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									A Status Report on the Philippine Financial System
                  Second Semester 2007




                Bangko Sentral ng Pilipinas
                      Manila, Philippines
This semestral report is prepared pursuant to Section 39(c), Article V of the New Central Bank Act (R.A.
No. 7653) by the Office of Supervisory Policy Development, Supervision and Examination Sector,
Bangko Sentral ng Pilipinas. A synopsis of the report is on the Web at http://www.bsp.gov.ph.
       STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007



                                     TABLE OF CONTENTS

                                                                                       PAGE NO.
GLOSSARY OF TERMS                                                                           ii
PROLOGUE                                                                                    V
THE PHILIPPINE FINANCIAL SYSTEM: AN ASSESSMENT                                              1
         THE PHILIPPINE BANKING SYSTEM                                                     10
                UNIVERSAL AND COMMERCIAL BANKS                                             40
                THRIFT BANKS                                                               70
                 RURAL BANKS                                                               87
                COOPERATIVE BANKS                                                          101
         THE NON-BANK FINANCIAL INSTITUTIONS
                NON-BANK FINANCIAL INSTITUTION WITH                                        111
                   QUASI-BANKING FUNCTIONS (NBQBS)
                NON-STOCK SAVINGS AND LOAN ASSOCIATIONS                                    119

         THE PHILIPPINE OFFSHORE BANKING SYSTEM                                            123
         TRUST OPERATIONS                                                                  127


TABLES

SCHEDULES
    SCHEDULE 1 FINANCIAL INSTITUTIONS UNDER
                          BSP SUPERVISION/REGULATION
    SCHEDULE 2 COMPARATIVE STATEMENT OF CONDITION

    SCHEDULE 3 SELECTED CONTINGENT ACCOUNTS

    SCHEDULE 4 TRUST AND FUND MANAGEMENT OPERATIONS

    SCHEDULE 5 COMPARATIVE STATEMENT OF INCOME AND EXPENSES


APPENDIX 1 CHANGES IN BANK REGULATIONS (JANUARY TO DECEMBER 2007)
APPENDIX 2 DIRECTORY OF PHILIPPINE BANKS’/NBQBS’/OFFSHORE BANKS’ HEAD
                   OFFICES
Source: Office of Supervisory Policy Development, Supervision and Examination Sector
                                                                                       Glossary of Terms   ii

       STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007



                                                 GLOSSARY

A. SELECTED ACCOUNTS

1. Total assets refer to the sum of all assets, adjusted to net off the accounts “Due
   from     Head    O f f i ce / Br a n ch e s / Ag e n ci e s” and “Due  to    He a d
   Office/Branches/Agencies” of foreign bank branches.

2.   For purposes of computing the average, one period covers 12 months
     a. Average assets refer to the sum of total assets for two periods divided by 2.
     b. Average capital refers to the sum of total capital accounts for two periods
        divided by 2.
     c. Average earning assets refer to the sum of earning assets for two periods
        divided by 2
     d. Average interest-bearing liabilities refer to the sum of interest-bearing
        liabilities for two periods divided by 2.

3. Total capital refers to the sum of paid-in capital of locally incorporated banks,
   assigned capital and the qualified capital allowable component of the net “Due
   To/Due From Head Office/Branches/Agencies” accounts of branches of foreign
   banks plus surplus, surplus reserves, undivided profits and appraisal increment
   reserves.

4. Earning assets refer to the sum of loans (gross of allowance for probable losses)
   and investments (gross of allowance for probable losses), exclusive of equity
   investment (gross of allowance for probable losses).

5. Fee-based income refers to the sum of bank commissions, service charges/fees,
   and other fees/commissions.

6. Interest-bearing liabilities refer to the sum of deposit liabilities, bills payable and
   unsecured subordinated debt.

7. Liquid assets refer to the sum of cash and due from banks and investments (net of
   allowance for probable losses) exclusive of equity investments (net of allowance for
   probable losses).

8. Net income before tax refers to the sum of net operating income and
   extraordinary credits/(charges).

9. Net interest income refers to the difference between total interest income and total
   interest expense.

10. Net operating income refers to the difference between operating income and
    operating expenses.

11. Non-interest income refers to the sum of fee-based income, trading income, trust
    department income and other non-interest income.



Source: Office of Supervisory Policy Development, Supervision and Examination Sector
 iii   Glossary of Terms

                       STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007


12. Non-performing loans (NPL) refer to past due loan accounts whose principal
    and/or interest is unpaid for thirty (30) days or more after due date (applicable to
    loans payable in lump sum and loans payable in quarterly, semi-annual or annual
    installments), including the outstanding balance of loans payable in monthly
    installments when three (3) or more installments are in arrears, the outstanding
    balance of loans payable daily, weekly or semi-monthly installments when the total
    amount of arrearages reaches ten percent (10%) of the total loan receivable
    balance, restructured loans which do not meet the requirements to be treated as
    performing loans under existing rules and regulations, and all items in litigation.
    Effective September 2002, NPLs exclude loans classified as Loss in the latest BSP
    examination which are fully covered by allowance for probable losses and
    applicable to a bank with no unbooked valuation reserves and other capital
    adjustments required by the BSP (Circular No. 351).

13. Non-performing assets (NPA) refer to the sum of non-performing loans (NPL)
   and real and other properties acquired (ROPA). Effective March 2003, NPAs
   exclude performing sales contract receivable, which met certain requirements
   under Circular No. 380.

14. Distressed assets refer to the sum of NPLs, ROPA, gross and current
   restructured loans.     Effective end-July 2004, performing restructured loans
   replaced current restructured loans.

15. Gross assets refer to total assets, net of reserves plus loan loss reserves (LLR)
   plus provision for ROPA.

16. Operating expenses refer to the sum of bad debts written off/provisions for
   probable losses, overhead costs and other expenses.

17. Operating income refers to the sum of net interest income and non-interest
   income.

18. Overhead costs     refer to the sum of non-loan related operating
   expenses such as compensation/fringe benefits, depreciation and amortization,
   etc.

19. Trading income refers to the sum of trading gains/(losses), foreign exchange
   profits/(losses), gold trading gains/(losses) and profit/(loss) on sale of redemption
   of investments.

B. FINANCIAL AND OTHER RATIOS

1. Capital adequacy ratio (CAR) refers to the ratio of capital to risk weighted assets
   computed in accordance with the risk-based capital adequacy framework
   (patterned after the 1988 Basle Capital Accord) that took into account credit risks,
   effective 1 July 2001 under BSP Circular No. 280 dated 29 March 2001. Under
   BSP Circular No. 360 dated 3 December 2002, which took effect 1 July 2003,
   applying only to universal/commercial banks, computation of CAR incorporates
   market risks in addition to credit risks. Under Circular No. 538 dated 4 August
   2006, which took effect 1 July 2007, universal/commercial banks are to incorporate
   operational risk in addition to credit and market risks.

                           Source: Office of Supervisory Policy Development, Supervision and Examination Sector
                                                                                       Glossary of Terms   iv

       STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007



2. Cost-to-income ratio refers to the ratio of operating expenses (exclusive of bad
   debts written off/provisions for probable losses) to operating income.

3. Density ratio refers to the ratio of the total number of domestic banking offices to
   the total number of cities/municipalities in the Philippines.

4. Distressed assets ratio refers to the ratio of distressed assets to total loans (gross
   of allowance for probable losses), inclusive of interbank loans, plus ROPA, gross

5. Earning asset yield refers to the ratio of total interest income to average earning
   assets.

6. Funding cost refers to the ratio of total interest expense to average interest-
   bearing liabilities.

7. Interest spread refers to the difference between earning asset yield and funding
   cost.

8. Liquid assets ratio refers to the ratio of liquid assets to total deposits.

9. Net interest margin refers to the ratio of net interest income to average earning
   assets.

10. NPA coverage ratio refers to the ratio of allowance for probable losses on non-
   performing assets (NPA) to total NPA.

11. NPA ratio refers to the ratio of NPA to total assets, gross of allowance for
   probable losses.

12. NPL coverage ratio refers to the ratio of allowance for probable losses on non-
    performing loans (NPL) to total NPL.

13. NPL ratio refers to the ratio of non-performing loans (NPL) to total loans (gross of
   allowance for probable losses), inclusive of interbank loans.

14. Population-to-banking offices ratio refers to the ratio of the total population to
   the total number of domestic banking offices.

15. Return on assets refers to the ratio of net income after tax (NIAT) to average
   assets.

16. Return on equity refers to the ratio of NIAT to average capital.




Source: Office of Supervisory Policy Development, Supervision and Examination Sector
v   Prologue
                 STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007




                                       PROLOGUE


       The Status Report on the Philippine Financial System is a semestral report
prepared by the Office of Supervisory Policy Development (OSPD), Supervision and
Examination Sector, Bangko Sentral ng Pilipinas (BSP), and is submitted by the
Governor to the President and the Congress in compliance with Section 39 (c), Article
V of the New Central Bank Act (R.A. No. 7653).



      This report is basically culled from the various periodic reports submitted by
BSP supervised/regulated institutions to the Supervisory Data Center (SDC),
Supervision and Examination Sector. At end-December 2007, BSP
supervised/regulated Financial Institutions consisted of 847 banks with 6,897
branches and other offices, 6,380 non-bank financial institutions (NBFIs) with 7,263
branches and 7 offshore banking units (OBUs). (Schedule 1)



        Effective 3 July 1998, the supervision and regulation of the BSP over non-
banking entities were turned over to the Securities and Exchange Commission (SEC)
for corporations and partnerships, and to the Department of Trade and Industry (DTI)
for single proprietorships, in accordance with Section 30 of R.A. No. 7653, except the
following: non-banks with quasi-banking functions and/or with trust or Investment
Management Activities (IMA) license, non-banks which are subsidiaries/affiliates of
banks and quasi-banks, non-stock savings and loan associations, pawnshops and
venture capital corporations. Likewise, the supervision and regulation over building
and loan associations were transferred to the Home Guarantee Corporation effective 7
February 2002, in accordance with Section 94 of R.A. No. 8791 (The General Banking
Law of 2000).




                   Source: Office of Supervisory Policy Development, Supervision and Examination Sector
                                                                                           Assessment   1
       STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007


          THE PHILIPPINE FINANCIAL SYSTEM: AN ASSESSMENT

       The Philippine financial system stayed
on track towards sustainable growth despite the                          The Philippine financial
financial headwinds of rising world oil and                              system stayed on track
commodity prices, subprime credit crisis and                               towards sustainable
impending US recession threatening to pose a                                growth despite the
drag on its otherwise steady course.                                     financial headwinds of
                                                                            rising world oil and
        Banks’ overall performance in 2007 is a                             commodity prices,
manifestation of their continued resilience                               subprime credit crisis
against global financial uncertainties: steady                               and impending US
growth in assets, deposits, loans and capital                                    recession
accounts not to mention higher profit intake and
better returns for banks’ shareholders on the
back of more efficient and streamlined physical
structure.     Asset quality has remarkably
improved with NPL/NPA ratios much closer to
their four percent pre-crisis levels. With BSP’s
implementation of Basel II last 1 July 2007,
banks’ capital became more risk-sensitive in
line with international standards and remained
well above the minimum BSP regulatory
requirement of 10 percent and the international
benchmark of 8 percent. Other supervised
financial institutions of the BSP similarly
reported stronger balance sheets and improved
profitability.

        The engine of growth may still be in full
throttle on the back of BSP’s sustained
implementation of financial sector reforms but
the global financial system increasingly became
more complex as banks worldwide began the                               The collapse of Northern
manufacturing, packaging and selling of various                             Rock in the United
sophisticated financial products under modern                           Kingdom last September
banking standards. The collapse of Northern                                2007 and the recent
Rock in the United Kingdom last September                                 bargain sale of Bear
2007 and the recent bargain sale of Bear                                  Stearns in the United
Stearns in the United States provided a glimpse                             States provided a
on why banks and regulators alike cannot afford                          glimpse on why banks
to loosen their grip on the steering wheel just                            and regulators alike
because the course is clear, for now.                                    cannot afford to loosen
                                                                        their grip on the steering
       In its bid to develop a more robust                               wheel just because the
financial landscape defined by stronger                                  course is clear, for now
financial institutions and effective market
competition, the BSP remained steadfast in
encouraging banks to strengthen their balance
sheets through asset cleanup, capital buildup or

Source: Office of Supervisory Policy Development, Supervision and Examination Sector
2   Assessment

                     STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007


                                             industry consolidation, improve their risk
                                             management framework and ascribe to the
                                             highest ideals of corporate governance.

                                                     On asset cleanup, banks’ continued
                                             commitment to clean up their books has
          Banks’ continued                   started to pay off as asset quality steadily
         commitment to clean                 improved much closer to their pre-crisis
          up their books has                 levels. Although the distressed asset ratio
         started to pay off as               (broadest measure of impaired assets)
             asset quality                   remained in the double-digit level of 13.2
          steadily improved                  percent and still high based on ASEAN 5
         much closer to their                standard, it has been declining steadily in the
           pre-crisis levels                 last five years with no financial support from
                                             the government. Moreover, the availability of
                                             more disposition venues provided incentives
                                             for banks to unload their bad assets: Special
                                             Purpose Vehicle (SPV)-related transactions,
                                             joint venture agreements, public auctions and
                                             debt write-offs.

                                                    On capital buildup, banks remained
                                             adequately capitalized to date as capital
                                             adequacy ratios (CAR), both on solo and
                                             consolidated bases, were above regulatory
                                             and international standards. The new capital
                                             adequacy requirements under Basel II not
                                             only require banks to have sufficient capital
                                             buffers for their risk-taking activities but also
                                             provide incentives for financial institutions to
                                             improve their risk management practices
                                             particularly with more risk-sensitive risk
                                             weights as they adopt a more sophisticated
                                             approach to risk management.

                                                     On the status of industry consolidation,
                                             the merger and consolidation wave continued
                                             with the landmark merger of BDO-EPCIB
                                             effective 31 May 2007. This has led to the
                                             general trimming of the overall bank structure
                                             by 15 operating banks to 847 banks from 862
                                             banks in 2006. Banks, particularly the
                                             adequately capitalized medium-sized banks
                                             seeking higher profits and better efficiencies
                                             under Basel II, are expected to fuel the
                                             ongoing industry consolidation over the
                                             medium term.

                                                    The recent global financial market
                                             turmoil brought about by the US subprime
                                             crisis highlights the importance of stringent
                                             credit underwriting standards and increased
                       Source: Office of Supervisory Policy Development, Supervision and Examination Sector
                                                                                           Assessment   3
       STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007


transparency and disclosure requirements in
complex financial transactions. In this area,
effective corporate governance is the
windshield that protects banks against potential                               Effective corporate
financial turbulence arising from complex                                       governance is the
financial transactions by requiring them to                                windshield that protects
conduct their business in a more transparent,                               banks against potential
fair and accountable manner. Toward this end,                                 financial turbulence
the BSP further strengthened its corporate                                   arising from complex
governance framework to align the same with                                financial transactions by
the internationally accepted standards and best                           requiring them to conduct
practices (i.e., OECD Codes of Corporate                                   their business in a more
Governance). During the year in review, the                                   transparent, fair and
BSP issued regulations on the enhancement of                                  accountable manner
Financial Reporting Package or FRP (Circular
No. 568 dated 08 May 2007), on the
procedures for the disqualification of bank
directors and officers (Circular No. 584 dated
28 September 2007) and on the imposition of
monetary penalties for erring bank directors and
officers of BSP supervised financial institutions
(Circular No. 585 dated 15 October 2007).

        Parallel to these, the BSP has been
working closely with both Houses of Congress
for the passage of key legislation central to the
BSP financial reform agenda.           One such
measure is the enactment of the Credit
Information System Act, which aims to establish
a centralized credit information bureau1 (CIB) to
provide comprehensive information on all
credit-related activities of the financial system.
With the CIB in place, the BSP expects that
banks will further extend loans to the productive
sectors of the economy such as the micro,
small and medium scale enterprises or MSMEs
as crucial credit information becomes readily
available to lenders. Other pieces of legislation
in the BSP legislative reform agenda include
the amendment of the BSP Charter, enactment
of Retirement Savings (Personal Equity
Retirement Account or PERA), Bankruptcy
Reform Law (Corporate Reform Act or CRA),
Collective Investments (Collective Investment
Schemes Law or CISL) and the proposed
reforms on the Payment System (PSA).
Unfortunately, the wheels of legislative mill
have been turning in a much slower pace in
view of too many political distractions in the

1   Envisioned to be a corporation wherein the BSP has
    a 45 percent interest.
Source: Office of Supervisory Policy Development, Supervision and Examination Sector
4   Assessment

                      STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007


                                              past year. Nonetheless, the BSP remains
                                              optimistic that legislators will one day buckle
            The BSP remains                   down to work on these important financial
              optimistic that                 sector reform bills once the political dust
        legislators will one day              clears away.
         buckle down to work
          on these important                         Beyond banking reform, the BSP has
        financial sector reform               been actively pushing for reforms to
         bills once the political             accelerate the development of the domestic
            dust clears away                  capital market as an alternative funding
                                              source for the economy.           The BSP has
                                              allowed the effective participation of non-bank
                                              financial institutions in capital market
                                              development with the lifting of the moratorium
                                              on the grant of licenses on investment houses
                                              and financing companies to engage in
                                              quasi-banking functions (Circular No. 557
                                              dated 12 January 2007). It also allowed thrift
                                              banks and rural banks to engage in limited
                                              trust business as part of its overall trust reform
                                              agenda (Circular No. 583 dated 24 September
                                              2007).      Finally, the BSP liberalized its
                                              derivatives rules (Box Article 1) and foreign
                                              exchange framework (Box Article 2) to widen
                                              the array of financial products available in the
                                              market, promote greater integration with
                                              international capital markets and enhance risk
                                              diversification.

                                                      In the area of microfinance, the BSP
                                              remained supportive of the national agenda
                                              on poverty alleviation through sustainable
                                              microfinance. As of end-December 2007,
                                              there were 227 banks (from 212 banks in
                                              2006) engaged in microfinance with a total
           The race towards                   loan portfolio of P6.0 billion (up from P4.1
         sustained growth will                billion a year ago) and serving a total of
             definitely have                  839,125 clients (compared to 650,104 clients
            roadblocks and                    in 2006).
          challenges but the
          Philippine financial                       Summing up, the race towards
        system already pulled                 sustained growth will definitely have
          off to a good start.                roadblocks and challenges but the Philippine
             It is, therefore,                financial system already pulled off to a good
        paramount that market                 start. It is, therefore, paramount that market
         players and the BSP                  players and the BSP continue to work hand
        continue to work hand                 and hand to keep the engine of growth
         and hand to keep the                 humming.
           engine of growth
                 humming


                        Source: Office of Supervisory Policy Development, Supervision and Examination Sector
                                                                                                  Assessment       5
        STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007


     Box 1
                                       Revised Rules on Derivatives
                               (BSP Circular No. 594 dated 8 January 2008)

         The Bangko Sentral ng Pilipinas (BSP)                     To avoid undue speculative activity in the
has relaxed the rules governing derivatives               FX market, derivatives involving foreign currency
activities of banks and trust entities.        The        and other foreign currency-denominated assets
amended regulation essentially expands the                shall remain subject to pertinent FX rules and
range of available derivatives that a bank can            regulations.
originate, distribute or use and includes more
stringent guidelines on risk management and the                   Authorized derivatives activities may
sale and marketing of derivatives. This, in effect,       either be generally authorized and/or those
further promotes growth in the domestic capital           permitted through additional authorities that
market by providing banks and trust entities with         require an application and prior BSP approval.
broadened opportunities for financial risk                Additional derivatives authority is classified into:
management and investment diversification                 Type 1 (Expanded Dealer Authority); Type 2
through the prudent use of derivatives.                   (Limited Dealer Authority); Type 3 (Limited User
                                                          Authority); and Type 4 (Special Broker Authority).
        A financial derivative is broadly defined
as a financial instrument that primarily derives its               All derivatives transactions between a
value from the performance of an underlying               bank and any of its subsidiaries and affiliates
variable. It has the following characteristics:           shall also be subject to compliance with minimum
                                                          risk management standards for related-party
     1. Its value changes in response to a change         transactions (as outlined in Appendix 25 of the
        in a specified interest rate, financial           MORB).
        instrument price, commodity price, foreign
        exchange (FX) rate, index of prices or                     The amendments prescribe more
        rates, credit spread, credit rating or credit     stringent standards on risk management. The
        index or other variables not prohibited           appendix on risk management provides a general
        under existing laws, rules and regulations        framework for the management of all relevant
        (the “underlying”);                               risks arising from derivatives activities and follows
     2. It requires either no initial net investment      a principles-based approach to risk supervision
        or an initial net investment that is smaller      instead of the usual enumeration/checklist
        than would be required for other types of         requirement.
        contracts that would be expected to have
        a similar response to changes in market                   The amendments also deal more
        factors; and                                      extensively with the guidelines on the sale and
     3. It is settled at a future date.                   marketing of derivatives with much emphasis
                                                          being given on the importance of client suitability
         Under the revised rules, the range of            assessments, appropriate risk disclosure, the
generally authorized derivatives activities has           need for qualified and competent sales and
been expanded in terms of instruments and                 marketing personnel, and the ultimate
tenors. A universal or commercial bank (U/KB)             responsibility of the board of directors and senior
can now deal with currency swaps, interest rate           management in ensuring compliance with these
swaps, forward rate agreements and analogous              requirements.
financial futures with longer tenors unlike before
where a U/KB can only deal with FX forwards and
FX swaps with a tenor of one year or less.

         To guard against unauthorized
transactions, generally authorized derivatives
activities are limited to derivative instruments
traded in an organized market. 1




 1    An organized market is an exchange or over-the-counter market recognized by the BSP and governed by
      transparent and binding market conventions on price transparency, trade reporting, market surveillance and
      orderly conduct/operations of the market.


Source: Office of Supervisory Policy Development, Supervision and Examination Sector
6       Assessment

                                 STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007



        Box 1
                                      Revised Rules on Derivatives
                               (BSP Circular No. 594 dated 8 January 2008)

                            SUMMARY OF AUTHORIZED DERIVATIVES ACTIVITIES
                            GENERALLY AUTHORIZED DERIVATIVES ACTIVITIES
        Requirements

        Does not require prior BSP approval, however, a bank is expected to:
        • meet the requirements on hedging prescribed under the Philippine Accounting Standards
            (PAS);
        • understand, measure, monitor and control the risks assumed from its derivatives activi-
            ties;
        • adopt effective risk management practices whose sophistication are commensurate to the
            risks being monitored and controlled;
        • maintain capital commensurate to the risk exposure assumed; and
        • observe the provisions specified in Appendices 25 (risk management) and 26
            (ascertaining client suitability to the derivatives product and minimum risk disclosures) of
            the Manual of Regulations for Banks (MORB) and comply with the requirements of Sub-
            section X602.1 of the MORB.

         To ensure the prudent use of derivatives, an assessment of risk management capabilities for
         derivatives activities shall be included during the regular BSP examination.
                                                  Market participants

                                       U/KBs                                               TBs, RBs/CBs
        May engage in generally authorized derivatives activities in May enter in derivatives trans-
        the following capacities:                                        actions with BSP-authorized
                                                                         dealers and brokers as end-
        As a dealer – a U/KB may originate and distribute the follow- user solely for hedging pur-
        ing “organized market”-traded financial derivatives: FX for- poses
        wards, FX swaps, currency swaps and analogous financial
        futures with a tenor of three years or less; interest rate swaps
        and forward rate agreements and analogous financial futures
        with a tenor of ten years or less.

        As an end-user
         • a U/KB, including its trust department 1, may enter in any
            financial derivatives transaction for the purpose of hedg-
            ing its own risks;
         • a U/KB may trade with counterparties in order to take
            positions for its own account in organized market-traded
            financial instruments; can also take long positions in na-
            ked FX options with a tenor of three years or less
         • Regular Banking Units (RBUs) and Expanded Foreign
            Currency Deposit Units (EFCDUs) of U/KBs, including its
            trust departments, may invest, for their own account, in
            structured products (SPs) namely: principal-protected
            foreign currency-denominated SPs and plain vanilla sin-
            gle-name credit-linked notes (CLNs) where the reference
            asset is an obligation issued or guaranteed by the Re-
            public of the Philippines


    1    Trust entities other than that within a U/KB are not covered by the generally authorized derivatives activities.


                                    Source: Office of Supervisory Policy Development, Supervision and Examination Sector
                                                                                                  Assessment     7
          STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007


     Box 1
                                  Revised Rules on Derivatives
                           (BSP Circular No. 594 dated 8 January 2008)


                                U/KBs                                             TBs, RBs/CBs
     As a broker – a U/KB may facilitate derivatives transac-
     tions between dealers and market and/or institutional
     counterparties and/or sophisticated individual end-users.

     Further, a trust department of a U/KB may transact, as an
     institutional counterparty, with financial derivatives
     instruments enumerated under Subsection X602.1 (a)(2)
     of the MORB on behalf of its trustor/principal/s as may be
     authorized by such trustor/principal/s.

                                 ADDITIONAL DERIVATIVES AUTHORITY
     Requirements

     Requires prior BSP approval

     In addition to the requirements set for generally authorized derivatives authority, a bank
     applying for additional derivatives authority must also demonstrate adequate competence in its
     operations, i.e., has CAMELS (or ROCA in the case of branches of foreign banks) composite
     rating of at least “3” with a similar rating for Management, no unresolved issues that threaten
     liquidity or solvency, and meets prescribed regulations on anti-money laundering, corporate
     governance and risk management.

     Annual renewal of derivatives license has been lifted and instead, an assessment of risk
     management capabilities for derivatives activities shall be included during the regular BSP
     examination.

     Banks with additional authorities who fail to comply with the requirements shall be subject to
     appropriate sanctions, including curtailment of derivatives authority, i.e., suspension,
     modification, downgrade, limitation or revocation of derivatives authority.
                                               Market participants

                   U/KBs                          TBs, RBs/CBs                         Trust Entities
     May apply for Type 1                 May apply for Type 3               May apply for Type 3
     (Expanded Dealer Authority)2 ,       (Limited User Authority) or        Authority to enter on behalf
     Type 2 (Limited Dealer               Type 4 (Special Broker             of its trustor/principal/s a
     Authority), Type 3 (Limited          Authority) Authority               derivatives transaction under
     User Authority) or Type 4                                               Subsection X602.1 (a) (2)
     (Special Broker Authority)            •    T y p e 3 a u t h o ri t y
     Authority                                  enables a bank to
                                                transact as end-user of
      •     Type 1 authority enables a          a derivatives instru-
            U/KB to transact in any             ment.
                                 3
            financial derivatives as a
            dealer.

 2    Type 1 authority is subject to approval by the BSP Governor upon recommendation of the SES Deputy
      Governor. All other applications for additional derivatives authority are subject to approval by the SES
      Deputy Governor.
 3    The types of derivatives are classified as forwards, swaps and options.



Source: Office of Supervisory Policy Development, Supervision and Examination Sector
8       Assessment

                                STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007


        Box 1
                                     Revised Rules on Derivatives
                              (BSP Circular No. 594 dated 8 January 2008)


                       U/KBs                                TBs, RBs/CBs                       Trust Entities

    • Additional requirements for Type 1            • A bank with a Type 4 au-            Trust entities with
        authority include compliance with               thority may facilitate a          Type 3 Authority may,
        appropriate sales and marketing                 derivatives transaction           wi t h  pri or   BSP
        practices; a U/KB must also have a              between a U/KB (as                approval, transact as
        CAMELS (or ROCA in the case of                  dealer) and any of the            end-users of specific
        branches of foreign banks) rating of            f ol l owi ng end-u ser s:        d e r i v a t i v e s
        at least “4”, instead of the general            market count erparty,             instruments in behalf
        requirement of at least “3”.                    institutional counterparty        of trustor/principal/s
    •   A bank with a Type 1 authority may              or sophisticated individual       outside        those
        also transact in any financial                  end-user4.                        enumerated under
        derivatives as a broker and an                                                    Subsection X602.1 (a)
        end-user.                                   • A bank with a special               (2).
    •   A bank with a Type 2 authority may              broker authority must
        act as a dealer for specific types of           ensure that its client fully
        derivatives products with specific              understands its limited
        underlying reference.        Type 2             responsibility as a broker
        authority also carries authority to             and must comply with the
        transact as broker and end-user of              provisions of Appendix
        the said specific derivatives instru-           26.
        ments.
    •   Additional requirements for Type 2
        authority include compliance with
        the sales and marketing guidelines
        prescribed in Appendix 26 of the
        MORB.
    •   Type 3 Authority enables a U/KB to
        transact, as an end-user, in specific
        types of derivatives products, with
        specific underlying reference.

        A trust department within a U/KB
        may also apply for Type 3 Authority
        in order to transact as end-user on
        behalf of its trustor/principal/s with
        specific derivatives instruments
        outside those enumerated under
        Subsec. X602.1 (a) (2).

    • A U/KB may also apply for a Type
        4 Authority to enable itself to broker
        derivatives transaction for or with
        other end-users.




    4    An end-user is defined as a financial market participant that enters, for its own account, in a derivatives
         transaction for legitimate economic purposes. An end-user may be classified according to its financial
         sophistication: market counterparty, institutional counterparty, sophisticated individual end-user, other end-
         user.




                                   Source: Office of Supervisory Policy Development, Supervision and Examination Sector
                                                                                                Assessment       9
       STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007


     Box 2
                    Reforms on the Foreign Exchange Regulatory Framework


         The BSP rationalized existing rules on                diversification through greater access to
foreign exchange transactions in a move to                     foreign exchange assets.
further liberalize and make the regulatory
environment more responsive to the needs of an                 QIs are limited to the following: insurance and
expanding      economy     that    has   become                pre-need companies; collective/pooled funds,
increasingly integrated with global markets. The               (whether in a corporate or contractual
liberalization measures were approved in 2007                  structure such as mutual funds, unit
paving the way for a package of reforms on the                 investment trust funds and variable
foreign exchange regulatory framework.                         insurance); public or private pension or
                                                               retirement or provident funds and such other
        The first phase of foreign exchange                    entities and funds as the BSP may qualify as
reforms (issued under BSP Circular No. 561                     QIs. QIs may also be determined on the
dated 8 March 2007) essentially relaxes the limits             basis of financial sophistication, size and
on outward flows for investments and payments                  regularity of financial transactions, net worth
as well as the flexibility of banks to run open                and size of assets being managed. QIs may
foreign currency positions.                                    also apply for a higher limit per fund with the
                                                               BSP.
         Further policy measures were introduced
with the approval of the second phase of reforms           • Authority of foreign currency deposit
in December 2007 issued under BSP Circular No.                 units (FCDUs) of thrift and rural/
590. The aim was to promote greater integration                cooperative banks to deposit and borrow
with international capital markets, enhance risk               – FCDUs of thrift, rural and cooperative
diversification and streamline the documentation               banks are authorized to deposit with or
and reporting requirements on the sale of foreign              borrow from foreign banks abroad, offshore
exchange by banks.                                             banking units (OBUs) and other FCDUs/
                                                               expanded foreign currency deposit units
Key reforms                                                    (EFCDUs) without restriction as to maturity.
                                                               Borrowing from other FCDUs, however, shall
•    Allowable foreign exchange purchases by                   remain limited to short-term tenors.
     residents from authorized agent banks
     (AABs) for non-trade current account                      The reforms provide more flexibility to thrift,
     transactions (without the need for                        rural and cooperative banks to undertake
     supporting documentation) – the maximum                   foreign   exchange       transactions    and
     allowable amount was increased to $30                     encourage the flow of foreign exchange in the
     thousand per application (from $10 thousand               system.
     per application1 ). This aims to address the
     rising demand for foreign exchange by                 • Foreign exchange swaps involving the
     residents for non-trade purposes and reduce               Philippine peso – the revised regulations
     transaction costs for bank clients. In lieu of            allow for the use of foreign exchange swaps
     the documentary requirements, existing anti-              without restriction on tenor and to cover
     money laundering regulations will continue to             customers’        funding       requirements.
     apply to these transactions.                              Meanwhile, the use of foreign exchange
                                                               swaps for hedging purposes is retained.
 • Allowable foreign exchange purchases by
     residents from AABs for outward                           Other      amendments      clarify    existing
     investments without prior BSP approval –                  regulations     and     formalize     existing
     the maximum allowable amount was                          requirements on the delivery or transfers of
     increased to $30 million per investor per year            foreign currency directly to non-resident
     (from $12 million per investor per year2 ), or            beneficiaries or domestic creditor banks, and
     per fund per year for qualified investors (QIs).          on the settlement in pesos of non-deliverable
     This measure will facilitate better risk                  forward (NDF) contracts with residents.


