‘08 Annual
Report
Non-Stop Banking.
Non-Stop Growth.
Mission Statement
BancNet is the leading electronic
network for the convenient, reliable,
efficient and secure delivery of
financial and related services for
member institutions, affiliates, and
customers locally and globally, through
outstanding corporate governance,
synergy of resources, and the best
utilization of technology.
Table of Contents
BancNet at a Glance / Financial Highlights 1
Message to Stockholders 2
Electronic Channels 6
Board of Directors 10
Executive Committee & Principal Officers 12
Statement of Management’s Responsibility 13
Independent Auditors’ Report 14
Balance Sheets 15
Statements of Income 16
Statements of Changes in Equity 17
Statements of Cash Flows 18
Notes to Financial Statements 19
Membership Directory IBC
BancNet at a Glance
BancNet is the only multi-bank, multi-channel electronic payment network in the Philippines. It was the first
and now, the largest Automated Teller Machine (ATM) consortium in the country. As a multi-channel payment
gateway, BancNet enables its customers to transact not only at any ATM anywhere, anytime, but also at point-
of-sale (P.O.S.), the Internet, and through mobile phones.
Aside from the traditional cash withdrawal service at the ATM, BancNet provides a wide range of services
through the different channels such as balance inquiry, checkbook re-order, statement request, interbank
fund transfer, payment of bills, prepaid phone and Internet reloading, payment of purchases by direct debit to
account, and remittance of taxes and Social Security System contributions and loan repayments.
Through interconnection with the other ATM consortia in the country—Expressnet and Megalink, and
international ATM and P.O.S. networks Mastercard, VISA, and China’s Union Pay, BancNet provides cardholders
not only the widest nationwide access to their accounts but worldwide convenience as well.
Financial Highlights
2008 2007 2006 2005 2004
Total Assets P411,748,882 P400,574,182 P375,201,752 P356,639,847 P335,051,489
Equity P326,278,872 P300,502,569 P291,516,899 P281,355,390 P272,563,194
Gross Revenue P141,085,513 P136,302,145 P128,955,693 P120,116,376 P106,435,956
Net Income P24,979,333 P20,485,670 P20,661,509 P18,492,131 P18,815,262
Total Assets Equity Gross Revenue Net Income
(in million pesos) (in million pesos) (in million pesos) (in million pesos)
400 350 150 25
350
300
120 20
300
250
250 90 15
200
200
150 60 10
150
100
100
30 5
50 50
0 0 0 0
04 05 06 07 08 04 05 06 07 08 04 05 06 07 08 04 05 06 07 08
BANCNET 2008 ANNUAL REPORT
Message to Stockholders
W
hile 2007 was a banner year for the
Philippine economy with a record GDP
growth of 7.2%, the year 2008 saw the
Philippines growing at a more modest 4.6%
in gross domestic product due mainly to the
Perhaps the most worsening global economic downturn, a higher inflation rate,
and the persistent instability of world oil prices.
important development The economy’s sluggish performance in 2008 was
particularly noticeable in the service and industry sectors
in our consortium in the whose growth rates slowed down to 4.9% and 5.0%,
respectively, compared to their impressive growth rates of 8.1%
span of 12 months, and and 7.1%, respectively, in 2007.
As in the past years, however, the continued inflow of
that which basically sums remittances from the country’s more than eight million overseas
contract workers boosted the much-needed liquidity of the
up BancNet’s growth country’s foreign exchange resources in 2008. This, plus an
increase in government spending and private consumption,
performance in 2008, served to cushion the impact of what experts claim to be the
most sluggish economic performance of the country in years.
is the membership surge Nevertheless, the Philippine financial system bucked all
the odds and remained sound in 2008 despite the troubles
that we experienced. experienced by some of its global counterparts. Supported by the
expansion of local commercial and universal banks and the move
of the Bangko Sentral ng Pilipinas (BSP) to continually adjust
monetary policies to encourage bank lending, the total resources
of the Philippine financial system rose by 10% in 2008 to
P7.28 trillion as compared to the 2007 level of P6.61 trillion.
Record growth in 2008
BancNet also expanded in all major areas of operations in
2008. Our consortium turned in a record net income of P24.98
million, up by 22% from the P20.49-million net income it
registered the previous year. Total revenues also grew, albeit
at a slower rate of 3.50%, to P141.09 million from P136.30
in 2007. The slackening of revenue growth was a result of our
consortium’s move in 2007 to adjust our fee-sharing structure
in favor of our member banks and whose impact was fully felt
2008 ANNUAL REPORT BANCNET
in 2008. On the other hand total operating expenses declined network Nationlink. These institutions, after meeting
by 2% from P108.02 million to P105.84 million due to more certain accreditation criteria, are now able to provide
efficient cost control measures. e-banking services with minimal investment and quick,
Our resources likewise continued to expand despite the hassle-free implementation. They also benefit from BancNet’s
adverse local economic conditions as we registered total assets large network of delivery channels.
of P411.75 million for the year, up by 3% from P400.57 million At yearend, BancNet had a total of forty eight members
in 2007. Total liabilities, in turn, were pegged at P85.47 million, and subscribers plus two affiliates, strenghtening its position as
15% lower than the previous year due to the settlement of the largest electronic banking consortium in the country.
advances from stockholders amounting to P16.60 million. Together with the increase in the number of members and
Manifesting BancNet’s continued viability and stability, subscribers, BancNet’s ATM cardholder base grew to
total capital increased by a modest 9% to P326.24 million. 6.83 million cardholders as of end-2008, a hefty 22.84%
Moreover, we increased our authorized capital stock from increase from the 5.56-million total in 2007.
P180 million to P300 million to fund expansion efforts and Similarly, our ATM network grew by a huge 471 units in
future projects. BancNet’s capitalization is now above par 12 months to end the year at 3,092 units, making BancNet
with other multi-bank networks in the country performing the biggest ATM network in the country. Payment terminals
similar services. Earnings per share in 2008 stood at P23.82, at point of sale also increased to 8,955 as of end-2008 from
significantly higher than the previous year’s P19.08. Similarly, 7,675 the previous year. Moreover, manifesting the continued
return on equity increased to 7.97% from 6.92%. reliability of its ATM network, BancNet turned in an impressive
For the fifth year in a row, we are distributing a 10% cash 99.9% switch availability rate in 2008.
dividend to our stockholders amounting to a total of P12 million.
Membership surge
Perhaps the most important development in our consortium
in the span of 12 months, and that which basically sums up
BancNet’s growth performance in 2008, is the membership
surge that we experienced. We had a total of seven new
members and seven new subscribers in 2008, our highest
so far. We also affiliated CTK Solutions, Inc. as an affiliate
ATM deployer.
The new BancNet members are: Allied Savings Bank,
Deutsche Bank A.G., HongKong and Shanghai Banking
Corporation (HSBC), HSBC Savings Bank, Philippine
Business Bank, City Savings Bank, and Robinsons
Savings Bank. The new subscribers, in turn, are:
Aurora Integrated Multi-Purpose Coop, Cooperative
Bank of Quezon Province, Metro Ormoc Credit
Cooperative, Inc., Rural Bank of Dapitan, Rural Bank
of San Mateo, Visayan Cooperative Central, and
Zambales Rural Bank.
Subscriber banks are small financial institutions
usually rural banks, that had wanted to go into
ATM banking but did not have the facilities to do
so and, as such, simply connected to our network
through an existing member or our affiliate switch
Francisco M. Caparros Jr. Ricardo R. Chua
BANCNET 2008 ANNUAL REPORT
ATM business process outsourcing
BancNet forged ahead with its business process outsourcing
initiatives after studies made in 2007 proved the feasibility of
this venture. BancNet’s first client was the Bank of Philippine
Islands (BPI) which outsourced the operation of its Expressnet
switch. Expressnet is a major ATM network consisting of BPI,
BDO and Landbank.
Live implementation of this outsourcing began on October
22, 2008, resulting in average daily transactions more than
Robinsons Bank moves to BancNet. doubling from 465,231 to 972,928. This initial success
encouraged us to offer switch hosting service to other banks
Enhanced marketing efforts which no longer plan to upgrade their switch hardware and/or
Considering the size of its cardholder base that is untapped for software. Moreover, we also began offering ATM deployment
bills payment and cashless shopping and addressing the need as a service to our member banks. In this connection, we
to continuously educate its ATM cardholders, BancNet started evaluated proposed solutions to address direct-connect and
implementing direct marketing activities called Product Blitzes in 2008. ATM switch hosting.
During Product Blitz sessions, product demonstrations to Considering these developments, we added and upgraded
employees of member banks and large corporate clients are our switch hardware and software to accommodate the
held, facilitated by a team of BancNet representatives. The live projected doubling of all switched transactions in 2008 and
demonstrations not only expound on the uses and benefits of further growth until 2012.
the product but also offer incentives upon actual trial of bills
payment and cashless shopping. This direct approach was able Good Corporate Governance
to tap 27 companies and reached 33,025 ATM cardholders by One of the things that BancNet has always been proud of is
the end of 2008. its maintenance of high standards of corporate governance.
During the holiday shopping season, BancNet implemented This we do in order to safeguard the interests of the company
a sales promotion program for cashless shopping and bills and its various stakeholders including its members, clients,
payment to counter the anticipated reduction in the transaction and employees.
volume of these products and encourage repeat usage. The In this regard, we adopted new Philippine accounting
sales promotion, aptly called “Pay ‘N Drive,” offered ATM standards on recognition and measurement of assets, liabilities
cardholders a chance to win a Toyota Vios or one of four Canon and income and proper financial statement presentation
Ixus Digicams until the end of February 2009. Expectedly, the and disclosures, and created several committees to serve as
program contributed a total of 1.15 million transactions. watchdogs of good governance.
“The Return of Branch Banking in the Digital Age”, BancNet’s 18th Anniversary Forum.
2008 ANNUAL REPORT BANCNET
One such committee is the Corporate Governance
Committee which ensures the Board’s adherence to good
corporate governance principles and the company’s Code of
Ethics for Directors. The committee consists of three members
of the Board of Directors.
The Audit Committee, in turn, reviews and ensures compliance
with regulations and consistent application of effective internal
control. An internal auditor conducts a regular audit of operations
and reports to the Board through the Audit Committee.
BancNet welcomes Hong Kong and Shanghai Banking Corporation (HSBC).
The Membership Committee applies stringent criteria
and information security standards, evaluating applications
for membership subscription and affiliation. Financial data Nevertheless, we are optimistic that such temporary
and audit ratings are then confirmed with the BSP before setbacks will be offset by new cardholders that existing and
the applications are endorsed to the Board for approval. Our new members will continue to generate. Moreover, we see
Information Security Officer inspects actual set-up at the site opportunities in ATM and switch outsourcing as banks cut
and certifies compliance with security policies and standards back on capital expenditures. We will also continue to explore
prior to live connection of a new member. and introduce electronic banking innovations such as cash
withdrawal via terminals in merchant sites especially in remote
Corporate social responsibility areas and new and convenient methods of cashless payment.
In our effort to give something back to the community that We are also looking to expand our international links.
we serve, we have been implementing a corporate social Moreover, we will continue with the enhancing of our
responsibility (CSR) program since 2001. In 2008, we continued system for all channels and the further upgrading of our
with our CSR initiatives which have focused on the youth as our hardware and software to meet the demands of our expanding
primary beneficiaries. outsourcing clientele and services. This is also in line with our
As in previous years, volunteer directors, officers, and staff commitment to provide fast, efficient and secure services to our
visited abandoned orphans, rescued street children and abused cardholders. For this purpose we have set aside a provision of
youngsters during the holiday season and brought them gifts, P50 million from Retained Earnings.
basic necessities, and brand new computers to be used in their
computer literacy program. Another banner year
BancNet’s investment on the youth is anchored on our Indeed, the year 2008 was another banner year for BancNet.
belief that the youth hold the key to the nation’s future. We Our achievements during the year have pushed us further on
will thus continue setting up projects and programs for them top of the game. As in previous years, we acknowledge the fact
in the years to come. that we wouldn’t have gotten this far without the support of
our stockholders, directors, committee members and employees.
Outlook and thrusts for 2009 We sincerely thank them all for their loyalty and commitment.
Although forecasts for the global economy in 2009 and beyond As we continue to do business in an increasingly adverse
seem to point to continued adversity at best, BancNet maintains economic landscape, we are confident that with their continued
a positive outlook for the country’s financial system in general support, we will emerge bigger and better than ever.
and our operations in particular.
