31
2011
20,655,092
3,693,925
(3,757,898)
20,591,119
The deferred tax credit in the statement of income for the years ended December 31 comprises the
following temporary differences:
Allowance for impairment
Pension asset
NOLCO
Others
2012
(14,239,263)
(443,572)
(14,682,835)
2011
(11,541,006)
(1,577,231)
9,351,569
72,743
(3,693,925)
2012
30%
-
2011
6,159,883
21,455,548
3,556,464
31,171,895
30%
9,351,569
(9,351,569)
-
2012
-
2011
2,062,211
908,524
787,163
3,757,898
(3,757,898)
The outstanding NOLCO at December 31 consists of:
Year of Incurrence
2010
2009
2008
Year of Expiration
2013
2012
2011
Tax rate
Deferred income tax asset on NOLCO
NOLCO claimed as deduction
Deferred income tax asset on NOLCO at December 31
The details of MCIT at December 31 are as follows:
Year of Incurrence
Year of Expiration
2010
2013
2009
2012
2008
2011
Deferred income tax asset on MCIT
MCIT utilized during the year
Deferred income tax asset on MCIT at December 31
(30)
Note 12 - Other resources
The account at December 31 consists of:
Note
Accounts receivable
Accrued interest receivable
Pension asset
Prepaid expenses
Miscellaneous
20
Allowance for impairment
Current
Non-current
2012
4,366,191
1,870,678
1,354,591
1,170,900
2,613,717
11,376,077
(199,000)
11,177,077
2011
9,231,416
3,638,591
1,354,591
1,166,250
3,238,150
18,628,998
18,628,998
2012
7,920,836
3,256,241
11,177,077
2011
17,474,781
1,154,217
18,628,998
Accounts receivable in 2012 and 2011 mainly consist of loan related expenses advanced by the Bank
for the account of the borrower.
Accrued interest receivable in 2012 and 2011 mainly pertain to accrued interest on deposits with BSP.
Miscellaneous other resources mainly consist of investment in membership shares and other
receivable from customers.
Note 13 - Deposit liabilities
The account at December 31 consists of:
Demand
Savings
Time
2012
323,294,407
6,751,598,600
1,600,517,449
8,675,410,456
2011
291,127,019
5,764,615,617
1,045,602,475
7,101,345,111
Deposit liabilities as at December 31, 2012 and 2011 are considered current.
Related interest expense on deposit liabilities is broken down as follows:
Demand
Savings
Time
At December 31
(31)
2012
2,031,681
68,969,664
36,782,306
107,783,651
2011
2,373,798
63,386,726
32,396,589
98,157,113
In 2011, the Bank is subject to liquidity and statutory reserve requirements with respect to certain
deposit liabilities as mandated by BSP. However, under current and existing BSP regulations as at
December 31, 2012, the Bank should comply with a simplified minimum reserve requirement instead of
the separate liquidity and statutory reserve requirements. Further, BSP requires all reserves be kept at
the central bank. The Bank is in full compliance with the simplified reserve requirement.
The required liquidity and statutory reserves as reported to BSP as at December 31, 2012 amount to
P496,562,268 (2011 - P560,055,957).
Note 14 - Accrued taxes, interest and other expenses
The account at December 31 consists of:
Accrued taxes and licenses
Accrued interest
Accrued other expenses
2012
22,048,365
4,770,797
7,216,707
34,035,869
2011
19,329,802
3,454,387
9,095,170
31,879,359
Accrued other expenses mainly consist of accruals for branch operating expenses, utilities, contractual
and messengerial fees and other recurring charges.
Accrued taxes, interest and other expenses are considered current.