 1    Per Circular No. 561. Prior to Circular No. 561, allowable amount was $5 thousand.
 2    Per Circular No. 561. Prior to Circular No. 561, allowable amount was $6 million.



Source: Office of Supervisory Policy Development, Supervision and Examination Sector
10   The Philippine Banking System

                                          STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007



                                 THE PHILIPPINE BANKING SYSTEM

                                                           OVERVIEW
                                                                  The     Philippine    banking    system
              Earlier reform                               sustained a positive performance in 2007
         measures such as the                              amidst the global financial turbulence brought
                phased-in                                  about by US subprime crisis, by rising world
            implementation of                              oil and food prices and by the impending US
             Basel II and the                              recession, as domestic macroeconomic
             adoption of the                               fundamentals remained strong and stable.
         Philippine Accounting/                            Moreover, earlier reform measures such as
          Financial Reporting                              the phased-in implementation of Basel II and
         Standards (PAS/PFRS)                              the adoption of the Philippine Accounting/
         made Philippine banks                             Financial Reporting Standards (PAS/PFRS)
          more prudent, if not                             made Philippine banks more prudent, if not
          circumspect, in their                            circumspect, in their risk-taking activities.
          risk-taking activities                           These reform benefits, in turn, relatively
                                                           insulated local banks from the global financial
                                                           turmoil.

                                                                   With a more streamlined physical
                                                           structure, total resources expanded by 5.5
                                                           percent to more than P5 trillion driven by the
                                                           steady growths in deposits and buildup in
                                                           banks’ capital.        The banking system’s
                                                           resources remained principally funded by
                                                           deposits (71.4 percent) and capital accounts
                                                           (11.7 percent) and were channeled mostly to
                                                           loans (40.8 percent) and investments (24.7
                                                           percent). Private domestic banks still held the
                                                           lion’s share of the banking system’s resources
                                                           at 56.9 percent while rural and cooperative
                                                           banks still accounted for the smallest share to
                                                           system-wide assets at 3.1 percent. Moreover,
                                                           the share of foreign banks (branches and
                                                           subsidiaries) at 13.2 percent, remained less
                                                           than half of the 30 percent statutory limit
                                                           under Section 3 of R.A. No. 7721 (An Act
                                                           Liberalizing the Entry and Scope of
                                                           Operations of Foreign Banks in the
                                                           Philippines) more than a decade since the
                                                           liberalization of the Philippine banking system
                                                           in 1994.

                                                                  The      improving     macroeconomic
                                                           environment and continued upswing in
                                                           consumer finance on the back of strong
                                                           inflows of OF remittances have led to a
                                                           double-digit credit expansion in 2007. Total
                                                           loans, gross (net of interbank loans) grew by
                                     Source: Office of Supervisory Policy Development, Supervision and Examination Sector
                                                                                       The Philippine Banking System   11
       STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007


10.9 percent to P2,212.8 billion from P1,995.4
billion in 2006.          Outside the financial
intermediation sector, the manufacturing sector
still had the highest concentration of bank credit
at 15.1 percent or P391.6 billion followed by
real estate, construction, renting and business
activities sector at 12.5 percent or P326.2 billion
and wholesale, retail trade and repair of motor
vehicle sector at 10.7 percent or P278.5 billion.
These main loan recipients, however, have
reported year-on-year contractions in their loan
allocations as highly rated corporates were able
to tap the capital market.          Asset quality
continued to improve and was much closer to
pre-crisis level of four percent, not to mention
moving gradually in line with the ASEAN 5
standard.

        Banks were better in their deposit
mobilization this year as loans, gross-to-deposit
ratio climbed to 71.0 percent from 69.4 percent
in 2006. Meantime, the ratio of liquid assets to
deposits remained high at 51.8 percent from
52.0 percent.

        The ongoing fiscal consolidation and the
higher risk weight on below investment grade
foreign currency-denominated government                                 The ongoing fiscal
securities under Basel II led to the slowdown in                      consolidation and the
banks’ investments. As of end-December 2007,                           higher risk weight on
investments, net declined by 1.9 percent or                              below investment
P24.0 billion to P1,265.7 billion from P1,289.8                            grade foreign
billion in 2006. Consequently, the ratio of                           currency-denominated
investments, net to total assets contracted to                        government securities
24.7 percent from last year’s 26.5 percent.                            under Basel II led to
                                                                         the slowdown in
       Banks continued to strengthen their                              banks’ investments
overall capital position to meet the more
stringent banking and finance standards under
Basel II. Total capital accounts grew by 5.8
percent or P32.8 billion to P601.8 billion from
P569.0 billion in 2006. With steady asset
expansion, however, the ratio of total capital
accounts to total assets started to plateau at the
11.0 percent level since 2005 as this year’s
ratio settled at 11.7 percent (unchanged from
last year). Banks’ capital adequacy ratios
(CAR), both on consolidated and solo bases as
of end-September 2007, remained well above
the BSP regulatory floor of 10 percent and the
BIS international standard of 8 percent. The
increase of risk weighted assets (21.7 percent
Source: Office of Supervisory Policy Development, Supervision and Examination Sector
12   The Philippine Banking System

                                          STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007


                                                          or P605.7 billion) following the introduction of
                                                          operational risk in the new capital adequacy
                                                          framework on 01 July 2007 and higher
              The introduction of                         deductions from the total qualifying capital
              operational risk in                         (57.1 percent or P5.1 billion) weighed down on
                the new capital                           the system’s overall solvency ratio .
             adequacy framework
                on 01 July 2007                                   The double-digit expansion in interest
               weighed down on                            income and steady income from fee-based
             the system’s overall                         services more than offset the contractions in
                 solvency ratio                           trading gains and trust department income as
                                                          the banking system’s net income after tax
                                                          (NIAT) reported a 9.5 percent growth to P62.9
                                                          billion from P57.4 billion in 2006.       Other
                                                          profitability metrics such as the return on
                                                          assets (ROA) and return on equity (ROE)
                                                          likewise reported better ratios for the year.
                                                          Banks’ cost-to-income ratio, however, slightly
                                                          climbed to 68.3 percent from last year’s 66.5
                                                          percent due to rising miscellaneous costs
                                                          amidst investments in new risk-based
                                                          technology,     advertising    and     marketing
                                                          expenses not to mention an uptick in salaries
                                                          and wages particularly on retirement pays as
                                                          an offshoot of industry consolidation.


                                                          OPERATING NETWORK
                                                                 The merger and consolidation wave
                                                          continued in 2007, albeit less pronounced
                                                          compared to prior years, and mainly propelled
                                                          by banks seeking higher profits and better
                                                          efficiencies.       The ongoing industry
                The merger and                            consolidation was in line with BSP’s vision of
              consolidation wave                          developing a dynamic banking landscape with
              continued in 2007,                          about six, globally competitive megabanks at
                    albeit less                           the center and several smaller banks at the
                  pronounced                              peripherals serving various market niches over
               compared to prior                          the medium term. For the past decade, BSP’s
               years, and mainly                          merger and consolidation policy has led to a
              propelled by banks                          more streamlined and efficient physical
                seeking higher                            structure highlighted by the general decline in
               profits and better                         the number of operating banks yet
               efficiencies under                         complemented by branch network expansion.
                     Basel II
                                                                 For end-year 2007, the banking
                                                          industry’s physical network (total number of
                                                          head offices, branches and other offices)
                                                          expanded by six offices to 7,744 from last
                                                          semester’s 7,738 and by 34 offices from the
                                                          7,710 recorded last year (Schedule 1).

                                     Source: Office of Supervisory Policy Development, Supervision and Examination Sector
                                                                                                               The Philippine Banking System                            13
       STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007


       Specifically, the number of operating
banks (head offices) further declined by 11
banks to 847 banks from 858 banks as of
end-June 2007 and by 15 banks from the 862
banks recorded last year on the back of                          Philippine Banking System: Total Banking Units
continuous bank mergers and closures. The                        For End-Periods Indicated

decline in the number of operating banks was                                             7,000                                                                  1000

complemented by branch expansion as




                                                                                                                                                                         Number of Head Offices
                                                                                         6,800




                                                                    Number of Branches
                                                                                                                                                                950
additional 17 branches and other offices were                                            6,600

recorded from end-June 2007’s 6,880 branch                                               6,400
                                                                                                                                                                900

network while a total of 49 branches and other                                           6,200
                                                                                                                                                                850
offices were added from last year’s 6,848
                                                                                         6,000                                                                  800
branches. These additional branches were                                                         1998* 1999 2000 2001 2002 2003 2004 2005 2006 2007

mainly         newly         established                                                                         Head Offices      Branches

microfinance-oriented rural banks and highly                     * BSP's merger and consolidation policy began in 1998 with the issuance of Circular No. 172 dated 03
                                                                 September 1998

indicative of the general mainstreaming of
commercial microfinance in the Philippines.

          By banking subgroup, rural and
cooperative banks had the most number of
operating banks at 85.8 percent or 727
operating banks (down from 737 operating
banks at end-June 2007 and 739 operating
banks at end-year 2006). The remaining
shares went to thrift banks at 9.7 percent or
82 head offices (down from 83 head offices as
of end-June 2007 and 84 head offices as of
end-December 2006) and to universal and
commercial banks at 4.5 percent or 38
operating banks (same as of end-June 2007
but down from the 39 operating banks as of
end-December 2006). Of these banks, rural
and cooperative banks posted the largest
decline (12 banks) while the number of
universal banks remained unchanged at 17
banks. The exit of weaker players and
heightened consolidation activities among
l ar g e r  ba n ks   we r e   co n se qu e n ti al
developments of the increasingly challenging
environment and the implementation of Basel
II in the second half of 2007.

       To compensate for the streamlining of
overall physical structure, banks have
expanded their non-traditional service delivery
channels (automated teller machines or ATMs
and e-banking) to enable them to reach their
chosen clientele during the year.

      Since the rationalization of merger and
consolidation incentives in 1998, there had
been 49 cases of mergers and consolidations.
Source: Office of Supervisory Policy Development, Supervision and Examination Sector
       14          The Philippine Banking System

                                                                                  STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007


                                                                                                               Of these, there were five cases of big-ticket
Philippine Banking System: Big-Ticket Mergers and Consolidations, 1998-2007
Mergers
                                                                                                               consolidations among banks as shown in the
    Name of Surviving Entity         Type Constituent Entities                            Type   Effectivity
                                                                                                               adjacent table.          These big-ticket
 1 Equitable-PCI Bank                UB    Equitable Bank                                 UB     9/26/1999
                                                                                                               consolidations further boosted the share of
                                           Philippine Commercial and International Bank   UB
                                                                                                               Top 10 banks to 61.8 percent of total system
 2 Bank of the Philippine Islands    UB    Bank of the Philippine Islands                 UB      4/7/2000
                                           Far East Bank and Trust Company                UB                   -wide assets in 2007 from 53.7 percent in
 3 Union Bank of the Philippines     UB    International Exchange Bank
                                           Union Bank of the Philippines
                                                                                          KB
                                                                                          UB
                                                                                                 8/28/2006     1998. For the year 2007, there were two
 4 Banco De Oro-EPCI, Inc.           UB    Banco De Oro                                   UB     5/31/2007
                                                                                                               recorded cases of mergers and
                                           Equitable-PCI                                  UB
                                                                                                               consolidation [BDO-EPCI and Bangko
Consolidations
                                                                                                               Kabayan (A Rural Bank), Inc.].
    Name of Consolidated Entity      Type Constituent Entities                            Type   Effectivity

 5 Metropolitan Bank and Trust Co.   UB    Global Business Bank                           KB     10/11/2002
                                           Metropolitan Bank and Trust Co.                UB                           Other developments in the banking
                                                                                                               system’s physical structure include the
                                                                                                               closure of 17 banks (composed of 2 thrift
                                                                                                               banks and 14 rural banks), conversion of
                                                                                                               one commercial bank to a universal bank
                                                                                                               (Philippine Trust Company) and the
                                                                                                               establishment of two rural banks (North
                                                                                                               Pacific Banking Corporation and Banco
                                                                                                               Bakun, Inc.) and one microfinance-oriented
                                                                                                               rural bank (First Mindoro Microfinance Rural
                                                                                                               Bank).     Misamis Occidental Cooperative
                                                                                                                     1
                                                                                                               Bank re-opened during the year in review.
                                                                                                               By yearend, the banking system consisted of
                                                                                                               the following: 38 universal and commercial
                                                                                                               banks with 4,237 branches (from last year’s
                                                                                                               39 banks and 4,274 branches), 82 thrift
                                                                                                               banks with 1,254 branches (from 84 banks
                                                                                                               and 1,238 branches), 677 rural banks2 with
                                                                                                               1,312 branches (from 691 banks and 1,258
                                                                                                               branches) and 45 cooperative banks with 77
                                                                                                               branches (from 44 banks and 67 branches).

                                                                                                                      On     a    geographical         b a si s ,
                                                                                                               BSP-supervised banking offices were
                                        BSP-supervised
                                                                                                               located mostly within the country at 99.5
                                        banking offices
                                                                                                               percent (Table 3) and remained
                                      were located mostly
                                                                                                               concentrated in highly urbanized areas. The
                                       within the country
                                                                                                               National Capital Region (NCR) retained the
                                         and remained
                                                                                                               highest concentration of banking offices at
                                        concentrated in
                                                                                                               34.5 percent (2,659 offices) of the 7,703
                                       highly urbanized
                                                                                                               total banking offices in the country from 34.6
                                             areas
                                                                                                               percent (2,649 offices) last year. Other



                                                                                                               1   Classified as a rural bank in terms of capitaliza-
                                                                                                                   tion and formerly known as the Cooperative Rural
                                                                                                                   Bank of Misamis Occidental.
                                                                                                               2   Exclusive of 22 microfinance-oriented rural banks
                                                                                                                   (5 head offices and 17 branches), seven banks
                                                                                                                   more than last year’s 15 microfinance-oriented
                                                                                                                   rural banks (4 head offices and 11 branches).

                                                                       Source: Office of Supervisory Policy Development, Supervision and Examination Sector
                                                                                       The Philippine Banking System   15
       STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007


regions with significant shares of banking
offices included the CALABARZON (Region
IV-A) with 15.1 percent (1,164 offices) from
15.3 percent (1,170 offices) and Central
Luzon (Region III) with 10.6 percent (816
offices) unchanged from last year’s share
(812 offices), respectively. Combined, these
three leading regions accounted for 60.2
percent of the total banking offices
nationwide. Moreover, the expansion in head
offices, branches and other offices occurred
mostly in Luzon particularly in the MIMAROPA
(Region IV-B) with 32 additional branches
followed by Cagayan Valley (Region II) with
eight and by the Zamboanga Peninsula
(formerly known as Western Mindanao or
Region IX) with six additional bank offices.

       Meanwhile, banking offices located
overseas further dropped to 41 from 44 last
year resulting from closures of branches in the
Asia Pacific (1 banking office), Europe (1) and
North America (1). Changing profit dynamics,
cross-border issues and closure of redundant                                  Changing profit
bank branches were among the factors                                      dynamics, cross-border
behind the closure of these overseas banking                               issues and closure of
offices.                                                                      redundant bank
                                                                           branches were among
      As of end-December 2007, the                                         the factors behind the
country’s bank density ratio stayed at 5                                    closure of overseas
banking offices per city/municipality.                                        banking offices
Meanwhile, the customer ratio moved up to
11,516 persons per banking office from last
year’s 11,345 persons per banking office.
Notably, the 2.5 percent3 population growth
rate was more than five times faster than the
0.4 percent expansion of the banking
system’s overall physical network in the
country.

       On a regional basis, banks remained
concentrated in highly urbanized areas like
the NCR at 156 banks per city/municipality
(same as last year) with each office serving
4,174 persons (up from 4,131 clients served
in 2006). This consistent lead was trailed by
CALABARZON (Region IV-A) with 8 banking
offices per city/municipality (same as last
year), catering to 9,581 persons (up from

3   Source: 2000 Census of Population and Housing -
    National Report, National Statistics Office

Source: Office of Supervisory Policy Development, Supervision and Examination Sector
16                                                The Philippine Banking System

                                                                                                      STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007


                                                                                                                           9,319 persons in 2006) and by Central Luzon
                                                                                                                           (Region III) with 6 banking offices per city/
                                                                                                                           municipality (same as last year), serving
                                                                                                                           11,736 persons (up from 11,558 persons).
                                                                                                                           On the other hand, the Autonomous Region
                                                                                                                           of Muslim Mindanao (ARMM or Region XVI)
                                                                                                                           continued to post the lowest bank density
                                                                                                                           ratio of less than one banking office per city/
                                                                                                                           municipality and the highest customer ratio of
                                                                                                                           137,358 persons per bank (up from 124,800
                                                                                                                           persons in 2006). (Table 4) The BSP
                                                                                                                           liberalized bank branching rules precisely to
                                                                                                                           enhance the accessibility of banking services
                                                                                                                           in the underserved areas of the country.
                                                                                                                           Since the issuance of Circular No. 505 which
                                                                                                                           set the guidelines for a phased liberalization
                                                                                                                           of bank branching policy, a total of 54
                                                              Further technological
                                                                                                                           branches and other offices opened in 2007,
                                                              advancements at the
                                                                                                                           bringing the aggregate number of newly
                                                                onset of ongoing
                                                                                                                           opened branches and other offices to 180.
                                                             industry consolidation
                                                            allowed banks to begin
                                                                                                                                   Further technological advancements
                                                             exploring the potential
                                                                                                                           at the onset of ongoing industry consolidation
                                                              of various e-banking
                                                                                                                           allowed banks to begin exploring the
                                                              platforms in an aim to
                                                                                                                           potential of various e-banking platforms in an
                                                               reduce transaction
                                                                                                                           aim to reduce transaction costs, improve
                                                                  costs, improve
                                                                                                                           efficiencies and reach a wider client base.
                                                            efficiencies and reach a
                                                                                                                           As of end-December 2007, the number of
                                                                 wider client base
                                                                                                                           banks with ATM network increased to 64
                                                                                                                           (composed of 55 domestic banks and 9
                                                                                                                           foreign banks) from 61 banks (51 domestic
                                                                                                                           banks and 10 foreign banks) in 2006. The
                                                                                                                           banking system’s ATM network across the
Philippine Banking System: Number of ATM Units
                                                7,600
                                                                                                                           country stood higher by 288 units at 7,155
                                                                                                                           units from 6,867 units last year. (Table 5)
  Total Number of ATMs (On-site and Off-site)




                                                6,600


                                                5,600                                                      1,969
                                                                                                                   2,037   The bulk of these ATMs were still on-site
                                                                                                   1,736                   units although the number of off-site ATMs
                                                4,600                                      1,473

                                                                                  1,247
                                                                                                                           particularly those located in shopping malls
                                                3,600                    1,193
                                                         708
                                                                 823
                                                                                                                           and other major commercial establishments
                                                                                                           4,898   5,118
                                                2,600
                                                                                          3,996
                                                                                                   4,476                   increased by 68 units to 2,037 units from
                                                                3,172   3,135    3,326
                                                        2,972
                                                1,600                                                                      1,969 units in 2006.
                                                 600
                                                        2000    2001    2002     2003     2004     2005    2006    2007
                                                                                                                                   Most of these ATM machines were still
                                                                   On-site                 Off-site
                                                                                                                           concentrated in more developed regions
                                                                                                                           such as the NCR as the region cornered a
                                                                                                                           significant, albeit slightly reduced, share of
                                                                                                                           47.5 percent or 3,399 from 48.5 percent of
                                                                                                                           the total ATM units all over the country or
                                                                                                                           3,999 units from 48.4 percent or 3,328 units
                                                                                                                           in 2006. Nevertheless, the region still added
                                                                                                                           the most number of units at 71 during the
                                                                                                                           year and the reduced share was accounted
                                                                                            Source: Office of Supervisory Policy Development, Supervision and Examination Sector
                                                                                                         The Philippine Banking System                                      17
       STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007


for by the increased installation of new ATMs
in other urbanized regions such as the
CALABARZON (Region IV-A) with 33 units
and Central Visayas (Region VII) with 29
units. These figures are consistent with the
apparent diffusion of urban development to
other regions and key cities as part of the
country’s Millennium Development Goal
(MDG) particularly highlighted by the property
and tourism boom in the CALABARZON and
Cebu.

        Meanwhile, the major geographical
region of Luzon accounted for 28.6 percent or
2,044 units (up from 28.2 percent or 1,934
units in 2006), Visayas for 13.0 percent or 932
units (up from 12.9 percent or 883 units) and
Mindanao for 10.9 percent or 780 percent (up
from 10.5 percent or 722 units).

       Other e-banking platforms have been                      Philippine Banking System
steadily gaining wider acceptance with the                      Number of Domestic & Foreign Banks Engaged in Non-Traditional Banking Services
introduction of a variety of interfaces such as                 As of end-December 2007

the Internet, web-enabled cellular phones, and                                             ATM                                         55                              9


electronic wallets or cash cards.        As of                              Electronic Wallet                                     45                     -

end-year 2007, there were 19 banks (15                           Cash Card/Remittance Card                12         2

domestic and 4 foreign) engaged in mobile                                            Internet                   21                     12

banking from 21 banks (composed of 17                                     (Phone/PC-based)
                                                                              Non-Mobile
                                                                                                           15            3

domestic banks and 4 foreign banks) last                          (Cellphones/Laptops/Palm)
                                                                            Mobile
                                                                                                           15            4

year.     The decline was an offshoot of                                          Proprietary        3     8

migration to other e-banking platforms and the                       Mobile/Internet via
                                                                 Bancnet's/Megalink's Switch
                                                                                                               20             3

termination of redundant services at the heels                                                   0             10            20         30          40       50        60      70

of industry consolidation (i.e., BDO-EPCIB).                                      Domestic Banks                                        Foreign Banks


Banks offering internet-based services rose to
33 banks (21 domestic and 12 foreign) from
30 (18 domestic and 12 foreign banks) in 2006                    Philippine Banking System
as online banking portals have low overhead                      Number of Banks Engaged in Electronic Banking Services
                                                                 As of End-December 2007
costs and provide round-the-clock customer
convenience. Of these e-banking platforms,                                                                 E-Banking                    ATM
                                                                                                                                                     E-Banking
                                                                                                                                                      and ATM          TOTAL
                                                                                                             Only                       Only
e-wallet had the most number of banks                                                                                                                Combined

                                                                 Domestic Banks                                              46                23                 32        101
offering such service in line with the growing                    Private Domestic - UBs                                      -                 -                 12         12
                                                                  Private Domestic - KBs                                      -                 1                  7          8
popularity of e-payment systems and                               Government Banks                                            -                 -                  2          2
telephony (e.g., G-Cash). Overall, the total                      Domestic Thrift Banks
                                                                  Rural Banks
                                                                                                                              3
                                                                                                                             43
                                                                                                                                               17
                                                                                                                                                5
                                                                                                                                                                   8
                                                                                                                                                                   3
                                                                                                                                                                             28
                                                                                                                                                                             51
number of banks engaged in e-banking and                         Foreign Banks                                               7                  1                  8         16
ATMs rose to 117 banks (101 domestic banks                        Branches of Foreign Banks - UBs                            -                  -                  2          2
                                                                  Branches & Subsidiaries of
and 16 foreign banks) from 106 banks (86                          Foreign Banks - KBs                                        7                  -                  4         11
                                                                  Foreign Banks - TBs                                        -                  1                  2          3
domestic banks and 20 foreign banks) last
year.




Source: Office of Supervisory Policy Development, Supervision and Examination Sector
18         The Philippine Banking System

                                                           STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007


                                                                                      RESULTS OF OPERATION
                                                                                             Banks sustained their core earnings in
                    Banks sustained their                                             2007 amidst a challenging operating
                    core earnings in 2007                                             environment characterized by the US
                    amidst a challenging                                              subprime crisis on the global front and by
                          operating                                                   more stringent banking standards under
                         environment                                                  Basel II on the domestic front.
                     characterized by the
                   US subprime crisis on                                                     Net income after tax (NIAT) grew by
                   the global front and by                                            9.5 percent, slower than the solid double-digit
                        more stringent                                                growths in the past two years, to P62.9 billion
                      banking standards                                               from P57.4 billion in 2006. The deceleration
                    under Basel II on the                                             followed the similar softening of non-interest
                        domestic front                                                income because of depressed trading and
                                                                                      trust department revenues for the year.
                                                                                      Moreover, rising miscellaneous costs
                                                                                      propped up other operating expenses by
                                                                                      11.3 percent, contributing to the 8.0 percent
                                                                                      expansion in total operating expenses which
                                                                                      settled at P206.5 billion from P191.1 billion in
                                                                                      2006. During the year, provisions for income
                                                                                      tax stood at P14.0 billion, 36.0 percent higher
                                                                                      than the P10.3 billion in 2006. Combined,
                                                                                      these factors contributed to the slowdown in
                                                                                      overall bank profits (Table 6).

Philippine Banking System: Results of Operation
                                                                                              The expansions in net interest and
(In P Billions)                                                        (In Percent)
                                                                                      non-interest income resulted to an 8.3
 300.0                                                                      100.0     percent or P20.5 billion hike in total operating
 200.0                                                                      80.0
                                                                                      income to P267.0 billion in 2007 from P246.5
                                                                                      billion in 2006. The growth in operating
 100.0                                                                      60.0
                                                                                      income, however, was paler compared to last
     0.0                                                                    40.0
                                                                                      year’s 13.4 percent but banks kept operating
                                                                                      expenses on a tight leash as these settled to
 -100.0                                                                     20.0
                                                                                      P206.5 billion, 8.0 percent higher (vs. 13.0
 -200.0                                                                     0.0       percent in 2006 and 374.6 percent in 2002)
                                                                                      than the P191.1 billion posted in 2006.
 -300.0                                                                     -20.0
            2000    2001     2002    2003   2004   2005    2006     2007
                                                                                      Consequently, net operating income stood at
                                                                                      P60.5 billion, 9.3 percent higher than last
             Net Interest Income                    Extraordinary Credits
             Provisions for Income Tax              Non-Interest Income
                                                                                      year’s P55.4 billion.
             Operating Expenses                     NIAT Growth Rate


                                                                                               Meanwhile, banks’ extraordinary
                                                                                      credits posted a solid growth of 32.8 percent
                                                                                      or P4.1 billion to P16.4 billion from P12.3
                                                                                      billion in 2006. Profits from assets sold (88.6
                                                                                      percent growth) and recoveries on
                                                                                      charged-off assets (52.5 percent hike)
                                                                                      propped up banks’ extraordinary credits.



                                                   Source: Office of Supervisory Policy Development, Supervision and Examination Sector
                                                                                                    The Philippine Banking System                           19
       STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007


        The decomposition of operating income
indicates that banks still source the bulk, at
63.0 percent, of their revenues from                                                 Banks still source
interest-based income while non-interest                                              the bulk of their
income made up for the remaining share. Net                                            revenues from
interest income’s moderate expansion                                                   interest-based
lingered at 8.2 percent (vs. 15.9 percent in                                               income
2005 and 24.8 percent in 2004) to P168.1
billion from P155.4 billion in 2006 despite the
recovery in bank lending due to declining
interest rates. Banks’ interest income mainly
came from interest on loans and discounts
particularly interests on time loans at 36.9
percent or P112.5 billion, interests from
available for sale securities at 14.4 percent or
P43.8 billion and interest on held-to-maturity
securities at 7.2 percent or P21.8 billion.

         Meanwhile, non-interest income posted                  Philippine Banking System: Non-Interest Income
a modest growth of 8.4 percent to P98.8                         (In P Billions)
                                                                 45.0
                                                                                                                                                    (In Percent)
                                                                                                                                                          45.0

billion in 2007 from P91.1 billion in 2006. This                 40.0
                                                                                                                                                          35.0
                                                                 35.0
is a notable departure from the robust 32.8                      30.0                                                                                     25.0

percent growth posted in 2006 because of                         25.0
                                                                                                                                                          15.0
                                                                 20.0
contractions in trading gains (3.0 percent) and                  15.0                                                                                     5.0

trust department income (4.3 percent). Main                      10.0
                                                                  5.0
                                                                                                                                                         -5.0

drivers of growth were fee-based income                           0.0                                                                                     -15.0
                                                                          1999      2000     2001   2002      2003      2004    2005    2006     2007
(19.6 percent or P6.0 billion), which benefited
largely from strong remittance inflows4, and                            Fee-based          Trust    Trading          Other     Non-interest income growth rate

other income (20.3 percent or P3.1 billion).

        Across banking subgroups, there was
an apparent shift, except for government
banks and foreign bank subsidiaries, in favor
of interest-based revenues in terms of overall
composition of operating income. Thrift banks
led other domestic banking groups with the
highest net interest income ratio of 74.8
percent (up from last year’s 71.8 percent),
followed by rural banks at 73.8 percent (up
from 70.6 percent) while private domestic
commercial banks (up from 59.3 percent) and



4   Total OF remittances in 2007 stood at $14.4 billion,
    higher by 13.2 percent than the amount posted in
    2006 and above the year’s forecast of $14.3 billion.
    Said remittances accounted for about 10 percent of
    the country’s gross domestic product (GDP) in
    2007 (Source: Bangko Sentral ng Pilipinas, Na-
    tional Economic Development Authority and Philip-
    pine Overseas Employment Administration web-
    sites, 2008).

Source: Office of Supervisory Policy Development, Supervision and Examination Sector
                  20         The Philippine Banking System

                                                                             STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007


                                                                                                government banks (down from 77.6 percent)
                                                                                                tied at the third spot at 67.0 percent.
                                                                                                Meanwhile, the ratio of net interest
                                                                                                income-to-total operating income of foreign
                                                                                                bank subsidiaries cornered a bigger share of
                                                                                                83.3 percent (up from 72.8 percent) against
                                                                                                foreign branches’ 51.3 percent (down from
                                                                                                60.6 percent).

                                                                                                        Cooperative banks, on the other hand,
                                       Revenue streams tended                                   still posted the lowest share of net interest
                                         to vary across banking                                 income at 54.5 percent (slightly up from 54.0
                                       subgroups with the more                                  percent). This is reflective of the subgroup’s
                                       sophisticated banks such                                 relatively lower asset quality and higher
                                            as universal banks                                  administrative fees/charges on lending
                                           further exploring off-                               activities. (Table 7)
                                            balance sheet non-
                                          interest based income                                         Revenue streams tended to vary
                                        sources (i.e., derivatives                              across banking subgroups with the more
                                        transactions) while thrift                              sophisticated banks such as universal banks
                                         banks and rural banks,                                 further exploring off-balance sheet
                                         because of their social                                non-interest based income sources (i.e.,
                                         development functions,                                 derivatives transactions) while thrift banks and
                                             relied heavily on                                  rural banks, because of their social
                                       traditional interest-based                               development functions, relied heavily on
                                         income to sustain their                                traditional interest-based income to sustain
                                                 operations                                     their operations.

                                                                                                       The deviation from the trend was
                                                                                                cooperative banks, which exhibited a nearly
Philippine Banking System
                                                                                                even share of interest and non-interest
Sources of Revenue vs. Total Assets                                                             income over the subgroup’s total assets.
As of End-December 2007
                                                                                                Their small-scale lending activities and higher
                        12.0%

                        10.0%
                                                                                                administrative lending costs to a large number
As % of Total Assets




                         8.0%
                                                                                                of borrowers necessitate the imposition of
                         6.0%
                                                                                                higher fees and charges. Meanwhile, the
                         4.0%
                                                                                                subgroup’s high credit exposure to
                         2.0%                                                                   typhoon-prone agricultural regions likewise
                         0.0%                                                                   affected its loan quality thereby, squeezing
                                Total Banking   UKBs        TBs           RBs       Coops
                                                                                                net interest income compared to other
                       Extraordinary Credits     Non-Interest Income      Net Interest Income   banking groups.

                                                                                                       The government’s stronger fiscal
                                                                                                position5 and relatively low inflation led to a
                                                                                                declining interest rate environment, forcing
                                                                                                banks to maximize their earning potential
                                                                                                towards sustained profitability. Earning asset

                                                                                                5   Budget deficit in 2007 stood only at P9 billion, the
                                                                                                    lowest since 1992 and represented 0.1 percent of
                                                                                                    gross domestic product or GDP (Source: Depart-
                                                                                                    ment of Finance).