Indeed, the global recession is seen to affect the Philippines
in the next two years. For one thing, the constantly increasing
number of jobs lost by Filipinos working in affected countries
will cause inward remittances to fall which, in turn, will impact
interbank fund transfers. Moreover, more domestic job layoffs
and wage cuts particularly in the export sector will affect RICARDO R. CHuA FRANCISCO M. CAPARROS, JR.
revenues from ATM withdrawals. Chairman of the Board President
BANCNET 2008 ANNUAL REPORT
W
hen BancNet began operations in 1990, its eight the previous year’s 1.94 million. Five new merchant-billers were
founding member banks had a total of 120 added to the roster during the year: Primewater, American Express
automated teller machines (ATMs). The fledgling Platinum, Don Bosco Technology Center-Cebu, Philippine Academy
network chalked up 742,434 switched transactions of Family Physicians and IPM Realty Development Corporation.
that year from about 520,000 cardholders based On October 22, 2008 BancNet began operating the host ATM
mostly in Metro Manila. switch of Expressnet, a major consortium in the country with 3,597
Today, there are 3,092 BancNet ATMs spread across the archipel- ATMs and 11.8 million cardholders. This was BancNet’s initial
ago belonging to 48 members and subscribers. It is now the largest foray in the outsourcing business, a first in Philippine electronic
network of ATMs in the country, 48.16% or 1,489 are concentrated banking. From October to December, BancNet processed a total
in Metro Manila and 51.78 % or 1,601 are outside the capital region. of 28.826 million transactions while maintaining a 100% switch
The ATM cardholder base has expanded rapidly, growing thirteen availability rate.
times to 6.83 million in 2008. This represents a 22.71% increment For the whole year, a total of 68.48 million transactions by
over the 2007 total of 5.57 million. Expressnet and Megalink ATM cardholders using BancNet ATMs
Switched transaction volume has consistently soared through were processed by the BancNet switch. This represents 53.67 %
the years, exceeding 177.50 million in 2008 and growing by 15.76% of all switched transactions.
from 153.33 million in 2007. Switched transactions averaged To enhance its customers’ comfort level while transacting,
972,928 per day in 2008 and peaked on December 23, just before BancNet member banks installed hidden surveillance cameras in
Christmas eve, at 1,703,236. Despite the beating, BancNet main- their off-site ATMs in 2008. The electronic device monitors and
tained a near perfect 99.99% switch availability rate and a 98.61% records in video all activities using the ATM. As such, it helps deter
transaction completion rate throughout the year, even improving on fraudulent activities. Still in line with this, BancNet, in cooperation
the previous year’s transaction completion rate of 97.44%. with Expressnet and Megalink, produced and displayed posters
Bills payment through the ATM breached the 2-million mark in at ATM sites offering tips to customers to enhance the security of
2008 with total transactions of 2.16 million, 11.73% more than their ATM experience.
Automated Growth in ATMs
(in thousands)
Growth in switched
transactions
Teller Machines 3.1
(in millions)
3.0 2.6
200 177.5
153.3
2.0 150
100
1.0
50
0
07 08 0
07 08
Growth in Bills Payment Transactions of BancNet,
transactions at ATMs Expressnet and Megalink
(in millions) cardholders at BancNet ATMs
(in millions)
2.2
2.0 1.9
1.5
BancNet
1.0 Megalink 59.1
50.3
0.5
0 Expressnet
07 08 18.2
2008 ANNUAL REPORT BANCNET
Internet Banking Employers in SSSnet
Transactions (in thousands)
(in millions)
3.0 2.9
2.0
1.8
2.0 1.5 1.4
1.4
1.0
1.0
5
0
0
07 08
07 08
Bill Payments on
Total Remittance BancNet Online
(in thousands)
to SSS
(in billion pesos)
350 341.6
6.0 5.5 300
5.0 5.0 250
4.0 200 185.6
3.0 150
2.0 100
1.0 50
BancNet Online 0
07 08
0
07 08
A
fter undergoing a major makeover of its homepage In partnership with the Social Security System (SSS),
the previous year, BancNet Online completed its BancNet gives private-sector employers the convenience,
migration from Websphere to the Brokat platform speed and security of remitting their employees’ social security
in 2008. This system upgrade improved the web premiums and loan repayments electronically through BancNet
site’s performance, translating to a faster response Online’s SSSnet system. In 2008, BancNet, in cooperation with
time, greater user-friendliness, enhanced security, and expanded its member banks, stepped up the enlistment of the latter’s
capacity for new features. corporate clients on SSSnet. As a result, 399 more companies
As customers gained confidence in Internet banking, payments joined the system, expanding its users significantly by 28%--
through BancNet Online increased tremendously by 89% from the from 1,407 in 2007 to 1,806.
previous year, totaling 2.90 million transactions at yearend. The system processed over 500,000 employee records
Bill payments made up the bulk of these transactions, involving P5.52 billion, a big leap from the previous year’s
growing by 84% at 341,687, followed by interbank fund transfers 410,000 and P5.02 billion respectively.
which rose 54% to 161,589 transactions. e-shopping gained more patrons among BancNet customers
Payments to the Bureau of Internal Revenue (BIR) also grew as well. Over 13, 500 purchases worth P343 million were
from 23,000 to 30,000 transactions, a robust increase of 31%, transacted through Bancnet Online during the year.
involving over P5.2 billion in various taxes. In 2007, P4.2 billion Three member banks hooked up to Bancnet Online in
in taxes was paid through BancNet Online, one of the few select 2008—Postal Bank, Quezon Capital Rural Bank (QCRB) and
accredited gateways to the tax bureau’s Electronic Filing and Robinsons Bank. There are now 20 banks on BancNet Online.
Payment System for big taxpayers.
BANCNET 2008 ANNUAL REPORT
Mobile Banking
B
ancNet Mobile Banking is the only mobile banking system in the country
capable of servicing the subscribers of the three major mobile phone service
providers-- Globe Telecom, SMART Communications, and Sun Cellular.
Given their familiarity and adeptness with text-based commands rather than
a WAP-based system, mobile phone users in the Philippines, the text capital
of the world, find BancNet Mobile Banking easier to use. Through this system, they can
inquire on their ATM account balance and pay their utility, credit card, cable and phone
bills. Moreover, the system offers over–the–air loading of prepaid mobile phones in
affordable denominations of P10 to P100 debited from the cardholder’s ATM account.
What’s unique in this feature is that a user can load any prepaid mobile phone regardless
of its network.
2008 ANNUAL REPORT BANCNET
F
or most of 2008 and despite the global economic affiliations, as well as those catering to a high-end clientele
slowdown in the last quarter, remittances from overseas including foreign tourists. The campaign yielded new retail chain
Filipinos remained robust and, in fact, grew by 13.7% partners among them being:
to US$16.4 billion. These remittances drove personal • Store Specialists whose store brands are Lacoste, Nine West,
consumption expenditure throughout the year, aided by Salvatorre Ferragamo, Springfield, Anne Klein, Armani Exchange,
the easing of food and fuel prices in the second half. Thus, the Beauty Bar, Philipe Charriol and Lush;
malls and branches of retail giants continued to expand. Robinsons • Robinsons Specialty Stores whose international brands include
opened eight new branches, SM inaugurated eight malls and Pure Topshop, Truco, Warehouse, and Dorothy Perkins; and
Gold expanded its supermarket chain in seven locations. • Duty Free Philippines
This development contributed to the growth of BancNet’s The big-ticket transactions at these shops helped boost
network of payment terminals at point of sale (POS) and merchant BancNet’s revenues from this electronic channel.
sites. At yearend, there were 8,955 terminals at 1,972 merchant At yearend, debit payments amounted to P2.74 billion from
sites, both 17% more than their number in 2007. a volume of 2.31 million transactions, an increase of 18% and
At the same time, a terminal-sharing arrangement begun the 11% respectively from the 2007 levels of P2.32 billion and 2.09
previous year was continued and expanded to include BDO, BPI, million. The continued expansion of the point-of-sale terminal
SM and Tangent terminals. Under this scheme, the stores and network coupled with marketing campaigns conducted during
shops automatically program their terminals to accept BancNet the year encouraged BancNet ATM customers to use their
ATM cards for debit payment. ATM card to pay their shopping bills. Thus, total unique users
BancNet also embarked on a strategic merchant acquisition increased 115% to 776,982 comprising 11% of all BancNet
campaign that targeted retailers with multiple branches and ATM cardholders in 2008.
Payment Terminal Growth in P.O.S.
Terminals
at Point-of-Sale (in thousands)
10.0
8.9
8.0 7.7
6.0
4.0
2.0
0
07 08
Growth in Debit P.O.S.
(in billion pesos)
3.0
2.7
2.5 2.3
2.0
1.5
1.0
0.5
0
07 08
BANCNET 10 2008 ANNUAL REPORT
Directors
RICARDO R. CHUA
Board of
PETER N. YAP ARMANDO B. ESCOBAR
Executive Vice President Senior Vice President
Retail Banking Group Head Operations, IT & Administration Segment Head
ALLIED BANK PBCOM
FRANCISCO M. CAPARROS, JR. ISMAEL R. SANDIG
Senior Vice President Executive Vice President
Compliance Head Retail Banking Head
ASIA UNITED BANK RCBC
FRANCISCO A. RIVERA ANDRO M. YEE
Executive Vice President First Vice President
FRANCISCO M. CAPARROS, JR.
Corporate Secretary Internal Auditor
BANCO FILIPINO ROBINSONS SAVINGS BANK
RICARDO R. CHUA DANIEL U. YU
Executive Vice President & COO Senior Vice President
CHINA BANK Information Technology Head
SECURITY BANK
MARK CHEN
(CHEN CHING MING) ABIGAIL M. DEL ROSARIO
President and CEO Vice President
CHINATRUST Branch Sales and Services Head
STANDARD CHARTERED
ROBERT P. BLAS
Vice President
Information Technology ADVISERS
CITIBANK
ANGELITO M. VILLANUEVA
RALPH B. CADIZ Immediate Past Chairman, BancNet
Senior Vice President Former Executive Director
Branch Banking Head METROBANK
EXPORT BANK
JOSE F. SANTOS
LANCE A. MARTINEZ Founding Chairman, BancNet
Senior Vice President Former Executive Vice President
Customer Engagement Head RCBC
HSBC
IVY B. UY
DENNIS G. SUICO First Vice President
Executive Vice President Retail Banking Deputy Group Head
Operations Group Head EASTWEST BANK
METROBANK
GEORGE P. CASTRO
Vice President
Executive Information Systems Department
PHILTRUST BANK
2008 ANNUAL REPORT 11 BANCNET
GEORGE P. CASTRO
DENNIS G. SUICO
LANCE A. MARTINEZ
ARMANDO B. ESCOBAR
ROBERT P. BLAS ABIGAIL M. DEL ROSARIO
FRANCISCO A. RIVERA
ISMAEL R. SANDIG
ANDRO M. YEE
PETER N. YAP DANIEL U. YU MARK CHEN
RALPH B. CADIZ
ANGELITO M. VILLANUEVA
IVY B. UY
JOSE F. SANTOS
BANCNET 1 2008 ANNUAL REPORT
Executive Committee Principal Officers
Seated from left: Abigail M. Del Rosario and Ricardo R. Chua Seated from left: Aristeo P. Zafra, Jr., Francisco M. Caparros, Jr. and Cecilia A. Irigo
Standing from left: Ismael R. Sandig, Francisco M. Caparros, Jr. and Peter N. Yap. Standing from left: Rene S. Natividad, Elmarie S. Reyes, Juan G. Coreces and Aidee Tangcora
EXECUTIVE COMMITTEE OFFICERS
RICARdO R. ChUA - Chairman FRANCISCO M. CAPARROS, JR. - President & Chief Executive Officer
FRANCISCO M. CAPARROS, JR. - Co-Chairman ARISTEO P. ZAFRA, JR. - Executive Vice President
ABIGAIL M. dEL ROSARIO - Member & Chief Operations Officer
ISMAEL R. SANdIG - Member PETER N. YAP - Treasurer
PETER N. YAP - Member JUAN G. CORECES - Corporate Secretary
RENE S. NATIVIdAd - Vice President
OTHER COMMITTEE HEADS Operations and Network Services
Arbitration Committee ELMARIE S. REYES - Vice President
ARMANdO B. ESCOBAR - Chairman & Assistant Corporate Secretary
FRANCISCO A. RIVERA - Vice Chairman Controllership & Administrative Services
dANIEL U. YU - Member CECILIA A. IRIGO - Vice President
Outsourcing Services
Audit and Compliance Committee AIdELBERT C. TANGCORA - Assitant Vice President
RALPh B. CAdIZ - Chairman Systems Development
ANdRO M. YEE - Vice Chairman ANGELITO A. BASA - Manager
Information Security
Marketing Committee JINKY A. BISCOChO - Manager
ABIGAIL M. dEL ROSARIO - Chairperson Systems Development
LANCE A. MARTINEZ - Vice Chairman GAUdENCIO M. CARANdANG - Manager
Computer Operations
Membership Committee MAdELEINE M. CASAS - Manager
ISMAEL R. SANdIG - Chairman Bills Payment
RALPh B. CAdIZ - Vice Chairman KAThERINE P. dAVId - Manager
Internet Channels
Operations Committee NOEL d. dE ChAVEZ - Manager
GEORGE P. CASTRO - Chairman Network Communications
ARMANdO B. ESCOBAR - Vice Chairman BENNETT B. ZERRUdO II - Manager
Marketing Services
Technical Committee & Corporate Communications
ROBERT P. BLAS - Chairman IVY A. AQUINO - Manager
dANIEL U. YU - Vice Chairman Point of Sale
CONSULTANTS
Corporate Governance Committee MA. JASMIN L. BUñAG - Marketing Communications
FRANCISCO A. RIVERA - Chairman REY T. MARUKOT - Sales
MARK ChEN - Co-Chairman
RALPh B. CAdIZ - Vice Chairman
2008 ANNUAL REPORT 1 BANCNET
Statements of Management’s Responsibility
The management of BancNet, Incorporated (the Company) is responsible for all information and representations
contained in the financial statements and the schedules referred therein as of and for the year ended december 31, 2008.
The financial statements have been prepared in conformity with Philippine Financial Reporting Standards and reflect
amounts that are based on the best estimates and informed judgment of management with an appropriate consideration
to materiality.
In this regard, management maintains a system of accounting and reporting which provides for the necessary internal
control to ensure that transactions are properly authorized and recorded, assets are safeguarded against unauthorized
use or disposition and liabilities are recognized.
The board of directors (BOd) reviews the financial statements before such statements are approved and submitted to the
stockholders of the Company.
SyCip Gorres Velayo & Co., the independent auditors appointed by the stockholders, have audited the financial statements
as of and for the year ended december 31, 2008 of the Company in accordance with Philippine Standards on Auditing
and have expressed their opinion on the fairness of presentation upon completion of such audit in their report to the
stockholders and the BOd.