Note 15 - Other liabilities
The account at December 31 consists of:
Accounts payable
Withholding taxes payable
Miscellaneous
(32)
2012
3,830,211
2,536,738
679,589
7,046,538
2011
7,794,420
2,642,531
1,492,406
11,929,357
Note 16 - Capital funds
Details of share capital at December 31, 2012 and 2011 are as follows:
Authorized
Number of
Shares
Amount
Common shares, at P100 par value per share
Class A
3,300,000
330,000,000
Class B
600,000
60,000,000
3,900,000
390,000,000
Preferred shares, at P100 par value per
share,12% cumulative, participating and
redeemable
Class A
400,000
40,000,000
Class B
400,000
40,000,000
800,000
80,000,000
4,700,000
470,000,000
Issued and Outstanding
Number of
Shares
Amount
3,300,000
445,333
3,745,333
330,000,000
44,533,300
374,533,300
3,745,333
374,533,300
The Class A (common and preferred) shares are available only to Philippine nationals while the Class
B (common and preferred) shares may be issued to non-Filipinos. The Bank, at its option, may
redeem the preferred shares after ten years from issue date.
Cash dividends declared and paid in 2012 amount to P100 million (2011 - nil).
As at December 31, 2012, the Bank’s retained earnings exceeded its paid-up capital in the amount of
P65.2 million (2011 - P11.3 million). As at March 26, 2013, the Bank is further evaluating its plan and
determining the appropriate amount of dividends to be declared to its shareholders in the ensuing year
in consideration of its aggressive growth plans and working capital objectives, and continue to comply
with its minimum CAR requirements of 10%.
The movements in the following accounts for the years ended December 31 are summarized below:
Note
Fair value reserve on available-for-sale securities
At January 1
Movement in fair value, net of tax effect
At December 31
(33)
11
2012
23,376
203,500
226,876
2011
23,544
(168)
23,376
Note 17 - Miscellaneous income
The account for the years ended December 31 consists of:
2012
42,239,419
7,525,726
49,765,145
Service fees
Foreign exchange gains
2011
32,487,640
6,779,114
39,266,754
Service fees consist mainly of bank charges from deposit transactions during the reporting period.
Note 18 - Other operating expenses
The account for the years ended December 31 consists of:
2012
75,920,478
14,600,956
8,999,324
3,057,155
1,600,151
998,850
949,033
216,512
11,522,385
117,864,844
Shared operating costs
Insurance
Advertising and publicity
Travelling and communications
Regulatory examination fees
Litigation expenses
Stationery and supplies used
Taxes and licenses
Others
2011
47,172,205
10,867,942
7,326,839
3,993,620
727,344
162,045
1,007,379
326,536
13,647,053
85,230,963
Note 19 - Income taxes
A reconciliation between the provision for income tax at the statutory tax rate and the actual provision for
income tax for the years ended December 31 is presented below:
Statutory income tax
Effect of items not subject to statutory tax rate
Tax-paid income
Others, net
Actual provision for income tax
(34)
2012
Amount
65,908,558
(12,667,789)
12,546,024
65,786,793
%
30.00
2011
Amount
57,348,438
%
30.00
(5.77)
5.71
29.94
(9,826,623)
9,805,894
57,327,709
(5.14)
5.13
29.99
Note 20- Retirement plan
Under the BPI unified plan which includes the Bank, the normal retirement benefit consists of a lump
sum benefit equivalent to 200% of the basic monthly salary of the employee at the time of his
retirement for each year of service, if he has rendered at least 10 years of service, or to 150% of his
basic monthly salary, if he has rendered less than 10 years of service. Under the plan, the normal
retirement is 60. For voluntary retirement, the benefit is equivalent to 112.50% of the employee’s basic
monthly salary for a minimum of 10 years of service with the rate factor progressing to a maximum of
200% of basic monthly salary for service years of 25 or more. Death or disability benefit, on the other
hand, shall be determined on the same basis as in normal or voluntary retirement. The plan is
administered by a local corporation as trustee.