                                                                       Source: Office of Supervisory Policy Development, Supervision and Examination Sector
                                                                                                          The Philippine Banking System                           21
       STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007


yield slightly dipped to 8.3 percent from 8.7                   Philippine Banking System
                                                                Selected Ratios vs. 91-day Treasury Bill Rate
percent in 2006 as banks’ investment portfolio
shrank by 1.9 percent. The spread between                                           15.3
                                                                 15.0      13.8
the earning asset yield and the T-bills rate
                                                                                  14.0       10.9
favorably rose to 491 basis points from 334                      12.0      13.1
                                                                                                     10.3 10.2
basis points in 2006. Meanwhile, funding cost                      9.0                     10.2       9.9 9.9           7.7             8.0     8.6    8.7      8.3
                                                                                                                               7.4
slid to 3.4 percent from 3.9 percent in 2006,                               8.0    8.5
                                                                                                                         5.4
                                                                   6.0                                                                  7.3           5.4
widening the spread between the earning                                                     6.4       6.1    6.2               6.0             6.4
                                                                                                                                                                3.4
asset yield and funding cost to 496 basis                          3.0                                                3.9      3.6    3.8      3.9    3.9    3.4
points from 477 basis points last year. The                          -
bellwether 91-day Treasury bills (T-bills) rate                            1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

followed a similar downward trek to 3.4                                     Earning Asset Yield                    T-bills (91-day)              Funding Cost
percent from 5.4 percent in 2006 as improving
budget deficit moderated the government’s
need to borrow funds.         Such movement
effectively closed the gap between funding
cost and T-bills rate, a historic first since the
1997 Asian Financial Crisis. The closing of
the gap augured well for depositors as they
got an average interest yield equivalent to an
investment in a risk-free government security,
an event not previously experienced in the
Philippines.

      Banks’ net interest margin remained
steady at 4.6 percent from similar first
semester ratio but slightly up from the 4.5
percent margin achieved in 2006.

       The growth in the banking system’s                       Philippine Banking System: Operating Expense Structure
operating expenses decelerated to a                            (In P Billions)
                                                                  225.0
                                                                                                                                                         (In Percent)
                                                                                                                                                              20.0
single-digit level of 8.0 percent following two                  200.0
                                                                                                                                                                15.0

consecutive years of double-digit expansions                     175.0
                                                                                                                                                                10.0
                                                                 150.0
due to the 6.5 percent decline in expenses                       125.0                                                                                          5.0

and lower provisioning and debt write-offs                       100.0                                                                                          0.0

(11.7 percent decline). Total operating                           75.0
                                                                                                                                                                -5.0
                                                                  50.0
expenses in 2007 stood at P206.5 billion from                     25.0
                                                                                                                                                                -10.0

P191.1 billion in 2006.                                            0.0                                                                                          -15.0
                                                                           2000      2001          2002     2003       2004      2005         2006    2007


                                                                            Provisions/Write-off                                Overhead
        Overhead costs, which accounted for                                 Other Expenses                                      Operating Expense Growth Rate

more than half of the industry’s total operating
expenses at 56.3 percent, rose by 10.6
percent or P11.2 billion to P116.1 billion from
P105.0 billion in 2006 due to rising salary and
wages brought about by branch expansions.
Other operational expenses such as rent,
utilities, freight service and other
miscellaneous items increased by 12.5
percent to P66.2 billion from P58.9 billion and
accounted for the second largest portion of
the industry’s total operating expenses at 32.1
percent.
Source: Office of Supervisory Policy Development, Supervision and Examination Sector
  22              The Philippine Banking System

                                                                   STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007


Philippine Banking System: Profitability Component Indicators                                        Cross-industry profitability indicators
For End-December 2007
                                                                                              are further summarized in the adjacent
                                 Earning
                                           Funding     Interest
                                                                      Net       Cost-to-      Profitability Component Indicators Table.
                                  Asset                             Interest    Income
                                            Cost        Spread
                                  Yield                              Margin      Ratio
 All Banks p/
 Domestic Banks p/
                                     8.3
                                     8.1
                                                3.4
                                                3.2
                                                             5.0
                                                             4.9
                                                                        4.6
                                                                        4.5
                                                                                    68.3
                                                                                    70.2
                                                                                                      Rising miscellaneous costs were
   Private Domestic UBs
   Private Domestic KBs
                                     7.4
                                     8.0
                                                3.0
                                                3.3
                                                             4.4
                                                             4.7
                                                                        4.0
                                                                        4.0
                                                                                    67.6
                                                                                    72.8
                                                                                              brought about by increased information
   Government Banks                  7.3        2.5          4.8        4.6         65.5      technology (IT)-related investments in 2007 to
   Thrift Banks                     10.8        4.6          6.2        5.8         89.4
   Rural Banks p/                   18.7        6.1         12.6       11.5         73.6      comply with Basel II requirements and client
  Cooperative Banks p/              16.3        7.6          8.7        7.9         76.1
 Foreign Bank Branches/                                                                       servicing. Meantime, the cost-to-income (CTI)
 Subsidiaries                        9.7        4.7          5.0         5.2        59.6
  Foreign Bank Branches              9.5        4.7          4.7         5.0        54.6      ratio (net of bad debts and provisions for
   Foreign Bank Subsidiaries        11.1        4.4          6.8         6.7        97.0
                                                                                              probable losses) rose to 68.3 percent from
 p/ Preliminary
                                                                                              66.5 percent in 2006. Several industry players
                                                                                              posted increased capital expenditure,
                                                                                              particularly on branching and IT-related
                                                                                              investments to enhance service delivery.
                                                                                              Nonetheless, the CTI ratio (inclusive of bad
                                                                                              debts and provisions for probable losses)
                                                                                              improved to 77.3 percent from last year’s 77.5
                                                                                              percent. The reduction in loss provision and
                                                                                              write-offs (11.7 percent decline in 2007 vs.
                                                                                              19.9 percent increase in 2006) compensated
                                                                                              for the rise in other operating expenses.

Philippine Banking System: Cost-to-Income Ratio                                                      Across all banking subgroups, foreign
(In P Billions)                                                                (In Percent)
                                                                                              banks (branches and subsidiaries) still held
 275.0                                                                             100.0      the distinction of being the most cost-efficient
 250.0                                                                             90.0
 225.0                                                                             80.0
                                                                                              at 59.6 percent (up from last year’s 56.7
 200.0
 175.0
                                                                                   70.0       percent).      Among the domestic banks,
                                                                                   60.0
 150.0
                                                                                   50.0
                                                                                              government banks were the most
 125.0
 100.0
                                                                                   40.0       cost-efficient with the lowest CTI ratio of 65.5
                                                                                   30.0
  75.0
  50.0                                                                             20.0
                                                                                              percent, a marked improvement from last
  25.0                                                                             10.0       year’s 72.1 percent. Meanwhile, private
   0.0                                                                             0.0
            1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
                                                                                              domestic universal banks and commercial
                   Operating       Operating Expense                    Cost to               banks trailed closely at 67.6 percent (up from
                   Income          (net of bad debt/prov)               Income
                                                                                              64.1 percent) and 72.8 percent (up from 72.7
                                                                                              percent), respectively.

                                                                                                    Notably, operating costs remained the
                                                                                              highest for thrift banks as their CTI ratios
                                                                                              remained well above the industry average at
                                                                                              89.4 percent (up from 89.2 percent).

                                                                                                     Banks’ shareholders continued to get
                                                                                              better yields as the banking system’s return
                                                                                              on assets/return on equity (ROA/ROE) ratios
                                                                                              sustained their uptrend to 1.3 percent (same
                                                                                              as last year) and 10.8 percent (up from 10.6
                                                                                              percent), respectively.

                                                                                                     For the ROA ratio, cooperative banks
                                                                                              led other banking groups with the highest ratio
                                                                                              of 2.4 percent (same as last year). Rural
                                                      Source: Office of Supervisory Policy Development, Supervision and Examination Sector
                                                                                                                        The Philippine Banking System                            23
       STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007
                                                               `


banks came second with 2.0 percent                                 Philippine Banking System: Return on Assets (ROA)
                                                                    In Percent
(unchanged from 2006) while commercial                                3.00

                                                                               2.50
banks rounded up the Top 3 spot with 1.5                                       2.00

percent (down from 1.7 percent).                                               1.50

                                                                               1.00

                                                                               0.50


        On the other hand, the ROA ratio of                             (0.50)
                                                                               0.00



thrift banks was negative.                                                                     1998    1999     2000   2001      2002   2003    2004     2005     2006   2007 p/


                                                                                               ALL BANKS                      Universal Banks               Commercial Banks
                                                                                               Thrift Banks                   Rural Banks                   Cooperative Banks


       For the ROE ratio, cooperative banks                        p/ Preliminary




were still the most profitable as the subgroup’s
ratio even hovered above the industry                              Philippine Banking System: Return on Equity (ROE)

average at 16.5 percent (up from 15.4 percent                          In Percent

                                                                       18.00
in 2006). Other subgroups in the Top 3 were                            15.00


rural banks with 14.2 percent (up from 13.6                            12.00
                                                                                9.00

percent) and universal banks with 12.4                                          6.00
                                                                                3.00

percent (up from 11.8 percent).                                          (3.00)
                                                                                0.00


                                                                                               1998    1999     2000   2001      2002   2003     2004    2005     2006   2007 p/


      Similarly, thrift banks posted a negative                                                ALL BANKS
                                                                                               Thrift Banks
                                                                                                                              Universal Banks
                                                                                                                              Rural Banks
                                                                                                                                                            Commercial Banks
                                                                                                                                                            Cooperative Banks

ROE ratio for the year (down from 1.3 percent                      p/ Preliminary



in 2006).



MAJOR BALANCE SHEET TRENDS
ASSETS
       Total resources breached the P5 trillion                    Philippine Banking System: Asset Growth
                                                                   For End-Periods Indicated
mark, settling at P5,133.6 billion as of
end-December 2007. This is 5.5 percent                                                     6,000.0                                                                        14.0
                                                                                                                                                         P5,133.6B
higher than last year’s P4,865.6 billion.                                                                                                                                 12.0




                                                                                                                                                                                   Ratios in Percent (%)
                                                                                           5,000.0
                                                                    Levels in P Billions




Substantial expansions in the banking                                                      4,000.0                                               12.7%
                                                                                                                                                                          10.0

system’s loan portfolio and liquid assets (i.e.,                                                                       9.9%
                                                                                                                                                                          8.0
                                                                                           3,000.0
cash and due from banks) were the main                                                                                              7.3%
                                                                                                                                                                          6.0

recipients of growth.                                                                      2,000.0
                                                                                                           5.3%                                                 5.5%      4.0

                                                                                           1,000.0                                                                        2.0
      The system remained principally                                                           -                                                                         0.0
funded by deposits at 71.4 percent (down                                                                 2003          2004        2005         2006            2007

from 71.9 percent in 2006) and capital                                                                            Total Assets                  Growth Rate

accounts at 11.7 percent (unchanged).
Meanwhile, total resources were channeled
mostly to loans at 40.8 percent (up from 38.3
percent), investments at 24.7 percent (down
from 26.5 percent), and held as ‘cash and due
from banks’ at 14.6 percent (up from 13.0
percent). Notably, banks were still awash with
cash as liquid assets-to-deposit ratio stood at
51.8 percent from last year’s 52.0 percent.

        Except for private domestic commercial
banks which posted a 7.2 percent or P23.9
billion decline in assets, the rest of the

Source: Office of Supervisory Policy Development, Supervision and Examination Sector
 24             The Philippine Banking System

                                                                                 STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007




                                                                                                                  subgroups supported the banking system’s
                                                                                                                  moderate asset expansion. Rural and
                                                                                                                  cooperative banks posted the highest asset
                                                                                                                  expansion of 17.9 percent or P24.3 billion,
                                                                                                                  followed by domestic thrift banks with 10.6
                                                                                                                  percent or P42.9 billion and private domestic
                                                                                                                  universal banks with 6.2 percent or P170.3
                                                                                                                  billion.

                                                                                                                           Market distribution of total system-wide
Philippine Banking System: Distribution of Assets                                                                 assets barely changed with private domestic
      2007                                                                                                        universal banks still held the lion’s share at
      2006
      2005
                                                                                                                  56.9 percent (slightly up from 56.5 percent in
      2004                                                                                                        2006). Other banking groups that made the
      2003                                                                                                        Top 3 include foreign bank branches and
      2002
                                                                                                                  subsidiaries at 13.2 percent (down from 13.3
      2001
      2000
                                                                                                                  percent) and government banks at 12.1
      1999                                                                                                        percent (down from 12.3 percent). Notably
      1998                                                                                                        though, the share of foreign banks branches
      1997
                                                                                                                  and subsidiaries to total system-wide assets
             0%        10% 20%        30%       40%     50% 60% 70%              80%     90% 100%
                                                                                                                  at 13.2 percent remained less than half of the
      Private Domestic Universal                               Foreign Banks
      Private Domestic Commercial                              Domestic Thrift                                    30 percent statutory limit under Section 3 of
                                                               Rural/Cooperative Banks
      Government Banks                                                                                            R.A. No. 7721 (An Act Liberalizing the Entry
                                                                                                                  and Scope of Operations of Foreign Banks in
                                                                                                                  the Philippines) more than a decade since the
                                                                                                                  liberalization of the Philippine banking system
                                                                                                                  in 1994.

                                                                                                                          The bulk of the banking system’s asset
                                                                                                                  portfolio consisted mainly of loans, net
                                                                                                                  (exclusive of interbank lending) at 40.8
                                                                                                                  percent (up from 38.3 percent last year),
                                                                                                                  investments, net at 24.7 percent (down from
                                                                                                                  26.5 percent) and liquid assets (cash and due
                                                                                                                  from banks) at 14.6 percent (up from 13.0
                                                                                                                  percent). With improving macroeconomic
                                                                                                                  environment, bank lending started to pick up
                                                                                                                  in 2007 as evidenced by the larger share of
                                                                                                                  bank loans in the asset mix.

                                                                                                                         On the other hand, the share of
Philippine Banking System: Asset Mix                                                                              interbank loans, other assets and real and
                 IBL
                                    Loans
                        (net, exclusive of IBL) 38.3%               IBL 7.6%
                                                                                              Loans
                                                                                  (net, exclusive of IBL) 40.8%
                                                                                                                  other properties acquired (ROPA) declined to
                8.9%
                                                                                                                  7.6 percent (from 8.9 percent in 2006), 8.8
 Cash and due                                           Cash and due
  from banks
     13.0%
                                                         from banks                                               percent (from 9.2 percent) and 3.5 percent
                                                            14.6%

 Other assets
                                                                                                                  (from 4.1 percent), respectively.       The
                                                         Other assets
    9.2%
                                                            8.8%                                                  reduction in banks’ holdings of ROPA was an
         ROPA (net)
           4.1%
                         Investments (Net) 26.5%                  ROPA (net)
                                                                    3.5%
                                                                                      Investments (Net) 24.7%     offshoot of continuous asset cleanup
                 P4,865.6 Billion                                              P5,133.6 Billion
                                                                                                                  measures undertaken by banks during the
                 December 2006                                             December 2007                          year (e.g. SPV-related transactions, joint

                                                                    Source: Office of Supervisory Policy Development, Supervision and Examination Sector
                                                                                                                             The Philippine Banking System                                25
       STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007


venture agreements or JVAs with real estate
developers and public auctions).

      Relatively low cost deposits remained
                                                             Philippine Banking System: Funding Mix
the most favored route for bank funding as
                                                                Deposits 71.9%                                                                 Deposits 71.4%
deposit liabilities cornered a significant 71.4
percent, albeit slightly down from last year’s                                                                     Bills Payable                                                Bills Payable

71.9 percent. Capital accounts at 11.7                                                                                  7.8%

                                                                                                                    Unsecured
                                                                                                                                                                                     8.1%
                                                                                                                                                                                 Unsecured

percent (unchanged from last year) and bills                                                           Other
                                                                                                                   Subordinated
                                                                                                                    Debt 1.6%                                         Other
                                                                                                                                                                                Subordinated
                                                                                                                                                                                 Debt 1.6%
                                                                                          Capital                                                   Capital         Liabilities
payable at 8.1 percent (up from 7.8 percent)                                             Accounts
                                                                                          11.7%
                                                                                                     Liabilities
                                                                                                       7.0%
                                                                                                                                                   Accounts
                                                                                                                                                    11.7%
                                                                                                                                                                      7.2%


accounted for the second and third largest                                                       P4,865.6 Billion
                                                                                                 December 2006
                                                                                                                                                             P5,133.6 Billion
                                                                                                                                                          December 2007
shares of the banking system’s funding
sources.




LOANS
       I mprovi ng      ma croecono mi c
environment and continued upswing in
consumer finance on the back of strong
inflows of Overseas Filipino Workers (OF)
remittances have led to a credit expansion in
2007. Exclusive of IBL, regular lending
managed to post a solid, double-digit
expansion of 10.9 percent or P217.4 billion
to P2,212.8 billion from P1,995.4 billion in
2006.

        The resumption of bank credit to the                  Philippine Banking System: Comprative Growth Rates
economy closed the growth gap between                         Between Bank Lending and Economic Output
                                                              For End-Periods Indicated
nominal lending and nominal GDP in 2007.                                                30.0
Moreover, loan growth has been broadly in                                               25.0
line with economic expansion for the last 11
                                                                Ratios in Percent (%)




                                                                                        20.0
years.                                                                                  15.0

                                                                                        10.0

       Meantime, total loan portfolio (TLP),                                              5.0

gross reached P2,601.3 billion, 7.1 percent                                                -
                                                                                                  1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
higher than last year’s P2,427.9 billion.                                                (5.0)

                                                                                        (10.0)

        Outside financial intermediation                                                  Real GDP Growth Rate                     Nominal GDP Growth Rate           YOY TLP, net of IBL

sector, the manufacturing sector still had the
highest concentration of bank credit at 15.1
percent or P391.6 billion followed by real
estate, construction, renting and business
activities sector at 12.5 percent or P326.2
billion and wholesale, retail trade and repair
of motor vehicle sector at 10.7 percent or
P278.5 billion. With the exception of the
latter, the first two lead economic sectors
posted loan contractions year-on-year: the

Source: Office of Supervisory Policy Development, Supervision and Examination Sector
               26                     The Philippine Banking System

                                                                                                   STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007


Philippine Banking System: Loan Portfolio Structure By Industry Sector
                                                                                                                               manufacturing sector with 0.6 percent or P2.3
Amount in P Billion
As of end-December 2007
                                                                                                                               billion and real estate, construction and
                                                                                                          P2,601.3     100%    business activities sector with 0.4 percent or
                               5.6%
                                        6.6%                            Financial Intermediation
                                                                        Manufacturing
                                                                                                             408.3
                                                                                                             391.6
                                                                                                                       15.7%
                                                                                                                       15.1%
                                                                                                                               P1.1 billion.
       4.8%                                       10.7%
    3.8%                                                                Interbank Loans (IBL)                388.4     14.9%
                                                          12.5%
10.3%                                                                   Real
                                                                        Estate, Construction, Renting &
                                                                        Business Activities
                                                                                                             326.2     12.5%
                                                                                                                                      In terms of specific loan intake, private
                                                                        Wholesale, Retail Trade &
                                                                        Repair of Motor Vehicles
                                                                                                             278.5     10.7%
                                                                                                                               households with employed persons posted
                                                                        Other Community, Social &

        15.7%                                           14.9%
                                                                        Personal Service Activities
                                                                        Agriculture, Fishery, Hunting &
                                                                                                             172.8

                                                                                                             144.5
                                                                                                                        6.6%

                                                                                                                        5.6%
                                                                                                                               the highest year-on-year growth at 70.0
                                         15.1%                          Forestry
                                                                        Electricity, Gas & Water             123.9      4.8%
                                                                                                                               percent or P71.7 billion to P174.1 billion.
                                                                        Transportation, Storage &
                                                                        Communication                         98.0      3.8%   Electricity, gas and water sector with 68.7
                                                                        Others                               269.1     10.3%
                                                                                                                               percent or P50.5 billion came second and
                                                                                                                               financial intermediation third with 24.7 percent
                                                                                                                               growth or P81.0 billion.

                                                                                                                                        Foreign currency deposit unit (FCDU)
                                                                                                                               loans rose by 6.5 percent or $0.7 billion to
                                                                                                                               $12.2 billion from $11.4 billion as of
                                                                                                                               end-December 2006. In terms of industry
                                                                                                                               composition, domestic banks accounted for
                                                                                                                               the lion’s share of the industry’s FCDU loans
                                                                                                                               at 69.8 percent or US$8.5 billion, albeit lower
                                                                                                                               from last year’s share of 73.8 percent or $8.5
                                                                                                                               billion.     Foreign banks (branches and
                                                                                                                               subsidiaries), on the other hand, gained
                                                                                                                               ground over their domestic counterparts as
                                                                                                                               their share to total FCDU loans of the banking
                                                                                                                               system rose to 30.9 percent or $3.8 billion
                                                                                                                               from 26.2 percent or $3.0 billion last year. Of
                                                                                                                               specific subgroups, domestic thrift banks still
                                                                                                                               had the lowest share at 0.5 percent or $0.1
                                                                                                                               billion and slightly up from last year’s 0.2
                                                                                                                               percent. FCDU operations remained the turf
                                                                                                                               of big, universal banks (domestic and foreign)
                                                                                                                               as the subgroup cornered a significant share
                                                                                                                               at 68.6 percent or $8.4 billion but lower than
                                                                                                                               last year’s 73.8 percent or $8.5 billion.

  Philippine Banking System
                                                                                                                                       While corporate loans still accounted
  Composition of Loans                                                                                                         for the bulk of bank lending, consumer finance
                             2,500
                                                                                                                               (auto loans, credit card receivables and
                             2,000                                                                                             residential real estate loans) has been
                                                                                                                               growing steadily for the past seven years on
         In Millions Pesos




                             1,500
                                                                                                                               the back of strong private consumption and
                             1,000
                                                                                                                               inflows of remittances from OFs. The low
                              500                                                                                              interest rate environment, which supported an
                                                                                                                               upturn in the real estate and property sector,
                                -
                                        2001     2002           2003         2004        2005         2006           2007      has also contributed to the growth during the
                                         Consumer Loans           SME        Loans to Corporate Sector                         year.       Consequently, consumer loans
                                                                                                                               captured a larger share of the industry’s TLP
                                                                                                                               at 13.7 percent (up from last year’s 12.8
                                                                                                                               percent) as the level likewise expanded by

                                                                                        Source: Office of Supervisory Policy Development, Supervision and Examination Sector
                                                                                       The Philippine Banking System   27
       STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007


18.0 percent (down from 25.4 percent) to
P289.6 billion from P245.4 billion in 2006.

       The consumer loan segment remained
the turf of domestic thrift banks as the
subgroup cornered a significant share of 42.8
percent (down from last year’s 44.2 percent).
Private domestic universal banks came
second at 29.0 percent (down from 26.3
percent) while foreign banks (branches and
subsidiaries) rounded up the Top 3 at 14.3
percent (down from 15.1 percent).

        Consumer loans were generally current
in status with past due ratio of consumer loans
easing to 7.7 percent from last year’s 8.3
percent. Except for foreign bank branches
and linked thrift banks, all other banking
subgroups posted improving past due ratios
over the year. Domestic linked thrift banks
consistently held the best consumer loan
quality, albeit slightly up at 3.8 percent from
last year’s 3.4 percent. Meanwhile, private
domestic bank still had the highest proportion
of delinquent consumer loans at 12.0 percent,
a 3.0 percent or P0.4 billion reduction from
last year’s 15.0 percent.

        In terms of composition, the biggest
proportion of consumer loans at 36.3 percent
(down from 38.0 percent last year) were
residential real estate loans (RELs) which
rose by 12.7 percent or P11.8 billion to P105.0
billion from P93.2 billion at end-2006. The
                                                                        The biggest demand for
biggest demand for residential RELs still came
                                                                          residential RELs still
from OFs particularly the balikbayans and
                                                                             came from OFs
their family beneficiaries in need of permanent
                                                                             particularly the
shelter.
                                                                         balikbayans and their
                                                                         family beneficiaries in
        All banking subgroups loaned out
                                                                           need of permanent
higher residential RELs over the year led by
                                                                                 shelter
domestic linked thrift banks, which accounted
for the bulk of residential RELs at 56.2 percent
or P59.0 billion (up from 53.8 percent).
Private domestic universal banks and
government banks trailed in closely at 23.4
percent or P24.6 billion and 6.3 percent or
P6.6 billion, respectively. Meanwhile, foreign
commercial banks had the lowest share of 0.8
percent or P0.8 billion of the banking system’s
total residential RELs.

Source: Office of Supervisory Policy Development, Supervision and Examination Sector
28   The Philippine Banking System

                                          STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007


                                                                  The steady appreciation of the peso
                                                           and other currencies against the US dollar
                                                           which squeezed the peso value of OF foreign
                                                           currency-denominated remittances to their
                                                           beneficiaries and lower deployment of
                                                           sea-based workers6 in 2007, however,
                                                           contributed to the slight increase in the past
                                                           due ratio of residential RELs to 5.0 percent
                                                           from 4.9 percent in 2006.

                                                                   Banks’ exposure to credit card
                                                           receivables (CCRs) increased in 2007 as
                                                           CCRs posted a double-digit growth of 23.0
               This is indicative of                       percent and accounted for 34.0 percent or
                   wider public                            P98.4 billion of total consumer loans from last
                 acceptance and                            year’s 32.6 percent or P80.0 billion. This is
                 intense market                            indicative of wider public acceptance and
             competition for the use                       intense market competition for the use of
             of ‘plastic currency’ in                      ‘plastic currency’ in regular consumption.
              regular consumption
                                                                   Credit card operations remained the
                                                           niche market of foreign banks (branches and
                                                           subsidiaries), albeit with slightly reduced
                                                           share, at 58.7 percent or P57.8 billion from
                                                           last year’s 62.1 percent or P49.7 billion. Not to
                                                           be left outdone by their foreign counterparts,
                                                           domestic banks improved on their credit card
                                                           operations led by private domestic universal
                                                           banks which increased their foothold on the
                                                           CCR pie at 34.1 percent or P33.6 billion from
                                                           last year’s 31.1 percent or P24.9 billion.
                                                           Meanwhile, stand-alone thrift banks and
                                                           private domestic commercial banks rounded
                                                           up the Top 3 with 4.9 percent or P4.8 billion
                                                           (down from 5.3 percent but up from P4.3
                                                           billion) and 2.2 percent or P2.2 billion (up from
                                                           1.3 percent or P1.1 billion), respectively.

                                                                  Stricter adherence of market players to
                                                           prudential regulations on credit card
                                                           operations improved the quality of CCRs as
                                                           past due ratio eased to 12.8 percent from 14.9
                                                           percent in 2006.

                                                           6    Based on the preliminary data from the Philippine
                                                                Overseas Employment Administration (POEA),
                                                                sea- based workers accounted for more than a
                                                                quarter of the total number of deployed Filipino
                                                                workers abroad. As of end-December 2007, the
                                                                number of sea-based workers declined by 4.0
                                                                percent to 263,662 due to the delays encountered
                                                                in the issuance of worker’s visa by their host
                                                                countries.
                                     Source: Office of Supervisory Policy Development, Supervision and Examination Sector
                                                                                       The Philippine Banking System   29
       STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007




        Similarly, auto loans (ALs) stood at P86.2
billion, higher by 19.4 percent or P14.0 billion                                The triumph of the
from last year’s P72.2 billion. The triumph of the                        automobile industry against
automobile industry against used cars                                          used cars smuggling,
smuggling7, improvement in the overall                                     improvement in the overall
macroeconomic conditions, breakthroughs in                                macroeconomic conditions,
automobile technology paving the way for more                                    breakthroughs in
affordable and fuel-efficient car models (i.e.,                               automobile technology
Compressed Natural Gas or CNG and other                                      paving the way for more
hybrid cars) and the changing mindset on car                              affordable and fuel-efficient
ownership (from luxury to necessity) in the                                     car models and the
Philippines brought about by the re-distribution                             changing mindset on car
of property development away from the NCR are                                    ownership in the
some of the factors that supported the solid                                Philippines brought about
growth in ALs.                                                               by the re-distribution of
                                                                          property development away
        Most of the ALs were serviced by the                                from the NCR are some of
domestic linked thrift banks at 55.7 percent or                             the factors that supported
P48.0 billion (down from 56.4 percent but up                                  the solid growth in ALs
from P40.7 billion). Meanwhile, private domestic
universal banks at 29.9 percent or P25.7 billion
(up from 25.6 percent or P18.5 billion) and
non-linked domestic thrift banks at 6.7 percent or
P5.8 billion (down from 8.3 percent or P6.0
billion) came second and third, respectively.

       Higher consumer purchasing power
particularly the upwardly mobile yuppies
benefiting from higher GDP growth, low interest
and inflation environment, steady inflow of OF
remittances and boom in property and business
process outsourcing sectors made good on their
car loans. These effectively improved the quality
of ALs as past due ratio eased to 5.1 percent
from 5.2 percent last year.




7   The Chamber of the Automotive Manufacturers of the
    Philippines, Inc. (CAMPI) successfully lobbied for an
    Executive Order and Supreme Court ruling to declare
    the entry of used cars illegal as these affect the
    business of local car assemblers.        As a result,
    investments poured in as highlighted by the P5.3
    billion expansion plant of Toyota and the P30.0 billion
    local completely knocked down (CKD) assembly of
    Kia and Nissan Motors. The automobile industry sold
    a total 98,000 units in 2007 (Manila Times, August
    2007)


Source: Office of Supervisory Policy Development, Supervision and Examination Sector
   30          The Philippine Banking System

                                                                    STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007


                                                                                                    Banks’ exposure to small and medium
                                                                                              enterprises (SME)8 as of end-September
                                                                                              2007 reached P254.7 billion, lower by 0.7
                                                                                              percent than last year’s P256.5 billion. The
                                                                                              amount is 19.6 percent of the banking
                                                                                              system’s TLP (down from 20.9 percent in
                                                                                              2006). A total of P139.9 billion or 10.7
                                                                                              percent was directed to small enterprises
                                                                                              while P114.8 billion or 8.8 percent was
                                                                                              channeled to medium enterprises.

                                                                                                     Agri-agra credit as of end-September
                                                                                              2007 fell short of the prescribed minimum of
                                                                                              25 percent as mandated under P.D. No. 717
                                                                                              (Agri-Agra Law) as total loan allocation to the
                                                                                              agri-agra sector amounted to P354.9 billion
                                                                                              and was only 21.5 percent against the
                                                                                              required P412.8 billion or 25 percent. Of the
                                                                                              total agri-agra loans, P154.3 billion or 9.4
                                                                                              percent went to agrarian reform beneficiaries,
                                                                                              not enough to meet the required minimum of
                                                                                              P165.1 billion or 10 percent.

                                                                                                     Higher risk weights for non-performing
                                                                                              loans (150 percent from 125 percent) under
                                                                                              Basel II, improved profitability allowing debt
                                                                                              write-offs, better credit risk management of
Philippine Banking System                                                                     banks and more alternative venues for asset
NPLs and NPL Coverage Ratio
In P Billion                                                                     In Percent
                                                                                              disposition (e.g., SPV, joint venture
350                                                                                     90    agreements and public auctions) all
300                                                                                     80
                                                                                        70    contributed to the banking system’s improving
250

200
                                                                                        60
                                                                                        50
                                                                                              asset quality.
150                                                                                     40
                                                                                        30
100
                                                                                        20
                                                                                                       As    of   e n d - De ce mb e r  2007,
 50                                                                                     10    non-performing loans (NPL) stood at P128.4
  0                                                                                     0
        1998     1999   2000     2001      2002   2003   2004    2005    2006   2007          billion, 12.8 percent or P18.8 billion lower than
               NPLs            Loan Loss           NPL Ratio            NPL Coverage          last year’s P147.2 billion. The significant drop
                               Reserves                                 Ratio




                                                                                              8   The Small and Medium Enterprise Development
                                                                                                  Council (SMED Council), which is the primary
                                                                                                  government agency responsible for the promotion,
                                                                                                  growth and development of SMEs, approved a
                                                                                                  resolution requesting "the local banking community
                                                                                                  to maintain its present level of exposure to SMEs
                                                                                                  until the mandatory allocation provision, which
                                                                                                  expired last 9 August 2007, of the Magna Carta for
                                                                                                  Small Enterprises is reinforced with the passage of
                                                                                                  the proposed amendments to R.A. No. 6977 (as
                                                                                                  amended by R.A. No. 8289) in Congress”. In view
                                                                                                  of this resolution, the BSP issued Circular Letter
                                                                                                  No. CL-2007-039 to enjoin banks to maintain their
                                                                                                  present level of exposure to SMEs.