RICARdO R. ChUA ARISTEO P. ZAFRA, JR. ELMARIE S. REYES
Chairman of the Board of Directors Chief Operations Officer Head-Controllership & Administration
BANCNET 1 2008 ANNUAL REPORT
Independent Auditors’ Report
The Stockholders and the Board of Directors
BancNet, Incorporated
We have audited the accompanying financial statements of BancNet, Incorporated (the Company) which comprise the balance
sheets as at December 31, 2008 and 2007, and the statements of income, statements of changes in equity and statements of cash
flows for the years then ended, and a summary of significant accounting policies and other explanatory notes.
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. This responsibility includes: designing, implementing and maintaining internal control relevant to
the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or
error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circum-
stances.
Auditors’ Responsibility
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accor-
dance with Philippine Standards on Auditing. Those standards require that we comply with ethical requirements and plan and
perform the audit to obtain reasonable assurance 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 rel-
evant to the Company’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 Company’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.
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of BancNet,
Incorporated as of December 31, 2008 and 2007, and its financial performance and its cash flows for the years then ended in
accordance with Philippine Financial Reporting Standards.
SYCIP GORRES VELAYO & CO.
Aris C. Malantic
Partner
CPA Certificate No. 90190
SEC Accreditation No. 0326-A
Tax Identification No. 152-884-691
PTR No. 1566440, January 5, 2009, Makati City
April 13, 2009
2008 ANNUAL REPORT 1 BANCNET
Balance Sheets
December 31
2008 2007
ASSETS
Current Assets
Cash and cash equivalents (Note 6) P160,831,382 P153,988,120
Receivables (Note 7) 26,787,363 24,367,232
Other current assets (Note 8) 2,767,538 2,102,910
Total Current Assets 190,386,283 180,458,262
Noncurrent Assets
held-to-maturity investments (Notes 9 and 18) 93,264,490 83,716,800
Property and equipment (Note 10) 109,284,856 124,488,088
Other assets (Note 11) 18,813,253 11,911,032
Total Noncurrent Assets 221,362,599 220,115,920
P411,748,882 P400,574,182
LIABILITIES AND EQuITY
Liabilities
Advances from stockholders (Note 18) P31,484,334 P48,082,954
Advances from associate and alliance members (Note 18) 8,000,000 8,000,000
Income tax payable (Note 17) 4,413,020 2,268,209
Other current liabilities (Note 12) 41,572,656 41,720,450
85,470,010 100,071,613
Equity (Note 13)
Capital stock 115,000,000 115,000,000
Additional paid-in capital 17,672,249 17,672,249
deposit for future stock subscription 12,296,970 –
Stock dividend distributable 30,130,000 –
Retained earnings
Appropriated 50,000,000 70,000,000
Unappropriated 101,179,653 97,830,320
326,278,872 300,502,569
P411,748,882 P400,574,182
See accompanying Notes to Financial Statements.
BANCNET 1 2008 ANNUAL REPORT
Statements of Income
Years Ended December 31
2008 2007
REVENuE
Transaction fees P116,567,995 P115,728,676
Membership fees 3,641,071 3,826,488
120,209,066 119,555,164
EXPENSES AND OTHER CHARGES
Salaries and employee benefits (Notes 15 and 18) 27,561,003 24,180,139
depreciation (Note 10) 14,551,117 15,237,855
Training and seminar 9,879,084 10,096,268
Amortization of software costs (Note 11) 8,236,571 4,888,532
Communication 6,587,770 8,461,866
Computer maintenance and services 6,476,112 6,051,420
Transportation and travel 6,108,899 9,265,065
Professional fees 4,786,998 4,053,674
Advertising and publicity 4,096,467 6,374,568
Utilities 2,842,312 3,279,946
Corporate affairs and special events 2,318,890 1,887,118
Office and computer supplies 1,884,822 2,003,994
Taxes and licenses 1,834,485 1,870,876
Miscellaneous (Note 16) 8,676,249 10,364,108
105,840,779 108,015,429
OPERATING INCOME 14,368,287 11,539,735
OTHER INCOME
Interest (Notes 6, 9 and 18) 15,000,739 12,437,166
Miscellaneous (Note 14) 5,875,708 4,309,815
20,876,447 16,746,981
INCOME BEFORE INCOME TAX 35,244,734 28,286,716
PROVISION FOR INCOME TAX (Note 17) 10,265,401 7,801,046
NET INCOME P24,979,333 P20,485,670
See accompanying Notes to Financial Statements.
2008 ANNUAL REPORT 1 BANCNET
Statements of Changes in Equity
Appropriated Unappropriated
Founders’ and Preferred Deposit for Future Stock Dividend Retained Retained
Common Stock Stock AdditionalStock Subscription Distributable Earnings Earnings
(Notes 13 and 19) (Note 13) CapitalPaid-in (Note 13) (Note 13) (Note 13) (Note 13) Total Equity
Balance as of January 1, 2008 P105,000,000 P10,000,000 P17,672,249 P– P– P70,000,000 P97,830,320 P300,502,569
Transfer to unappropriated
retained earnings – – – – – (20,000,000) 20,000,000 –
Deposit for future
stock subscription – – – 12,296,970 – – – 12,296,970
Stock dividend distributable – – – – 30,130,000 – (30,130,000) –
Cash dividends declared and
paid (Note 13) – – – – – – (11,500,000) (11,500,000)
Net income for the year – – – – – – 24,979,333 24,979,333
Balance as of December 31, 2008 P105,000,000 P10,000,000 P17,672,249 P12,296,970 P30,130,000 P50,000,000 P101,179,653 P326,278,872
Balance as of January 1, 2007 P105,000,000 P10,000,000 P17,672,249 P– P– P60,000,000 P98,844,650 P291,516,899
Transfer to unappropriated
retained earnings – – – – – (60,000,000) 60,000,000 –
Transfer to appropriated
retained earnings – – – – – 70,000,000 (70,000,000) –
Cash dividends declared and
paid (Note 14) – – – – – – (11,500,000) (11,500,000)
Net income for the year – – – – – – 20,485,670 20,485,670
Balance as of December 31, 2007 P105,000,000 P10,000,000 P17,672,249 P– P– P70,000,000 P97,830,320 P300,502,569
See accompanying Notes to Financial Statements.
BANCNET 1 2008 ANNUAL REPORT
Statements of Cash Flows
Years Ended December 31
2008 2007
CASH FLOWS FROM OPERATING ACTIVITIES
Income before income tax P35,244,734 P28,286,716
Adjustments for:
Interest income (15,000,739) (12,437,166)
depreciation (Note 10) 14,551,117 15,237,855
Amortization of software costs (Note 11) 8,236,571 4,888,532
Gain on sale of property and equipment (Note 14) (1,520,168) (2,352,084)
Amortization of premium on held-to-maturity investments 144,055 (330,742)
Provision for impairment and credit losses (Note 16) – 127,000
Changes in operating assets and liabilities:
decrease (increase) in amounts of:
Receivables (2,276,076) (1,376,989)
Other current assets (664,628) 1,058,201
Increase in amounts of:
Other current liabilities (147,794) 7,821,384
Advances from stockholders (16,598,620) 7,040,785
Advances from associates and alliance members – 1,500,000
Net cash generated from operations 21,968,452 49,463,492
Interest received 14,856,684 11,516,722
Income taxes paid (8,005,357) (7,749,817)
Net cash provided by operating activities 28,819,779 53,230,397
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of:
held-to-maturity investments (33,171,874) (38,175,481)
Property and equipment (Note 10) (8,522,258) (31,017,652)
Software costs (Note 11) (14,177,388) (7,859,823)
Proceeds from:
Maturity of held-to-maturity investments 23,480,129 12,597,245
disposals of property and equipment (Note 10) 10,694,541 10,989,594
Increase in other assets (1,076,637) (2,986,107)
Net cash provided by (used in) investing activities (22,773,487) (56,452,224)
CASH FLOWS FROM FINANCING ACTIVITIES
deposit for future stock subscription received 12,296,970 –
Cash dividends paid (Note 13) (11,500,000) (11,500,000)
Net cash provided by (used in) financing activities 796,970 (11,500,000)
NET INCREASE (dECREASE) IN CASh ANd CASh EQUIVALENTS 6,843,262 (14,721,827)
CASh ANd CASh EQUIVALENTS AT BEGINNING OF YEAR
Cash on hand and in banks 5,460,612 3,996,033
Short-term cash placements 148,527,508 164,713,914
153,988,120 168,709,947
CASH AND CASH EQuIVALENTS AT END OF YEAR (Note 6)
Cash on hand and in banks 14,407,216 5,460,612
Short-term cash placements 146,424,166 148,527,508
P160,831,382 P153,988,120
See accompanying Notes to Financial Statements.
2008 ANNUAL REPORT 1 BANCNET
Notes to Financial Statements
1. General Information
Initial recognition of financial instruments
All financial instruments are initially recognized at fair value. Except for financial assets and liabilities at fair
BancNet, Incorporated (the Company) was incorporated in the Philippines on August 29, 1989 and started
value through profit or loss (FVPL), the initial measurement of financial instruments includes transaction
commercial operations on July 17, 1990.
costs. The Company classifies its financial assets in the following categories: Financial assets at FVPL, HTM
The Company was organized primarily to own, install, operate and manage an electronic switch network that investments, AFS investments and receivables. Financial liabilities are classified in the following categories:
will interlink the automated teller machines (ATMs) and other online computer equipment, terminals, point-of- FVPL financial liabilities and other liabilities measured at cost or at amortized cost. The classification
sale (POS) terminals and other peripherals of banks, financial institutions, associations, switch networks and depends on the purpose for which the investments were acquired and whether they are quoted in an active
their affiliates and customers, locally and abroad, for the enhancement of banking and other allied services. market. Management determines the classification of its investments at initial recognition and re-evaluates
this designation at every reporting date.
The Company’s principal place of business is at 19th Floor, Equitable Bank Tower, 8751 Paseo de Roxas,
Makati City. The Company has no financial assets and liabilities at FVPL, AFS investments and FVPL financial liabilities
as of December 31, 2008 and 2007.
2. Significant Accounting Policies Determination of fair value
The fair value for financial instruments traded in active markets at the balance sheet date is based on their
Basis of Financial Statement Preparation quoted market price or dealer price quotations (bid price for long positions and ask price for short positions),
The accompanying financial statements have been prepared on a historical cost basis. The financial state- without any deduction for transaction costs. When current bid and asking prices are not available, the price
ments are presented in Philippine pesos (P), which is the Company’s functional currency. of the most recent transaction is used since it provides evidence of the current fair value as long as there has
not been a significant change in economic circumstances since the time of the transaction.
Statement of Compliance
The financial statements of the Company have been prepared in accordance with Philippine Financial For all other financial instruments not listed in an active market, the fair value is determined by using
Reporting Standards (PFRS). appropriate valuation techniques. Valuation techniques include discounted cash flow methodologies, com-
parison to similar instruments for which market observable prices exist, option pricing models, and other
Changes in Accounting Policies
relevant valuation models.
The accounting policies adopted are consistent with those of the previous financial years except for the
adoption of the following PFRS and Philippine Interpretations: ‘Day 1’ difference
Where the transaction price in a non-active market is different from the fair value from other observable
Amendments to Philippine Accounting Standards (PAS) 39, Financial Instruments: Recognition and
current market transactions in the same instrument or based on a valuation technique whose variables
Measurement and PFRS 7, Reclassification of Financial Assets
include only data from observable market, the Company recognizes the difference between the transaction
Amendments to PAS 39, Financial Instruments: Recognition and Measurement, allow reclassifications price and fair value (a ‘Day 1’ difference) in the statement of income in ‘Other income.’ In cases where use
of certain financial instruments held-for-trading to either held-to-maturity (HTM), loans and receivables is made of data which is not observable, the difference between the transaction price and model value is
or available-for-sale (AFS) categories, as well as certain instruments from investments to loans and only recognized in the statement of income when the inputs become observable or when the instrument
receivables. is derecognized. For each transaction, the Company determines the appropriate method of recognizing the
‘Day 1’ difference amount.
The effective date of the amendments is on July 1, 2008. At that date the Company did not reclassify certain
financial instruments. HTM investments
HTM investments are quoted non-derivative financial assets with fixed or determinable payments and fixed
Philippine Interpretation International Financial Reporting Interpretations Committee (IFRIC) 11, PFRS 2-
maturities for which the Company’s management has the positive intention and ability to hold to maturity.
Group and Treasury Share Transactions
Where the Company sells other than an insignificant amount of HTM investments, the entire category would
This Interpretation requires arrangements whereby an employee is granted rights to an enitty;s equity be tainted and reclassified as AFS investments.
instruments to be accounted for as an equity-settled scheme by the entity even if (a) the entity chooses or
After initial measurement, HTM investments are subsequently measured at amortized cost using the effec-
is required to buy those equity instruments (e.g., treasury shares) from another party, or (b) the shareholder
tive interest rate (EIR) method, less impairment in value. Amortized cost is calculated by taking into account
(s) of the entity provide the equity instruments needed. It also provides guidance on how subsidiaries, in
any discount or premium on acquisition and fees that are an integral part of the EIR. The amortization is
their separated financial statements, account for such schemes when their employees receive rights to the
included in ‘Interest income’ in the statement of income. Gains and losses are recognized in income when
equity instruments of the parent. The Interpreatation had no impact on the Company.
the HTM investments are derecognized and impaired, as well as through the amortization process. The
Philippine Interpretation International Financial Reporting Interpretations Committee (IFRIC) 14, PAS 19, losses arising from impairment of such investments are recognized in the statement of income under provi-
The limit on a Defined Benefit Asset Minimum Funding Requirements and their Interaction (effective sion for impairment and credit losses included under ‘Miscellaneous expenses’.
for annual periods beginning on or after January 1, 2008).