Following are the amounts recognized that relate to the Bank based on the recent actuarial valuation
reports:
Pension asset recognized in the statement of condition at December 31 consist of:
Present value of defined
benefit obligation
Fair value of plan assets
Unfunded obligation
Unrecognized actuarial
losses
Pension asset recognized
in the statement of
condition
2012
2011
2010
2009
2008
55,906,662
(46,247,899)
9,658,763
52,698,432
(31,540,092)
21,158,340
59,571,152
(21,600,544)
37,970,608
35,306,114
(16,058,496)
19,247,618
14,178,709
(11,558,855)
2,619,854
(11,013,354)
(22,512,931)
(39,325,199)
(22,320,135)
(5,771,253)
1,354,591
1,354,591
1,354,591
3,072,517
3,151,399
Experience adjustments at December 31 consist of:
Experience adjustments on
plan liabilities
Experience adjustments
plan assets
2012
2011
2010
2009
2008
1,391,385
21,369,341
18,532,888
18,790,386
3,927,907
7,207,354
523,061
1,314,082
1,973,772
2,370,231
The movements in the fair value of plan assets are summarized below:
At January 1
Expected return on plan assets
Contributions
Actuarial gains (losses)
At December 31
(35)
2012
31,540,092
2,207,806
5,777,649
6,722,352
46,247,899
2011
21,600,544
2,160,054
8,302,555
(523,061)
31,540,092
The plan assets at December 31 consist of:
Debt securities
Equity securities
Others
2012
Amount
22,756,801
23,437,970
53,128
46,247,899
%
49
50
1
100
2011
Amount
20,185,659
11,039,032
315,401
31,540,092
%
64
35
1
100
Pension plan assets of the unified retirement plan include investment in BPI’s common shares with fair
value of P3,446 million and P 2,175 million at December 31, 2012 and 2011, respectively. The actual
return on plan assets was P7,207 and P 1,637 million gain in 2012 and 2011, respectively.
In 2012 and 2011, the Bank has no transactions with the plan other than the contributions as presented
above.
The movements in the present value of defined benefit obligation are summarized below:
At January 1
Current service cost
Interest cost
Actuarial gains
At December 31
2012
52,698,432
3,552,136
3,683,620
(4,027,526)
55,906,662
2011
59,571,152
2,613,465
6,332,413
(15,818,598)
52,698,432
Pension expense recognized in the statement of income for the years ended December 31 consists of:
Current service cost
Interest cost
Expected return on plan assets
Net actuarial loss recognized during the year
Total gain included in compensation and fringe benefits
2012
3,552,136
3,683,620
(2,207,806)
(749,699)
4,278,251
2011
2,613,465
6,332,413
(2,160,054)
1,516,731
8,302,555
The Bank has no other transactions with the fund other than the contributions, benefit payments and
settlements presented above for the year ended December 31, 2012.
The principal assumptions used for the actuarial valuations of the unified plan are as follows:
Discount rate
Expected return on plan assets
Future salary increases
2012
6.60%
7.00%
4.00%
2011
6.99%
7.00%
6.50%
The expected return on plan assets was determined by considering the expected returns available on
the assets underlying the current investment policy. Expected yields on fixed interest investments are
based on gross redemption yields as at the reporting date. Expected returns on equity securities and
property investments reflect long-term real rates of return experienced in the respective markets.
(36)
Assumptions regarding future mortality and disability experience are based on published statistics
generally used for local actuarial valuation purposes.
The average remaining service life of employees under the retirement plan as at December 31, 2012
is 21 years (2011- 22 years).
The Bank’s expected contribution to the retirement fund in 2013 amounts to P3,817,616.
Note 21 - Related party transactions
In the ordinary course of business, the Bank has transactions with its directors, officers, stockholders and
related interests (DOSRI) and with its Parent Bank such as cash deposit arrangements, purchase of
investment securities and outsourcing of certain services, primarily loans operations, branch operations
and human resource-related functions.