                                                               Source: Office of Supervisory Policy Development, Supervision and Examination Sector
                                                                                                                       The Philippine Banking System                          31
       STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007


in the overall level of soured loans led to
similar improvement of the banking system’s
loan quality as NPL ratio eased to its lowest
level in a decade at 5.0 percent, better than
last semester’s 5.7 percent and the 6.1
percent achieved in 2006. Loss provisioning
further strengthened to 81.5 percent from
last semester’s 75.1 percent and last year’s
75.0 percent on the back substantial
reduction of NPLs.

       Among banking subgroups, foreign
bank branches had the best loan quality with
an NPL ratio of 1.0 percent. Other
subgroups in the Top 3 included government
banks with 3.6 percent and private domestic
universal banks with 5.1 percent. On the
other hand, cooperative banks because of
their exposure to typhoon-stricken areas                      Comparative NPL Ratios Within ASEAN 5 Countries
posted the poorest loan quality at 13.3                       As of End-Periods Indicated
                                                                                                         18.0
percent, 8.3 percentage points above the                                                                 16.0

system average.                                                                         In Percent (%)
                                                                                                         14.0
                                                                                                         12.0
                                                                                                         10.0
                                                                                                          8.0
       Banks in ASEAN 5 countries have                                                                    6.0

been reporting generally improving loan                                                                   4.0
                                                                                                          2.0
quality for the past eight years led by                                                                   0.0
                                                                                                                2001      2002   2003     2004        2005        2006        2007*
Singapore with the best NPL ratio at 2.5                                   Indonesia (*May-07)                  12.1      8.1    8.2        5.6        8.3          7.0        6.7
                                                                            Malaysia (*Apr-07)                  10.5      9.3    8.3        6.8        5.6          4.8        4.4
percent in 2007. Meanwhile, Indonesia had                                  Philippines (*Dec-07)                16.9      14.5   13.8      12.5        8.4          6.1        5.0

the highest NPL ratio among the ASEAN 5                                    Singapore (*Mar-07)
                                                                           Thailand (*May-07)
                                                                                                                8.0
                                                                                                                11.5
                                                                                                                          7.7
                                                                                                                          15.7
                                                                                                                                 6.7
                                                                                                                                 12.9
                                                                                                                                            4.0
                                                                                                                                           10.9
                                                                                                                                                       3.0
                                                                                                                                                       8.3
                                                                                                                                                                    2.4
                                                                                                                                                                    4.2
                                                                                                                                                                               2.5
                                                                                                                                                                               4.2
economies for the last three years.                            So urce: ARIC Economic and Financial In dicators, 2007 IMF Global Financial Stability Report an d Central Bank Websites




        Similarly, non-performing assets
                                              Philippine Banking System
(NPAs) dropped by 10.9 percent or P37.6 NPAs and NPA Coverage Ratio
billion to P307.9 billion from P345.5 billion In P Billion                                                                                                                In Percent
last year. Coupled with the 5.2 percent 600                                                                                                                                       50

expansion in gross assets, the banking 500                                                                                                                                        40
                                               400
system’s NPA ratio reached its lowest level 300                                                                                                                                   30

of 5.9 percent from last semester’s 6.4 200                                                                                                                                       20

percent and last year’s 6.9 percent. 100                                                                                                                                          10

Provisioning for bad assets tightened to 39.8 0                                                                                                                                   0
                                                      1998 1999 2000 2001 2002 2003 2004                                                          2005       2006     2007
percent over last semester’s 36.6 percent
                                                           NPAs     NPA          NPA Ratio                                                                   NPA Coverage
and last year’s 37.3 percent because of                             Reserves                                                                                 Ratio

significant unloading of impaired assets
during the period.

       Across banking subgroups, foreign
bank branches still bested their domestic
counterparts for having the best asset
quality with an NPA ratio of 0.5 percent.
Government banks and foreign bank
subsidiaries rounded up the Top 3 with 3.4
percent and 5.7 percent, respectively.
Source: Office of Supervisory Policy Development, Supervision and Examination Sector
   32          The Philippine Banking System

                                                       STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007


                                                                              Meanwhile, cooperative banks still struggled
                                                                              with asset quality as the subgroup’s NPA ratio
                                                                              remained above the system average at 12.8
                                                                              percent.

                                                                                      The sustained downtrend of distressed
Philippine Banking System                                                     assets ratio mirrored the improving asset
Distressed Assets Level/Ratio
                                                                              quality over the years. Distressed assets ratio
In P Billion                                                    In Percent
 600                                                                    50
                                                                              shed 2.6 percentage points to 13.2 percent
 500
                                                                              from last semester’s 15.1 percent and last
                                                                         40
 400
                                                                              year’s 15.8 percent. This represents a
                                                                         30
 300
                                                                              significant turnaround from its peak of 28.4
 200
                                                                         20   percent in 2001. Foreign banks (branches and
 100                                                                     10   subsidiaries) got the best distressed assets
    0                                                                    0
                                                                              ratio at 3.1 percent from last semester’s and
        1998 1999 2000 2001 2002 2003 2004 2005 2006 2007                     last year’s 3.3 percent. Meanwhile, domestic
               NPAs      Restructured Loans
                         (Performing)
                                               Distressed Assets Ratio
                                                                              banks posted higher than industry ratio led by
                                                                              rural and cooperative banks at 20.3 percent,
                                                                              domestic thrift banks at 17.7 percent and
                                                                              domestic universal and commercial banks at
                                                                              13.9 percent.


                                                                              INVESTMENTS
                                                                                      The diminishing supply of government
                                                                              securities in the market as a result of ongoing
                                                                              fiscal consolidation and higher risk weight on
                        The diminishing supply                                below investment grade foreign currency
                      of government securities                                denominated government securities under
                       in the market as a result                              Basel II led to the slowdown in banks’
                            of ongoing fiscal                                 investments. As of end-December 2007,
                      consolidation and higher                                investments, net declined by 1.9 percent or
                         risk weight on below                                 P24.0 billion to P1,265.7 billion from P1,289.8
                      investment grade foreign                                billion in 2006. Consequently, the ratio of
                        currency denominated                                  investments, net to total assets contracted to
                        government securities                                 24.7 percent from last year’s 26.5 percent.
                       under Basel II led to the
                          slowdown in banks’                                          Banks’ major investment outlet were
                              investments                                     still debt instruments at 90.4 percent (down
                                                                              from last year’s 91.6 percent) while the
                                                                              remaining 9.6 percent (up from 8.4 percent
                                                                              share) were investments in equity holdings.
                                                                              The increased share of investments in equity
                                                                              holdings benefited from the strong
                                                                              performance of the equities market in 2007.

                                                                                     Foreign currency-denominated debt
                                                                              securities captured the largest share of banks’
                                                                              investments at 48.7 percent or P480.1 billion
                                                                              from last year’s 43.8 percent or P504.1 billion.


                                               Source: Office of Supervisory Policy Development, Supervision and Examination Sector
                                                                                                             The Philippine Banking System                     33
       STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007


At the heels of fiscal consolidation, banks’
holdings of government securities9 contracted
to 46.0 percent or P453.6 billion (down from
52.2 percent or P601.2 billion in 2006). The
remaining share of 5.3 percent went to
investments in private securities which stood
at P52.1 billion from last year’s share of 4.0
percent or P46.0 billion.

        Across banking subgroups, domestic
universal and commercial banks held the bulk
of investments at 82.5 percent or P1,031.8
billion from last year’s 83.0 percent or
P1,051.4 billion. Foreign banks (branches and
subsidiaries) came a far second at 11.4
percent or P143.2 billion (up from 11.2
percent or P141.7 billion in 2006. The
remaining shares went to domestic thrift
banks (5.4 percent or P67.6 billion) and rural
and cooperative banks (0.6 percent or P7.9
billion).


DEPOSIT LIABILITIES
                                                                 Philippine Banking System: Selected Domestic
       Deposit liabilities posted a soft growth                  Interest Rates
of 4.8 percent (vs. 17.7 percent in 2006) to                     For End-Periods Indicated

P3,664.4 billion from P3,497.6 billion at                                           14.0
                                                                                                        12.4%
                                                                                    12.0     10.9%
end-year 2006 as growing financial literacy on                                                   9.9%                               10.1%    10.1%     9.7%
                                                                                    10.0                  9.9% 8.9% 9.5%
                                                                   In Percent (%)




                                                                                                                                                                8.7%
other alternative investment products (i.e.,                                         8.0                                              7.3%
                                                                                                                            6.0%               6.4%
investment management account or IMA for                                             6.0     7.4%    7.5%
                                                                                                                    5.4%
                                                                                                                                                        5.4%

high net worth individuals) closed in on                                             4.0
                                                                                                                   4.2%     4.2%    4.3%
                                                                                                                                                                3.4%
                                                                                                                                             3.8%      3.6%
low-yielding deposit products. Accordingly,                                          2.0
                                                                                                                                                               2.2%
                                                                                     0.0
deposit-to-GDP ratio dropped to 55.1 percent                                                2000     2001       2002       2003    2004     2005     2006     2007

from last year’s 58.0 percent. The declining                                           91-day Treasury Bill Rate                     Average Deposit Savings Rate
deposit-to-GDP ratio is indicative of the                                              Average Bank Lending Rate

growing market for non-deposit products. With
the improving financial condition of
households particularly those with members
working as OFs which have a higher
propensity to save, however, banks need to
offer a wider selection of deposit instruments
that cater to the expanding needs of the
market (i.e., higher yield, flexible terms and
conditions) to remain competitive.


9   As a percentage of total assets, bank holdings of
    government securities (foreign and domestic)
    dropped to 14.3 percent or P722.0 billion from 15.6
    percent or P758.0 billion recorded as of
    end-December 2006.


Source: Office of Supervisory Policy Development, Supervision and Examination Sector
34   The Philippine Banking System

                                          STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007


                                                                 Looking at the movement of selected
                                                          domestic interest rates since 2000 to gauge
                                                          the competitiveness of deposit products, the
                                                          average deposit savings rate shed some 517
                                                          basis points for the last eight years as it
                                                          dropped to 2.2 percent in 2007 from a high of
                                                          7.5 percent in 2001. The spread between the
                                                          91-day Treasury Bill rate and average yield of
                                                          deposit savings narrowed down to 121 basis
                                                          points from last year’s 180 basis points and a
                                                          high of 308 basis points in 2004. On the
                                                          contrary, the spread between the average
                                                          yields of savings deposit and lending widened
                                                          to 648 basis points from last year’s 616 basis
                                                          points and a low of 349 basis points in 2000.

                                                                  Overall, banks improved on their deposit
                                                          mobilization as loans, gross-to-deposit ratio
              Almost 6 out of 10
                                                          climbed to 71.0 percent from 69.4 percent in
                Filipinos now
                                                          2006. The reach of deposit services likewise
               maintain deposit
                                                          expanded as deposit accounts per capita10
              accounts or more
                                                          climbed to 55.6 percent from last year’s 53.3
               than half of the
                                                          percent, indicating that almost 6 out of 10
              saving population
                                                          Filipinos now maintain deposit accounts or
              in the Philippines
                                                          more than half of the saving population in the
                                                          Philippines.

                                                                  The market structure of deposit liabilities
                                                          barely changed with the bulk still cornered by
                                                          private domestic universal banks at 60.4
                                                          percent or P2,213.9 billion (up from last year’s
                                                          60.1 percent or P2,103.4 billion). Foreign
                                                          banks (branches and subsidiaries) and
                                                          government banks rounded up the Top 3 at
                                                          11.9 percent or P434.7 billion (down from 12.3
                                                          percent but up from P429.7 billion) and 9.8
                                                          percent or P358.6 billion (up from 9.7 percent
                                                          or P339.6 billion, respectively. The rest of the
                                                          subgroups made up for the remaining smaller
                                                          shares with rural and cooperative banks still
                                                          posting the lowest share of the banking
                                                          system’s deposit liabilities at 3.1 percent or
                                                          P114.3 billion (up from 2.7 percent or P94.3
                                                          billion).




                                                           10 Refers to the average number of accounts held by
                                                              each person and computed by dividing the number
                                                              of deposit accounts of the banking system by the
                                                              portion of the Philippine population ages 15-64 or
                                                              saving population (Source: NSCB, NEDA).

                                     Source: Office of Supervisory Policy Development, Supervision and Examination Sector
                                                                                              The Philippine Banking System              35
       STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007


        Peso deposit liabilities still held the                  Philippine Banking System: Deposit Mix
lion’s share of the banking system’s deposits
at 77.9 percent or P2,856.1 billion from last                                            PESO DEPOSITS
year’s 73.4 percent or P2,567.8 billion. Local                               December 2006                         December 2007
currency-denominated deposits expanded by                                                                                       31.0%
                                                                                       26.9%
11.2 percent or P288.4 billion but the growth
was twice slower than the 23.1 percent or
P481.0 billion growth in 2006.          Foreign
currency deposits accounted for the remaining
                                                                    73.1%                              69.0%
22.1 percent or P808.3 billion (down from 26.6
percent or P929.8 billion in 2006) as foreign                                 P2,567.8 Billion                    P2,856.1 Billion
currency deposits contracted by 13.1 percent.
                                                                                    FOREIGN CURRENCY DEPOSITS
       Across peso deposit products, the bulk
                                                                             December 2006                        December 2007
at 69.0 percent or P1,971.8 billion (down from
73.2 percent or P1,877.4 billion) were in                                   33.6%                              34.1%

short-term and low-yielding savings, demand
and NOW deposit liabilities while interest
rate-sensitive time deposits accounted for the                                                                                       65.9%
                                                                                               66.4%
remaining 31.0 percent or P884.4 billion (26.8
percent or P689.1 billion). Time deposits,
                                                                             P929.8 Billion                        P808.3 Billion
which posted a robust 28.3 percent
year-on-year growth, outpaced the 5.0 percent                          Demand/NOW & Savings Deposits                   Time Deposits
expansion of other deposit products.

      On the other hand, foreign currency
depositors preferred time deposit products to
maximize on interest yield. Time deposits
accounted for bulk of foreign currency
deposits at 65.9 percent or P532.5 billion from
66.4 percent or P617.1 billion in 2006. The
remaining 34.1 percent or P275.8 billion from
33.6 percent or P312.7 billion was held by
demand/NOW and savings accounts. Both
accounts posted significant declines annually.



CAPITALIZATION

       Banks continued to strengthen their
overall capital position to meet the more                                            Banks continued to
stringent banking and finance standards under                                          strengthen their
Basel II. Total capital accounts grew by 5.8                                            overall capital
percent or P32.8 billion to P601.8 billion from                                      position to meet the
P569.0 billion in 2006. With steady asset                                               more stringent
expansion, however, the ratio of total capital                                       banking and finance
accounts to total assets started to plateau at                                         standards under
the 11.0 percent level since 2005 as this year’s                                            Basel II
ratio settled at 11.8 percent (unchanged from
last year).


Source: Office of Supervisory Policy Development, Supervision and Examination Sector
 36          The Philippine Banking System

                                                                                    STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007


                                                                                                                    All capital accounts, except for foreign
                                                                                                             bank branches’ net due to head office which
                                                                                                             posted a 4.3 percent or P20.6 billion reduction,
                                                                                                             contributed to capital expansion led by surplus,
                                                                                                             surplus reserves and undivided profits that rose
                                                                                                             by 5.4 percent or P12.8 billion. Finally, assigned
                                                                                                             capital expanded by 12.9 percent or P2.2 billion.

                                                                                                                    In terms of capital structure, paid-up
                                                                                                             capital at 45.4 percent or P273.0 billion still
                                                                                                             cornered the lion’s share of total system-wide
                                                                                                             capital and better than last year’s 44.4 percent
                                                                                                             or P252.4 billion. Surplus, surplus reserves and
                                                                                                             undivided profits held the second largest share
                                                                                                             at 41.5 percent or P249.9 billion (down from
                                                                                                             41.7 percent but up from P237.1 billion). The
                                                                                                             remaining shares went to foreign bank
                                                                                                             branches’ net due to head office at 10.0 percent
                                                                                                             or P60.0 billion (down from 11.0 percent or
                                                                                                             P62.7 billion) and assigned capital at 3.2
                                                                                                             percent or P19.0 billion (up from 3.0 percent or
                                                                                                             P16.8 billion).

Philippine Banking System: Capital Adequacy Ratio (CAR)
                                                                                                                    Banks’ capital adequacy ratios (CAR),
                                                                                                             both on consolidated and solo bases, remained
                                            Solo                                  Consolidated
                                 End-December              End-Sept           End-December           End-    well above the BSP regulatory requirement of
                                                                                                     Sept
                          2004       2005          2006      2007      2004       2005       2006    2007    10 percent and the Bank for International
(In P Billion)
Tier 1                    395.1      404.5         419.0     455.5     390.1      401.5      415.4   451.6
                                                                                                             Settlements (BIS) standard of 8 percent. The
Tier 2                     78.1       73.4          94.4      91.7      79.0       75.8       98.5    96.0   banking system’s CAR, on a consolidated basis,
Deductions                 70.5       75.3          79.6      84.5      14.8       15.6        8.9    14.0
Qualifying Capital        402.6      402.5         433.8     462.6     454.3      461.7      505.0   533.6   stood at 15.7 percent as of end-September
Risk Weighted Assets
(RWA) - net
                         2,310.5 2,457.9 2,575.1 3,144.3              2,467.6 2,616.6 2,785.0 3,390.7
                                                                                                             2007, albeit 2.4 percentage points weaker than
(In Percent)
Capital Adequacy Ratio     17.4       16.4          16.9      14.7      18.4       17.6       18.1    15.7
                                                                                                             end-year 2006’s 18.1 percent. Similarly, CAR
                                                                                                             on a solo basis tapered off to 14.7 percent from
                                                                                                             end-December 2006’s 16.9 percent. The
                                                                                                             increase of risk weighted assets (21.7 percent
                                                                                                             or P605.7 billion) following the introduction of
                                                                                                             operational risk in the new capital adequacy
                                                                                                             framework effective 01 July 2007 and higher
                    The introduction of
                                                                                                             deductions from the total qualifying capital (57.1
                   operational risk in the
                                                                                                             percent or P5.1 billion) weighed down on the
                   new capital adequacy
                                                                                                             system’s overall solvency ratio.
                    framework effective
                   01 July 2007 weighed
                                                                                                                    Banks’ capital mix before deductions
                        down on the
                                                                                                             consisted of 82.5 percent Tier 1 capital and 17.5
                      system’s overall
                                                                                                             percent Tier 2 capital. Tier 1 capital widened by
                       solvency ratio
                                                                                                             8.7 percent or P36.2 billion to P451.6 billion
                                                                                                             from P415.4 billion in 2006. In contrast, Tier 2
                                                                                                             capital contracted by 2.5 percent or P2.5 billion
                                                                                                             to P96.0 billion from last year’s P98.5 billion.
                                                                                                             This indicates that banks were able to shore up


                                                                       Source: Office of Supervisory Policy Development, Supervision and Examination Sector
                                                                                                 The Philippine Banking System                    37
       STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007


required capital in preparation for Basel II and
that the 7.1 percent or P5.4 billion increase in
unsecured subordinated debts (UnSD) were
hybrid Tier 1 capital issuances.

       Banks’ compliance ratio with the
prescribed CAR, on a solo basis, stood at 83.2
percent (705 banks out of 847 banks) from
end-December 2006’s 82.4 percent (710 banks
out of 862 banks).

        Meantime, banks’ compliance ratio with                    Philippine Banking System
the minimum amount of capital improved to 82.2                    Status of Banks' Compliance with Prescribed Minimum Amount of Capital
percent or 696 compliant banks from last year’s                                                                      2003   2004   2005    2006 2007
80.0 percent or 690 banks as more rural and
                                                                   A. Number of Operating Banks                       899    893     879    862    847
cooperative banks were able to shore up the                           Universal and Commercial Banks                   42     42      41     39     38
required capital (606 banks from last year’s 598                      Thrift Banks                                     92     87      84     84     82
                                                                      Rural/Cooperative Banks                         765    764     754    739    727
banks). Accordingly, the industry’s compliance
                                                                   B.xxBanks with Capital Equal to or in Excess of
ratio rose to 83.4 percent from 80.9 percent in                    B.xxthe Minimum Amount Required
                                                                                                                      700    706     684    690    696

2006. In the same vein, thrift banks reported                         Universal and Commercial Banks                   34     33      32     38     35
                                                                      Thrift Banks                                     58     56      54     54     55
higher compliance ratio of 67.1 percent from                          Rural/Cooperative Banks                         608    617     598    598    606
previous year’s 64.3 percent as one compliant
thrift bank was added into the total.

       On the other hand, the compliance ratio
of universal and commercial banks declined to
92.1 percent from last year’s 97.4 percent with
three banks failing to comply with the required
minimum amount of capital as of end-December
2007.

SELECTED CONTINGENT ACCOUNTS

TRADE-RELATED CONTINGENT ACCOUNTS

        Spurred by recent developments such as
the softening of electronics prices in the world
market, total trade-related contingent accounts
posted a slower growth of 12.0 percent or P5.0                                     Spurred by recent
billion from last year’s 33.6 percent or P10.5                                    developments such
billion. The overall level stood at P46.9 billion                                  as the softening of
from P41.9 billion in 2006. Unused commercial                                     electronics prices in
letters of credit or LC (net of domestic), which                                    the world market,
accounted for 91.9 percent of total trade-related                                  total trade-related
contingent accounts of the banking system,                                        contingent accounts
supported the expansion as it sustained a 12.1                                       posted a slower
percent or P4.6 billion gain to P43.1 billion from                                    growth of 12.0
P38.4 billion last year. Of all the LCs issued by                                        percent
banks, only sight import LCs outstanding posted
a robust 20.5 percent or P6.1 billion growth as
the country’s total imports during the period grew

Source: Office of Supervisory Policy Development, Supervision and Examination Sector
38   The Philippine Banking System

                                          STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007


                                                         by 6.8 percent to $55.3 billion from $51.8 billion
                                                         in 200611. The strong appreciation of the local
                                                         currency against the US dollar likewise
                                                         influenced the unutilized balances of deferred
                                                         LCs issued in favor of foreign beneficiaries as it
                                                         plunged to 49.2 percent or P0.8 billion to P0.8
                                                         billion from P1.5 billion in 2006.

                                                                  Confirmed export LCs, which accounted
                                                         for 8.1 percent of the banking system’s total
                                                         trade related contingent accounts, grew by 11.1
                                                         percent or P0.4 billion to P3.8 billion from P3.4
                                                         billion last year. This coincides with the 6.0
                                                         percent hike in the country’s exports to $50.3
                                                         billion from $47.4 billion12.

                                                               Domestic banks, particularly universal
                                                         and commercial banks, captured the majority of
                                                         the banking system’s trade-related contingent
                                                         accounts at 90.9 percent (down from last year’s
                                                         94.6 percent or P42.6 billion while foreign banks
                                                         (branches and subsidiaries) made up for the
                                                         remaining 9.1 percent or P4.3 billion share.




                                                         BANK GUARANTEES

                                                                 Guarantees issued by banks to their
                                                         creditors were generally tempered this year on
          Guarantees issued                              the back of soft growth in exports/imports and
           by banks to their                             improving fiscal deficit. As of end-December
             creditors were                              2007, total bank guarantees declined by 7.5
          generally tempered                             percent (from a 2.3 percent growth last year) to
            this year on the                             P80.8 billion from P87.4 billion in 2006. Standby
          back of soft growth                            LCs, which accounted for 84.8 percent of banks’
          in exports/imports                             total guarantees issued, accelerated on the
             and improving                               growth momentum as they swelled to P68.5
              fiscal deficit                             billion or 54.6 percent higher than last year’s
                                                         P44.3 billion. Outstanding guarantees issued,
                                                         which held the 15.2 percent share of the total,
                                                         declined by 71.4 percent or P30.8 billion to
                                                         P12.3 billion from P43.1 billion in 2006.




                                                         11 (Source: National Statistical Coordination Board and
                                                            Department of Trade and Industry websites, 2008)
                                                         12 Ibid.


                                     Source: Office of Supervisory Policy Development, Supervision and Examination Sector
                                                                                       The Philippine Banking System   39
       STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007


       Domestic banks particularly universal
and commercial banks, consistently held the
bulk of guarantees at 79.0 percent (down from
last year’s 83.4 percent) while the remaining
shares went to foreign banks (branches and
subsidiaries) at 21.0 percent (up from 15.9
percent).



DERIVATIVES
        The total notional value of derivatives
contracts rose by 23.2 percent or P473.0 billion
to P2,510.3 billion from P2,037.3 billion.
Foreign currency forwards posted the largest                                The banking system’s
expansion by 24.9 percent or P421.8 billion to                              derivatives contracts
P2,118.5 billion from P1,696.8 billion in 2006.                                were still foreign
Exporters were hedging their trade proceeds as                              currency forwards on
the peso kept appreciating over the US dollar.                             the back of strong rally
Interest rate swaps trailed behind by posting a                            of the peso against the
38.0 percent growth or P92.2 billion to P334.8                                  greenback and
billion from P242.6 billion last year. Meanwhile,                              generally benign
financial options declined by 41.8 percent or                              foreign exchange risks
P41.0 billion as they settled to P57.0 billion from
P97.9 billion in 2006. In terms of specific market
shares, the bulk of the banking system’s
derivatives contracts were still foreign currency
forwards at 84.4 percent (up from 83.3 percent
in 2006) on the back of strong rally of the peso
against the greenback and generally benign
foreign exchange risks. The remaining shares
went to interest rate swaps at 13.3 percent (up
from 11.9 percent) and financial options at 2.3
percent (down from 4.8 percent).

        Derivatives transactions remained under
the turf of foreign banks (branches and
subsidiaries) as the subgroup cornered a
significant 65.5 percent share, albeit lower than
last year’s 68.5 percent. Meanwhile, domestic
banks were slowly gaining a foothold as their
share at 34.5 percent was three percentage
points higher than last year’s 31.5 percent.




Source: Office of Supervisory Policy Development, Supervision and Examination Sector
56   Universal & Commercial Banks

                              STATUS REPORT ON   THE   PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007




                                                       (CALABARZON) at 3.2 percent or P6.2 billion,
                                                       and Region III (Central Luzon) at 1.8 percent
                                                       or P3.3 billion.

                                                             By purpose, majority of the industry’s
                                                       RELs was extended for the acquisition and
                                                       development of commercial properties at 80.1
                                                       percent (down from last year’s 82.4 percent).
                                                       The remaining 19.9 percent (up from 17.6
                                                       percent) was granted for the acquisition of
                                                       residential      units    by    individual
                                                       homeowners/borrowers.

                                                                By analytical group, domestic banks
                                                       accounted for the lion’s share of the industry’s
                                                       total RELs at 95.7 percent (up from 95.1
                                                       percent last year) while foreign banks held the
                                                       remaining 4.3 percent share (down from 4.9
                                                       percent).       Both subgroups sustained
                                                       contractions in RELs: domestic banks posted
                                                       a marginal decline of 0.1 percent (P0.2 billion)
                                                       to P183.7 billion from P183.9 billion, whereas
                                                       foreign banks’ RELs contracted by 12.1
                                                       percent (P1.1 billion) to P8.3 billion from P9.5
                                                       billion.

                                                               The industry’s total credit card
                                                       receivables (CCRs) stood at P93.0 billion as
                                                       of end-December 2007, posting a double-digit
                                                       growth of 24.0 percent (or P18.0 billion) from
                                                       P75.0 billion at end-December 2006. This was
                                                       due to the industry’s aggressive marketing
             This was due to the                       efforts and growing public acceptance of
            industry’s aggressive                      plastic money in the Philippines.
            marketing efforts and                      Consequently, the share of CCRs to total
               growing public                          loans (exclusive of interbank loans) picked up
            acceptance of plastic                      to 5.0 percent from 4.4 percent last year.
                money in the                           Moreover, past due ratio got better to 13.2
                 Philippines                           percent from 15.6 percent, which was
                                                       reflective of continuous efforts of the industry
                                                       to monitor and improve their credit collection
                                                       procedures.

                                                              Meanwhile, the credit card business
                                                       remained the turf of foreign banks, cornering
                                                       61.4 percent (or P57.1 billion) of the industry’s
                                                       total CCRs (from last year’s 65.2 percent or
                                                       P48.9 billion). However, domestic banks were



                                Source: Office of Supervisory Policy Development, Supervision and Examination Sector
                                                                                   Universal & Commercial Banks     57

        STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007



starting to capture a bigger slice of the market
at 38.6 percent (P35.9 billion) from 34.8
percent (P26.1 billion).

       Automobile loans (ALs) sustained an
uptrend of 29.6 percent or P7.3 billion to
arrive at P32.2 billion from P24.8 billion last
year. This translated to a meager 1.7 percent
of the industry’s total loans (exclusive of
interbank loans), up from last year’s 1.5
percent. As both domestic and foreign banks
recorded lower past due ALs, past due ratio of
the industry improved to 6.2 percent from 6.6
percent. Domestic banks consistently held
the bulk of the industry’s total loans at 91.4
percent or P29.4 billion (up from 89.5 percent
or P22.2 billion). Meanwhile, foreign banks
cornered the remaining 8.6 percent share or
P2.8 billion (from 10.5 percent or P2.6 billion).

        On the whole, the steady flow of OF Universal and Commercial Banking System
remittances buoyed household income, Consumer Loans and Components
stretching spending capacity on big ticket In P Billion
                                                100.0
                                                                                                       In Percent
                                                                                                           55.0

items perceived as household investments         90.0
                                                 80.0
                                                                                                           45.0
                                                                                                           35.0
(e.g., a residential unit, a piece of land, an   70.0                                                      25.0
                                                 60.0
automobile, or a piece of appliance). As of      50.0
                                                                                                           15.0
                                                                                                           5.0
end-December 2007, consumer loans (i.e.,         40.0
                                                 30.0                                                      (5.0)

the sum of auto loans, credit card receivables   20.0                                                      (15.0)
                                                                                                           (25.0)
                                                 10.0
and residential real estate loans) grew by 21.5     -                                                      (35.0)
                                                        1999 2000 2001 2002 2003 2004 2005 2006 2007
percent or P28.9 billion to P163.3 billion from
last year’s P134.4 billion. The share of              Auto Loans Level             Credit Card Receivables Level

consumer loans to the industry’s total loan           Residential Loans Level      Consumer Loans Growth
portfolio (exclusive of interbank loans)
advanced to 8.8 percent from 8.0 percent,
making up for the anemic demand for
corporate loans. In addition, the industry’s
overall past due ratio for consumer loans
eased to 10.3 percent from 11.5 percent.

        Preliminary data as of 30 September
2007 showed that the industry loaned out
P83.7 billion (or 7.7 percent of total loan
portfolio) to small enterprises. In addition,
funds released to medium enterprises
amounted to P90.3 billion (or 8.3 percent).
Overall, actual credit allocation to small and
medium enterprises (SME) totaled P173.9
billion (or 16.0 percent).




Source: Office of Supervisory Policy Development, Supervision and Examination Sector
 58                      Universal & Commercial Banks

                                                                STATUS REPORT ON           THE   PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007




                                                                                                         The corporate nature of its clientele,
                                                                                                 however, makes it difficult for the industry to
                                                                                                 meet the minimum 10 percent fund allocation
                                                                                                 for agrarian reform under P.D. No. 717. In
                                                                                                 fact, the industry was able to reach only 8.2
                                                                                                 percent or P110.8 billion fund extension
                                                                                                 based on preliminary data as of
                                                                                                 end-September 2007.              Likewise, the
                                                                                                 compliance ratio for agricultural loans in
                                                                                                 general fell short of the required 25 percent at
                                                                                                 20.2 percent or P271.8 billion.