Receivables
This Interpretation provides guidance on how to assess the limit in Philippine Accounting Standard (PAS) Receivables include non-derivative financial assets with fixed or determinable payments that are not quoted
19, Employee Benefits, on the amount of the surplus that can be recognized as an asset, and how the in an active market and for which the Company has no intention of trading. Receivables are stated at face
pension assets or liability may be affected when there is a statutory or contractual minimum funding require- value and are reduced by allowance for credit losses, if any. The estimated losses are based on manage-
ment. The adoption of this Interpretation resulted to the recognition of net retirement asset amounting to ment’s evaluation of collectibility of the receivables and historical collection experience (see accounting
P2,797,500 which is the economic benefit available as a refund as defined in this interpretation. policy on Impairment of Financial Assets).
Foreign Currency Translation Other financial liabilities
For financial reporting purposes, foreign currency-denominated accounts are translated into their equiva- Other financial liabilities are non-derivative financial liabilities with fixed or determinable payments that are
lents in Philippine pesos based on the Philippine Dealing Exchange (PDEx) closing rate at the end of the year not quoted in an active market. These liabilities are carried at cost or amortized cost in the balance sheet.
(for assets and liabilities) and at the PDEx weighted average rate for the year (for income and expenses). Amortization is determined using the effective interest method.
Foreign exchange differentials arising from foreign currency transactions and restatements of foreign cur-
The Company’s other financial liabilities include advances from stockholders, advances from associate and
rency-denominated assets and liabilities are credited to or charged against current operations in the period
alliance members and other current liabilities.
in which the rates change.
Derecognition of Financial Assets and Liabilities
Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using
Financial asset
the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a
A financial asset (or, where applicable, a part of a financial asset or part of a group of financial assets) is
foreign currency are translated using the exchange rates at the date when the fair value was determined.
derecognized when:
Cash and Cash Equivalents • the rights to receive cash flows from the asset have expired;
Cash and cash equivalents include cash on hand and in banks and short-term cash placements that are • the Company retains the right to receive cash flows from the asset, but has assumed an obligation to
readily convertible to known amounts of cash with original maturities of three months or less and that are pay them in full without material delay to a third party under a pass-through arrangement; or
subject to insignificant risks of changes in value. • the Company has transferred its rights to receive cash flows from the asset and either (a) has transferred
substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained the risks
Financial Instruments
and rewards of the asset but has transferred the control over the asset.
Date of recognition
Where the Company has transferred its rights to receive cash flows from an asset or has entered into a
Purchases or sales of financial assets that require delivery of assets within the time frame established by
pass-through arrangement, and has neither transferred nor retained substantially all the risks and rewards
regulation or convention in the marketplace are recognized on the settlement date. Receivables are recog-
of the asset nor transferred control over the asset, the asset is recognized to the extent of the Company’s
nized when cash is received by the Company or advanced to the borrowers.
continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over the
BANCNET 0 2008 ANNUAL REPORT
Notes to Financial Statements
transferred asset is measured at the lower of original carrying amount of the asset and the maxi- as an additional cost of property and equipment. When assets are retired or otherwise disposed of,
mum amount of consideration that the Company could be required to repay. both the cost and the related accumulated depreciation are removed from the accounts and any
resulting gain or loss is credited to or charged against current operations.
Financial liability
A financial liability is derecognized when the obligation under the liability is discharged Depreciation is computed on a straight-line basis over the estimated useful life of the assets. The
or cancelled, or has expired. Where an existing financial liability is replaced by anoth- estimated useful lives of the assets are as follows:
er from the same lender on substantially different terms, or the terms of an existing
liability are substantially modified, such an exchange or modification is treated as Buildings 35 years
a derecognition of the original liability and the recognition of a new liability, and the Building improvements 3 - 10 years
difference in the respective carrying amounts is recognized in the statement of income. Computer and other office equipment 3 years
Transportation equipment 5 years
Offsetting Financial Instruments
Furniture and fixtures 3 years
Financial assets and financial liabilities are offset and the net amount reported in the balance sheet
if, and only if, there is a currently enforceable legal right to offset the recognized amounts and there The useful life and the depreciation method are reviewed periodically to ensure that the period and
is an intention to settle on a net basis, or to realize the asset and settle the liability simultaneously. the method of depreciation are consistent with the expected pattern of economic benefits from
items of property and equipment.
Impairment of Financial Assets
The Company assesses at each balance sheet date whether there is objective evidence that a The carrying values of the property and equipment are reviewed for impairment when events or
financial asset or group of financial assets is impaired. A financial asset or a group of financial assets circumstances indicate the carrying value may not be recoverable. If any such indication exists and
is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one where the carrying values exceed the estimated recoverable amount, the assets or cash-generating
or more events that has occurred after the initial recognition of the asset (an incurred ‘loss event’) units are written down to their recoverable amount (see policy on Impairment of Property and
and that loss event (or events) has an impact on the estimated future cash flows of the financial Equipment Software Costs and Other Assets).
asset or the group of financial assets that can be reliably estimated. Evidence of impairment may
An item of property and equipment is derecognized upon disposal or when no future economic
include indications that the borrower or a group of borrowers is experiencing significant financial
benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the
difficulty, default or delinquency in interest or principal payments, the probability that they will
property and equipment (calculated as the difference between the net disposal proceeds and the
enter bankruptcy or other financial reorganization and where observable data indicate that there
carrying amount of the property and equipment) is included in the statement of income in the year
is measurable decrease in the estimated future cash flows, such as changes in arrears or economic
the property and equipment is derecognized.
conditions that correlate with defaults.
Software Costs
HTM investments
Software costs (included under ‘Other assets’ in the balance sheet) include costs related to software
For HTM investments, the Company assesses whether there is objective evidence of impairment.
purchased and used by the Company to operate the electronic switch network that provides linkage
If there is objective evidence that an impairment loss has been incurred, the amount of the loss
of online computer terminals. Costs are amortized through charges against income on a straight-
is measured as the difference between the asset’s carrying amount and the present value of esti-
line basis over a period of 1 to 2 years.
mated future cash flows (excluding future expected credit losses that have not yet been incurred).
The carrying amount of the asset is reduced through use of an allowance account and the amount Costs associated with maintaining the computer software programs are recognized as expense
of loss is charged to the statement of income. Interest income continues to be recognized based when incurred.
on the original EIR of the asset.
Impairment of Property and Equipment, Software Costs and Other Assets
If, in a subsequent year, the amount of the estimated impairment loss decreases because of an At each balance sheet date, the Company assesses whether there is any indication that its property
event occurring after the impairment was recognized, any amounts formerly charged are credited to and equipment, software costs and other assets may be impaired. When an indicator of impair-
‘Provision for impairment and credit losses’ account in the statement of income and the allowance ment exists or when an annual impairment testing for an asset is required, the Company makes a
account, reduced. The HTM investments, together with the associated allowance accounts, are writ- formal estimate of recoverable amount. Recoverable amount is the higher of an asset’s fair value
ten off when there is no realistic prospect of future recovery and all collateral has been realized. less costs to sell and its value in use and is determined for an individual asset, unless the asset
does not generate cash inflows that are largely independent of those from other assets or groups
If, in subsequent period, the amount of the impairment loss decreases and the decrease can be
of assets, in which case the recoverable amount is assessed as part of the cash generating unit to
related objectively to an event occurring after the impairment was recognized, the previously
which it belongs. Where the carrying amount of an asset exceeds its recoverable amount, the asset
recognized impairment loss is reversed. Any subsequent reversal of an impairment loss is recognized
is considered impaired and is written down to its recoverable amount. In assessing value in use,
in the statement of income, to the extent that the carrying value of the asset does not exceed its
the estimated future cash flows are discounted to their present value using a pre-tax discount rate
amortized cost at the reversal date.
that reflects current market assessments of the time value of money and the risks specific to the
Receivables asset.
For receivables, the Company assesses whether objective evidence of impairment exists. If there
An impairment loss is charged against current operations in the year in which it arises, unless the
is objective evidence that an impairment loss on receivables carried at amortized cost has been
asset is carried at a revalued amount, in which case the impairment loss is charged to the revalu-
incurred, the amount of loss is measured as the difference between the asset’s carrying amount and
ation increment of the said asset.
the present value of estimated future cash flows (excluding future credit losses that have not been
incurred) discounted at the financial asset’s original EIR (i.e., the EIR computed at initial recogni- A previously recognized impairment loss is reversed only if there has been a change in the estimates
tion). The carrying amount of the asset shall be reduced either directly or through the use of an used to determine the asset’s recoverable amount since the last impairment loss was recognized.
allowance account. The amount of loss is recognized in the statement of income. The Company first If that is the case, the carrying amount of the asset is increased to its recoverable amount. That
assesses whether objective evidence of impairment exists individually for financial assets that are increased amount cannot exceed the carrying amount that would have been determined, net of
individually significant, and collectively for financial assets that are not individually significant. depreciation, had no impairment loss been recognized for the asset in prior years. Such reversal is
recognized in the statement of income unless the asset is carried at a revalued amount, in which
If it is determined that no objective evidence of impairment exists for an individually assessed
case the reversal is treated as a revaluation increase. After such a reversal, the depreciation expense
financial asset, whether significant or not, the asset is included in the group of financial assets with
is adjusted in future years to allocate the asset’s revised carrying amount, less any residual value,
similar credit risk and characteristics and that group of financial assets is collectively assessed for
on a systematic basis over its remaining life.
impairment. Assets that are individually assessed for impairment and for which an impairment loss
is or continue to be recognized are not included in a collective assessment of impairment. Revenue and Income Recognition
Revenue or income is recognized to the extent that it is probable that the economic benefits will
Property and Equipment
flow to the Company and the revenue or income can be reliably measured. The following specific
Property and equipment including buildings and building improvements, computer and other office
recognition criteria must also be met before revenue or income is recognized:
equipment, transportation equipment, and furniture and fixtures are stated at cost less accumu-
lated depreciation, and any impairment in value. Fees
Transaction fees, membership fees and other fees are recognized as they become due and billable.
The initial cost of property and equipment comprises its purchase price and any directly attributable
costs of bringing the asset to its working condition and location for its intended use. Expenditures Interest income
incurred after the property and equipment have been put into operation, such as repairs and Interest income on deposits in bank, short-term cash placements and HTM investments is recog-
maintenance, are normally charged against operations in the year the costs are incurred. In nized as interest accrues using the effective interest rate, which is the rate that exactly discounts
situations where it can be clearly demonstrated that the expenditures have resulted in an increase estimated future cash receipts through the expected life of the interest-bearing financial instru-
in the future economic benefits expected to be obtained from the use of an item of property and ments or a shorter period, where appropriate, to the net carrying amount of the financial assets.
equipment beyond its originally assessed standard of performance, the expenditures are capitalized
2008 ANNUAL REPORT 1 BANCNET
Gain on sale of property and equipment Deferred tax assets and liabilities are measured at the tax rates that are applicable to the year when
Revenue is recognized when the title to the assets is transferred to the buyer, or when the collect- the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been
ibility of the entire sales price is reasonably assured. enacted or substantively enacted at the balance sheet date.
Retirement Expense Current and deferred tax relating to items recognized directly in equity is also recognized in equity
The Company’s personnel are covered by a noncontributory defined benefit retirement plan. and not in the statement of income.
The retirement cost of the Company is determined using the projected unit credit method. Under Deferred tax assets and liabilities are offset if a legally enforceable right exists to set off current tax
this method, the current service cost is the present value of retirement benefits payable in the future assets against current tax liabilities and deferred taxes related to the same taxable entity and the
with respect to services rendered in the current period. same taxation authority.
Actuarial gains and losses arising from experience adjustments and changes in actuarial assump- Earnings Per Share
tions are charged or credited to income when the net cumulative unrecognized actuarial gains and Basic earnings per share (EPS) is computed by dividing net income for the year by the weighted
losses at the end of the previous period exceeded 10.00% of the higher of the defined benefit average number of common shares issued and outstanding during the year, after giving retroactive
obligation and the fair value of plan assets at that date. These excess gains or losses are recognized effect to any stock dividends or stock splits, if any, declared during the year. Diluted EPS is computed
over the expected average remaining working lives of the employees participating in the plan. by dividing net income applicable to common stockholders by the weighted average number of
common shares issued and outstanding during the year after giving effect to assumed conversion
Past service costs, if any, are recognized immediately in the statement of income, unless the
of diluted potential common shares.
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- Subsequent Events
line basis over the vesting period. Any post-year-end event that provides additional information about the Company’s position at the
balance sheet date (adjusting events) is reflected in the financial statements. Post year-end events
The net pension asset recognized in respect of the defined benefit pension plan is the lower of:
that are not adjusting events, if any, are disclosed in the financial statements when material.
(a) the fair value of the plan assets less the present value of the defined benefit obligation at
the balance sheet date, together with adjustments for unrecognized actuarial gains or losses Future Changes in Accounting Policies
and past service costs that shall be recognized in later periods; or (b) the total of any cumulative The Company has not applied the following PFRS and Philippine Interpretations which are not yet
unrecognized net actuarial loss and past service cost and the present value of any economic effective for the year ended December 31, 2008:
benefit available in the form of refunds from the plan or reductions in future contributions to the
PFRS 1, First-time Adoption of PFRS - Cost of an Investment in a Subsidiary, Jointly Controlled
plan. If there is no minimum funding requirement, an entity shall determine the economic benefit
Entity or Associate (effective for annual periods beginning on or after July 1, 2009)
available as a reduction in future contributions as the lower of: (a) the surplus in the plan; and (b)
The amended PFRS 1 allows an entity, in its separate financial statements, to determine the cost
the present value of the future service cost to the entity, excluding any part of the future cost that
of investments in subsidiaries, jointly controlled entities or associates (in its opening PFRS financial
will be borne by employees, for each year over the shorter of the expected life of the plan and the
statements) as one of the following amounts: a) cost determined in accordance with PAS 27; b) at
expected life of the entity.
the fair value of the investment at the date of transition to PFRS, determined in accordance with
The defined benefit obligation is calculated annually by independent actuaries using the projected PAS 39; or c) previous carrying amount (as determined under generally accepted accounting prin-
unit credit method. The present value of the defined benefit obligation is determined by discounting ciples) of the investment at the date of transition to PFRS. This amended standard has no impact
the estimated future cash outflows using risk-free interest rates of government bonds that have on the financial statements of the Company.
terms to maturity approximating to the terms of the related pension liability.