Significant related party transactions are summarized below:
As at and for the year ended 31 December 2012:
Transactions
Outstanding
balance
Terms and conditions
Purchase of consumer housing
loans:
Fellow subsidiary
Deposits to:
Parent bank
Fellow subsidiary
242,871,154
791,640
421,424,498
48,258,726
These are demand, savings and
time deposits bearing the following
average interest rates:
Demand - 0.39% to 0.55%
Savings - 0.92% to 1.05%
Time
- 2.87% to 3.18%
Deposits from:
Fellow subsidiary
Other related parties
60,000,000
400,000,000
60,000,000
400,000,000
These are time deposits bearing
average interest rates of 2.25% to
2.83%
Accounts receivable
Parent bank
Accounts payable
Fellow subsidiaries
274,647,538
-
107,405
- Unsecured and unguaranteed
- Non-interest bearing
- Collectible in cash on demand
- No provision for impairment
recognized
2,085,998
- Unsecured and unguaranteed
- Non-interest bearing
- Payable in cash on demand
Other related parties represent the funds managed by BPI Asset Management and Trust Group.
(37)
As at and for the year ended 31 December 2011:
Transactions
Purchase of consumer housing
loans
Fellow subsidiary
Deposits to:
Parent Bank
Fellow subsidiary
1,695,593,018
29,646,860
(57,968,707)
Outstanding
balance
Terms and conditions
178,553,344
47,467,086
These are demand, savings and
time deposits bearing the following
average interest rates:
Demand - 0. 55%
Savings - 0.96% to 1.00%
Time
- 3.09% to 3.46%
Accounts receivable
Fellow subsidiary
4,952,639
- Unsecured and unguaranteed
- Non-interest bearing
- Collectible in cash on demand
- No provision for impairment
recognized
Accounts payable
Fellow subsidiaries
2,313,912
- Unsecured and unguaranteed
- Non-interest bearing
- Payable in cash on demand
The aggregate amounts included in the determination of income before income tax that resulted from
transactions with each class of related parties are as follows:
2012
Interest income
Parent Bank
Fellow subsidiaries
Other expenses
Parent Bank
Fellow subsidiaries
Retirement benefits
Key management personnel
Salaries, allowances and other short-term benefits
Key management personnel
Directors’ remuneration
2011
649,347
341,666
991,013
128,109
69,972
198,081
74,276,381
1,644,097
75,920,478
42,500,779
4,671,426
47,172,205
1,361,743
915,034
18,400,347
564,000
12,824,830
498,000
Other expenses consist of shared operating costs, determined based on agreed rates with related
parties.
(38)
Details of DOSRI loans are as follows:
Outstanding to DOSRI loans
% to total outstanding loans and advances
% to total outstanding DOSRI loans
Unsecured DOSRI loans
Past due DOSRI loans
Non-performing DOSRI loans
2012
5,257,953
0.09%
2011
2,888,909
0.06%
531,392
Nil
Nil
Nil
Nil
Nil
At December 31, 2012 and 2011, the Bank is in full compliance with the General Banking Act and the
BSP regulations on DOSRI loans.
Note 22 - Basic quantitative indicators of financial performance
The Bank’s key financial performance indicators (in %) at December 31 are summarized below:
Return on average equity
Return on average assets
Net interest margin
2012
19.31%
1.85%
4.84%
2011
19.60%
2.00%
5.13%
Note 23 - Other commitments and contingent liabilities
The Bank has no outstanding commitments and contingent liabilities as of December 31, 2012 and
2011.
(39)
Note 24 - Supplementary information required by Bureau of Internal Revenue (BIR)
The following information is presented for purposes of filing with the BIR and is not a required part of
the basic financial statements.
(a) Supplementary information required by Revenue Regulations No. 15-2010
On December 28, 2010, Revenue Regulations (RR) No. 15-2010 became effective and amended
certain provisions of RR No. 21-2002 prescribing the manner of compliance with any documentary
and/or procedural requirements in connection with the preparation and submission of financial
statements and income tax returns. Section 2 of RR No. 21-2002 was further amended to include in
the Notes to Financial Statements information on taxes, duties and license fees paid or accrued during
the year in addition to what is mandated by Philippine Financial Reporting Standards.
Below is the additional information required by RR No. 15- 2010. This information is presented for
purposes of filing with the Bureau of Internal Revenue (BIR) and is not a required part of the basic
financial statements.