     Universal and Commercial Banking System                                                             As of end-December 2007, the
     NPLs and NPL Coverage Ratio                                                                 industry’s NPL ratio stood at 4.5 percent,
             In P Billion                                                         In Percent     easing further by 1.2 percentage points from
              300.0                                                                     100.0

              250.0
                                                                                        90.0     5.7 percent last year. The improvement is
                                                                                        80.0
              200.0                                                                     70.0     attributed to a host of factors: improved credit
              150.0
                                                                                        60.0
                                                                                        50.0
                                                                                                 risk management systems, bulk sale of NPLs
              100.0
                                                                                        40.0     worth P24.7 billion under the SPV 2, and
                                                                                        30.0
               50.0                                                                     20.0     alternative modes of asset disposition (i.e.,
                                                                                        10.0
                     -                                                                  0.0      public auction, debt write-offs) and increase in
                          1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
                                                                                                 loan levels . This reduced the industry’s NPLs
                                NPLs                              Loan Loss Reserves
                                NPL Ratio                         NPL Coverage Ratio             by 16.8 percent or P19.8 billion to P97.6
                                                                                                 billion from P117.4 billion last year. (Table
                                                                                                 15)

                                                                                                        The industry posted its strongest ever
                                                                                                 NPL coverage ratio at 93.3 percent even as
                                                                                                 banks cut back on loan loss reserves by 6.1
                                                                                                 percent (P5.9 billion) to P91.1 billion from last
                                                                                                 year’s P97.0 billion.         The continuing
                                                                                                 improvement in loan quality allowed banks to
                                                                                                 allot lower loan loss provisions without
Universal and Commercial Banking System                                                          impairing the NPL coverage ratio, which even
Comparative NPL Ratio                                                                            surpassed last year’s 82.6 percent.
By Industry Subgroup

             25.0
                                                                                                       All three domestic bank subgroups
             20.0                                                                                were able to reduce their portfolio of bad
In Percent




             15.0                                                                                debts, while foreign banks failed to do so.
                                                                                                 Nonetheless, foreign banks recorded the best
             10.0
                                                                                                 loan quality at 1.5 percent, slightly higher than
               5.0
                                                                                                 last year’s 1.4 percent. Meantime,
               0.0                                                                               government banks’ NPL ratio improved by 0.6
                         1997   1998 1999   2000 2001   2002 2003 2004 2005 2006 2007

                                  Universal and Commercial Banks
                                                                                                 percentage point to 3.6 percent from 4.2
                                  Private Domestic- UBs                                          percent; and together with that of foreign
                                  Private Domestic- KBs
                                  Government Banks                                               banks, was kept below industry average of 4.5
                                  Foreign Banks (Branches & Subsidiaries)
                                                                                                 percent.




                                                                   Source: Office of Supervisory Policy Development, Supervision and Examination Sector
                                                                                          Universal & Commercial Banks                    59

        STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007


       On the other hand, private domestic
commercial banks posted the highest NPL
ratio at 7.5 percent but, at the same time, the
biggest improvement of 2.0 percentage points
from last year’s 9.5 percent as NPLs dropped
by 19.4 percent (P2.4 billion). Private domestic
universal banks followed with an NPL ratio of
5.1 percent, getting better by 1.6 percentage
points from 6.7 percent. Moreover, the NPL
ratios of both subgroups remained above the
industry average in the last decade.

       The Philippine universal and
                                                                 Universal and Commercial Banking System
commercial banks’ 4.5 percent NPL ratio,                         Comparative NPL Ratio of Selected ASEAN Countries
though relatively the highest among ASEAN 5
economies, was a feat on itself. The industry                    Country
                                                                                                       NPL Ratio
                                                                                                (as of dates indicated)
was able to bring down delinquency rate close
to its pre-crisis level of about 4.0 percent                     Philippines          4.5%      December 2007
                                                                 Thailand             4.4%      September 2007
without recourse to government bailout but
                                                                 Malaysia             2.4%      December 2007
solely on private initiative. Nonetheless, it                    Indonesia            2.9%      September 2007
poses as a challenge for Philippine banks to                     Singapore            1.8%      September 2007
further tame the NPL ratio down to the 2 to 4                   Source: Official National Website
percent range and achieve relative
convergence with banks in other ASEAN 5
economies.

       ROPA, gross declined by 10.0 percent
(or P17.0 billion) to P153.3 billion from last
year’s P170.3 billion. The notable decline was
due to the disposal of P8.7 billion worth of
foreclosed properties of four banks under SPV
2, and P0.7 billion value of foreclosed
properties of five banks through joint venture
agreements (JVA) between banks and real
estate developers to convert certain ROPAs
into income-generating assets following the
issuance of Circular No. 518 on 09 March
2006. Meanwhile, restructured loans, gross
shrank by 18.2 percent to P65.4 billion from Universal and Commercial Banking System
P79.9 billion.                                 NPAs and NPA Coverage Ratio
                                                                 In P Billion                                                  In Percent

         The collective decline in the industry’s                500.0
                                                                 450.0
                                                                                                                                    60.0

                                                                                                                                    50.0
stock of bad debts and foreclosed properties                     400.0
                                                                 350.0
                                                                                                                                    40.0
set off a sizeable 13.3 percent (P36.8 billion)                  300.0
                                                                 250.0                                                              30.0
contraction in non-performing assets (NPAs)                      200.0
                                                                                                                                    20.0
to P239.7 billion from last year’s P276.5                        150.0
                                                                 100.0                                                              10.0
billion.    The corresponding 4.4 percent                         50.0
                                                                     -                                                              0.0
expansion in gross assets to P4,593.9 billion                              1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

from P4,401.5 billion complemented the                                    NPAs      NPA Reserves      NPA Ratio     NPA Coverage Ratio




Source: Office of Supervisory Policy Development, Supervision and Examination Sector
60                    Universal & Commercial Banks

                                                                 STATUS REPORT ON                  THE   PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007



                                                                                                         industry’s improving asset quality.
                                                                                                         Accordingly, the NPA-to-gross asset ratio
                                                                                                         eased to 5.2 percent, the industry’s lowest in
                                                                                                         10 years.

     Universal and Commercial Banking System                                                                    The lower stock of NPAs enabled the
 Comparative NPA Ratio                                                                                   industry to cut allowance for probable losses
 By Industry Subgroup
                                                                                                         on NPAs without bringing NPA coverage ratio
                      20.0
                                                                                                         out of comfortable level. NPA reserves were
                                                                                                         pared by 5.9 percent to P105.6 billion from
        In Percent




                      15.0
     In Percent




                                                                                                         last year’s P112.2 billion. Nonetheless, the
                      10.0
                                                                                                         NPA coverage ratio widened to 44.0 percent
                       5.0                                                                               from 40.6 percent.
                       0.0
                              1997 1998 1999 2000 2001 2002     2003 2004 2005 2006 2007                        The NPA ratio of government banks
                                            Universal and Commercial Banks
                                            Private Domestic- UBs
                                                                                                         got better by 0.8 percentage points to 3.4
                                            Private Domestic- KBs
                                            Government Banks
                                                                                                         percent from 4.2 percent. Foreign banks
                                            Foreign Banks (Branches & Subsidiaries)                      continued to score the lowest NPA ratio at 0.9
                                                                                                         percent (unchanged from year ago). The NPA
                                                                                                         ratios of these two subgroups remained below
                                                                                                         the industry average of 5.2 percent.

                                                                                                                On the contrary, private domestic
                                                                                                         universal and commercial banks continued to
                                                                                                         hover above the industry average since end-
                                                                                                         1998.     Private domestic universal banks
                                                                                                         recorded the highest NPA ratio at 6.4 percent,
                                                                                                         better by 1.5 percentage points than last
                                                                                                         year’s 7.9 percent. Private domestic
                                                                                                         commercial banks followed at 6.2 percent, an
                                                                                                         improvement of 0.7 percentage point from 6.9
 Universal and Commercial Banking System                                                                 percent.
 Distressed Assets Ratio
         In P Billion                                                                 In Percent

            500.0                                                                           35.0
                                                                                                                The distressed assets ratio, as a
            400.0                                                                           30.0
                                                                                                         broader measure of asset quality, reflected
            300.0
                                                                                            25.0         the industry’s progress in cleaning up its
            200.0
                                                                                            20.0         books.     As of end-December 2007, the
            100.0
                                                                                            15.0
                                                                                                         distressed assets ratio dropped to 12.3
                                                                                            10.0

                     0.0                                                                    5.0
                                                                                                         percent – the lowest since end-1997’s 6.6
                             1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007                      percent – from 14.9 percent last year.
                           NPAs                               Restructured Loans (Performing)            Moreover, the stock of distressed assets
                           Distressed Assets Ratio
                                                                                                         declined by 13.7 percent (P46.0 billion) to
                                                                                                         P289.1 billion from last year’s P335.1 billion.




                                                                    Source: Office of Supervisory Policy Development, Supervision and Examination Sector
                                                                                   Universal & Commercial Banks   61

        STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007


INVESTMENTS
        As of end-December 2007, investments
(exclusive of provisions for probable loss)
declined by 1.7 percent (or P19.6 billion) to
P1,165.7 billion from P1,185.4 billion last year.
The slowdown in investment activities,
following the double-digit growths starting in                              Banks unloaded
1998, was attributed to two factors: One, on                           holdings in anticipation
the supply-side, the national government cut                           of the gradual increase
down on issuing securities following improved                              in risk weight for
fiscal position. Investments in government                               dollar-denominated
securities fell sharply by 27.3 percent (P149.8                             Republic of the
billion) to P399.2 billion from P549.0 billion                           Philippines (ROPs)
last year. Two, on the demand-side, banks                              sovereign bonds under
unloaded holdings in anticipation of the                                  Basel II from zero
gradual increase in risk weight for foreign                            percent to 100 percent
currency-denominated Republic of the                                     but on a staggered
Philippines (ROPs) sovereign bonds under                                          basis
Basel II from zero percent to 100 percent but
on a staggered basis.            Consequently,
investments, net to total assets ratio declined
to 26.3 percent from 28.1 percent.

        Bulk of the industry’s investments was
in the form of debt instruments at 89.7 percent
(from 91.1 percent last year) while the
remaining 10.3 percent share (from 8.9
percent) were in equity securities.

       In terms of specific investment portfolio,
major components of the industry’s total
investments were as follows: investments in
foreign currency-denominated debt securities
at 50.5 percent or P455.3 billion, investments
in peso government securities at 44.2 percent
or P399.2 billion (down from 51.2 percent) and
investments in private securities at 5.3 percent
or P47.9 billion (up from 4.1 percent).




DEPOSIT LIABILITIES

        As of end-December 2007, total de-
posit liabilities sustained a modest expansion
of 3.7 percent (or P114.4 billion) to reach
P3,185.5 billion from P3,071.1 billion last
year.



Source: Office of Supervisory Policy Development, Supervision and Examination Sector
62          Universal & Commercial Banks

                                                STATUS REPORT ON           THE   PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007



 Universal and Commercial Banking System                                                Government banks recorded the
 Comparative Deposits Growth Rate
 (In Percent)
                                                                                 fastest deposit growth rate at 5.6 percent,
     80.0                                                                        which was equivalent to a P19.0 billion net
     60.0
                                                                                 increase. Meanwhile, private domestic
                                                                                 universal banks posted a sizeable deposit
     40.0
                                                                                 increment of P110.5 billion (5.3 percent),
     20.0                                                                        contributing 96.6 percent of the industry’s
      0.0                                                                        growth figure.       Foreign banks likewise
                                                                                 experienced increasing deposit base at 0.5
  (20.0)
             1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
                                                                                 percent or P2.0 billion. Private domestic
                       Universal and Commercial Banks                            commercial banks, however, ran against the
                       Private Domestic - UBs
                       Private Domestic - KBs                                    current with a 7.5 percent (or P17.2 billion)
                       Government Banks
                       Foreign Bank Branches and Subsidiaries                    deposit contraction.

                                                                                         The generous 23.8 percent (or P160.4
                                                                                 billion) expansion in peso time deposits to
                                                                                 P673.0 billion accounted for 140.2 percent of
                                                                                 the growth in the industry’s deposit base. The
                                                                                 hefty 14.3 percent (or P75.1 billion) growth in
                                                                                 peso demand and negotiable order of
                                                                                 withdrawal (NOW), meantime, accounted for
                                                                                 65.7 percent of the increase in total deposit
                                                                                 base. Low-cost peso savings deposits posted
Universal and Commercial Banking System                                          a minute growth of less than 0.1 percent (or
Deposit Mix                                                                      P0.5 billion), contributing 0.4 percent to total
                                                                                 deposit expansion. Foreign currency-
                         PESO DEPOSITS
                                                                                 denominated deposits, on the other hand,
            December 2006                      December 2007
                                                                                 sustained a 15.9 percent (P121.6 billion)
                       23.5%                                    27.8%
                                                                                 decline, setting off a 106.3 percent cut in the
                                                                                 total industry growth figure.
                                    72.2%
  76.5%                                                                                 Accordingly, the share of peso deposits
                                                                                 to total deposit liabilities advanced to 76.0
             P2,183.9 Billion                  P2,419.9 Billion                  percent from 71.1 percent last year. On the
                                                                                 other hand, the share of foreign currency
                                                                                 deposits narrowed to 24.0 percent from 28.9
                    FOREIGN CURRENCY DEPOSITS
                                                                                 percent. The apparent shift in their respective
             December 2006                      December 2007                    shares on the industry’s total deposit base
                                                                                 was attributed to the general strengthening of
  34.1%                                34.6%                                     the local currency against the US dollar during
                                                                                 the period in review.

                               65.9%                                    65.4%           Among the peso deposit accounts,
                                                                                 short-term and low cost demand, NOW and
              P887.2 Billion                    P765.6 Billion                   savings accounts made up the biggest
                                                                                 component at 72.2 percent (down from last
             Demand/NOW & Savings                   Time Deposits                year’s 76.5 percent). The remaining 27.8
                  Deposits
                                                                                 percent (up from 23.5 percent) went to
                                                                                 interest sensitive time deposits.


                                                  Source: Office of Supervisory Policy Development, Supervision and Examination Sector
                                                                                       Universal & Commercial Banks       63

        STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007


       On the contrary, foreign currency
deposits were mostly lodged in time deposits
at 65.4 percent (down from 65.9 percent last
year). Foreign currency demand, NOW and
savings accounts held the balance of 34.6
percent (up from 34.1 percent).

        Private domestic universal banks still Universal and Commercial Banking System
held the lion’s share of the industry’s total Distribution of Deposits
deposit liabilities at 69.5 percent or P2,213.9
billion (up from last year’s 68.5 percent or     2007
                                                 2006
P2,103.4 billion). Foreign banks cornered the    2005
second largest share at 12.6 percent or          2004

P401.0 billion (from 13.0 percent or P399.0      2003
                                                 2002
billion). Meanwhile, smaller portions were       2001

poured in by government banks at 11.3            2000
                                                 1999
percent or P358.6 billion (from 11.1 percent or  1998
P339.6 billion) and private domestic             1997

commercial banks at 6.7 percent or P212.0             0%   10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

billion (from 7.5 percent or P229.1 billion).     Private Domestic - UBs    Government Banks
                                                                   Private Domestic - KBs     Foreign Banks (Branches &
                                                                                              Subsidiaries)
        In terms of efficiency in deposit
generation, foreign banks still had the highest
average volume of deposits per banking office
at P4.0 billion (from last year’s P4.2 billion).
Meanwhile, local banks reported improving
efficiency in deposit generation with their
average volume of deposits rising by 5.1
percent to P0.7 billion from P0.6 billion. All
local banks contributed to efficiency gains in
deposit generation: government banks’
average volume of deposits per banking office
rose to P0.9 billion from P0.8 billion; private
domestic universal banks reached P0.7
billion; and private domestic commercial
banks with an average of P0.5 billion deposits
per branch.

        Both private and government sectors
supported the industry’s deposit generation
program, growing by 3.5 percent to P2,826.9
billion and by 5.6 percent to P358.6 billion,
respectively. In terms of their specific shares
to total deposit liabilities, private sector still
cornered the larger share of the total peso
deposits at 88.7 percent (down from last
year’s 88.9 percent) while the remaining 11.3
percent (up from 11.1 percent) came from
public coffers. Government deposits in turn
comprised of fund placements in government


Source: Office of Supervisory Policy Development, Supervision and Examination Sector
64     Universal & Commercial Banks

                                           STATUS REPORT ON         THE   PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007




                                                                          banks at 57.9 percent or P177.1 billion (from
                    Overall, the industry                                 68.2 percent or P180.2 billion) and fund
                       was principally                                    placements in private banks – authorized by
                         funded by                                        the Monetary Board to accept government
                      depositsas they                                     deposits – at 42.1 percent or P128.5 billion
                      remain the most                                     (from 31.8 percent or P83.8 billion).
                     cost-efficient and
                      most accessible                                            Overall, the industry was principally
                       among banks’                                       funded by deposits at 71.0 percent (from 71.6
                     sources of funds                                     percent last year) as they remain the most
                                                                          cost-efficient and most accessible among
                                                                          banks’ sources of funds.



                                                                          CAPITALIZATION

                                                                                 As of end-December 2007, the
                                                                          combined capital accounts of all universal and
                                                                          commercial banks stood at P523.2 billion,
                                                                          expanding by 6.3 percent (or P30.9 billion)
                                                                          from last year’s P492.3 billion. (Table 10)
                                                                          Almost all components of the industry’s capital
                                                                          accounts supported the expansion, led by
                                                                          paid-in capital rising by P16.1 billion (8.2
                                                                          percent) to P213.2 billion. Surplus, surplus
                                                                          reserves and current income clinched the
                                                                          second largest contribution to growth at P15.3
                                                                          billion (7.1 percent) to P231.0 billion.
                                                                          Increases in assigned capital of branches of
                                                                          foreign banks were recorded at P2.2 billion
                                                                          (12.9 percent) to P19.0 billion. Foreign bank
                                                                          branches’ net due to head office partly
Universal and Commercial Banking System                                   reduced the uptrend with a P2.7 billion (4.3
Breakdown of Total Capital Accounts                                       percent) contraction to P60.0 billion.
 Total P523.2 Billion
                                                                                 By specific component shares, surplus,
     Surplus, Surplus Reserves & Current Income
                       44.2%                                              surplus reserves and current income held the
                                                                          biggest slice of the industry’s total capital
                                                      Paid-in Capital     accounts at 44.2 percent (up from last year’s
                                                          40.8%
                                                                          43.8 percent). Paid-in capital was a close
                                                                          second at 40.8 percent (up from 40.0 percent)
                                                                          while the remaining shares were accounted
                                                                          for by foreign bank branches’ net due to head
                                                                          office at 11.4 percent (from 12.8 percent) and
       Net Due to H.O.
                                          Assigned Capital
                                                                          assigned capital at 3.6 percent (from 3.4
           11.4%
                                               3.6%                       percent).



                                              Source: Office of Supervisory Policy Development, Supervision and Examination Sector
                                                                                               Universal & Commercial Banks                65

        STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007



       By analytical subgroups, private
domestic universal banks consistently held
the biggest and growing share of the
industry’s paid-in capital at 71.6 percent (up
from 71.2 percent last year). Quite the
opposite, private domestic commercial banks
clung to the second largest yet declining
share at 12.4 percent (from 13.5 percent).
Government banks’ share widened to 11.5
percent from 11.1 percent while that of foreign
banks advanced to 4.6 percent from 4.2
percent.

       The same analytical subgroups backed
the industry’s surplus, surplus reserves and
current income with private domestic universal
banks leading at 75.5 percent share, though
leaner than last year’s 78.0 percent share. On
the other hand, government banks’ share
widened to 19.6 percent from 15.4 percent,
while the rest of the subgroups reported
declining shares – private domestic
commercial banks at 4.7 percent (from 6.1
percent) and foreign banks at 0.3 percent
(from 0.5 percent).

      Meanwhile, the ratio of total capital
accounts to total assets went up to 11.7
percent from 11.5 percent last year. The
improvement was attributed to the faster
expansion in total capital accounts (6.3
percent) compared to the growth in total
assets (4.6 percent).

       With the implementation of the                          Universal and Commercial Banking System
                                                               Status of Banks' Compliance with the Minimum Amount of Capital
standardized approaches of Basel II last July
2007, the industry’s compliance ratio with the                                                               2003   2004   2005   2006   2007
                                                               A. Number of Operating Universal and
prescribed minimum amount of capital slid to                   A. Commercial Banks
                                                                                                               42     42     41     39     38

                                                                    Universal                                  18     18     17     17     16
92.1 percent (35 out of 38 banks) from 97.4                         Commercial                                 24     24     24     22     22

percent (38 out of 39 banks) last year. By                     B. UBs and KBs with Capital Equal to or
                                                               B. In Excess of the Minimum Amount Required
                                                                                                               34     33     32     38     35

specific banking category, commercial banks                         Universal   (K > P4.95 billion)            14     15     11     16     13
                                                                    Commercial (K > P2.40 billion)             20     18     21     22     22
with 100.0 percent compliance ratio (22 out of
22 banks) outperformed the universal banks
with 81.3 percent (13 out of 16 banks).

      As of end-September 2007, capital
adequacy ratios (CAR) on a solo basis at 14.7
percent and on a consolidated basis at 15.9




Source: Office of Supervisory Policy Development, Supervision and Examination Sector
      66         Universal & Commercial Banks

                                                                     STATUS REPORT ON             THE   PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007



                                                                                                        percent were still well above the minimum
                                                                                                        BSP regulatory standard of 10 percent and
                                                                                                        the international benchmark of 8 percent.

Universal and Commercial Banking System                                                                         Tier 1 capital reached P400.2 billion,
Comparative Capital Adequacy Ratio (CAR)
                                                                                                        expanding by 8.0 percent from P370.6 billion
                                            Solo
                                   End-December             End-
                                                                               Consolidated
                                                                          End-December          End-
                                                                                                        at end-December 2006. On the other hand,
                                2004    2005    2006
                                                            Sept
                                                            2007       2004    2005    2006
                                                                                                Sept
                                                                                                2007
                                                                                                        the issuance of Tier 2 unsecured
(In P Billion)
Tier 1                          354.9   357.0      370.6    400.2      350.0   354.0    366.9   396.4
                                                                                                        subordinated debt slid by 2.9 percent to P83.6
Tier 2
Deductions
                                 72.6
                                 69.5
                                         67.5
                                         75.2
                                                    86.1
                                                    79.5
                                                             83.6
                                                             84.1
                                                                        73.6
                                                                        13.8
                                                                                69.9
                                                                                15.5
                                                                                         90.1
                                                                                          8.8
                                                                                                 87.9
                                                                                                 13.6
                                                                                                        billion from P86.1 billion. The domineering
Qualifying Capital
Risk Weighted Assets (RWA) -
                                358.1   349.3      377.1    399.7      409.8   408.4    448.3   470.7
                                                                                                        effect of Tier 1 capital growth translated into
                               2,037.1 2,142.0 2,212.6     2,722.5    2,194.1 2,300.6 2,422.5 2,968.8
net
(In Percent)
                                                                                                        higher qualifying capital by 6.0 percent to
Capital Adequacy Ratio (CAR)     17.6    16.3       17.0     14.7       18.7    17.8     18.5    15.9
                                                                                                        settle at P399.7 billion from P377.1 billion.

                                                                                                               Conversely, the higher level of risk
                                                                                                        weighted assets at P2,722.5 billion pushed
                                                                                                        the industry to sustain cutbacks on its CARs,
                                                                                                        both on solo and consolidated bases, by 2.3
                                                                                                        percentage points and by 2.6 percentage
   Universal and Commercial Banking System
                                                                                                        points, respectively.
   Comparative CAR of Selected ASEAN Countries
                                                                                                               The Philippine universal and
                                                                                                        commercial banks’ solvency ratio rests at the
                                                    CAR
   Country
                                           (as of dates indicated)
                                                                                                        middle of the CAR regional comparative table.
                                                                                                        Indonesia held the top spot at 20.3 percent as
   Indonesia                   20.3%        November 2007                                               of end-November 2007. The other ASEAN
   Thailand                    15.3%        November 2007                                               economies posted CAR ranging from 12
   Philippines                 14.7%        September 2007
                                                                                                        percent to 15 percent. On the whole, banks in
   Singapore                   14.0%        September 2007
   Malaysia                    12.6%        December 2007
                                                                                                        the ASEAN 5 countries were adequately
                                                                                                        capitalized with CARs well above the
                                                                                                        prescribed minimum of 8 percent set by the
   Source: Official National Website
                                                                                                        Basel framework.



                                                                                                        SELECTED CONTINGENT ACCOUNTS
                                                                                                        TRADE-RELATED CONTINGENT ACCONTS
                                                                                                                The industry’s total trade-related
                                                                                                        contingent accounts grew by 12.0 percent (or
                                                                                                        P5.0 billion) to P46.9 billion from P41.9 billion
                                                                                                        last year. The increase was driven both by
                                                                                                        unused commercial letters of credit (LCs) and
                                                                                                        export LCs, expanding by 12.1 percent to
                                                                                                        P43.1 billion and by 11.1 percent to P3.8
                                                                                                        billion, respectively. The share of unused
                                                                                                        commercial LCs to total trade-related
                                                                                                        contingent accounts edged to 91.9 percent



                                                                      Source: Office of Supervisory Policy Development, Supervision and Examination Sector
                                                                                   Universal & Commercial Banks   67

        STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007



from 91.8 percent, while that of export LCs
slipped to 8.1 percent from 8.2 percent.

       With the exception of private domestic
commercial banks, all analytical groups                                        With the exception
supported the growth in unused commercial                                          of private
LCs. Foreign banks recorded the fastest                                            domestic
growth rate at 93.0 percent or P1.8 billion.                                      commercial
Meanwhile, foreign banks and private                                               banks, all
domestic universal banks resumed the                                           analytical groups
issuance of export LCs, posting net increases                                    supported the
of 54.9 percent and 6.8 percent, in that order.                                growth in unused
                                                                                commercial LCs
        Private domestic universal banks
consistently cornered bulk of the industry’s
total trade-related contingent accounts at 76.3
percent (down from 80.6 percent last year).
The rest was divided among foreign banks at
9.1 percent (up from 5.4 percent), government
banks at 8.8 percent (up from 5.7 percent),
and private domestic commercial banks at 5.8
percent (down from 8.4 percent).


BANK GUARANTEES
        Outstanding bank guarantees stood at
P80.2 billion as of end-December 2007, lower
by 7.5 percent (or P6.6 billion) from P86.8
billion at end-December 2006. The decline
from last year was propelled by the sharp 71.4
percent (P30.8 billion) contraction in
outstanding guarantees issued, which was
partially offset by the 55.5 percent (P24.2
billion) rise in the issuance of stand-by LCs.
The stand-by LCs totaled P67.9 billion and
accounted for 84.6 percent (up from 50.3
percent) of the industry’s total bank
guarantees.        Mean while,    outstanding
guarantees issued settled at P12.3 billion or
15.4 percent share (down from 49.7 percent).

       By movers and shakers, government
banks’ stock of outstanding guarantees issued
nosedived by 95.1 percent or P29.5 billion as
foreign debt activities winded down. Private
domestic universal banks also sustained a net
decrease in outstanding guarantees issued of
31.1 percent or P2.4 billion.



Source: Office of Supervisory Policy Development, Supervision and Examination Sector
68   Universal & Commercial Banks

                              STATUS REPORT ON   THE   PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007



                                                               Me a n wh i l e , the t r a n s mi ssi o n
                 The transmission                      mechanism from the government’s active
               mechanism from the                      infrastructure programs to increases in the
               government’s active                     banking sector’s off-balance sheet activities
             infrastructure programs                   was well on its way. Accordingly, government
              to gains in the banking                  banks’ stand-by LCs skyrocketed by 277.7
                sector’s off-balance                   percent or P4.0 billion. Private domestic
             sheet activities was well                 universal banks also realized a substantial
                     on its way                        increase in stand-by LCs of 61.3 percent or
                                                       P18.1 billion.


                                                       DERIVATIVES

                                                               The industry’s issuance of derivatives
                                                       instruments rose by 23.2 percent or P473.0
                                                       billion to P2,510.3 billion from P2,037.3 billion
                                                       at end-December 2006. Major growth drivers
                                                       were the more sophisticated banking
                                                       subgroups: private domestic universal banks
                                                       at 35.7 percent or P203.2 billion and foreign
                                                       banks at 17.8 percent or P248.6 billion over
                                                       the period.       Notably, private domestic
                                                       commercial banks reported an additional
                                                       P13.2 billion, a double-digit expansion of 44.0
                                                       percent over the year. Likewise, government
                                                       banks recorded an ample growth of 18.8
                                                       percent or P7.9 billion.

                                                              Foreign banks consistently held the
                                                       bulk of the industry’s total notional value of
                                                       derivatives at 65.5 percent (down from last
                                                       year’s 68.5 percent). The balance is
                                                       apportioned to private domestic universal
                                                       banks at 30.8 percent (up from 27.9 percent),
                                                       government banks at 2.0 percent (down from
                                                       2.1 percent) and private domestic commercial
                                                       banks at 1.7 percent (up from 1.5 percent).

                  Currency forwards,                           Currency forwards, interest rate swaps
               interest rate swaps and                 and financial options were still the three most
                financial options were                 popular derivatives instruments in the
                  still the three most                 industry’s off-balance sheet transactions.
                  popular derivatives                  Currency forwards were the most preferred
                  instruments in the                   derivatives instrument in all subgroups,
                industry’s off-balance                 consequently stepping up the share to the
                  sheet transactions                   industry’s notional value of derivatives
                                                       activities to 84.4 percent or P2,188.5 billion



                                Source: Office of Supervisory Policy Development, Supervision and Examination Sector
                                                                                   Universal & Commercial Banks   69

        STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007



from 83.3 percent or P1,696.8 billion last year.
As the notional value of interest rate swaps
rose by 38.0 percent to P334.8 billion (from
P242.6 billon), their share to total notional
value of derivatives instruments consequently
widened to 13.3 percent from 11.9 percent.
Finally, financial options accounted for the
remaining 2.3 percent share or P57.0 billion
(down from 4.8 percent or P97.9 billion). The
two-fold decline in the industry’s financial
options’ growth materialized as foreign banks
remained the sole user of the instruments.




Source: Office of Supervisory Policy Development, Supervision and Examination Sector
70   Thrift Banks

                                   STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007




                                          THRIFT BANKS


                                                 OVERVIEW
                                                        The thrift banking system continued to
                 Thrift banks                    demonstrate resilience and stability in 2007.
                 continued to                    This was reflected in the industry’s solid asset
                 demonstrate                     and loan growth as well as better asset quality.
                resilience and                   Liquidity and solvency were maintained at
                   stability                     adequate levels. Rising costs, however,
                                                 weakened its bottomline figures.

                                                       Total assets reached a record high of
                                                 P485.6 billion, exhibiting a 10.1 percent growth
                                                 from last year’s level of P440.9 billion. The
                                                 expansion in assets came with the rise in loans,
                                                 net (inclusive of interbank loans) by 19.3
                                                 percent to P285.1 billion, cash and due from
                                                 banks by 2.2 percent to P53.3 billion and
                                                 investments, net by 1.0 percent to P77.1 billion.

                                                        The industry was principally funded by
                                                 deposit liabilities and capital with shares of 75.1
                                                 percent (down from 75.3 percent last year) and
                                                 11.6 percent (down from 12.9 percent),
                                                 respectively. Public confidence in thrift banks
                                                 was sustained as deposits, the main source of
                                                 funds, exhibited an expansion of 9.8 percent to
                                                 P364.6 billion from P332.1 billion. By type of
                                                 deposit accounts, peso time deposit accounts
                                                 represented the biggest portion of total deposits
                                                 at 47.1 percent while peso demand and NOW
                                                 accounts posted the largest growth of 32.6
                                                 percent.

                                                        Liquidity position remained adequate
                                                 albeit the decline in liquid assets-to-deposits
                                                 ratio to 35.6 percent from last year’s 38.5
                                                 percent      ratio. Cash    and    due    from
                                                 banks-to-deposits ratio also dropped to 14.6
                                                 percent from 15.7 percent. Meantime,
                                                 loans-to-deposits ratio rose to 81.4 percent
                                                 from 75.5 percent as loans, gross grew at a
                                                 faster rate than deposits.