Revised PFRS 2, Share-based Payment - Vesting Conditions and Cancellations Combinations
Provisions (effective for annual periods beginning on or after January 1, 2009)
Provisions are recognized when the Company has a present obligation (legal or constructive) as a
This Standard has been amended to clarify the definition of vesting conditions and to prescribe
result of a past event and it is probable that an outflow of assets embodying economic benefits
the accounting treatment of an award that is effectively cancelled because a non-vesting condition
will be required to settle the obligation and a reliable estimate can be made of the amount of the
is not satisfied. The Company expects that these amendmnts will not have any significant impact
obligation. Where the Company expects some or all of a provision to be reimbursed, for example,
on its financial statements.
under an insurance contract, the reimbursement is recognized as a separate asset but only when
the reimbursement is virtually certain. The expense relating to any provision is presented in the PFRS 8, Operating Segments (effective for annual periods beginning on or after January 1, 2009)
statement of income, net of any reimbursement. This PFRS adopts a management approach to reporting segment information. The information
reported would be that which management uses internally for evaluating the performance of
Contingent Liabilities and Contingent Assets
operating segments and allocating resources to those segments. Such information may be differ-
Contingent liabilities are not recognized in the financial statements but are disclosed unless the
ent from that reported in the balance sheet and statement of income and companies will need to
possibility of an outflow of assets embodying economic benefits is remote. Contingent assets are
provide explanations and reconciliations of the differences. PFRS 8 will replace PAS 14, Segment
not recognized in the financial statements but are disclosed when an inflow of economic benefits
Reporting. The Company is not required and will not adopt PFRS 8.
is probable.
Amendments to PAS 1, Presentation of Financial Statements (effective for annual periods begin-
Income Taxes
ning on or after January 1, 2009)
Current tax
In accordance with the amendment to PAS 1, the statement of changes in equity shall include
Current tax assets and liabilities for the current and prior periods are measured at the amount
only transactions with owners, while all non-owner changes will be presented in equity as a single
expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used
line with details included in a separate statement. Owners are defined as holders of instruments
to compute the amount are those that are enacted or substantively enacted as of the balance sheet
classified as equity.
date. Deferred tax is provided using the balance sheet liability method on all temporary differences
at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts The amendment to PAS 1 also provides for the introduction of a new statement of comprehensive
for financial reporting purposes. income that combines all items of income and expense recognized in the statement of income
together with ‘other comprehensive income’. The revisions specify what is included in other com-
Deferred tax
prehensive income, such as gains and losses on AFS financial assets, actuarial gains and losses on
Deferred tax liabilities are recognized for all taxable temporary differences. Deferred tax assets are
defined benefit pension plans and changes in the asset revaluation reserve. Entities can choose to
recognized for all deductible temporary differences, carryforward of unused tax credits arising from
present all items in one statement, or to present two linked statements, a separate statement of
the excess of minimum corporate income tax (MCIT) over the regular corporate income tax (RCIT)
income and a statement of comprehensive income. The Company is presently assessing the impact
and unused net operating loss carryover (NOLCO), to the extent that it is probable that taxable
of the adoption of this standard.
profit will be available against which the deductible temporary differences and carryforward of
unused MCIT and unused NOLCO can be utilized. Deferred tax, however, is not recognized when Revised PAS 23, Borrowing Cost (effective for annual periods beginning on or after January 1, 2009)
it arises from the initial recognition of an asset or liability in a transaction that is not a business The revised standard requires capitalization of borrowing costs that relate to a qualifying asset. The
combination and, at the time of the transaction, affects neither the accounting income nor taxable transitional requirements of the standard require it to be adopted as a prospective change from the
income or loss. effective date. The Company will assess the impact of the standard on the financial statements.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to PAS 32, Financial Instruments: Presentation and PAS 1, Puttable Financial Instruments
the extent that it is no longer probable that sufficient taxable profit will be available to allow all or and Obligations Arising on Liquidation (effective for annual periods beginning on or after
part of the deferred tax asset to be utilized. Unrecognized deferred tax assets are reassessed at each January 1, 2009)
balance sheet date and are recognized to the extent that it has become probable that future taxable
The standards have been amended to allow a limited scope exception for puttable financial instru-
profit will allow the deferred tax asset to be recovered.
ments to be classified as equity if they fulfill a number of specified criteria. The Company expects
BANCNET 2008 ANNUAL REPORT
Notes to Financial Statements
that these amendments will not have any significant impact on its financial statements. the risks and reward of ownership are transferred to the buyer on a continuous basis, will also be
accounted for based on stage of completion.
Philippine Interpretation IFRIC 13, Customer Loyalty Programmes (effective for annual periods
beginning on or after July 1, 2008) Improvements to PFRS
This Interpretation addresses the accounting by an entity that grants award credits to its customers. In May 2008, the International Accounting Standards Board issued its first omnibus of amendments
The Company will assess the impact of adoption when it applies Philippine Interpretation IFRIC-13 to certain standards, primarily with a view to removing inconsistencies and clarifying wording. The
in 2008. following are the separate transitional provisions for each standard:
Philippine Interpretation IFRIC 16, Hedges of a Net Investment in a Foreign Operation (effective PFRS 5, Non-current Assets Held for Sale and Discontinued Operations
for annual periods beginning on or after January 1, 2009) • When a subsidiary is held for sale, all of its assets and liabilities will be classified as held for sale under
This Interpretation provides guidance on 1) identifying the foreign currency risks that qualify PFRS 5, even when the entity retains a non-controlling interest in the subsidiary after the sale.
for hedge accounting in the hedge of a net investment, 2) where within the group the hedging
PAS 1, Presentation of Financial Statements
instruments can be held in the hedge of a net investment, and 3) how an entity should determine
• Assets and liabilities classified as held for trading are not automatically classified as current in
the amount of foreign currency gain or loss, relating to both the net investment and the hedging
the balance sheet.
instrument to be recycled on disposal of the net investment. This Interpretation is not relevant to
the current operations of the Company. PAS 16, Property, Plant and Equipment
• The amendment replaces the term ‘net selling price’ with ‘fair value less costs to sell’, to be
Effective in 2010
consistent with PFRS 5 and PAS 36, Impairment of Assets.
Revised PFRS 3, Business Combinations and PAS 17, Consolidated and Separate Financial
• Items of property, plant and equipment held for rental that are routinely sold in the ordinary
Statements
course of business after rental, are transferred to inventory when rental ceases and they are
The revised PFRS 3 introduces a number of changes in the accounting for business combinations
held for sale. Proceeds of such sales are subsequently shown as revenue. Cash payments on
that will impact the amount of goodwill recognized, the reported results in the period that an
initial recognition of such items, the cash receipts from rents and subsequent sales are all
acquisition occurs, and future reported results. The revised PAS 27 requires, among others, that
shown as cash flows from operating activities.
(a) change in ownership interests of a subsidiary (that do not result in loss of control) will be
accounted for as an equity transaction and will have no impact on goodwill nor will it give rise to PAS 19, Employee Benefits
a gain or loss; (b) losses incurred by the subsidiary will be allocated between the controlling and • The definition of ‘past service cost’ is revised to include reductions in benefits related to past
non-controlling interests (previously referred to as ‘minority interests’); even if the losses exceed the services (‘negative past service costs’) and to exclude reductions in benefits related to future
non-controlling equity investment in the subsidiary; and (c) on loss of control of a subsidiary, any services that arise from plan amendments. Amendments to plans that result in a reduction in
retained interest will be remeasured to fair value and this will impact the gain or loss recognized on benefits related to future services are accounted for as a curtailment.
disposal. The changes introduced by the revised PFRS 3 and PAS 27 must be applied prospectively • The definition of ‘return on plan assets’ is revised to exclude plan administration costs if they have
and will affect future acquisitions and transactions with non-controlling interests. already been included in the actuarial assumptions used to measure the defined benefit obligation.
• The definition of ‘short-term’ and ‘other long-term’ employee benefits is revised to focus on the
Amendment to PAS 39, Financial Instruments: Recognition and Measurement - Eligible Hedged
point in time at which the liability is due to be settled.
Items
• The reference to the recognition of contingent liabilities is deleted to ensure consistency with
Amendment to PAS 39 will be effective on July 1, 2009, which addresses only the designation of
PAS 37, Provisions, Contingent Liabilities and Contingent Assets.
a one-sided risk in a hedged item, and the designation of inflation as a hedged risk or portion in
particular situations. The amendment clarifies that an entity is permitted to designate a portion of PAS 20, Accounting for Government Grants and Disclosures of Government Assistance
the fair value changes or cash flow variability of a financial instrument as a hedged item. • Loans granted with no or low interest rates will not be exempt from the requirement to impute
interest. The difference between the amount received and the discounted amount is accounted
Philippine Interpretation IFRIC 15, Agreements for the Construction of Real Estate
for as a government grant.
This Interpretation addresses the divergence in accounting treatment and clarifies when and how
revenue and related expenses from the sale of the real estate unit should be recognized if an PAS 23, Borrowing Costs
agreement between a developer and a buyer is reached before the construction of the real estate • The definition of borrowing costs is revised to consolidate the types of items that are considered
is completed. Furthermore the Interpretation provides guidance on how to determine whether components of ‘borrowing costs’, i.e., components of the interest expense calculated using the
an agreement is within the scope of PAS 11, Construction Contracts or PAS 18, Revenue. This effective interest rate method.
Interpretation is not relevant to the current operations of the Company.
PAS 28, Investment in Associates
Philippine Interpretation IFRIC 17, Distribution of Non-cash Assets to Owners • If an associate is accounted for at fair value in accordance with PAS 39, only the requirement
This Interpretation covers accounting for two types of non-reciprocal distributions of assets by an of PAS 28 to disclose the nature and extent of any significant restrictions on the ability of the
entity to its owners acting in their capacity as owners. The two types of distribution are: associate to transfer funds to the entity in the form of cash or repayment of loans applies.
a. distributions of non-cash assets (e.g. items of property, plant and equipment, businesses as • An investment in an associate is a single asset for the purpose of conducting the impairment
defined in IFRS 3, ownership interests in another entity or disposal groups as defined in IFRS test. Therefore, any impairment test is not separately allocated to the goodwill included in the
5); and investment balance.
b. distributions that give owners a choice of receiving either non-cash assets or a cash alternative.
PAS 31, Interest in Joint ventures
• If a joint venture is accounted for at fair value, in accordance with PAS 39, only the
This Interpretation addresses only the accounting by an entity that makes a non-cash asset distribu-
requirements of PAS 31 to disclose the commitments of the venturer and the joint venture, as well
tion. It does not address the accounting by shareholders who receive such a distribution.
as summary financial information about the assets, liabilities, income and expense will apply.
Philippine Interpretation IFRIC 18, Transfers of Assets from Customers
PAS 36, Impairment of Assets
This Interpretation covers accounting for transfers of items of property, plant and equipment by
• When discounted cash flows are used to estimate ‘fair value less cost to sell’ additional
entities that receive such transfers from their customers. Agreements within the scope of this
disclosure is required about the discount rate, consistent with disclosures required when the
Interpretation are agreements in which an entity receives from a customer an item of property,
discounted cash flows are used to estimate ‘value in use’.
plant and equipment that the entity must then use either to connect the customer to a network
or to provide the customer with ongoing access to a supply of goods or services, or to do both. PAS 38, Intangible Assets
This Interpretation also applies to agreements in which an entity receives cash from a customer • Expenditure on advertising and promotional activities is recognized as an expense when the
when that amount of cash must be used only to construct or acquire an item of property, plant entity either has the right to access the goods or has received the services. Advertising and
and equipment and the entity must then use the item of property, plant and equipment either to promotional activities now specifically include mail order catalogues.
connect the customer to a network or to provide the customer with ongoing access to a supply of • Reference to there being rarely is deleted, if ever, persuasive evidence to support an amortiza-
goods or services, or to do both. tion method for finite life intangible assets that results in a lower amount of accumulated
amortization than under the straight-line method, thereby effectively allowing the use of the
Effective in 2012
unit of production method.
Philippine Interpretation IFRIC 15, Agreement for Construction of Real Estate
This Interpretation covers accounting for revenue and associated expenses by entities that under- PAS 39, Financial Instruments: Recognition and Measurement
take the construction of real estate directly or through subcontractors. This Interpretation requires • Changes in circumstances relating to derivatives - specifically derivatives designated or de-
that revenue on construction of real estate be recognized only upon completion, except when designated as hedging instruments after initial recognition - are not reclassifications.
such contract qualifies as construction contract to be accounted for under PAS 11, Construction • When financial assets are reclassified as a result of an insurance company changing its
Contracts, or involves rendering of services in which case revenue is recognized based on stage accounting policy in accordance with paragraph 45 of PFRS 4, Insurance Contracts, this is a
of completion. Contracts involving provision of services with the construction materials and where change in circumstance, not a reclassification.