(i)
Documentary stamp tax
Documentary stamp taxes (DST) paid for the year ended December 31, 2012 consist of DST on
deposit and loan documents amounting to P13,758,979.
A portion of the amount disclosed above was passed on to the counterparties.
(ii) Withholding taxes
Withholding taxes paid/accrued and/or withheld for the year ended December 31, 2012 consist of:
At December 31, 2012
Final income taxes withheld on interest on
deposits and yield on deposit substitutes
Income taxes withheld on compensation
Creditable income taxes withheld
(expanded)
(40)
Paid
Accrued
Total
18,514,375
9,805,949
1,379,576
944,227
19,893,951
10,750,176
3,450,482
31,770,806
212,935
2,536,738
3,663,417
34,307,544
(iii)
All other local and national taxes
All other local and national taxes paid/accrued for the year ended December 31, 2012 consist of:
At December 31, 2012
Gross receipts tax
Fringe benefit tax
Municipal taxes / Mayor’s permit
Others
(iv)
Paid
30,153,070
49,697
216,012
500
30,419,279
Accrued
2,539,870
7,054
2,546,924
Total
32,692,940
56,751
216,012
500
32,966,203
Tax cases and assessments
As at December 31, 2012, there are no tax cases under preliminary investigation, litigation and/or
prosecution in courts or bodies outside the BIR.
As at reporting date, the year that remains open and currently under tax examination, for which no
assessment has yet been received, is taxable year 2010 and 2009.
(b) Supplementary information required by Revenue Regulations No. 19-2011
RR No. 19-2011 prescribes the new BIR forms that should be used for income tax filing covering and
starting with the calendar year 2011 and modifies Revenue Memorandum Circular No. 57-2011. In the
Guidelines and Instructions Section of the new BIR Form 1702 (version November 2011), a required
attachment to the income tax returns is an Account Information Form and/or Financial Statements that
include in the Notes to Financial Statements schedules of sales/receipts/fees, cost of sales/services,
non-operating and taxable other income, itemized deductions (if the taxpayer did not avail of the
Optional Standard Deduction or OSD), taxes and licenses and other information prescribed to be
disclosed in the Notes to the Financial statements.
The Company’s schedules for the year ended December 31, 2012 follow:
(i) Sales/receipts/fees
Interest income
Service charges
Foreign exchange gain
Profit on assets sold
Final tax
125,742,548
125,742,548
Regular rate
410,309,349
42,239,053
7,525,726
288,443
460,362,571
Total
536,051,897
42,239,053
7,525,726
288,443
586,105,119
(ii) Cost of services
Direct charges
Interest expense
Manpower costs
Insurance – PDIC
Regulatory examination fees
(41)
Regular rate
52,376,026
49,064,809
14,600,956
1,600,151
117,641,942
(iii) Non-operating and taxable other income
Other income
Regular rate
367
(iv) Itemized deductions
Nature of expense/deduction
Other outside services
Taxes and licenses
Documentary stamp used
Insurance
Rental
Communication, light and water
Depreciation and amortization of leasehold rights
Litigation/ Asset acquired expenses
Office supplies
Transportation and travel
Amortization of intangibles
Advertising
Miscellaneous loss
Director’s fees
Janitorial and messengerial services
Management and consultancy fee
Commissions
Repairs and maintenance
Representation and entertainment
Membership fees and dues
Fringe benefits
Staff meeting
Others
Sub-total
NOLCO
Total expenses
Regular rate
80,516,547
30,331,283
13,752,753
7,428,660
4,226,478
2,601,161
1,230,571
998,850
949,033
901,883
682,144
609,260
574,364
564,000
489,899
408,304
237,832
71,890
60,343
54,428
39,136
19,693
11,254,327
158,002,839
158,002,839
(v) Taxes and licenses
The details of the Bank’s taxes and licenses are presented in section (a) of this note.
(vi) Other information
All other information prescribed to be disclosed by the BIR has been included in this note.
(42)