                                                        Thrift banks continued to                    be vital
                                                 instruments in the promotion of                    economic
                                                 development as bank lending                        remained
                                                 buoyant. Loans, gross (exclusive                     of IBL)

                             Source: Office of Supervisory Policy Development, Supervision and Examination Sector
                                                                                       Thrift Banks   71
       STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007


extended to various economic sectors went up
by 12.8 percent to P249.7 billion from P221.5
billion last year. The strong growth in loans was
fueled by increased consumer lending on the
back of a steady inflow of OFW remittances.

       This encouraging trend in lending was
supported by better loan and asset quality
ratios. Non-performing loans (NPL) and
non-performing assets (NPA) ratios eased
further to 6.9 percent (vs. 8.3 percent last year)
and 9.9 percent (vs. 11.4 percent), respectively.

          The unloading of banks’ bad assets via
Special Purpose Vehicles (SPVs) contributed to
the notable improvements in asset quality. SPV
-related transactions of thrift banks reached
P83.7 million at end-year 2007. To date, the
BSP has approved a total of 13 certificates of
eligibility (COE) amounting to P114.0 million
worth of SPV-related transactions.

        Bank operations during the year resulted
in a net loss of P0.1 billion, after posting a P0.7
billion net income after tax (NIAT) in 2006. The
negative bottomline stemmed from the hike in
operating expenses by 19.0 percent (P4.3
billion) coupled with the reduction in
extraordinary credits by 50.2 percent (P0.7
billion). These two factors outweighed the 24.2
percent (P3.9 billion) gain in net interest income
and the 6.5 percent (P0.4 billion) rise in
non-interest income. As a result, the return on
assets (ROA) and return on equity (ROE) ratios
both fell to negative ratios of less than 0.1
percent. This is a downturn from their positive
0.2 percent (ROA) and 1.3 percent (ROE) ratios
recorded last year. Thrift banks have posted
positive ROA and ROE ratios since year 2004.

       Capitalization was maintained at a
comfortable level. Capital adequacy ratio (CAR)
remained way above the 10 percent prescribed
minimum ratio at 14.6 percent on both solo and
consolidated bases as of end-September
2007. Meanwhile, total capital accounts settled
at P56.2 billion, slightly down by 1.3 percent
from P56.9 billion in 2006. The decline in
capital was mainly attributed to the reduction in
surplus, surplus reserves and undivided profits
by 21.9 percent (P3.5 billion).

Source: Office of Supervisory Policy Development, Supervision and Examination Sector
72             Thrift Banks

                                                                                        STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007


 Thrift Banking System
 Market Structure of Assets                                                                                         The number of operating thrift banks
      2007
                                                                                                            stood at 82 as of end-December 2007. Of the
      2006                                                                                                  total, 16 banks were linked to domestic banks,
      2005                                                                                                  foreign banks or a non-bank financial institution.
      2004                                                                                                  Linked thrift banks represented 19.5 percent of
      2003
                                                                                                            the total number of thrift banks and accounted
      2002
                                                                                                            for a large 58.8 percent or P285.7 billion of total
      2001
      2000
                                                                                                            assets. On the other hand, non-linked thrift
      1999                                                                                                  banks, which consisted of 66 banks or 80.5
      1998                                                                                                  percent of the total industry players, accounted
      1997                                                                                                  for 41.2 percent or P199.9 billion. By subgroup,
             0%      10% 20% 30% 40% 50% 60% 70% 80% 90% 100%                                               domestic bank-linked thrift banks held half of
             Domestic Bank-Linked                                           Non-Bank Linked                 the industry’s total assets at P242.9 billion.
             Foreign Bank- Linked                                          Non-Linked

                                                                                                                   Linked      thrift  banks        consistently
Top Five Thrift Banks
                             1/                                                                             dominated the list of top 5 thrift banks. BPI
Amounts in P Billion                                                                                        Family Bank, a subsidiary of the Bank of the
                     Assets                                                     Loans                       Philippine Islands, maintained its position as
Rank
  1
                Name of Bank
        BPI Family Savings Bank
                                             Amount
                                                96.3
                                                            Rank
                                                              1
                                                                            Name of Bank
                                                                       BPI Family Savings Bank
                                                                                                   Amount
                                                                                                     58.5
                                                                                                            the country’s biggest thrift bank in terms of
  2
  3
        Philippine Savings Bank
        Planters Development Bank
                                                63.5
                                                42.4
                                                              2
                                                              3
                                                                       Philippine Savings Bank
                                                                       GSIS Family Bank
                                                                                                     35.4
                                                                                                     32.3
                                                                                                            assets,     loans,     deposit    liabilities   and
  4
  5
        RCBC Savings Bank
        GSIS Family Bank
                                                38.3
                                                34.9
                                                              4
                                                              5
                                                                       RCBC Savings Bank
                                                                       Planters Development Bank
                                                                                                     25.2
                                                                                                     24.0
                                                                                                            capitalization. Philippine Savings Bank, a
                   Total
                  % Share
                                               275.4
                                                56.7
                                                                                   Total
                                                                                 % Share
                                                                                                    175.4
                                                                                                     59.1
                                                                                                            subsidiary of Metropolitan Bank and Trust
             Deposit Liabilities                                           Capital Accounts
                                                                                                            Company, retained its top 2 position. The Top 5
Rank          Name of Bank                   Amount         Rank            Name of Bank           Amount   thrift banks held sizeable shares of 56.7
  1     BPI Family Savings Bank                 84.0          1        BPI Family Savings Bank        7.4
  2     Philippine Savings Bank                 53.5          2        Philippine Savings Bank        5.9   percent of total assets, 59.1 percent of total
  3     RCBC Savings Bank                       32.3          3        Equitable Savings Bank         4.5
  4     Planters Development Bank               32.2          4        RCBC Savings Bank              4.0   loans, 60.1 percent of total deposit liabilities
  5     HSBC Savings Bank                       17.0          5        Planters Development Bank      3.2
                   Total                       219.0                               Total             25.0   and 44.5 percent of total capital accounts.
                  % Share                       60.1                             % Share             44.5

1/ Based on Published Statement of Condition as of 30 September 2007




                                                                                                            OPERATING NETWORK
                                                                                                                    As of end-December 2007, the number
                                                                                                            of operating thrift banks was reduced to 82 from
                                                                                                            84 last year due to the closure of two thrift
                                                                                                            banks, namely:         Sandigan Savings Bank
                                                                                                            (effective 24 August 2007) and Area
                                                                                                            Development Bank (effective 17 May 2007).

                                                                                                                  Despite fewer industry participants, the
                                                                                                            industry continued to expand its client reach
                                                                                                            and enhance the delivery of financial services
                                                                                                            as the total number of branches/other offices
                                                                                                            went up by 16 to 1,254 from 1,238 at end-year
                                                                                                            2006. This was attributed to the 67 branches
                                                                                                            that opened/reopened as against 51 branches
                                                                                                            that closed during the year. Overall, the number
                                                                                                            of head offices, branches and other offices rose
                                                                                                            by 14 to 1,336 from 1,322.


                                                                             Source: Office of Supervisory Policy Development, Supervision and Examination Sector
                                                                                              Thrift Banks   73
       STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007



       By geographical distribution, majority of
thrift banking offices was located in the National
Capital Region (NCR) with 580 offices or 43.4
percent of the total banking offices (head
offices and branches). The second highest
concentration was in Region IV-A
(CALABARZON) with 251 offices or 18.8
percent share. (Table 18)

     Thrift banks continued to rely on
automated teller machines (ATMs) to broaden
service delivery. As of end-December 2007,
the number of ATMs across the country
reached 689 units. This was higher by 73 units
than the 616 units reported at end-year 2006.
Majority (83.7 percent) or 577 units (up from
503 units or 81.7 percent) was installed within
bank premises while the remaining 112 units
(down from 113 units) were put up at other
convenient locations such as shopping malls
and other commercial areas. (Table 19)

        Linked thrift banks accounted for more
than half of ATMs at 374 units or 54.3 percent
while non-linked thrift banks held the remaining
315 units or 45.7 percent. By geographical
distribution, the NCR had the most number of
ATMs at 402 units or 58.3 percent of the total
ATMs. The CALABARZON cluster was a far
second at 91 units or 13.2 percent.

        The industry also expanded its
e-banking operations in response to customers’
                                                                                   The industry also
growing need for more innovative and more
                                                                                     expanded its
efficient delivery channels. There were 13 thrift
                                                                                 e-banking operations
banks engaged in alternative banking services
                                                                                    in response to
as of end-year 2007. Of the total, there were
                                                                                  customers’ growing
eight banks (vs. five last year) engaged in
                                                                                    need for more
electronic banking services via mobile/non-
                                                                                 innovative and more
mobile phones and/or internet and seven banks
                                                                                   efficient delivery
(same as last year) allowed to provide Internet
                                                                                       channels
and Mobile Banking Services via BancNet/
MegaLink Switch. Moreover, there were two
banks (same as last year) with cash card/
remittance card operations. These two banks
also participated in the e-payment operation of
the Bureau of Internal Revenue (Electronic
Filing and Payment System). (Table 20)




Source: Office of Supervisory Policy Development, Supervision and Examination Sector
74   Thrift Banks

                                    STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007



                                                 RESULTS OF OPERATIONS
                                                         The industry incurred a net loss of P0.1
                                                 billion for the year ended 31 December 2007.
                                                 This is lower by 109.3 percent or P0.8 billion
                                                 from a NIAT of P0.7 billion in 2006. The
                                                 reversal of fortune stemmed largely on the
                                                 significant 50.2 percent or P0.7 billion drop in
                                                 extraordinary credits. In addition, the 19.0
                                                 percent or P4.3 billion hike in total operating
                                                 expenses slightly outpaced the simultaneous
                                                 24.2 percent or P3.9 billion gain in net interest
                                                 income and 6.5 percent or P0.4 billion rise in
                                                 non-interest income.

                                                        As in the previous years, linked thrift
                                                 banks performed better with a positive NIAT of
                                                 P3.2 billion (up from P1.9 billion last year).
                                                 Gains were not sufficient, however, to cover for
                                                 subgroup’s net loss of P3.3 billion (up from
                                                 P1.2 billion net loss). A large part of the net loss
                                                 of non-linked thrift banks was accounted for by
                                                 one bank. Excluding this particular bank, non-
                                                 linked thrift banks would have posted a positive
                                                 NIAT of P0.6 billion and would have pulled up
                                                 the industry’s NIAT to P3.9 billion.

                                                          Total operating income settled at P26.8
                                                 billion, up by 19.2 percent from the P22.5 billion
                                                 recorded in 2006. Higher operating income
                                                 resulted from the simultaneous growth in net
                                                 interest income (up by 24.2 percent or P3.9
                                                 billion) and non-interest income (up by 6.5
                                                 percent or P0.4 billion). Yet, this failed to make
                                                 up for the hike in total operating expenses (up
                                                 by 19.0 percent or P4.3 billion). Hence, net
                                                 operating income fell by 45.8 percent and
                                                 turned into a net operating loss of less than
                                                 P0.1 billion. (Table 21)

                                                          Revenues still came from the core
            Revenues still came                  business of lending and investment as net
               from the core                     interest income represented the bigger block of
            business of lending                  total operating income at 74.8 percent or P20.1
             and investment as                   billion.     Meanwhile, non-interest income
            net interest income                  accounted for the remaining share of 25.2
              represented the                    percent or P6.8 billion.
            bigger block of total
             operating income                           Higher net interest income during the
                                                 year mainly resulted from the expansion in
                                                 lending activities and better loan quality.
                                                 Interest income went up by 15.4 percent to
                            Source: Office of Supervisory Policy Development, Supervision and Examination Sector
                                                                                                                            Thrift Banks    75
       STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007


P37.7 billion, surpassing the 6.7 percent to
P17.7 billion hike in interest expenses.
                                                                                              Net interest
Consequently, net interest margin widened to
                                                                                           margin widened
5.8 percent from 5.5 percent last year.
                                                                                             to 5.8 percent
                                                                                           from 5.5 percent
        Interest on loans, including interbank
loans, comprised the majority of the total P37.7
billion interest income at 80.6 percent or P30.4
billion. Interest on investments in available for
sale financial assets distantly followed at 7.3
percent or P2.7 billion. On the other hand,
interest paid to depositors captured the biggest
portion of the total P17.7 billion interest
expenses at 83.4 percent (or P14.7 billion), of
which 68.0 percent (or P10.0 billion) was paid
to depositors of time deposit accounts. Interest
paid on borrowed funds came second at 15.6
percent (or P2.8 billion) share.

        Meanwhile, fee-based income (i.e., bank
commissions, service charges/fees) and trading
income (i.e., trading gains, foreign exchange
profits, and profits from sale or redemption of
investments) were the major contributors to the
P6.8 billion total non-interest income with
shares of 54.3 percent (P3.7 billion) and 28.2
percent (P1.9 billion), respectively.

        Extraordinary credits, which primarily
were gains from assets sold/exchanged and
recovery on charged-off assets, dropped by
50.2 percent to P0.7 billion. By main group, non
-linked      thrift  banks       reported higher
extraordinary credits of P0.6 billion as against
linked thrift banks’ P0.1 billion.

       By main group, both linked and
non-linked thrift banks remained principally                     Thrift Banking System
dependent on traditional interest bearing loans                  Sources of Revenue vs. Total Assets
and investments. On the other hand,                              As of End-December 2007
non-interest income was generally tied up to                                        8.0%
fee-based revenues and trading of securities.
                                                                                    6.0%
                                                                   As % of Assets




        The earning asset yield dropped to 10.8
                                                                                    4.0%
percent from 11.2 percent in 2006. The gap
between earning asset yield and the 91-day                                          2.0%

T-bill rate rose to 740 basis points from 580
                                                                                    0.0%
basis points in 2006, the effect of improving                                                               FI-Linked TBs      Non-Linked TBs
                                                                                             TBs
loan quality and steeper decline in the T-bill
                                                                                                   Extraordinary Credits
rate. Meantime, funding cost went down to 4.6                                                      Non-interest Income
percent from 5.1 percent. This resulted in a                                                       Net Interest Income
slightly higher interest spread (the difference
Source: Office of Supervisory Policy Development, Supervision and Examination Sector
76             Thrift Banks

                                                                                   STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007


                                                                                                           between earning asset yield and funding cost)
                                                                                                           of 6.2 percent (vs. 6.1 percent).

Thrift Banking System                                                                                              Funding cost overtook the 91-day T-bill
Selected Ratios vs. 91-day Treasury Bill Rate
(In Percent)
                                                                                                           rate of 3.4 percent (down from 5.4 percent in
  20.0                                                                                                     2006). This reflects the industry’s competitive
 18.0
 16.0
            18.3    18.3     14.3
                                                                                                           pricing, which gave depositors better yield than
                                               13.8
 14.0       13.1
                   15.3
                                       13.1
                                                                           11.4    11.5    11.2
                                                                                                           risk-free government securities.
 12.0                        10.2                                  10.6                             10.8
                                       9.9      9.9
            11.9     12.4
 10.0                                                  11.3
                                                                            7.3
  8.0
                             8.9
                                                                   6.0             6.4
                                                                                           5.4                     Meanwhile, total operating expenses
                                                       5.4                                           4.6
  6.0                                  7.6      7.8
                                                                                                           increased by 19.0 percent to P26.9 billion from
  4.0                                                              4.8     5.2             5.1
                                                        5.0
  2.0
                                                                                   5.2              3.4    P22.6 billion in 2006. Exclusive of write-offs
  0.0
            1997   1998     1999      2000     2001   2002     2003        2004   2005     2006     2007
                                                                                                           and loss provisions, operating expenses
                                                                                                           similarly went up by 19.6 percent to P24.0
                Earning Asset Yield           Funding Cost           Treasury Bill Rate (91-day)
                                                                                                           billion from P20.1 billion. This took place as
                                                                                                           overhead      costs  and     other   expenses
                                                                                                           simultaneously rose by 23.0 percent or P2.9
                                                                                                           billion and 13.6 percent or P1.0 billion,
                                                                                                           respectively.

                                                                                                                   Further breakdown of overhead costs
                                                                                                           showed that compensation/fringe benefits and
                                                                                                           rent registered substantial growths of 13.4
                                                                                                           percent or P0.9 billion and 42.3 percent or
                                                                                                           P0.6 billion, respectively. The growth in these
                                                                                                           two accounts could be attributed to the wider
                                                                                                           branching network in 2007. This factor plus the
                                                                                                           installation of more ATMs substantially raised
                                                                                                           depreciation/amortization expenses by 97.7
                                                                                                           percent or P1.5 billion.
 Thrift Banking System
 Cost-to-Income Ratio
                                                                                                                   Consequently, the cost-to-income (CTI)
In Percent
 180.0
                                                                                                           ratio inched up to 89.4 percent from 89.2
 160.0                                                                                                     percent last year. This occurred as the 19.6
 140.0                                                                                                     percent hike in operating expenses, exclusive
 120.0
                                                                                                           of write-offs and loss provisions, outweighed
 100.0
     80.0
                                                                                                           the 19.2 percent growth in total operating
     60.0                                                                                                  income. Linked thrift banks proved more
     40.0                                                                                                  efficient in managing costs as the group
     20.0
                                                                                                           registered better CTI ratio at 70.7 percent
      0.0
               1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
                                                                                                           (favorably down from 75.0 percent last year)
               TB system                      Linked TBs                     Non-Linked TBs
                                                                                                           as against non-linked thrift banks’ 127.8
                                                                                                           percent (up from 116.9 percent).

                                                                                                                   Linked thrift banks posted better ROA
Thrift Banking System: Comparative Profitability Indicators
As of End-December 2007
                                                                                                           and ROE ratios of 1.2 percent and 10.3
                                                                                                           percent, respectively, compared to non-linked
                                       Earning                    Net    Cost-to-
By Analytical Group                     Asset
                                               Funding Interest
                                                                Interest Income                            thrift banks’ negative ratios of 1.7 percent and
                                                Cost   Spread
                                        Yield                    Margin   Ratio
                                                                                                           13.3 percent. Linked thrift banks similarly
TOTAL THRIFT BANKS                            10.8           4.6           6.2           5.8        89.4
                                                                                                           registered higher net interest margin of 6.4
     FI-Linked Thrift Banks                   10.5           3.9           6.5           6.4        70.7
     Non-Linked Thrift Banks                  11.4           5.6           5.8           4.7       127.8
                                                                                                           percent as against non-linked thrift banks’ 4.7
                                                                                                           percent. Moreover, linked thrift banks had
                                                                          Source: Office of Supervisory Policy Development, Supervision and Examination Sector
                                                                                                                                                       Thrift Banks                  77
       STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007


relatively lower funding cost of 3.9 percent as                   Thrift Banking System
against the latter’s 5.6 percent. Meantime,                       Comparative Return on Assets (ROA)
non-linked thrift banks registered higher earning                                 4.0

asset yield of 11.4 percent as against linked




                                                                     In Percent
thrift banks’ 10.5 percent.                                                       2.0



       The industry’s ROA turned into a                                           0.0
negative ratio of less than 0.1 percent from
positive 0.2 percent last year. By subgroup,
                                                                                  -2.0
domestic bank-linked thrift banks reported the                                             1997    1998    1999     2000     2001      2002    2003    2004     2005    2006    2007

highest ROA at 1.8 percent, followed by                                                  Thrift Banking Industry                      Linked TBs               Non-Linked TBs

domestic non-bank linked thrift banks at 1.6
percent. In contrast, foreign bank-linked and
non-linked thrift banks reported negative ROA
ratios of 2.2 percent and 1.7 percent,
respectively.
                                                                  Thrift Banking System
                                                                  Comparative Return on Equity (ROE)
        The industry’s ROE ratio fell to a
                                                                                  20.0
negative 0.1 percent from last year’s positive                                    15.0
1.3 percent. By subgroup, domestic bank-linked                       In Percent   10.0

thrift banks and stand alone thrift banks’ ratios                                  5.0

posted the highest ROE at 15.0 percent and 6.3                                     0.0

percent, respectively. Meantime, the ROE of                                        -5.0


foreign bank-linked and non-linked thrift banks                                   -10.0


pulled down the industry average as these                                         -15.0
                                                                                            1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

particular subgroups posted negative ratios of
                                                                                         Thrift Banking Industry                      Linked TBs                Non-Linked TBs
22.5 percent and 13.3 percent, respectively.


MAJOR BALANCE SHEET TRENDS

ASSETS

        Total assets climbed by 10.1 percent
(P44.7 billion) to P485.6 billion from previous
year’s P440.9 billion. This is the highest
recorded asset level of the industry. By main
group, linked thrift banks’ assets expanded by
10.3 percent (P26.7 billion) to P285.7 billion
from P259.0 billion. Similarly, non-linked thrift
banks’ assets grew by 9.9 percent (P18.0
billion) to P199.9 billion from P181.9 billion.

        Loans, net continued to be the dominant                   Thrift Banking System: Asset Mix
component of thrift bank resources at 49.0                                                                          Loans
                                                                                                            (net, exclusive of IBL)
                                                                                                                                                                                 Loans
                                                                                                                                                                         (net, exclusive of IBL)
                                                                                                                                                                                 49.0%
percent or P238.1 billion (up from 47.5 percent                    Cash & due
                                                                   from banks
                                                                      11.8%
                                                                                                                    47.5%               Cash and due
                                                                                                                                         from banks
                                                                                                                                            11.0%

or P209.6 billion last year). Investments, net                     ROPA (net)
                                                                     7.4%
                                                                                                                                        ROPA(net)
                                                                                                                                          6.3%

was a far second at 15.9 percent or P77.1                          IBL 6.7%                                                             IBL 9.7%

billion (down from 17.3 percent but up from                        Other assets 9.3%                               Investments (Net)
                                                                                                                        17.3%
                                                                                                                                          Other assets 8.1%                Investments (Net)
                                                                                                                                                                                15.9%


P76.3 billion).                                                                                   P440.9 Billion
                                                                                               December 2006
                                                                                                                                                               P485.6 Billion
                                                                                                                                                              December 2007




Source: Office of Supervisory Policy Development, Supervision and Examination Sector
78             Thrift Banks

                                                                                                  STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007



Thrift Banking System
Balance Sheet Structure                                                                                                          Other components of the asset mix
                                                                             End-December
                                                                                                                          posted the following shares: cash and due from
             Major Accounts
                                                          2003         2004          2005          2006           2007    banks at 11.0 percent or P53.3 billion (down
 Total Assets
  Cash and Due from Banks
                                   100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
                                     8.7 %   8.9 %   9.1 % 11.8 % 11.0 %
                                                                                                                          from 11.8 percent but up from P52.1 billion);
  Interbank Loans Receivable (IBL)
  Loans, net
                                     2.2 %   2.0 %   2.7 %   6.7 %   9.7 %
                                    52.9 % 51.2 % 50.8 % 47.5 % 49.0 %                                                    IBL at 9.7 percent or P47.0 billion (up from 6.7
  Investments, net                  15.7 % 18.0 % 19.5 % 17.3 % 15.9 %
  ROPA, net                         10.2 % 10.8 %    8.6 %   7.4 %   6.3 %                                                percent or P29.4 billion); other assets at 8.1
  Other Assets                      10.3 %   9.1 %   9.3 %   9.3 %   8.1 %
                                                                                                                          percent or P39.7 billion (down from 9.3 percent
 Total Liabilities and Capital                       100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
  Deposits
  Bills Payable
                                                      71.9 % 73.2 % 75.5 % 75.3 % 75.1 %
                                                       8.1 %   8.5 %   6.8 %   6.9 %   8.6 %
                                                                                                                          or P40.9 billion); and ROPA, net at 6.3 percent
  Special Financing
  Other Liabilities
                                                       0.1 %
                                                       4.9 %
                                                               0.1 %
                                                               5.2 %
                                                                       0.0 %
                                                                       4.6 %
                                                                               0.0 %
                                                                               4.9 %
                                                                                       0.0 %
                                                                                       4.7 %
                                                                                                                          or P30.4 billion (down from 7.4 percent or
  Capital Accounts                                    15.0 % 13.0 % 13.1 % 12.9 % 11.6 %
                                                                                                                          P32.5 billion).

                                                                                                                                  On the funding side, deposit liabilities
                                                                                                                          was still the principal source of funds at 75.1
                                                                                                                          percent or P364.6 billion of total liabilities and
                                                                                                                          capital (down from 75.3 percent but up from
                                                                                                                          P332.1 billion). Capital accounts registered the
                                                                                                                          second biggest share at 11.6 percent or P56.2
                                                                                                                          billion (down from 12.9 percent or P56.9 billion).
Thrift Banking System: Funding Mix
                                     Deposits                                                         Deposits
                                                                                                                                 Meanwhile, other sources of funds had
                                      75.3%                                                            75.1%
                                                                                                                          the    following shares: bills payable at 8.6
                                                                                                                          percent or P41.5 billion (up from 6.9 percent or
                                          Bills Payable
                                               6.9%
                                                                                                          Bills Payable
                                                                                                               8.6%
                                                                                                                          P30.4      billion) and other liabilities at 4.7
  Capital Accounts
       12.9%
                     Other Liabilities
                         4.9%
                                                                 Capital Accounts
                                                                      11.6%
                                                                                      Other Liabilities
                                                                                          4.7%                            percent or P 23.3 billion (down from 4.9 percent
                      P440.9 Billion
                     December 2006
                                                                                       P485.6 Billion
                                                                                     December 2007
                                                                                                                          but up from P21.5 billion). The share of special
                                                                                                                          financing was negligible at less than a million
                                                                                                                          pesos in the two comparative periods.

                                                                                                                          LOANS

                                                                                                                                 Thrift banks continued to respond to the
                                                                                                                          needs of their niche markets (e.g. SMEs,
                                                                                                                          consumers) as lending activities picked up
                                                                                                                          during the year. Total loan portfolio, gross
                                                                                                                          expanded to a record high of P296.7 billion,
                                                                                                                          higher by 18.3 percent (P45.8 billion) than the
                                                                                                                          previous year’s level of P250.9 billion.

Thrift Banking System                                                                                                            Meantime, interbank loans stood at
Total Loans Outstanding (exclusive of IBL)
Annual Growth                                                                                                             P47.0 billion, up by 59.8 percent (P17.6 billion)
 2007                                                                                                 12.8%
                                                                                                                          from previous year’s P29.4 billion. Excluding
 2006
                                                                                                    12.2%
                                                                                                                 19.9%    interbank loans, the industry would have
 2005
 2004                                                                              7.2%                                   registered a lower loan growth of 12.8 percent
                                                                                 6.4%
 2003
 2002                                                                           5.4%                                      to P249.7 billion as against the hike in loans,
 2001                                                                             6.9%
                                                                                   7.0%
                                                                                                                          inclusive of interbank loans of 18.3 percent.
 2000
                                                          (0.6)%
 1999
 1998                                    (5.3)%
 1997                                                                                                     13.8%                  By main group, linked thrift banks
          -12.0-10.0 -8.0 -6.0 -4.0 -2.0 0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0
                                                                                                                          accounted for the bigger portion of total loans
                                                   In Percent
                                                                                                                          (exclusive of interbank loans) at 68.0 percent
                                                                                                                          (or P169.8 billion) while non-linked thrift banks

                                                                                    Source: Office of Supervisory Policy Development, Supervision and Examination Sector
                                                                                                                                 Thrift Banks                 79
       STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007


represented the balance of 32.0 percent (or
P79.9 billion).

        Foreign Currency Deposit Unit or FCDU
loans (inclusive of IBL) declined by 28.7
percent (or $37 million) to $90 million from
$127 million at end-year 2006, largely
influenced by the movement in foreign
exchange rates. Linked thrift banks held the
majority of FCDU loans at 86.5 percent (or $78
million), of which 65.5 percent was held by
domestic bank-linked thrift banks and 34.5
percent was held by        foreign bank-linked
thrift banks. Meanwhile, non-linked thrift banks
accounted for the remaining 13.5 percent (or
$12 million).
                                                                 Thrift Banking System
                                                                 Loan Portfolio Structure
        By economic        activity, the main                    By Industry Sector
recipients of industry credit were: the real                                December 2006                                     December 2007
                                                                                   4.0%                                             3.9% 2.6%
estate, renting, business         activities and                  28.2%
                                                                                          2.6%
                                                                                                 4.5%
                                                                                                        5.9%          24.0%
                                                                                                                                                 4.6%
                                                                                                                                                     4.7%

construction sector – 24.0 percent or P71.2                                                               4.1%                                          5.1%

                                                                                                           11.1%
billion (down from 28.2 percent but up from                                                                                                                 9.4%


70.7 billion last year); the private households                                                                    18.1%
                                                                  15.9%                                                                             11.8%
with employed persons sector at 18.1 percent                                      11.7%
                                                                                                 12.0%

                                                                                                                                 15.8%

or P 53.6 billion (up from 15.9 percent or P40.0                               P250.9 Billion                                    P296.7 Billion

billion); and interbank loans at 15.8 percent or                                                                                         2006      2007
P47.0 billion (up from 11.7 percent or P29.4                         Real Estate, Renting, Bus. Act. and Construction                    28.2%       24.0%
                                                                     Priv. Households with Employed Persons
billion). These three sectors accounted for a                         Interbank Loans (IBL)
                                                                                                                                         15.9%
                                                                                                                                         11.7%
                                                                                                                                                     18.1%
                                                                                                                                                     15.8%
large block of the industry’s total loan portfolio                    Other Comm., Social & Personal Serv.Act.                           12.0%        11.8%

at 57.9 percent share (up from 55.8 percent).                         Wholesale, Retail, Trade & Repair
                                                                     Financial Intermediation
                                                                                                                                         11.1%
                                                                                                                                          4.1%
                                                                                                                                                       9.4%
                                                                                                                                                      5.1%
                                                                     Manufacturing                                                        5.9%        4.7%
                                                                     Agriculture, Fishery, Hunting & Forestry                             4.5%         4.6%
        In terms of specific year-on-year growth,                    Transportation, Storage and Communication
                                                                     Others
                                                                                                                                          2.6%        2.6%
                                                                                                                                          4.0%        3.9%
the following posted these loan expansions:

a. Interbank loans – P17.6 billion or 59.8
   percent;
b. Private households with employed persons
   – P13.6 billion or 33.9 percent;
c. Other community, social and personal
   services activities – P5.0 billion or 16.8
   percent;
d. Financial intermediation – P5.0 billion or
   48.7 percent;
e. Agriculture, fishery, hunting and forestry –
   P2.4 billion or 21.1 percent;
f. Transportation, storage and communication
   – P1.2 billion or 18.6 percent.

        Real estate loans (RELs) amounted to
P83.9 billion, up by 11.2 percent from last
year’s P75.4 billion. On the other hand, the ra-
tio of RELs to total loan portfolio (TLP), exclu-
Source: Office of Supervisory Policy Development, Supervision and Examination Sector
80   Thrift Banks

                          STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007


                                       sive of IBL, went down to 33.6 percent from last
                                       year’s 34.1 percent ratio. Linked thrift banks
                                       captured the lion’s share of the industry’s total
                                       RELs at 79.7 percent (P66.8 billion) whereas
                                       non-linked thrift banks held the remaining 20.3
                                       percent (P17.1 billion).

                                              The ratio of past due RELs to total RELs
                                       eased to 9.3 percent from last year’s 10.2
                                       percent ratio. This favorable development
                                       occurred as the 1.7 percent hike in past due
                                       RELs was outweighed by growth in total RELs.
                                       Similarly, the ratio of past due RELs to TLP
                                       (exclusive of IBL) improved to 3.1 percent from
                                       3.5 percent.

                                               The larger slice of total RELs at 79.7
                                       percent (P66.8 billion) was extended for the
                                       acquisition of residential property, particularly
                                       driven by OFWs and their beneficiaries investing
                                       in their “dream homes”. On the other hand, the
                                       remaining 20.3 percent or P17.1 billion was
                                       granted for the construction and development of
                                       real estate properties for commercial purposes.
                                       The delinquency rate of residential RELs at 4.0
                                       percent was more than eight times better than
                                       the 30.0 percent past due ratio of commercial
                                       RELs.

                                                Automobile loans (ALs) amounted to
                                       P54.0 billion, up by 14.1 percent from P47.3
                                       billion last year. Likewise, the ratio of total ALs to
                                       TLP (exclusive of IBL) rose to 21.6 percent from
                                       21.4 percent. Linked thrift banks accounted for
                                       the bulk or 89.3 percent (P48.2 billion) of the
                                       total ALs while non-linked thrift banks held the
                                       remaining 10.7 percent (P5.8 billion). Thrift
                                       banks remained the country’s leading provider of
                                       ALs as it accounted for a hefty 62.6 percent of
                                       the total P86.2 billion ALs of the banking system.