2008 ANNUAL REPORT BANCNET
• The reference to a ‘segment’ is removed when determining whether an instrument qualifies as The expected rate of return on plan assets of 8.00% and 10.00% as of December 31, 2008
a hedge. and 2007, respectively, was based on the average historical premium of the fund assets.
• Use of the revised effective interest rate (rather than the original effective interest rate) is
The assumed discount rates were determined using the market yields on Philippine govern-
required when re-measuring a debt instrument on the cessation of fair value hedge accounting.
ment bonds with terms consistent with the expected employee benefit payout as of balance
sheet date. Refer to Note 15 for the details of assumption used in the calculation.
PAS 40, Investment Properties
• The scope (and the scope of PAS 16) is revised to include property that is being constructed or While the Company believes that the assumptions are reasonable and appropriate, significant
developed for future use as an investment property. Where an entity is unable to determine the differences in the actual experience or significant changes in the assumptions may materially
fair value of an investment property under construction, but expects to be able to determine its affect the cost of employee benefits and related obligations.
fair value on completion, the investment under construction will be measured at cost until such
The present value of retirement obligation amounted to P7,033,200 and P10,301,100 as
time as fair value can be determined or construction is complete.
of December 31, 2008 and 2007, respectively. Unrecognized (gains) losses amounted to
(P5,449,400) and P477,600 as of December 31, 2008 and 2007, respectively (see Note 15).
3. Significant Accounting Judgments, Estimates and Assumptions
The Company also estimates other employee benefit obligations and expenses, including costs
of paid leaves based on historical leave availments of employees, subject to Company’s policy.
The preparation of the financial statements in accordance with PFRS requires the Company to
These estimates may vary depending on the future changes in salaries and actual experiences
make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities,
during the year.
income and expenses. Future events may occur which will cause the assumptions used in arriving
at the estimates to change. The effects of any changes in estimates are reflected in the financial As of December 31, 2008, and 2007, the accrued balance of other employee benefits, which is
statements as they become reasonably determinable. included under ‘Other current liabilities’ amounted to P3,185,549 and P3,244,792, respectively.
Judgments and estimates are continually evaluated and are based on historical experience and (c) Impairment of property and equipment, software costs and other assets
other factors, including expectations of future events that are believed to be reasonable under The Company assesses impairment on assets whenever events or changes in circumstances
the circumstances. indicate that the carrying amount of an asset may not be recoverable. The factors that the
The following are the critical judgments and key assumptions that have significant risks of material Company considers important which could trigger an impairment review include the following:
adjustment to the carrying amounts of assets and liabilities within the next financial year: • significant underperformance relative to expected historical or projected future operating
results;
Judgments
• significant changes in the manner of use of the acquired assets or the strategy for overall
(a) Fair value of financial instruments
business; and,
Where the fair values of financial assets and financial liabilities recorded in the balance
• significant negative industry or economic trends.
sheet cannot be derived from active markets, they are determined using internal valuation
techniques using generally accepted market valuation models. The inputs to these models The Company recognizes an impairment loss whenever the carrying amount of an asset
are taken from observable markets where possible, but where this is not feasible, estimates exceeds its recoverable amount. The recoverable amount is computed using the value in use
are used in establishing fair values. These estimates may include considerations of liquidity, approach. Recoverable amounts are estimated for individual assets, or if it is not possible, for
volatility, and correlation. the cash-generating unit to which the asset belongs.
(b) Classification to HTM investments As of December 31, 2008 and 2007, the carrying value of property and equipment amounted
The classification under HTM investments requires significant judgment. In making this to P109,284,856 and P124,488,088, respectively (see Note 10). As of December 31, 2008
judgment, the Company evaluates its intention and ability to hold such investments to and 2007, the carrying value of software costs amounted to P11,115,728 and P5,174,911,
maturity. If the Company fails to keep these investments to maturity other than in certain respectively (see Note 11).
specific circumstances - for example, selling an insignificant amount close to maturity - it
Allowance for impairment losses on impaired miscellaneous assets amounted to P127,000 as
will be required to reclassify the entire portfolio as AFS investments. The investments would
of December 31, 2008 and 2007, respectively (see Note 11).
therefore be measured at fair value and not at amortized cost.
(d) Estimated useful lives of property and equipment and software costs
As of December 31, 2008 and December 31, 2007, the market value of HTM investments
The Company estimates the useful lives of its property and equipment and software costs
amounted to P 95,931,360 and P87,168,751, respectively (see Note 4).
based on the period over which the assets are expected to be available for use. The Company
(c) Financial assets not quoted in an active market reviews annually the estimated useful lives based on factors that include asset utilization,
The Company classifies financial assets by evaluating, among others, whether the asset is internal technical evaluation, technological changes, environmental and anticipated use of the
quoted or not in an active market. Included in the evaluation on whether a financial asset assets. A reduction in the estimated useful lives of property and equipment would increase the
is quoted in an active market is the determination on whether quoted prices are readily and recorded depreciation and decrease assets. The estimated lives of property and equipment and
regularly available, and whether those prices represent actual and regularly occurring market software costs are disclosed in Note 2.
transactions on an arm’s length basis.
(e) Recognition of deferred tax assets
Estimates Significant management judgment is required to determine the amount of deferred tax
(a) Credit losses of receivables assets that can be recognized, based upon the likely timing and level of future taxable profits
The Company reviews its receivables to assess impairment on a regular basis. In determining together with future tax planning strategies.
whether credit loss should be recorded in the statement of income, the Company makes
Estimates of future taxable income indicate that certain temporary differences will be realized
judgments as to whether there is any observable data indicating that there is a measurable
in the future. Recognized deferred tax assets amounted to P1,993,918 and P1,636,201 as of
decrease in the estimated future cash flows from a portfolio of receivables before the decrease
December 31, 2008 and 2007, respectively (see Notes 11 and 17).
can be identified with an individual receivable in that portfolio. This evidence may include
observable data indicating that there has been an adverse change in the payment status
of customers or national or local economic conditions that correlate with defaults on the 4. Fair Value Measurement
receivables.
The methods used by the Company in estimating the fair value of the financial instruments are:
As of December 31, 2008 and December 31, 2007, receivables are carried at P26,787,363 and
P24,678,603, respectively, net of allowance for credit losses amounting to P289,370 Cash and cash equivalents and receivables - Carrying amount of liquid assets and short-term
(see Note 7). elements of all other financial assets approximates their fair value.
(b) Pension and other employee benefits HTM investments - The fair values of investment in debt securities are generally based upon
The determination of obligation and cost of pension and other employee benefits is quoted market prices. If the market prices are not readily available, fair values are estimated using
dependent on the selection of certain assumptions used by the Company in calculating such either values obtained from independent parties offering pricing services or adjusted quoted market
amounts. Those assumptions include, among others, discount rates, expected returns on plan prices of comparable investments or using the discounted cash flow methodology with the original
assets and salary increase rates. In accordance with PFRS, actual results that differ from the effective interest rate as the discount rate.
Company’s assumptions, subject to the 10.00% corridor test, are accumulated and amortized
Liabilities - The carrying amount of financial liabilities approximates their fair values due to either
over the expected remaining average working lives of the employees and therefore, generally
the demand feature or the relatively short-term maturities of these liabilities.
affect the recognized expense and recorded obligation in such future periods.
The following table summarizes the carrying amounts and fair values of those financial assets and
liabilities as of December 31, 2008 and 2007:
BANCNET 2008 ANNUAL REPORT
Notes to Financial Statements
The industry sector analysis of the Company’s maximum exposure to credit risk follows:
2008 2007
Carrying Value Fair Value Carrying Value Fair Value 2008
Financial Assets Cash and cash Receivables HTM Total
Cash and cash equivalents: equivalents investments
Cash on hand and in bank P14,407,216 P14,407,216 P5,460,612 P 5,460,612
Short-term placements 146,424,166 146,424,166 148,527,508 148,527,508 Banks and other financial
Receivables: intermediaries P160,791,382 P20,082,944 P6,430,130 P187,304,456
Accounts receivable 21,743,098 21,743,098 18,673,392 18,673,392 Personal consumption – 3,743,104 – 3,743,104
Accrued interest receivable 1,715,440 1,715,440 1,571,385 1,571,385 Government – 906,818 86,834,360 87,741,178
Other receivables 3,328,825 3,328,825 4,122,455 4,122,455 Telecommunications – 895,955 – 895,955
HTM investments: Utilities – 607,416 – 607,416
Retail treasury bonds 40,000,000 41,637,630 46,682,941 48,839,790 Others – 551,126 – 551,126
Fixed rate treasury notes 46,834,360 47,790,715 31,044,176 32,166,457 P160,791,382 P26,787,363 P 93,264,490 P280,843,235
Zero coupon notes 6,503,015 6,503,015 5,989,683 6,162,504
2007
Financial Liabilities Cash and cash Receivables HTM Total
Financial liabilities at cost: equivalents investments
Advances from stockholders 31,484,334 31,484,334 48,082,954 48,082,954
Advances from associate and Banks and other financial P153,948,120 P18,975,681 P5,989,110 P178,912,911
alliance members 8,000,000 8,000,000 8,000,000 8,000,000 intermediaries
Personal consumption – 3,614,817 – 3,614,817
Telecommunications – 730,229 – 730,229
Other current liabilities
Government – 491,187 77,727,690 78,218,877
Accounts payable 23,529,959 23,529,959 25,937,860 25,937,860
Utilities – 298,163 – 298,163
Others – 257,155 – 257,155
5. Financial Risk Management Objectives and Policies P153,948,120 P24,367,232 P83,716,800 P262,032,152
Aging analysis of past due but not impaired receivables
The financial activities of the Company allow some exposures to risks. The Company’s board of
The table below shows analysis of past due but not impaired per class of receivables. Under
directors (BOD) is responsible for establishing and maintaining sound risk management system and
PFRS 7 Financial Instruments: Disclosures, a financial asset is past due when a counterparty has
is ultimately accountable for any risks taken within the Company. The BOD makes sure that the
failed to make a payment when contractually due.
risk framework system, which includes the policies and risk control procedures that management
adopts, clearly assesses, monitors and mitigates any exposures to risks.
2008
Senior Management is responsible for the proper implementation of these risk policies and Less than 30 31 to 60 61 to 90 91 to 120 More than Total
procedures throughout the whole organization. They are further responsible for the submission of days days days days 121 days
regular reports to the BOD to monitor risk exposures of the Company. The BOD, on the other hand,
Accounts receivable P56,620 P421,666 P53,935 P9,899 P 624,195 P1,666,315
periodically reviews the Company’s risk framework system for possible improvements, given the
Other receivables 66,965 – – – 2,257 69,222
fast-changing environment and other developments in the industry.
P623,585 P 421,666 P53,935 P9,899 P626,452 P1,735,537
The Company’s principal financial instruments comprise cash and cash equivalents, receivables and
HTM investments. The financial liabilities of the Company, which arise directly from its operations,
comprise advances from stockholders, advances from associate and alliance members, accounts 2007
payable and accrued expenses and other liabilities. Less than 30 31 to 60 61 to 90 91 to 120 More than Total
days days |days days 121 days
The main risks arising from the Company’s financial instruments are credit risk, market risk, liquidity
risk and operational risk. The BOD reviews and approves policies for managing each of these risks Accounts receivable P422,306 P224,385 P – P 17,143 P 107,782 P 771,616
and they are summarized below: Other receivables 30,000 29,176 – 21,882 1,255,153 1,336,211
P 452,306 P 253,561 P – P 39,025P 1,362,935 P 2,107,827
Credit Risk
Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation Market Risk
and cause the other party to incur a financial loss. The Company manages credit risk by setting Market risk is the risk of loss to future earnings, to fair values or to future cash flows that may result
limits to groups of clients and industry segments. The Company also monitors credit exposures and from changes in the price of a financial instrument. It arises from open positions in interest rate,
continually assesses the creditworthiness of counterparties. foreign currency exchange rates, commodity and equity prices, all of which are exposed to general
The Company’s exposure to credit risk is minimal as settlement of the majority of the receivables and specific market movements. The Company follows a conservative approach in investing its
is facilitated by the appointed Treasurer Bank through regular settlement procedures of the funds in fixed income securities both for long-term and short-term investments. Majority of the HTM
member banks via the Philippine Clearing House Corporation. Charges are settled normally within investments receive semi-annual or quarterly coupon payments.
five banking days after the close of each month. In case of unavailability of funds from member Foreign currency risk
banks, the Company may settle the net due through offset against ‘Advances from associate and Foreign currency risk is the risk of exchange rate fluctuations that may result in the receipt of
alliance members’. reduced interest and a loss of principal when converted to the investor’s local currency. Exchange
Credit quality of financial assets and gross maximum exposure to credit risk controls imposed by the relevant authorities may also adversely affect the exchange rate and result
The Company deemed its financial assets, which comprise receivables arising mainly from opera- in the receipt of reduced interest or principal.
tions, as high grade since these are placed with its member banks only. Although receivables of the The Company’s policy is to maintain foreign currency exposure within acceptable limits and within
Company do not require collaterals, exposure to bad debts is not significant due to the on-going existing regulatory guidelines.
monitoring of these receivables. Receivables that are contractually past due but not considered
as impaired, in view of probability to collect and credit reputation of counterparties, amounted to As of December 31, 2008 and 2007, the carrying amounts of the Company’s foreign currency-
P1,735,537 and P2,107,827 as of December 31, 2008 and 2007 respectively. denominated financial instruments are as follows:
The Company deemed its other financial assets, which comprise cash in banks, short-term place- 2008 2007
ments and HTM investments, as high grade. Cash in banks and short-term placements are placed
Cash in banks US$50,686 US$4,915
with member banks where with respect to credit risk arising from these other financial assets, the
Short-term cash placements 94,748 319,556
Company’s exposure to credit risk arises from default of the counterparty, with a maximum expo-
sure equal to the carrying amount of these instruments. HTM investments consist mostly of retail Foreign currency exposure US$145,434 US$324,471
treasury bonds and fixed rate treasury notes and are generally risk-free investments since these are Equivalent in Philippine peso P6,911,024 P13,394,163
backed by the Philippine government.