                                              Meantime, the past due ALs to total ALs
                                       ratio was maintained at 4.4 percent from last
                                       year. This transpired as the 14.4 percent hike in
                                       past due ALs was nearly matched by the
                                       expansion in total ALs. Similarly, the past due
                                       ALs to TLP (exclusive of IBL) ratio remained
                                       unchanged at 1.0 percent in the two comparative
                                       periods.

                                             Credit card receivables (CCRs) reached
                                       P5.5 billion, up by 8.7 percent from last year’s
                    Source: Office of Supervisory Policy Development, Supervision and Examination Sector
                                                                                              Thrift Banks   81
       STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007


P5.0 billion. On the other hand, the ratio of total
CCRs to TLP (exclusive of IBL) slightly dropped
to 2.2 percent from last year’s 2.3 percent ratio.
Non-linked thrift banks accounted for the bigger
block of total CCRs at 87.2 percent (P4.8 billion)
while linked thrift banks held the balance of 12.8
percent (P0.7 billion).

       The past due CCRs to total CCRs ratio
settled at 5.5 percent, up from last year’s 4.9
percent ratio. This transpired as the 20.9 percent
hike in past due CCRs outweighed the growth in
total CCRs. In contrast, the ratio of past due
CCRs to TLP (exclusive of IBL) was sustained at
0.1 percent from last year.

        Meanwhile, total consumer lending                                      Total consumer
showed steady growth on the back of strong pri-                                lending showed
vate consumption and inflows of OFW                                           steady growth on
remittances. Total consumer loans (CLs), i.e.,                               the back of strong
residential RELs plus ALs plus CCRs, reached a                                       private
high of P126.3 billion, up by 13.8 percent from                              consumption and
last year’s P111.0 billion. Similarly, the ratio of                             inflows of OFW
CLs to TLP (exclusive of IBL) climbed to 50.6                                     remittances
percent from 50.1 percent. Linked thrift banks ac-
counted for 86.5 percent (P109.2 billion) of the
total CLs of the industry. Non-linked thrift banks
held the remaining share of 13.5 percent (P17.1
billion).

       The ratio of past due CLs to total CLs
barely changed at 4.3 percent from last year as
the 13.1 percent hike in past due CLs was
counteracted by the growth in total CLs.
Likewise, the past due CLs to TLP (exclusive of
IBL) ratio maintained its last year’s 2.2 percent
ratio.

      Preliminary data on credit to small and
medium enterprises (SME) as of end-September
2007 indicated that the industry exceeded the 6
percent (for small enterprises) and 2 percent (for
medium enterprises) requirement with their 16.3
percent or P24.5 billion and 11.2 percent or
P16.9 billion exposure to SMEs, respectively.
Total funds set aside for SMEs amounted to
P41.4 billion.

      Meanwhile, preliminary data on the
compliance with the agri-agra requirement as of
end-September 2007 showed that the industry

Source: Office of Supervisory Policy Development, Supervision and Examination Sector
82             Thrift Banks

                                                              STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007


                                                                                 surpassed the minimum 10 percent mandatory
                                                                                 allocation for agrarian reform credit at 13.8
                                                                                 percent. However, it undercomplied with the 25
                                                                                 percent allocation for agri-agra loans in general
                                                                                 with an overall compliance ratio of 21.6 percent,
                                                                                 which was short by 3.4 percentage points of the
                                                                                 required ratio.

 Thrift Banking System                                                                  In terms of asset quality, the industry
 NPLs and NPL Coverage Ratio                                                     was able to favorably bring down its NPL and
 In P Billion                                                     In Percent     NPA ratios. The NPL ratio eased to 6.9 percent
   30.0                                                                 60.0

                                                                          50.0
                                                                                 (vs. 8.3 percent last year). This developed as
     20.0                                                                 40.0
                                                                                 the 1.6 percent drop in NPLs was
                                                                          30.0   complemented by the 18.3 percent growth in
     10.0                                                                 20.0   loans. Similarly, the NPA ratio improved to 9.9
                                                                          10.0
                                                                                 percent (vs. 11.4 percent). This transpired as
          -                                                               0.0
               1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
                                                                                 the 4.4 percent reduction in NPAs was
                 NPLs                               Loan Loss Reserves           accompanied by the 9.7 percent expansion in
                 NPL Ratio                          NPL Coverage Ratio
                                                                                 gross assets. (Table 22)

                                                                                        Loss provisioning, as indicated by the
                                                                                 NPL and NPA coverage ratios, narrowed down
                                                                                 to 47.3 percent (vs. 49.3 percent last year) and
                                                                                 25.5 percent (vs. 25.6 percent), respectively.

                                                                                        The industry also gained ground on the
                                                                                 disposal of foreclosed properties as real and
                                                                                 other properties acquired (ROPA), gross
                                                                                 contracted by 6.0 percent to P33.4 billion from
                                                                                 last year’s P35.6 billion. Similarly, total
                                                                                 restructured loans (RLs) went down by 13.1
                                                                                 percent to P4.9 billion from P5.6 billion.

                                                                                        The NPL ratio exhibited steady
                                                                                 improvements. From a high of 12.1 percent at
                                                                                 end-year 2003, the NPL ratio continued to drop
                                                                                 to 8.3 percent in 2006 before settling to 6.9
                                                                                 percent in 2007. On the other hand, there is no
                                                                                 clear trend on the NPL coverage ratio. After
                                                                                 dropping to 37.0 percent at end-year 2004, the
                                                                                 ratio went up to a high of 49.3 percent at
 Thrift Banking System
                                                                                 end-year 2006. The upward trend, however,
 NPAs and NPA Coverage Ratio
                                                                                 was halted as the ratio narrowed to 47.3 per-
 In P Billion                                                    In Percent
 60.0                                                                  40.0      cent at end-year 2007.
 50.0
                                                                         30.0
 40.0
                                                                                         The industry’s NPA ratio continued to
 30.0                                                                    20.0

 20.0
                                                                                 improve to 9.9 percent at end-year 2007 on the
 10.0
                                                                         10.0
                                                                                 back of continuous unloading of bad assets.
      -                                                                  0.0     Similar to the NPL coverage, the NPA coverage
              1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
                                                                                 ratio displayed no evident trend. After dropping
                 NPAs                              NPA Reserves                  to a low 17.2 percent at end-year 2004, the
                 NPA Ratio                         NPA Coverage Ratio
                                                                                 ratio went up to 23.4 percent at end-year 2005
                                                     Source: Office of Supervisory Policy Development, Supervision and Examination Sector
                                                                                                                   Thrift Banks        83
       STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007


and rose further to 25.6 percent at end-year Thrift Banking System
2006. However, the ratio slid to 25.5 percent at Distressed Assets Ratio
end-year 2007.                                    In P Billion
                                                   60.0
                                                                                                                               In Percent
                                                                                                                                      35.0

                                                                    50.0                                                             30.0
        The distressed assets ratio (a broader                      40.0
                                                                                                                                     25.0
measure of asset quality) managed to sustain a                      30.0
                                                                                                                                     20.0
downward trend since end-year 2005. As of                           20.0
                                                                                                                                     15.0
end-December 2007, the ratio improved anew                          10.0


to 17.0 percent from last year’s 20.6 percent                        0.0
                                                                           1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
                                                                                                                                     10.0


ratio. This favorable development was fueled by
                                                                           NPAs      Restructured Loans (Performing)    Distressed Ratio
the simultaneous reduction in NPAs and
performing RLs, coupled with the expansion in
total loans.

       By main group, linked thrift banks had
better loan quality relative to non-linked thrift
banks. This was exhibited by their favorably
lower NPL and NPA ratios of 4.8 percent and
6.6 percent, respectively (down from 5.8
percent and 7.4 percent last year) as against
non-linked thrift banks’ 10.0 percent and 14.6
percent (down from 12.2 percent and 17.0
percent).

       Non-linked thrift banks, nonetheless,                     Thrift Banking System
continued to exert a significant influence on the                Comparative NPL, NPA and Coverage Ratios
overall asset quality of the industry as it held                 As of End-December 2007
sizeable shares of 58.0 percent of total NPLs                                                  NPL          NPL        NPA          NPA
and 60.6 percent of total NPAs. The relatively                   By Analytical Group           Ratio      Coverage     Ratio      Coverage
                                                                                                           Ratio                   Ratio
higher NPL and NPA levels of the group                           TOTAL THRIFT BANKS                 6.9        47.3        9.9          25.5
subsequently pushed up the industry’s NPL
                                                                   Linked Thrift Banks              4.8        66.4        6.6          37.9
and NPA ratios. Meanwhile, linked thrift banks                     Non-Linked Thrift Banks        10.0         33.4       14.6          17.5
held 42.0 percent of total NPLs and 39.4 per-
cent of total NPAs.

       In terms of provisioning for bad loans,
linked thrift banks registered stronger NPL and
NPA coverage ratios of 66.4 percent and 37.9
percent (down from 72.4 percent and 40.5
percent last year), respectively, as against non
-linked thrift banks’ 33.4 percent and 17.5
percent (up from 31.9 percent and 16.3
percent), respectively.

INVESTMENTS

        Gross investments amounted to P76.9
billion, up by 3.8 percent (or P2.8 billion) from
last year’s P74.1 billion. Linked thrift banks held
the bulk of investments at 71.6 percent (or
P55.1 billion) whereas non-linked thrift banks

Source: Office of Supervisory Policy Development, Supervision and Examination Sector
84          Thrift Banks

                                                         STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007



                                                                       accounted for the remaining 28.4 percent (or
                                                                       P21.8 billion) share.

                                                                              The industry’s investments were mostly
                                                                       placed in available for sale financial assets at
                                                                       65.1 percent or P50.1 billion (up from 56.1
                                                                       percent or P41.6 billion last year).
                                                                       Held-to-maturity financial assets and unquoted
                                                                       debt securities classified as loans followed at
                                                                       31.4 percent or P24.1 billion (down from 38.8
                                                                       percent or P28.7 billion). Held for trading
                                                                       securities and investments in subsidiaries,
                                                                       associates and joint ventures held the balance
                                                                       of 3.5 percent or P2.7 billion (down from 5.1
                                                                       percent or P3.8 billion).

                                                                              In terms of specific investment portfolio,
                                                                       the majority or 63.1 percent of the industry’s
                                                                       investments was in government securities,
                                                                       distantly followed by foreign debt instruments at
                                                                       32.8 percent, of which 68.2 percent were
                                                                       ROPs. Private local issuers lagged behind at
                                                                       4.1 percent.

                                                                              Investments in private securities posted
                                                                       the strongest growth of 122.3 percent from last
                                                                       year. Investments in government debt issues
                                                                       also increased but at a more modest rate of 3.0
                                                                       percent. In contrast, investments in foreign
                                                                       currency-denominated debt securities
                                                                       registered a slight contraction of 1.5 percent.

                                                                       DEPOSIT LIABILITIES

                                                                              Deposit liabilities sustained its uptrend,
                                                                       expanding by 9.8 percent to P364.6 billion from
Thrift Banking System                                                  last year’s P332.1 billion.
Share of Deposits, by Category
                                                                               Linked thrift banks captured the larger
2007
2006
                                                                       share of total deposits at 65.2 percent or P237.6
2005
                                                                       billion, of which 84.9 percent was held by
2004                                                                   domestic bank-linked thrift banks. On the other
2003                                                                   hand, non-linked thrift banks accounted for the
2002                                                                   balance of 34.8 percent or P127.0 billion.
2001
2000
                                                                              Currency mix consisted of 88.3 percent
1999
1998
                                                                       (P322.0 billion) peso deposits and 11.7 percent
1997                                                                   (P42.6 billion) foreign currency deposits. Both
       0%   10%   20%   30%   40%   50%   60%   70%   80%   90% 100%
                                                                       peso and foreign currency deposits grew by 11.2
       Domestic Bank-Linked                 Non-Bank Linked            percent or P32.5 billion and by 0.1 percent or
       Foreign Bank- Linked                 Non-Linked
                                                                       less than P0.1 billion, respectively.

                                                Source: Office of Supervisory Policy Development, Supervision and Examination Sector
                                                                                                                     Thrift Banks       85
       STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007


        Peso time deposits, which made up the                     Thrift Banking System
                                                                  Deposit Mix
largest slice of total peso deposit liabilities at
                                                                                               PESO DEPOSITS
53.3 percent (up from 51.0 percent last year),                                                                   December 2007
                                                                          December 2006
rose by 16.3 percent to P171.7 billion. Peso                      49.0%
                                                                                                                                    53.3.%
savings accounts, which came second with a
share of 35.9 percent, slid by 0.1 percent to
P115.6 billion. The peso demand deposit and
negotiable order of withdrawal (NOW)
                                                                                            51.0%         46.7%
accounts, which lagged behind with a share of
                                                                           P289.5 Billion                          P322.0 Billion
10.8 percent, went up by 32.6 percent to P34.7
billion. Meanwhile, time deposits also                                               FOREIGN CURRENCY DEPOSITS
accounted for the majority of the industry’s                                   December 2006            December 2007
foreign currency deposits at 74.7 percent (down                       23.8%                              25.3%


from 76.2 percent).


                                                                                                 76.2%                              74.7%
                                                                                 P42.6 Billion                     P42.6 Billion

                                                                                 Demand/NOW & Savings Deposits         Time Deposits



CAPITALIZATION

        Total capital accounts amounted to
P56.2 billion, slightly lower by 1.3 percent (P0.7
billion) than last year’s P56.9 billion.
Consequently, the ratio of capital accounts to
total assets went down to a record low of 11.6
percent from 12.9 percent at end-year 2006.

        Lower capitalization in 2007 stemmed
from the decline in surplus, surplus reserves
and undivided profits by 21.9 percent (P3.5
billion), which resulted from the unprofitable
operations of a few thrift banks. Paid-in capital
hardly compensated for this cut as it increased
at a slower rate of 6.8 percent or P2.8 billion.

        By main group, linked thrift banks Thrift Banking System
accounted for a bigger slice of total capital at Distribution of Capital, by Analytical Category
57.8 percent (P32.5 billion), of which 85.1
                                                  2007
percent (P27.6 billion) was held by domestic 2006
linked thrift banks. Meanwhile, non-linked thrift 2005
banks held the remaining 42.2 percent (P23.7 2004
billion) share. Linked thrift banks consistently 2003
                                                  2002
held the majority of the capital base since 2001
end-year 2004.                                    2000
                                                                   1999
                                                                   1998
       The industry remained solvent as CAR
                                                                   1997
ratios (on both solo and consolidated bases)
                                                                          0%    10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
stood at 14.6 percent as of end-September                             Domestic Bank-Linked                       Non-Bank Linked
2007, down from 16.2 percent at end-year                              Foreign Bank- Linked                       Non-Linked



Source: Office of Supervisory Policy Development, Supervision and Examination Sector
86               Thrift Banks

                                                                                  STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007

Thrift Banking System
Comparative Capital Adequacy Ratio (CAR) Under Circular No. 280                                          2006. The decline in CAR occurred as the 3.1
                                               Solo                             Consolidated             percent increase in qualifying capital to P41.2
                                  End- December          End-           End- December            End-

                               2004    2005       2006
                                                         Sept
                                                         2007      2004      2005      2006
                                                                                                 Sept
                                                                                                 2007
                                                                                                         billion from P39.9 billion was outpaced by the
(In P Billion)
Tier 1                         27.9    32.0       33.3   35.2      27.9      32.0      33.3      35.2
                                                                                                         14.7 percent growth in risk weighted assets to
Tier 2
Deductions
                                4.3
                                1.0
                                        4.5
                                        0.1
                                                   6.7
                                                   0.1
                                                          6.4
                                                          0.4
                                                                   4.3
                                                                   1.0
                                                                              4.5
                                                                              0.1
                                                                                        6.7
                                                                                        0.1
                                                                                                  6.4
                                                                                                  0.4    P282.1 billion from P246.0 billion.
Qualifying Capital             31.2    36.4       39.9   41.2      31.3      36.4      39.9      41.2
Risk Weighted Assets (RWA) -
net                            193.0   210.4     246.0   282.1     193.0     210.4     246.0     282.1
                                                                                                         Nevertheless, the CAR ratio exceeded the
(In Percent)
Capital Adequacy Ratio (CAR)   16.2    17.3       16.2   14.6      16.2      17.3      16.2      14.6
                                                                                                         minimum BSP regulatory requirement of 10
                                                                                                         percent and the international benchmark of 8
                                                                                                         percent.

                                                                                                                 By main group, linked thrift banks’ CAR
                                                                                                         (both on solo and consolidated bases) stood
                                                                                                         higher at 16.8 percent (vs. 20.0 percent at
                                                                                                         end-December 2006) as against non-linked
                                                                                                         thrift banks’ 9.8 percent (vs. 9.7 percent).

                                                                                                                Of the 82 thrift banks, there were 12
                                                                                                         banks which failed to comply with the 10
                                                                                                         percent minimum CAR, requiring an aggregate
                                                                                                         capital infusion of P12.0 billion. These
                                                                                                         non-compliant banks have been directed to
                                                                                                         undertake remedial measures in order to
                                                                                                         comply with the minimum CAR requirement.
                                                                                                         Hence, the industry’s compliance ratio stood
                                                                                                         at 85.4 percent in 2007.
Thrift Banking System
Status of Banks' Compliance with the Minimum Amount of Capital
                                                                                                                Meanwhile, data on the compliance with
                                                         2003    2004      2005      2006      2007      the prescribed minimum amount of capital
 A. Number of Operating Thrift Banks
 XX(TBs)
                                                         92      87        84        84         82
                                                                                                         showed that there were 55 banks out of the 82
   Based Within Metro Manila                             42      41        39        37        37
   Based Outside Metro Manila                            50      46        45        47        45        total operating thrift banks or 67.1 percent (up
 B. TBs with Capital Equal to or
                                                         58      56        54        54         55
                                                                                                         from 54 banks or 64.3 percent last year) which
 XXXin Excess of the Minimum Required
     Based Within Metro Manila (K> P325M)                32      29        25        25        27        complied with the required minimum amount of
     Based Outside Metro Manila (K> P52M)                26      27        29        29        28
                                                                                                         capital. Non-compliant banks are encouraged
                                                                                                         to consolidate with a stronger bank and/or
                                                                                                         increase capitalization.

                                                                                                         SELECTED CONTINGENT ACCOUNTS

                                                                                                                The industry’s bank guarantees through
                                                                                                         the issuance of stand-by letters of credit stood
                                                                                                         at P583 million, down by 5.5 percent from P617
                                                                                                         million at end-December 2006. Leading issuers
                                                                                                         of bank guarantees were still non-linked thrift
                                                                                                         banks with a share of 96.5 percent or P563
                                                                                                         million of the industry’s total bank guarantees
                                                                                                         issued. Meantime, derivative activities
                                                                                                         particularly currency forwards rose by 25.9
                                                                                                         percent to P22 million from P17 million. These
                                                                                                         derivatives were transacted by linked thrift
                                                                                                         banks.


                                                                  Source: Office of Supervisory Policy Development, Supervision and Examination Sector
                                                                                                   Rural Banks   87
       STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007



                                                RURAL BANKS

OVERVIEW
       The rural banking industry is on a roll.
Considered as one of the catalysts of
broad-based development in the countryside,                                         Considered as one
the    industry      reported    a    respectable                                   of the catalysts of
performance in 2007. This was depicted by                                              broad-based
sustainable growth in core balance sheet                                           development in the
accounts      (i.e.,   assets,   loan    portfolio,                                  countryside, the
investments, deposit liabilities and capital                                       industry reported a
accounts), stronger microfinancing activities,                                          respectable
and enhanced banking service delivery                                              performance in 2007
channels. Likewise, the industry maintained
adequate liquidity and solvency ratios and
continued to operate profitably. Nevertheless,
the industry cannot afford to be complacent
given the rising level of soured loans.

        Interest from lending activities remained
the major growth driver as net interest income
posted substantial expansion of 23.7 percent.
Accompanied by the 5.4 percent increment in
non-interest income, total operating income
sustained robust growth during the year.
However, setbacks such as higher operating
expenses and provision for income taxes have
curtailed the industry’s progress in raising its
bottomline figure. Consequently, net income
after tax (NIAT) slowed down with year-on-year
growth rate of 19.8 percent. This paled in
comparison with the 57.5 percent surge posted
in 2006.

       Key profitability indicators remained at
comfortable levels. Return on assets (ROA)
was unchanged at 2.0 percent while return on
equity (ROE) improved to 14.2 percent. Both
ratios were at their record highs.

      The industry was able to sustain the
gradual uptrend of its total assets, beginning
with an 11.2 percent expansion in 2003. Total
assets reached P149.0 billion, 17.7 percent
growth from P126.6 billion at end-December
2006.

       Regional distribution of assets barely
changed throughout the years. Consistently,
rural banks located in Luzon consistently held
Source: Office of Supervisory Policy Development, Supervision and Examination Sector
88         Rural Banks
                                                                          STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007


        Rural Banking System                                                                      the bulk of the industry’s total assets at 69.8
        Market Structure of Assets                                                                percent (or P104.0 billion). This was followed
            2007
                                                                                                  by the assets held by rural banks in Mindanao
            2006                                                                                  at 17.2 percent (or P25.6 billion). Meanwhile,
            2005                                                                                  assets of rural banks situated in the Visayas
            2004                                                                                  lagged behind at 13.0 percent (or P19.4
            2003                                                                                  billion).
            2002
            2001
                                                                                                          Brisk lending activities brought about
            2000
                                                                                                  substantial expansion in loans, gross of 21.0
            1999
            1998
                                                                                                  percent, the highest growth rate posted by the
            1997
                                                                                                  industry in decades. Loans, gross at
                                                                                                  end-December 2007 summed up to P93.3
                        0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
                                                                                                  billion, almost double the amount posted five
                    Luzon                    Visayas                     Mindanao
                                                                                                  years ago.       The faster pace of credit
                                                                                                  expansion, however, was dampened by rising
                                                                                                  incidents of problem accounts. Non-performing
                                                                                                  loans (NPLs) rose by 12.2 percent to P9.5
                                                                                                  billion from P8.5 billion at end-year 2006.
                                                                                                  Likewise, non-performing assets (NPAs)
                                                                                                  stepped up to P17.4 billion, a 6.6 percent
                                                                                                  increase from P16.3 billion. Nonetheless, loan
                                                                                                  and asset quality ratios improved to 10.2
                                                                                                  percent and 11.3 percent, respectively, from
                                                                                                  11.1 percent and 12.5 percent.

                                                                                                         Liquidity ratios remained stable as of
                                                                                                  end-December 2007 despite dropping lightly
                                                                                                  from last year. Liquid assets-to-deposits ratio
                                                                                                  settled to 32.3 percent from 33.1 percent in
                                                                                                  2006. Likewise, cash and due from banks-to-
                                                                                                  deposits ratio trimmed to 25.4 percent from
                                                                                                  25.9 percent. These transpired as the
                                                                                                  industry’s deposit liabilities rose by 21.0
                                                                                                  percent to P107.7 billion, surpassing the 17.9
                                                                                                  percent and 18.7 percent expansion in liquid
                                                                                                  assets and cash and due from banks to P34.8
                                                                                                  billion and P27.4 billion, respectively.
                                                                                                  Meanwhile, loans, gross-to-deposits ratio stood
Top Five Regions of Rural Banks
Based on Consolidated Statement of Condition as of End-December 2007 p/                           at 86.6 percent after peaking at 89.1 percent in
(Amounts in P Billion)
                                                                                                  2005.
                         Assets                                     Loans
 Rank                    Region          Amount   Rank              Region               Amount
   1     CALABARZON (Region XIII)          31.8    1     CALABARZON (Region XIII)          17.1          The industry also remained adequately
   2     National Capital Region           26.5    2     National Capital Region           15.3
   3
   4
         Central Luzon (Region III)
         Central Visayas (Region VII)
                                           17.9
                                           11.4
                                                   3
                                                   4
                                                         Central Luzon (Region III)
                                                         Central Visayas (Region VII)
                                                                                           11.2
                                                                                            7.6
                                                                                                  capitalized with capital adequacy ratio as of
   5     Southern Mindanao (Region XI)
                     Total
                                            8.9
                                           96.5
                                                   5     Southern Mindanao (Region XI)
                                                                      Total
                                                                                            6.1
                                                                                           57.3
                                                                                                  end-September 2007 at 15.7 percent (up from
                    % Share                64.7                     % Share                61.4
                                                                                                  15.0 percent as of end-December 2006), still
                 Deposit Liabilities                           Capital Accounts                   comfortably above the regulatory (10 percent)
 Rank                    Region          Amount   Rank              Region               Amount
   1     CALABARZON (Region XIII)          25.2    1     CALABARZON (Region XIII)           4.4   and international (8 percent) standards.
   2     National Capital Region           19.0    2     National Capital Region            3.5
   3     Central Luzon (Region III)        12.7    3     Central Luzon (Region III)         2.9
   4     Central Visayas (Region VII)       9.1    4     Southern Mindanao (Region XI)      1.4
   5     Ilocos (Region I)
                      Total
                                            6.7
                                           72.7
                                                   5     Central Visayas (Region VII)
                                                                      Total
                                                                                            1.4
                                                                                           13.6
                                                                                                        On a regional basis, rural banks situated
                    % Share                67.5                     % Share                65.1   in CALABARZON (Region IV-A) still lead in
       p/ Preliminary

                                                                                                  terms of having the highest assets, loan
                                                                    Source: Office of Supervisory Policy Development, Supervision and Examination Sector
                                                                                                                             Rural Banks        89
       STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007



portfolio, deposit liabilities and capital accounts.
CALABARZON (composed of Cavite, Laguna,
Batangas, Rizal and Quezon), which maintains
industrialized estates and housing zones, has
been an economic model with significant
number of manufacturing plants, highly
productive agricultural sector and fast growing
small and medium enterprises.


OPERATING NETWORK
       The total number of rural bank offices                     Rural Banking Offices
increased to 2,011 as of end-December 2007                        As of End-December 2007

from 1,964 at end-December 2006. This                                                                                       Branches/
                                                                                                                   Head
consisted of 682 head offices (down from last                                                            Total
                                                                                                                  Offices
                                                                                                                              Other
                                                                                                                             Offices
year’s 695) and 1,329 branches/other offices                       Rural Banks                            2,011      682        1,329
(up from 1,269). Also included in this figure                           Of which :
were the five head offices of microfinance rural                         Microfinance Rural Banks            22         5         17

banks and their 17 branches/other offices.

        The expansion of the industry’s
geographical outreach was in line with existing
policy relaxing bank branching to enhance
competition in banking, improve access of
financial services in underserved areas, and
develop microfinance activities as a means of
alleviating poverty. In 2007, a total of 79 new
rural bank branches were opened, bringing the
total number of rural bank branches opened to
128 since the issuance of Circular No. 505 on
22 December 2005.

       The year 2007 also saw the opening of
two rural banks (North Pacific Banking
Corporation which opened on 19 March 2007
and Banco Bakun Inc. which opened on 11
April 2007), and one microfinance-oriented
rural bank (First Mindoro Microfinance Rural
Bank, Inc. which opened on 12 November                           Closed Rural Banking Offices
                                                                 As of End-December 2007
2007). Further, the merger of Banco de Jesus
(absorbed bank) and Bangko Kabayan                                                  Name of Bank
                                                                                                                     No. of
                                                                                                                    Branches
                                                                                                                                  Date Closed

(surviving bank) took effect on 15 August 2007.                   1.   Rural Bank of Cajidiocan (Romblon)               1         08 Feb 2007
                                                                  2.   Rural Bank of Santol (La Union)                  3         22 Feb 2007
                                                                  3.   Banco Rural de San Antonio Inc               No branch     24 May 2007
        Meanwhile, there were 15 rural banks                      4.   Excel Rural Bank Inc                         No branch     07 Jun 2007
that ceased to operate during the year, namely:                   5.   RB of Parang Inc (New Settlers Bank)         No branch     07 Jun 2007
                                                                  6.   Rural Bank of General Aguinaldo (Cavite)         2         02 Aug 2007
(1) Rural Bank of Cajidiocan; (2) Rural Bank of                   7.   Rural Bank of San Fernando (Romblon)         No branch     02 Aug 2007
Santol; (3) Banco Rural de San Antonio Inc.;                      8.   Maranao Rural Bank (Marawi City)             No branch     16 Aug 2007
                                                                  9.   Rural Bank of Sebaste (Antique)                  2         24 Aug 2007
(4) Excel Rural Bank Inc.; (5) RB of Parang                      10.   RB of Laur                                   No branch     25 Oct 2007
Inc.; (6) Rural Bank of General Aguinaldo; (7)                   11.
                                                                 12.
                                                                       RB of Sta. Barbara (Pangasinan)
                                                                       RB of Malabon
                                                                                                                        7
                                                                                                                    No branch
                                                                                                                                  16 Nov 2007
                                                                                                                                  29 Nov 2007
Rural Bank of San Fernando; (8) Maranao                          13.   RB of Milagros (Masbate)                     No branch     29 Nov 2007

Rural Bank; (9) Rural Bank of Sebaste; (10) RB                   14.
                                                                 15.
                                                                       RB of Malilipot (Albay)
                                                                       Orani Rural Bank (Bataan)
                                                                                                                    No branch
                                                                                                                        1
                                                                                                                                  06 Dec 2007
                                                                                                                                  06 Dec 2007


Source: Office of Supervisory Policy Development, Supervision and Examination Sector
90   Rural Banks
                                     STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007


                                             of Laur; (11) RB of Sta. Barbara; (12) RB of
                                             Malabon; (13) RB of Milagros; (14) RB of Malilipot;
                                             and (15) Orani Rural Bank.

                                                   In addition, the Rural Bank of Bacolod City,
                                             Rural Bank Pavia and Banco Maximo each closed a
                                             branch during the year as part of their cost-cutting
                                             measure.

                                                    Majority of rural bank offices were located in
                                             the National Capital Region (NCR) and the adjacent
                                             regions of CALABARZON (Region IV-A) and Central
                                             Luzon (Region III) with 834 offices or 41.5 percent of
                                             the total rural bank offices in the country. The
                                             Northern Luzon area (Region I, Region II and CAR),
                                             which had 372 rural bank offices, took up the second
                                             biggest share at 18.5 percent. While 305 rural banks
                                             were found in the Visayas region, comprising 15.2
              The industry is                percent of the total rural banks nationwide. The
           slowly catching up                remaining 500 offices were located in and around
               in delivering                 the areas of Bicol, MIMAROPA and Mindanao.
           enhanced banking                  (Table 46)
            services through
            the installation of                      The industry is slowly catching up in
             automated teller                delivering enhanced banking services through the
            machines (ATMs)                  installation of automated teller machines (ATMs) and
            and the adoption                 the adoption of technological innovations.
             of technological
                innovations                         The number of rural banks providing ATM
                                             services increased to eight (from seven last year).
                                             Likewise, the total number of ATMs further expanded
                                             to 83 units (71 on-site and 12 off-site) at
                                             end-December 2007 from 73 units (61 on-site and
                                             12 off-site) at end-December 2006.

                                                     On a regional basis, most of the ATMs were
                                             installed in Mindanao with 69 units (or 83.1 percent
                                             of the total). Next were the ATMs installed in Luzon
                                             with 11 units (or 13.3 percent) and ATMs in the NCR
                                             with three units (or 3.6 percent). Meantime, there
                                             was no rural bank with an ATM facility in the Visayas
                                             region.

                                                     Finally, a total of 46 rural banks started
                                             offering electronic banking services such as cash
                                             card and mobile banking. In the Philippines where
                                             mobile phone usage is one of the highest in the
                                             world relative to population, rural banks are
                                             maximizing usage of mobile phone for electronic
                                             wallet transactions.


                                  Source: Office of Supervisory Policy Development, Supervision and Examination Sector
                                                                                                   Rural Banks   91
       STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007



RESULTS OF OPERATIONS
       The rural banking industry sustained
profitable banking operations in year 2007.
NIAT rose by 19.8 percent to P2.8 billion from                                     The rural banking
P2.3 billion in 2006. Although slower compared                                    industry sustained
to the 57.5 percent expansion in 2006, this                                       profitable banking
year’s growth marked the second consecutive                                        operations in year
year of positive development compared with                                               2007
the slowdown in 2005. The measured rise in
operating expenses of 14.7 percent as well as
the substantial increment in provision for
income taxes of 45.9 percent was favorably
tempered by the 18.3 percent growth in total
operating income.