2008 ANNUAL REPORT BANCNET
The following table sets forth the impact of the range of a reasonably possible change of ±5%
in the US$:P exchange rate on the Company’s pre-tax income for the years ended December 31, 7. Receivables
2008 and 2007:
This account consists of:
December 31, 2008 December 31, 2007
Percentage change in exchange rate –5% +5% –5% +5% 2008 2007
Change on pre-tax income (P345,551) P 345,551 (P 669,708) P 669,708 Accounts receivable P 22,032,468 P 18,962,762
Accrued interest receivable 1,715,440 1,571,385
The Company believes that its profile of foreign currency exposures on its assets and liabilities is Other receivables 3,328,825 4,122,455
within conservative limits for the type of business in which the Company is engaged in.
27,076,733 24,656,602
Liquidity Risk Less allowance for credit losses 289,370 289,370
Liquidity risk is the risk that the Company will be unable to meet its payment obligations when they P 26,787,363 P 24,367,232
fall due under normal and stress circumstances.
All financial liabilities of the Company, which comprise advances to stockholders, associate and Other receivables include advances officers, employees, member banks and stockholders.
alliance members and other current liabilities, are on demand (see Note 12).
Allowance for credit losses amounting to P 289,370 was provided for account receivables from
Operational Risk customers in the banking and other financial intermediaries and telecommunications industries,
Operational risk is the risk of loss arising from systems failure, human error, fraud or external events. respectively, for both years.
When controls fail to perform, operational risks can cause damage to reputation, have legal or
regulatory implications, or lead to financial loss. The Company cannot expect to eliminate all opera-
8. Other Current Assets
tional risks, but through a control framework and by monitoring and responding to potential risks,
the Company is able to manage the risks. Controls include effective segregation of duties, access,
This account consists of:
authorization and reconciliation procedures, staff education and assessment processes.
2008 2007
6. Cash and Cash Equivalents Prepaid expenses P 2,139,741 P 1,718,912
Creditable withholding taxes 83,408 72,627
This account consists of: Advances to suppliers and contractors 239,208 220,367
Others 305,181 91,004
2008 2007
P 2,767,538 P 2,102,910
Cash on hand and in banks (Note 19) P14,407,216 P5,460,612
Short-term cash placements (Note 19) 146,424,166 148,527,508
P160,831,382 P153,988,120
9. Held-to-Maturity Investments
Cash in banks earn interest at prevailing market rates. Short-term cash placements are made for
varying periods of up to three months depending on the immediate cash requirements of the Company. This account consists of:
Peso-denominated short-term cash placements earn interest ranging from 4.00% to 7.00% in 2008 2007
2008 and 3.00% to 6.31% in 2007. Dollar-denominated short-term cash placements amounting
Fixed ratentreasury notes 46,834,360 31,044,176
to US$94,748 (or P 4,502,425) in 2008 and US$319,556 (or P13,191,272) in 2007 earn interest
Retail treasury bonds P40,000,000 P46,682,941
ranging from 1.25% to 3.50% and 2.25% to 3.25%, respectively.
Zero coupon notes 6,430,130 5,989,683
Interest income earned on cash and cash equivalents amounted to P7,384,114 and P5,867,545 P93,264,490 P83,716,800
in 2008 and 2007, respectively.
These investments earned interest ranging from 6.21% to 11.27% for the years ended
December 31, 2008 and 2007. Interest income earned on HTM investments amounted to
P7,434,359 and P6,328,813 in 2008 and 2007, respectively.
10. Property and Equipment
The composition of and movements in this account are as follows:
2008
Building and Building Computer and Other Transportation Furniture Total
Improvements Office Equipment Equipment and Fixtures
Cost
Balance at beginning of year P 116,715,131 P116,537,420 P10,269,458 P10,893,325 P254,415,334
Additions – 5,384,320 2,406,250 731,688 8,522,258
Disposals (15,944,507) – (1,162,727) – (17,107,234)
Balance at end of year 100,770,624 121,921,740 11,512,981 11,625,013 245,830,358
Accumulated depreciation
Balance at beginning of year 12,400,741 107,978,902 3,281,470 6,266,133 129,927,246
Depreciation 5,069,847 5,038,498 2,065,138 2,377,634 14,551,117
Disposals (6,803,014) – (1,129,847) – (7,932,861)
Balance at end of year 10,667,574 113,017,400 4,216,761 8,643,767 136,545,502
Net book value at end of year P 90,103,050 P8,904,340 P7,296,220 P2,981,246 P109,284,856
BANCNET 2008 ANNUAL REPORT
Notes to Financial Statements
2007
Building and Building Computer and Other Transportation Furniture Total
Improvements Office Equipment Equipment and Fixtures
Cost
Balance at beginning of year P121,935,756 P166,826,053 P8,105,188 P 7,515,871 P 304,382,868
Additions 13,044,315 8,488,689 4,040,179 5,444,469 31,017,652
Disposals (18,264,940) (58,777,322) (1,875,909) (2,067,015) (80,985,186)
Balance at end of year 116,715,131 116,537,420 10,269,458 10,893,325 254,415,334
Accumulated depreciation
Balance at beginning of year 16,659,884 161,109,697 3,214,952 6,052,534 187,037,067
Depreciation 5,370,848 5,644,125 1,942,421 2,280,461 15,237,855
Disposals (9,629,991) (58,774,920) (1,875,903) (2,066,862) (72,347,676)
Balance at end of year 12,400,741 107,978,902 3,281,470 6,266,133 129,927,246
Net book value at end of year P 104,314,390 P 8,558,518 P 6,987,988 P 4,627,192 P 124,488,088
The gross carrying values of property and equipment which are fully depreciated and amortized as of December 31, 2008 and 2007 but are still being used by the Company amounted to P 109,203,093 and
P120,281,239, respectively.
Gain on sale of property and equipment in for the years ended December 31, 2008 and 2007 amounting to P 1,520,168 and P 2,352,084, respectively is included in ‘Miscellaneous income’ in the statement
of income (see Note 14).
13. Equity
11. Other Assets
Capital stock as of December 31, 2008 and 2007 consists of:
This account consists of:
Founders’ and common stock - P 100 par value
2008 2007
Authorized - 1,400,000 shares
Software costs - net P 11,115,728 P 5,174,911 P 105,000,000
Issued and outstanding - 1,050,000 shares
Deferred input value-added tax (VAT) 3,151,332 3,764,985 Preferred stock - P 100 par value
Net retirement asset (Note 15) 2,797,500 1,221,000 Authorized - 400,000 shares
Net deferred tax asset (Note 17) 1,154,668 1,269,901 Issued and outstanding - 100,000 shares 10,000,000
Miscellaneous 721,025 607,235 P 115,000,000
18,940,253 12,038,032
Less allowance for impairment losses 127,000 127,000
Capital Management
P 18,813,253 P 11,911,032 The primary objective of the Company’s capital management is to ensure that it maintains healthy
capital ratios in order to support its business and maximize shareholder’s value. The Company
The movements in ‘Software costs - net’ follow:
manages its capital structure and makes adjustments to it, in light of changes in economic condi-
tions. To maintain or adjust the capital structure, the Company may adjust the dividend payment
2008 2007
to shareholders, return capital to shareholders or issue new shares. No changes were made in the
Cost
objectives, policies or processes from the previous years.
Balance at beginning of year P48,140,567 P40,280,744
Additions 14,177,388 7,859,823 The Company considers its shareholder’s equity as its capital. It is not subject to any externally
Balance at end of year 62,317,955 48,140,567 imposed capital requirements.
Accumulated amortization Founder’s and Common Stock
Balance at beginning of year 42,965,656 38,077,124 On May 15, 2008, the BOD approved the increase in authorized capital stock from P180,000,000
Amortization 8,236,571 4,888,532 (1,800,000 shares) to P300,000,000 (3,000,000 shares).
Balance at end of year 51,202,227 42,965,656
P11,115,728 P5,174,911 Preferred Stock
Preferred shares have the same rights and privileges as that of the founders’ and common shares
Deferred input VAT pertains to input taxes on purchases of various property and equipment with except that holders of preferred shares shall not be entitled to vote at stockholders’ meetings for
acquisition costs exceeding P 1,000,000 for the new office premises acquired in 2006. These input the election of directors or on any corporate matter, except on such matters as expressly provided
taxes are deferred and will be claimed by the Company as credit against output tax over the esti- for by the Corporation Code of the Philippines (the Code) and in the event of any liquidation,
mated useful lives of the purchased property and equipment or 5 years, whichever is shorter. dissolution or winding up of the Company (whether voluntary or involuntary).
Changes in the allowance for impairment losses follow: Preferred shareholders shall be entitled to receive out of the assets of the Company available for
distribution to its stockholders, for every share of their holdings of preferred shares, an amount
2008 2007 equal to its par value, before any distribution of the net assets of the Company to common
Balance at beginning of year P127,000 P– stockholders.
Provision for impairment losses (Note 16) – 127,000 On May 15, 2008, the BOD approved the amendment of the Articles of Incorporation to convert
Balance at end of year P127,000 P 127,000 and reclassify the 400,000 preferred shares to 400,000 common shares. The Company will effect
the changes after obtaining approval of the amended Articles of Incorporation from the Securities
and Exchange Commission (SEC).
12. Other Current Liabilities Deposit for Future Stock Subscription
On July 24, 2008, the BOD approved additional subscription of capital stock in the amount of
P12,296,970 representing 63,100 common shares at par value for the application of a new
This account consists of: member bank for network membership. The Company will effect the subscription on its books once
all government requirements, corporate and other applicable rules are fully complied.
2008 2007
Accounts payable (Note 19) P23,529,959 P25,937,860 Retained Earnings
Accrued expenses 18,042,697 15,782,590 Under the Code, stock corporations are prohibited from retaining surplus profits in excess of
P 41,572,656 P41,720,450
2008 ANNUAL REPORT BANCNET
100.00% of their paid-up capital stock, except when qualified by any reasons mentioned in the Code. The movements in the present value of the defined benefit obligation follow:
Dividends
2008 2007
On July 24, 2008, in relation to the increase in capital stock approved by the BOD on May 15, 2008,
the amount of P 30,130,000 divided into 301,300 shares at P 100 par value representing more Balance at beginning of period P10,301,100 P11,830,000
than 25.00% of the net increase, was approved by the BOD and the stockholders to be subscribed Current service cost 935,600 1,283,700
and issued through stock dividends to stockholders of record as of July 24, 2008. The Company will Interest cost 1,065,100 890,800
effect the distribution of the dividends after obtaining approval of the amended articles from SEC. Actuarial gain (5,268,600) (3,703,400)
Balance at end of period P7,033,200 P10,301,100
On April 3, 2008, the BOD declared a 10.00% cash dividend totaling P 11,500,000 based on the
par value of all stocks, payable on April 30, 2008 to stockholders of record as of March 28, 2008. The movements in the fair value of plan assets recognized follow:
On March 22, 2007, the BOD approved the declaration of cash dividends of 10.00% on par value
of all stocks, payable on March 30, 2007 to stockholders of record as of March 9, 2007. Total cash 2008 2007
dividends declared and paid as of December 31, 2007 amounted to P11,500,000. Balance at beginning of period P11,044,500 P9,774,600
Expected return on plan assets 883,600 977,500
Appropriation of Retained Earnings
Contributions paid 3,529,900 776,400
On December 20, 2007, the BOD approved the reversal of the P 60,000,000 appropriation of
Actuarial gain (loss) 658,400 (484,000)
retained earnings. On the same date, the BOD also approved the appropriation of retained earnings
in the amount of P70,000,000 to fund enhancement of business systems and processes which was Balance at end of period P16,116,400 P11,044,500
planned to be undertaken in 2008. As of December 31, 2008, P20,000,000 had been expended
The overall expected rate of return on plan assets is determined based on the market prices prevail-
for the enhancement program.
ing on that date of valuation applicable to the period over which the obligation is to be settled.
The actual return on the plan assets amounted to P 1,542,000 and P493,500 for the years ended
14. Miscellaneous Income
December 31, 2008 and 2007, respectively.
This account consists of: The Company expects to contribute P4,115,700 to its defined benefit pension plan in 2009.
The amounts included in ‘Salaries and employee benefits’ in the statements of income are as
2008 2007
follows:
Gain on sale of property and equipment (Note 10) P1,520,168 P2,352,084
Others 4,355,540 1,957,731
2008 2007
P5,875,708 P4,309,815
Current service cost P 935,600 P1,283,700
Others include income relating to ancillary charges made by the Company to member banks Interest cost 1,065,100 890,800
amounting to P1,899,554 in 2008 and P1,434,464 in 2007 in connection with the ATM operations. Expected return on plan assets (883,600) (977,500)
Increase in recognized asset as a result of the asset
ceiling test 836,300 –
15. Retirement Plan
Net actuarial loss recognized during the period – 167,600
The Company has a separate funded noncontributory defined benefit retirement plan covering P1,953,400 P1,364,600
substantially all its officers and regular employees. Under this retirement plan, all covered officers
and employees are entitled to cash benefits after satisfying certain age and service requirements. The movements in unrealized actuarial gains follow:
The latest actuarial valuation report of the retirement plan was made on March 29, 2009. 2008 2007
The principal actuarial assumptions used in determining retirement asset as of the beginning of Balance at beginning of period P477,600 P3,864,600
the year are as follows: Actuarial gain - obligation (5,268,600) (3,703,400)
Actuarial gain - plan assets (658,400) 484,000
2008 2007 Net actuarial loss recognized during the period – (167,600)
Retirement age 60 years 60 years Balance at end of period (P5,449,400) P477,600
Average expected remaining working life 15 years 16 years
The major categories of plan assets as a percentage of the fair value of total plan assets are as
Discount rate 10.34% 7.53%
follows:
Expected rate of return on assets 8.00% 10.00%
Future salary increases 8.00% 8.00%
2008 2007
The discount rate used to arrive at the present value of obligation as of December 31, 2008 is Investment in government securities 73.31% 51.65%
16.50%. Savings and time deposits 25.22% 45.72%
The amount recognized as ‘Net retirement asset’ included under ‘Other assets’ in the balance Interest receivable and others 1.47% 1.14%
sheets is as follows: Loans receivable - net 100.00% 100.00%
2008 2007 Information on the Company’s retirement plan for the current and previous periods follows:
Fair value of plan assets P16,116,400 P11,044,500
Present value of obligation 7,033,200 10,301,100 2008 2007 2006
Excess 9,083,200 743,400 Fair value of plan assets P16,116,400 P11,044,500 P 9,774,600
(5,449,400) 477,600 Present value of funded obligation 7,033,200 10,301,100 11,830,000
Unrecognized actuarial losses
Unrecognized asset due to asset ceiling (836,300) –
Excess 9,083,200 743,400 2,055,400
Net retirement asset P 2,797,500 P1,221,000
Experience adjustments on plan liabilities 1,017,100 433,300 495,700
Experience adjustments on plan assets 658,400 484,000 (219,400)
The movements in the ‘Net retirement asset’ (included in ‘Other asset’) in the balance sheets
Change in assumptions (6,285,700) (4,136,700) 3,558,300
follow:
2008 2007
Balance at beginning of period P1,221,000 P1,809,200
Retirement expense (1,953,400) (1,364,600)
Contributions paid 3,529,900 776,400
Balance at end of period P 2,797,500 P 1,221,000
BANCNET 2008 ANNUAL REPORT
Notes to Financial Statements
A reconciliation of the statutory income tax to the provision for income tax follows:
16. Miscellaneous Expenses
2008 2007
This account consists of: Statutory income tax P12,335,657 P9,900,351
Tax effect of:
2008 2007 Tax paid and tax exempt income (2,255,401) (2,099,305)
POS terminal-related expenses P2,964,119 P2,886,797 Change in tax rate and others 185,154 –
Janitorial, security and messengerial 2,194,415 1,920,159 Provision for income tax P10,265,401 P 7,801,046
Association dues 1,287,149 1,574,959
Repairs and maintenance 448,353 280,320
Directors’ fees 375,100 308,000
Insurance 351,396 502,051 18. Related Party Transactions
Entertainment, amusement and recreation (EAR)
(Note 17) 224,536 299,591 In the ordinary course of business, the Company has transactions with its member banks considered
Foreign exchange losses 6,437 1,815,210 as related parties. Under existing policies of the Company, these transactions are made substan-
Provision for impairment and credit losses tially on the same terms and conditions as transactions with businesses of comparable risks.
(Notes 7 and 11) – 127,000 The Company’s short-term cash placements are made with member banks in 2008 and 2007.
Others 824,744 650,021
Deposits with member banks amounted to P14,367,216 and P5,420,611 and as of
P8,676,249 P10,364,108
December 31, 2008 and 2007, respectively, and earn interest at prevailing market rates. HTM
POS terminal-related expenses represent expenses incurred in providing the POS facility to the investments acquired through member banks amounted to P93,264,490 and P83,716,800 as of
cardholders of the member banks. December 31, 2008 and 2007, respectively. Total interest income on deposits with and investments
acquired through member banks amounted to P14,818,473 and P12,196,358 in 2008 and 2007,
Others include donations and contributions, subscription expenses and bank charges. respectively.
In the ordinary course of business, the Company has loan transactions with certain officers and
employees. Advances made to officers and employees amounting to P3,325,887 and P3,229,150
17. Income and Other Taxes as of December 31, 2008 and 2007, respectively, are included under ‘Other receivables’. Interest
earned on such loan advances amounted to P182,266 and P240,808 in 2008 and 2007,
Republic Act (RA) No. 9337, An Act Amending National Internal Revenue Code, which took effect respectively.
on November 1, 2005, provides that the RCIT rate shall be 35% until December 31, 2008. Starting Advances from stockholders and associate and alliance members represent advances that are
January 1, 2009, the RCIT rate shall be 30%. The interest allowed as a deductible expense is payable on demand.
reduced by 42% of interest income subjected to final tax under the 35% corporate tax regime and
33% under the 30% corporate tax regime. Accounts payable to member banks included under ‘Other current liabilities’ amounted to
P8,364,019 and P5,443,858 as of December 31, 2008 and 2007, respectively.
In addition, current tax regulations provide for the ceiling on the amount of EAR expenses that
can be claimed as a deduction against taxable income. Under the regulation, EAR allowed as The remuneration of key management personnel are as follows:
deductible expense for a service company like the Company is limited to the actual EAR paid
or incurred but not to exceed 1% of net revenue. EAR expenses of the Company amounted to 2008 2007
P224,536 and P299,591 in 2008 and 2007, respectively, included under ‘Miscellaneous’ in the Short-term remuneration benefits P7,200,597 P6,592,215
statements of income. Post-employment benefits 548,596 507,097
The regulations also provide for MCIT of 2% on modified gross income and allow a NOLCO. The P7,749,193 P7,099,312
Company’s MCIT and NOLCO may be applied against the Company’s income tax liability and tax-
able income, respectively, over a three-year period from the year of inception.
Income taxes include corporate income taxes and final tax paid at the rate of 20% and 7.5% which 19. Earnings Per Share and Book Value Per Common Share
represent the final withholding tax on gross interest income from peso and dollar deposits in banks
and other deposit substitutes, respectively. EPS amounts were computed as follows:
Provision for income tax consists of:
2008 2007
2008 2007 a. Net income P 25,007,174 P 20,485,670
b. Weighted average number of outstanding common shares 1,050,000 1,050,000
Current:
Regular P7,219,111 P5,392,501 c. Basic/dilutive EPS (a/b) P23.82 P 19.51
Final 2,931,057 2,381,907 As of December 31, 2008 and 2007, there are no shares that are dilutive.
10,150,168 7,774,408
Deferred 115,233 26,638 Book value per common share was computed as follows:
P10,265,401 P7,801,046
2008 2007
The components of ‘Net deferred tax assets’ included under ‘Other assets’ are as follows: a. Common equity at end of year P312,081,358 P286,305,055
b. Founders’ and common shares outstanding at end of year 1,050,000 1,050,000
2008 2007 c. Book value per common share (a/b) P299.22 P 272.67
Deferred tax assets on: To arrive at common equity, preferred stock and the related additional paid-in capital totaling
Accrued employee benefits P 955,665 P1,135,678 P14,197,514 in 2008 and 2007 are deducted from total equity (see Note 13).
Unamortized pension contributions 913,342 354,793
Allowance for impairment and credit losses 124,911 145,730
20. Subsequent Events
1,993,918 1,636,201
Deferred tax liability on net retirement asset (839,250) (366,300)
On April 13, 2009, the BOD declared a 10% cash dividend based on the par value of all stocks,
P1,154,668 P1,269,901 payable on April 24, 2009 to stockholders of record as of April 13, 2009.
On the same date, the BOD authorized for issue the accompanying comparative financial
statements of the Company.
The largest ATM consortium with 50 member banks, subscribers and affiliates*
MEMBER BANKS HSBC RCBC SAVINGS METRO ORMOC CREDIT
The Enterprise Center, Ayala Avenue G/F Pacific Place Bldg. Pearl Drive COOPERATIVE INC. (OCCCI)
ALLIED BANK Makati City Ortigas Center, Pasig City OCCCI Main Office Bldg., Arradaza St.
Allied Bank Centre, 6754 Ayala Avenue 85878 or 9767878 634-7008 Ormoc City
Makati City
816-3311 HSBC SAVINGS ROBINSONS SAVINGS BANK NATIONAL CONFEDERATION OF CREDIT
Ground Floor, Peninsula Court 17F Galleria Corporate Center, EDSA corner COOPERATIVES (NATCCCO)
ALLIED SAVINGS BANK Makati Avenue corner Paseo de Roxas Ortigas Avenue, Quezon City 227 J. P. Rizal St., Project 4
Allied Bank Centre, 6754 Ayala Avenue Makati City 631-8888 Quezon City
Makati City 85800
816-3311 RURAL GREEN BANK OF CARAGA COMMUNITY RURAL BANK OF DAPITAN
MALAYAN SAVINGS BANK Montilla Blvd., Butuan City Andres Bonifacio Avenue, Dapitan City
ASIA UNITED BANK 2/F Majalco Bldg., Trasierra corner (085) 342-1795, 342-2911 Zamboanga del Norte
G/F, Parc Royale Bldg., Doña Julia Vargas Benavidez St., Salcedo Village, Makati City
Avenue Ortigas Center, Pasig City 814-0884 to 89 SECURITY BANK RURAL BANK OF MALASIQUI
638-6888 Security Bank Centre, 6776 Ayala Avenue 14 Ramon Magsaysay St., Malasiqui
MANILA BANK Makati City Pangasinan
BANCO FILIPINO 6772 Ayala Avenue, Makati City 867-6788
Paseo de Roxas corner Dela Rosa St. 751-6000 RURAL BANK OF SAN MATEO
Makati City STANDARD CHARTERED National Highway, Barangay 3
818-5151 METROBANK 6788 Ayala Avenue, Makati City San Mateo, Isabela
Metrobank Plaza, Sen. Gil Puyat Avenue 886-7888
BANCO SAN JUAN Makati City VISAYAS COOPERATIVE
Bldg. 27, Guadalupe Mansion, JP Rizal Ext. 898-8000 STERLING BANK OF ASIA CENTRAL FUND FEDERATION
Cembo, Makati City Sterling Bank Corp. Center Bldg. Ground Floor, Kamuning Pension House
881-3449 OPPORTUNITY MICROFINANCE BANK Ortigas Avenue, Greenhills, San Juan J. Lorente-M. Zosa St., Capitol Site
Robinsons Homes East Commercial Arcade 535-6168 Cebu City
CENTENNIAL SAVINGS BANK Antipolo City
15/F Prestige Tower, Emerald Avenue 630-0141 TONG YANG ZAMBALES RURAL BANK
Pasig City G/F Chatham House, 116 Valero corner No. 6-20th St., East Bajac Bajac
637-0319/22 PBCOM Hererra St., Salcedo Vill., Makati City Olongapo City, Zambales
PB Com Tower Ayala Avenue corner 845-3822
CHINA BANK Herrera St. Makati City
8745 Paseo de Roxas, Makati City 830-7000 WORLD PARTNERS BANK AFFILIATES
885-5555 National Highway, Landayan
PHILIPPINE BUSINESS BANK San Pedro, Laguna NATIONLINK
CHINATRUST 350 Rizal Avenue Extension corner 868-7474 11F, Manila Bank Bldg., Ayala Avenue
3/F Tower I, Ayala Triangle, Paseo de Roxas 8th Avenue, Grace Park Caloocan City Makati City 1226
corner Ayala Avenue, Makati City 363-3333 SUBSCRIBERS 817-6630
848-5519
PHILIPPINE POSTAL BANK AURORA INTEGRATED MULTI CTK SOLUTIONS
CITIBANK Postal Bank Center, Liwasang Bonifacio PURPOSE COOPERATIVE 21G Burgandy Corporate Tower,
Citibank Square, #1 Eastwood Avenue Manila Burgos St., Poblacion, Aurora Senator Gil Puyat Avenue, Makati City
Libis, Quezon City 527-0073/53 Zamboanga del Sur 382-6409
995-9110
PHILTRUST COOPERATIVE BANK OF QUEZON PROVINCE
CITIBANK SAVINGS 1000 UN Avenue corner San Marcelino St. Granja St. corner Leon Guinto St.
15F Citibank Square, #1 Eastwood Avenue Manila 4301 Lucena City
Libis, Quezon City 524-9061
423-6600 KAUNLARAN RURAL BANK
PRODUCERS BANK Soriano St., Manaoag, Pangasinan
CITYSTATE SAVINGS 17F One San Miguel Avenue, Shaw Boulevard
2113 Dominga Bldg., Shaw Blvd., corner corner San Miguel Avenue, Ortigas Center
Orambo, Pasig City Pasig City
636-3333 667-3022
CITY SAVINGS BANK PSBANK
City Savings Financial Plaza, corner Osmena 777 Paseo de Roxas corner Sedeño St.
Boulevard & P. Burgos St. Makati City
Cebu City 885-8208
(032) 412-1785
QCRB
DEUTSCHE BANK QCRB Bldg., Quezon Avenue, Lucena City
26F, Tower 1, Ayala Triangle Quezon
Ayala Avenue, Makati City (042)-7102045
894-6900
REAL BANK
EAST WEST BANK 81 Timog Avenue, 7/F President Tower
3/F PB Com Tower, Ayala Avenue corner Diliman Quezon, City
Hererra St., Makati City 928-5545
815-0735
RCBC
EXPORT BANK RCBC Plaza, Ayala corner Sen. Gil Puyat Avenue
20/F Export Bank Plaza, Sen. Gil Puyat Makati City
corner Chino Roces Avenue, Makati City 894-9000
878-9100
* as of December 31, 2008
19F, Equitable Tower, 8751 Paseo de Roxas, Makati City 1226, Philippines
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