        A breakdown of total operating income
showed that net interest income consistently
held the biggest portion at 73.8 percent, up
from 70.6 percent in 2006. Net interest income
grew by 23.7 percent to P10.6 billion from P8.5
billion. Consequently, net interest margin rose
to 11.5 percent from 10.8 percent.

       Non-interest income factored in 26.2
percent (down from 29.4 percent) of total
operating    income.    Non-interest income
expanded only by 5.4 percent to P3.8 billion,
slower than the 20.5 percent to P3.6 billion
posted in 2006. This primarily came from
fee-based income derived mainly from service
charges/fees and bank commissions.

       Total operating expenses grew by 14.7
percent to P11.2 billion from P9.8 billion in
2006. Overhead costs accounted for 93.7
percent (down from 95.9 percent in 2006) of
total operating expenses while the balance of
6.3 percent (up from 4.1 percent) was held by
provision/write-off of bad assets.

        Classified by region, the most profitable
rural banks were situated in NCR with a NIAT
of P724 million, followed by banks in
CALABARZON (Region IV-A) with P478
million, Central Luzon (Region III) with P330
million, Southern Mindanao (Region XI) with
P251 million, and Central Visayas (Region VII)
with P204 million. In contrast, rural banks in the
ARMM posted the lowest NIAT of less than half
a million pesos.


Source: Office of Supervisory Policy Development, Supervision and Examination Sector
92         Rural Banks
                                                                               STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007


                                                                                                       In terms of the three major geographic
                                                                                                 regions, rural banks located in Luzon were the
                                                                                                 most profitable with a NIAT of P1.9 billion (68.6
                                                                                                 percent of the total industry NIAT) while rural
                                                                                                 banks in the Visayas posted the least NIAT of
                                                                                                 P0.3 billion (10.8 percent). Rural banks in
                                                                                                 Mindanao earned a moderate P0.6 billion (20.6
                                                                                                 percent).

  Rural Banking System: Selected Ratios vs. 91-day Treasury Bill Rate                                   Improving fiscal position reduced the
  (In Percent)
   25.0
                                                                                                 country’s cost of borrowing. The benchmark
   20.0
                                                                                                 91-day T-bill rate continued to decline at a low of
            19.2 20.3 19.5 19.0 19.3 18.2                                               18.7     3.4 percent from a high of 15.3 percent in 1998.
   15.0     13.1 15.3                     17.6 18.0 17.8 18.3
                      10.2 9.9
                                9.9
   10.0                              7.2       6.4 6.4 6.4
            9.8 11.0 10.0 8.7             6.1                                           6.1
     5.0
                                8.4                  6.4                                                 The average funding cost tracked down the
                                     5.4 6.0 6.4         5.4
     0.0
                                                                                        3.4      benchmark 91-day T-bill rate from 1997 to 2001
            1997    1998   1999    2000     2001   2002   2003   2004   2005    2006   2007
                                                                                                 and again in 2004. However, in 2002 and 2003, a
             Earning Asset Yield           Funding Cost          Treasury Bill Rate (91-day)
                                                                                                 sudden shift transpired where funding cost
                                                                                                 outpaced the T-bill rate by 180 basis points and
                                                                                                 10 basis points, respectively. After leveling off in
                                                                                                 2005 and 2006 at 6.4 percent, funds generated by
                                                                                                 rural banks were at a premium over the 91-day
                                                                                                 T-bill rate by 105 basis points in 2006 and by 272
                                                                                                 basis points in 2007.         This benefitted the
                                                                                                 depositors and creditors of the industry.

                                                                                                         From its peak of 20.3 percent in 1998,
                                                                                                 earning asset yield hovered from a low 17.6
                                                                                                 percent in 2003 to 18.3 percent in 2006, to settle
                                                                                                 at 18.7 percent in 2007. The spread between the
                                                                                                 industry’s earning asset yield ratio and the 91-day
                                                                                                 T-bill rate grew from 505 basis points in 1998 to
                                                                                                 as high as 1,290 basis points in 2006. The
                                                                                                 spread reached an all-time high of 1,527 in 2007,
                                                                                                 indicative of the high cost of borrowing funds from
                                                                                                 rural banks, which are mostly located in the
                                                                                                 countryside.

                                                                                                        With better loan and asset quality ratio,
                                                                                                 interest spread (earning asset yield less funding
                                                                                                 cost) widened to 12.6 percent in 2007 from 11.8
Rural Banking System: Cost-to-Income Ratio                                                       percent in 2006.
(In P Billions)                                                                   (In Percent)
  16.0                                                                                 100.0
  14.0
                                                                                                        The industry sustained improvement of its
  12.0
                                                                                       90.0
                                                                                                 operating efficiency as cost-to-income ratio
  10.0                                                                                 80.0      declined anew to 73.6 percent from 77.4 percent
   8.0
   6.0                                                                                 70.0      in 2006. This marked the industry’s second
   4.0
                                                                                       60.0
                                                                                                 consecutive year of improvement following the
   2.0                                                                                           uptrend in 2005 to 82.2 percent and even
   0.0                                                                                 50.0
           1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007                                outperformed that in 1997 when the CTI ratio was
                   Operating              Operating Expense                 Cost to              at a low of 74.5 percent.
                   Income                 (net of bad debt/prov)            Income



                                                                         Source: Office of Supervisory Policy Development, Supervision and Examination Sector
                                                                                                                Rural Banks   93
       STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007



        By regional subgroup, rural banks in
four regions posted CTI ratios better than the
industry average. These were: NCR at 52.9
percent, Southern Mindanao (Region XI) at
59.7 percent, MIMAROPA (Region IV-B) at
68.0 percent, and Northern Mindanao (Region
X) at 72.6 percent. On the other hand, rural
banks in the following regions were least
efficient: ARMM at 96.3 percent, Ilocos
(Region I) at 89.9 percent, Western Visayas
(Region VI) at 87.2 percent, Central Mindanao
(Region XII) at 84.8 percent, and CARAGA
(Region XVI) at 84.0 percent. Notably, the
industry’s cost efficiency ratio was adversely
affected by the least efficient regions, which
happened to be the regions with the biggest
market share. (Table 51)

       Inclusive of bad debts and provisions,
cost-to-income ratio, likewise, got better to
78.1 percent from 80.6 percent in 2006 and
86.6 percent in 2005.

      Key profitability indicators remained at
comfortable levels. ROA was unchanged from Rural Banking System
                                               Comparative Return on Assets (ROA)
last year’s 2.0 percent ratio while ROE
                                                (In Percent)
improved to 14.2 percent from 13.6 percent.       5.0
                                                                 4.5
                                                                 4.0
      Rural banks located in the following 5                     3.5
regions had the best ROA: MIMAROPA                               3.0
                                                                 2.5
(Region IV-B) at 3.2 percent; Southern                           2.0
Mindanao (Region XI) at 3.1 percent; NCR at                      1.5
                                                                 1.0
3.0 percent; Northern Mindanao (Region X) at                     0.5
2.6 percent; and CARAGA (Region XVI) at 2.2                      0.0

percent. Meanwhile, the rural banks in ARMM                             1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
                                                                          Industry     Luzon       Visayas      Mindanao
posted the lowest ROA at 0.2 percent.

       Meanwhile, rural banks in the NCR had
the greatest ROE at 24.3 percent. This was
followed by profitable rural banks in Southern Rural Banking System
Mindanao (Region XI) at 20.1 percent, Comparative Return on Equity (ROE)
Northern Mindanao (Region X) at 16.6 (In Percent)
                                                20.0
percent, CARAGA (Region XVI) at 15.7 18.0
percent and Central Visayas (Region VII) at 16.014.0
15.5 percent.                                   12.0
                                                10.0
                                                                  8.0
                                                                  6.0
        The ROA and ROE of rural banks in                         4.0
                                                                  2.0
Mindanao were consistently better than those                      0.0
in Luzon and Visayas. Profitability indicators                           1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

for this region were notably above the industry                         Industry      Luzon       Visayas      Mindanao




Source: Office of Supervisory Policy Development, Supervision and Examination Sector
94        Rural Banks
                                                                                     STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007


                                                                                                         average at 2.5 percent and 16.1 percent,
                                                                                                         respectively. While ROA and ROE ratios of rural
                                                                                                         banks in Luzon rose to 2.0 percent and 13.9
                                                                                                         percent, respectively. Finally, rural banks in
                                                                                                         Visayas posted the lowest profitability ratios with
                                                                                                         ROA and ROE declining to 1.7 percent and 13.0
                                                                                                         percent, respectively.


                                                                                                         MAJOR BALANCE SHEET TRENDS

                                                                                                         ASSETS
                                                                                                                 Total assets rose anew by 17.7 percent or
                                                                                                         P22.4 billion (up from 16.0 percent or P17.5
                                                                                                         billion in 2006), the industry’s strongest growth in
                                                                                                         10 years1. This raised total assets to P149.0
                                                                                                         billion at end-December 2007 from P126.6 billion
                                                                                                         at end-December 2006.

                                                                                                                 The assets of rural banks in all regions
                                                                                                         expanded, except those in ARMM which declined
                                 The assets of rural                                                     by 73.8 percent or P0.1 billion on account of the
                                     banks in all                                                        closure of Maranao Rural Bank and Rural Bank of
                                 regions expanded,                                                       Parang, Inc. (New Settlers Bank). The assets of
                                   except those in                                                       rural banks in NCR had the largest increment of
                                       ARMM                                                              P4.9 billion or 22.4 percent, closely followed by
                                                                                                         those in CALABARZON (Region IV-A) with P4.7
                                                                                                         billion or 17.1 percent. While total assets of rural
                                                                                                         banks located in Central Visayas (Region VII),
                                                                                                         Southern Mindanao (Region XI), Northern
                                                                                                         Mindanao (Region X),           Bicol (Region V),
                                                                                                         CARAGA (Region XVI) and Cagayan (Region II)
                                                                                                         rose by more than P1 billion each. These eight
                                                                                                         regions contributed P19.0 billion or 84.7 percent
                                                                                                         of the industry’s asset growth.

                                                                                                                 Meanwhile, the total assets of the five
                                                                                                         microfinance-oriented rural banks grew by 58.8
                                                                                                         percent or P0.3 billion to P0.9 billion from P0.6
 Rural Banking System: Asset Mix                                                                         billion at end-December 2006.
                                          Loans (net)        Cash and Due                  Loans (net)
                                                                                             60.0%
       Cash & Due
       from Banks
          18.2%
                                            58.2%             from Banks
                                                                 18.4%                                          Lending activities of the rural banking
  ROPA (net)                                            ROPA(net)
                                                                                                         industry remained strong as loans, net further
                                                          7.6%
    8.4%

     Other Assets                                       Other Assets
                                                                                                         expanded their share of total assets to 60.0
                                                           9.0%
        10.1%
        Investments (Net)
                                                          Investments (Net)
                                                                5.0%
                                                                                                         percent (or P89.4 billion) from last year’s 58.2
              5.1%
                             P126.6 Billion                                   P149.0 Billion             percent (or P73.7 billion).      Balance sheet
                            December 2006                                     December 2007
                                                                                                         structure barely changed as the rest of the asset

                                                                                                         1
                                                                                                             Growth rate of total assets in 1997 pre-crisis was at 18.9
                                                                                                             percent.
                                                                               Source: Office of Supervisory Policy Development, Supervision and Examination Sector
                                                                                                                                                 Rural Banks                     95
       STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007



accounts held minor portions. Cash and due                        Rural Banking System: Balance Sheet Structure
from banks held 18.4 percent or P27.4 billion
                                                                                                                                 End-December
(up from last year’s 18.2 percent or P23.1                                   Major Accounts
                                                                                                                       2003   2004        2005           2006         2007p/
billion). The rest of the asset accounts were                      Total Assets                                     100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
distributed as follows: other assets at 9.0                         Cash and Due from Banks
                                                                    Loans, net
                                                                                                                     20.2 % 18.5 % 17.7 % 18.2 % 18.4 %
                                                                                                                     58.7 % 59.4 % 59.5 % 58.2 % 60.0 %
percent or P13.5 billion (from 10.1 percent or                      Investments, net                                  5.2 %   6.0 %   5.7 %   5.1 %   5.0 %
                                                                    ROPA, net                                         8.3 %   8.2 %   7.4 %   8.4 %   7.6 %
P12.      7 billion), real and other properties                     Other Assets                                      7.6 %   7.9 %   9.7 % 10.1 %    9.0 %

acquired (ROPA), net at 7.6 percent or P11.3                       Total Liabilities and Capital
                                                                    Deposits
                                                                                                                    100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
                                                                                                                     70.1 % 70.9 % 70.3 % 70.3 % 72.3 %
billion (from 8.4 percent or P10.6 billion) and                     Bills Payable                                     8.2 %   7.8 %   7.9 %   7.4 %   7.2 %
                                                                    Special Financing                                 0.2 %   0.2 %   0.1 %   0.1 %   0.1 %
investments, net at 5.0 percent or P7.4 billion                     Other Liabilities                                 5.5 %   5.4 %   7.1 %   7.6 %   6.4 %
                                                                    Capital Accounts                                 16.0 % 15.7 % 14.6 % 14.6 % 14.0 %
(from 5.1 percent or P6.5 billion).
                                                                   p/   Preliminary



        Meanwhile, the industry’s resources were
principally funded by inflows of deposits,
borrowings and capital. Deposits consistently
held the bulk of funding source, rising to 72.3
percent or P107.7 billion from 70.3 percent or
P89.0 billion at end-December 2006. Trailing                      Rural Banking System: Funding Mix

behind were: capital accounts at 14.0 percent or                                               Deposits
                                                                                                70.3%
                                                                                                                                                           Deposits
                                                                                                                                                            72.3%


P20.9 billion (from 14.6 percent or P18.4 billion),                                                       Capital Accounts
                                                                                                                                                                 Capital Accounts
                                                                                                                                                                      14.0%
                                                                                                               14.6%
bills payable at 7.2 percent or P10.7 billion (from                                                                                                              Bills Payable
                                                                                                       Bills Payable
7.4 percent or P9.4 billion), other liabilities at 6.4                                                      7.4%

                                                                                                Other Liabilities
                                                                                                                                                                      7.2%

                                                                                                                                                            Other Liabilities

percent or P9.6 billion (from 7.6 percent or P9.7                          Special Financing
                                                                                 0.1%
                                                                                                    7.6%                             Special Financing
                                                                                                                                          0.1%
                                                                                                                                                                6.4%



billion) and special financing at 0.1 percent or                                        P126.6 Billion                                             P149.0 Billion
                                                                                      December 2006                                              December 2007
P0.1 billion (unchanged from last year).



LOANS

       The industry was able to sustain brisk
lending activities during the year. Loans, gross
expanded by 21.0 percent or P16.2 billion to                                                       The industry was
reach P93.3 billion as of end-December 2007                                                         able to sustain
from P77.1 billion as of end-December 2006.                                                          brisk lending
                                                                                                   activities during
        Except for the ARMM where rural bank                                                            the year
lending declined by 81.5 percent or P0.1 billion
on account of the closure of two banks, rural
banks in all regions posted loan growths.
Consistently, the rural banks in NCR chalked up
the largest year-on-year increment of P3.4
billion or 28.4 percent. Moreover, rural banks in
five other regions reported aggregate
increments of more than P1.0 billion per region,
namely: CALABARZON (Region IV-A) with P2.6
billion or 17.5 percent, Central Visayas (Region
VII) with P2.0 billion or 35.8 percent, Southern
Mindanao (Region XI) with P1.5 billion or 31.7
percent, Central Luzon (Region III) with P1.3
billion or 12.7 percent, and Bicol (Region V) with
P1.1 billion or 24.2 percent. Meantime, the

Source: Office of Supervisory Policy Development, Supervision and Examination Sector
96        Rural Banks
                                                                                STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007


                                                                                               regions where the aggregate additional lendings of
                                                                                               rural banks amounted to more than P100 million,
                                                                                               but less than P1 billion, included: CARAGA
                                                                                               (Region XVI) with P982 million or 31.7 percent,
                                                                                               Northern Mindanao (Region X) with P896 million or
                                                                                               27.9 percent, Cagayan (Region II) with P813
                                                                                               million or 21.4 percent, Ilocos (Region I) with P390
                                                                                               million or 6.9 percent, Central Mindanao (Region
                                                                                               XII) with P306 million or 18.3 percent, Western
                                                                                               Mindanao (Region IX) with P258 million or 19.8
                                                                                               percent,Cordillera Autonomous Region with P237
                                                                                               million or 20.4 percent, Western Visayas (Region
                                                                                               VI) with P216 million or 6.5 percent, Eastern
                                                                                               Visayas (Region VIII) with P201 million or 18.3
                                                                                               percent and MIMAROPA (Region IV-B) with P162
                                                                                               million or 14.6 percent.

                                                                                                      The rural banking industry continued to
                               The rural banking                                               support the growing needs of the microenterprise
                              industry continued                                               sector through sustainable microfinance activities.
                                 to support the                                                As    of    e n d - De ce mb e r 2007,   the     5
                               growing needs of                                                microfinance-oriented rural banks, together with
                              the microenterprise                                              the 210 rural banks engaged in microfinance,
                                sector through                                                 provided about P5.0 billion worth of microfinance
                                  sustainable                                                  loans to 594,268 microborrowers.
                                  microfinance
                                    activities                                                         According to the Department of Agriculture,
                                                                                               the agriculture sector grew by 4.7 percent in 2007.
                                                                                               At current prices, the gross value of agricultural
                                                                                               production expanded by 9.4 percent to P971.8
                                                                                               billion from P888.6 billion in 2006. The rural
                                                                                               banking industry, one of the major industry players
                                                                                               in raising agricultural output, posted a 20.7 percent
                                                                                               or P5.9 billion increase in agricultural loans to
                                                                                               P34.3 billion from P28.4 billion last year. As usual,
                                                                                               the agricultural sector led the recipients of rural
                                                                                               bank lendings at 36.8 percent share (slightly down
 Rural Banking System
 Loan Portfolio Structure                                                                      from 37.1 percent in 2006).
 By Industry Sector
              December 2006                                    December 2007
                       3.9% 2.4%
                                2.9%
                                       3.3%
                                                                   3.9% 2.1%
                                                                               2.6%
                                                                                  3.3%
                                                                                                      Meantime, year-on-year increments in
                                         3.5%
 37.1%                                      3.8%
                                                     36.8%
                                                                                      2.7%
                                                                                       3.1%
                                                                                        8.9%
                                                                                               lending of more than P1 billion went to each of the
                                            9.4%
                                                                                               following industry sectors: (a) Wholesale & Retail
                                        11.9%
                                                                                     11.9%
                                                                                               Trade, Repair of Motor Vehicles – P6.3 billion or
                   21.8%

                   P76.6 Billion
                                                                24.7%

                                                                   P93.3 Billion
                                                                                               38.0 percent; (b) Real Estate, Construction,
                                                                   2006          2007
                                                                                               Renting & Business Activities – P2.0 billion or 21.9
         Agriculture, Hunting & Forestry                          37.1%         36.8%
                                                                                               percent and (c) Other Community, Social &
         Wholesale, Retail Trade & Repair                         21.8%         24.7%
                                                                                               Personal Services Activities – P1.1 billion or 15.5
         Real Estate, Construction, Renting & Bus.Activities      11.9%         11.9%
         Other Community, Social and Personal Activities            9.4%         8.9%          percent.
         Private Households w/ Employed Persons                    3.8%          3.1%
         Fishery                                                   3.5%          2.7%
         Education
         Transportation, Storage & Communication
                                                                   3.3%
                                                                    2.9%
                                                                                 3.3%
                                                                                 2.6%
                                                                                                     Based on preliminary data as of
         Manufacturing                                              2.4%
                                                                    3.9%
                                                                                  2.1%
                                                                                  3.9%
                                                                                               end-September 2007, the exposure of the rural
         Others
                                                                                               banking industry to small enterprises amounted to
                                                                        Source: Office of Supervisory Policy Development, Supervision and Examination Sector
                                                                                                             Rural Banks      97
       STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007




P29.3 billion (or 52.4 percent of total loan
portfolio). For medium enterprises, the
exposure amounted to P6.6 billion and
accounted for 11.9 percent of total loans.

       Likewise, preliminary data as of
end-September 2007 indicated that the industry
surpassed the minimum 10 percent mandatory
credit allocation for agrarian reform credit at
15.6 percent. The industry also exceeded the
overall prescribed 25 percent agri-agra credit,
posting a compliance ratio of 39.9 percent or
P35.3 billion worth of allocated funds.

        The industry’s NPL level at Rural Banking System
end-December 2007 settled at P9.5 billion NPLs and NPL Coverage Ratio
following a gradual uptrend from P6.2 billion in In P Billion
                                                    12.0
                                                                                                                 In Percent
                                                                                                                       50.0
2003 and P8.5 billion in 2006. Likewise, the 10.0                                                                      40.0
NPA level reflected a similar trend as it rose       8.0
                                                                                                                       30.0
anew to P17.4 billion from P13.4 billion in 2003     6.0
                                                                                                                       20.0
and P16.3 billion in 2006. The dry spell that        4.0
                                                                                                                       10.0
afflicted the NCR and majority of the regions in     2.0

Luzon (Region I – Ilocos, Region II – Cagayan,         -
                                                             1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
                                                                                                                       0.0


Region III – Central Luzon) factored in to the                   NPLs                           Loan Loss Reserves
                                                                 NPL Ratio                      NPL Coverage Ratio
uptrend in bad loans of the industry.

       Nevertheless, the industry showed
continuing improvements in overall loan and
asset quality. NPL ratio dropped anew to 10.2
percent from 11.1 percent at end-December
2006 and from its peak of 19.1 percent at
end-year 1999. Likewise, the NPA ratio further
declined to 11.3 percent from 12.5 percent last
year and from a high of 19.3 percent at
end-year 2000. The year-on-year easement
came about as both loans and assets
expanded at a faster pace than the rise in
soured accounts and bad assets.

       On a regional basis, the rural banks
located in ARMM posted the highest NPL ratio
at 19.3 percent, down from last year’s 22.5
percent. Aside from ARMM, rural banks in the
following regions exceeded the industry
average ratio of 10.2 percent: MIMAROPA
(Region IV-B) at 16.8 percent, Western Visayas
(Region VI) at 14.0 percent, CALABARZON
(Region IV-A) at 13.3 percent, Ilocos (Region I)
at 12.9 percent, Cagayan (Region II) at 12.7
percent, Northern Mindanao (Region X) at 12.6
percent, Central Mindanao (Region XII) at 11.9

Source: Office of Supervisory Policy Development, Supervision and Examination Sector
98    Rural Banks
                                                               STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007


                                                                                 percent, Eastern Visayas (Region VIII) at 11.5
                                                                                 percent and Central Luzon (Region III) at 10.9
                                                                                 percent. On the other hand, rural banks in
                                                                                 Southern Mindanao (Region XI) held the best NPL
                                                                                 ratio of 4.3 percent. Meantime, only the rural
                                                                                 banks in Northern Mindanao (Region X) and in
                                                                                 NCR reported increasing NPL ratios of 12.6
                                                                                 percent and 7.5 percent, respectively.

                                                                                        Rural banks in Ilocos (Region I) posted the
                                                                                 highest NPA ratio of 15.1 percent. These were
                                                                                 followed by rural banks in 8 other regions with
                                                                                 above industry average of 11.3 percent, namely:
                                                                                 CALABARZON (Region IV-A) at 15.0 percent,
                                                                                 ARMM at 14.6 percent, Cagayan (Region II) at
                                                                                 13.9 percent, MIMAROPA (Region IV-B) at 13.6
                                                                                 percent, Central Luzon (Region III) at 13.5
                                                                                 percent, Northern Mindanao (Region X) at 12.2
                                                                                 percent, Western Visayas (Region VI) at 11.7
                                                                                 percent and Bicol (Region V) at 11.5 percent. In
                                                                                 contrast, rural banks in Southern Mindanao
                                                                                 (Region XI) held the best NPA ratio of 4.1 percent.
                                                                                 Worth mentioning is the year-on-year easement of
                                                                                 rural banks’ NPA ratios in all regions.

                                                                                        The industry made efforts to reduce the
                     The industry made                                           high level of NPLs thru restructuring and
                      efforts to reduce                                          foreclosure proceedings. Both restructured loans,
                      the high level of                                          gross and ROPA, gross posted year-on-year
                          NPLs thru                                              increments of 25.6 percent and 7.0 percent,
                     restructuring and                                           respectively. Restructured loans, gross rose to
                         foreclosure                                             P0.9 billion from P0.7 billion. While ROPA, gross
                        proceedings                                              reached P11.7 billion from P10.9 billion.

                                                                                        Moreover, the industry raised loss
                                                                                 provisioning that widened both the NPL and NPA
                                                                                 coverage ratios to 38.0 percent (from last year’s
                                                                                 34.4 percent) and 22.9 percent (from 19.9
                                                                                 percent).

                                                                                         Finally, mimicking the improvement of the
     Rural Banking System                                                        industry’s NPL and NPA ratios, the distressed
     Distressed Assets Ratio                                                     assets ratio, considered as a broader measure of
      In P Billion
       20.0
                                                                    In Percent
                                                                         35.0    asset quality, eased to 20.9 percent after peaking
       15.0
                                                                         30.0    at 29.7 percent at end-year 2000. The favorable
                                                                         25.0    development in 2007 was a reversal of the slight
       10.0
                                                                         20.0    uptrend to 22.7 percent in 2006. Rural banks in
         5.0
                                                                         15.0    NCR reported the highest distressed assets ratio
         0.0
                1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
                                                                         10.0    at 27.2 percent, while rural banks situated in
                                                                                 Southern Mindanao (Region XI) reported the best
                NPAs      Restructured Loans (Performing)   Distressed Ratio
                                                                                 ratio at 8.9 percent.

                                                            Source: Office of Supervisory Policy Development, Supervision and Examination Sector
                                                                                                           Rural Banks   99
       STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007




DEPOSIT LIABILITIES
       Deposit liabilities consistently funded
the bulk of the rural banking industry’s
resources at 72.3 percent as of end-December
2007 from last year’s 70.3 percent. Aggressive
marketing efforts, increased public confidence
in banks, and dynamic geographical outreach
have contributed to the substantial 21.0
percent (or P18.7 billion) year-on-year growth
in deposit liabilities to P107.7 billion from
P89.0 billion. All deposit instruments sustained
the uptrend, led by time deposits which rose
by P9.8 billion or 36.9 percent. Savings and
demand/NOW deposits grew by P8.5 billion or
14.1 percent and P0.4 billion or 19.4 percent,
respectively.

         Demand/NOW and savings accounts Rural Banking System: Deposit Mix
made up the largest portion of deposit
liabilities at 66.2 percent (down from last             PESO DEPOSITS
year’s 70.2 percent).       Meanwhile, time
deposits increased their share to 33.8 percent December 2006       December 2007
(from 29.8 percent).                                      29.8%                 33.8%


         Rural banks in CALABARZON (Region
IV-A), the industrial hub south of Manila,
mustered P25.2 billion in deposit liabilities.
These accounted for 23.4 percent of the                           70.2%                     66.2%

industry’s total deposit liabilities and led all the                      P89.0 Billion             P107.7 Billion
other regions. Next were the rural banks in
NCR with 17.6 percent share (or P19.0 billion),                           Demand/NOW & Savings
                                                                               Deposits
                                                                                                    Time Deposits

followed by those in Central Luzon (Region III)
with 11.8 percent (or P12.7 billion), Central
Visayas (Region VII) with 8.5 percent (or P9.1
billion) and Ilocos (Region I) with 6.2 percent
(or P6.7 billion). These five regions accounted
for a combined 67.5 percent share (or P72.7
billion) of the total deposit liabilities of the
industry. At the tail-end were the rural banks
in the ARMM with only P35 million in deposit
liabilities.


CAPITALIZATION

        As of end-December 2007, total capital
accounts of the industry sustained double-digit
growth of 13.4 percent or P2.5 billion to P20.9
billion from last year’s P18.4 billion. This
came from increases in both paid-in capital

Source: Office of Supervisory Policy Development, Supervision and Examination Sector
100      Rural Banks
                                                                STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007



                                                                                     and surplus, surplus reserves and undivided
                                                                                     profits of P1.5 billion or 11.5 percent and P0.9
                                                                                     billion or 18.6 percent, respectively.

                                                                                            With the growth in total assets outpacing
                                                                                     the expansion in total capital accounts, the ratio of
                                                                                     total capital accounts to total assets settled to
                                                                                     14.0 percent from 14.6 percent last year. The
                                                                                     ratio has been on a downtrend after peaking at
                                                                                     17.0 percent in 2000.
 Rural Banking System
 Comparative CAR Under Circular No. 280
                                                                                            Rural banks situated in CALABARZON
                                                         Solo                        consistently held the biggest share of the
                                             End-December           End-Sept
                                                                      2007
                                                                                     industry’s total capital accounts at P4.4 billion or
                                         2004     2005      2006
  (In P Billion)
                                                                                     20.9 percent. Trailing behind were the rural banks
  Tier 1                                 11.7     14.6      15.0        19.0         in NCR (P3.5 billion or 17.0 percent), Central
  Tier 2                                 1.0       1.1      1.4         1.5
  Deductions                              ...      ...       ...         ...
                                                                                     Luzon – Region III (P2.9 billion or 14.0 percent),
  Qualifying Capital                     12.6     15.7      16.4        20.5         Southern Mindanao – Region XI and Central
  Risk Weighted Assets (RWA) -
  net                                    75.3     98.4      109.1       130.3        Visayas – Region VII (even at P1.4 billion or 6.5
  (In Percent)                                                                       percent), and Ilocos – Region I (P1.2 billion or 5.7
  Capital Adequacy Ratio (CAR)           16.7     16.0      15.0        15.7
                                                                                     percent). Rural banks situated in the other 11
  . . . Less than P50 million
                                                                                     regions held the balance of P6.2 billion or 29.6
                                                                                     percent, P7 million of which came from rural
                                                                                     banks in ARMM, the region with the least
  Rural Banking System                                                               capitalized rural banks in the country.
  Status of Banks' Compliance with the Minimum Amount of Capital
  As of End-December 2007
                                                                                            Capital adequacy ratio (CAR) of the
   A. Number of Operating Banks                                            682       industry picked up to a comfortable level of 15.7
       Rural Banks                                                                   percent as of end-September 2007, well above
        - Within Metro Manila                                                8
        - With Nationwide Branching                                         11       the minimum 10 percent requirement.
        - Within the cities of Davao & Cebu
        - 1st to 3rd cities and 1st class municipalities
                                                                             3
                                                                           273
                                                                                     Nevertheless, there remained 118 banks with
        - 4th to 6th class cities and 2nd to 4th class municipalities      339       CAR below the prescribed floor of 10 percent.
        - 5th to 6th class municipalities                                   48


   B. Banks with Capital (K) Equal to or in Excess of
                                                                                             Of the 682 rural banks in the country, a
                                                                           565
        the Minimum Required                                                         total of 565 banks (or 82.8 percent) complied with
       Rural Banks                                                                   the required minimum amount of capital. This was
        - Within Metro Manila (K ≥ P26.0M)                                   7
        - With Nationwide Branching (K ≥ P20.0M)                             9
                                                                                     an improvement from end-December 2006’s
        - Within the cities of Davao & Cebu (K ≥ P13.0M)                     3       compliance rate of 80.4 percent (comprising of
        - 1st to 3rd cities and 1st class municipalities (K ≥ P6.5M)       239
        - 4th to 6th class cities and 2nd to 4th class municipalities      269       559 rural banks out of 695) on account of closure
          (K ≥ P3.9M)
        - 5th to 6th class municipalities (K ≥ P2.6M)                           38
                                                                                     of insolvent banks, mergers or capital infusion in
                                                                                     non-compliant banks.




                                                           Source: Office of Supervisory Policy Development, Supervision and Examination Sector
                                                                                                 Cooperative Banks   101
       STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007




                          COOPERATIVE BANKING INDUSTRY

OVERVIEW
       The cooperative banking industry
posted strong growths in assets, loans,                                         The cooperative
deposit liabilities and capital accounts. The                                   banking industry
industry remained profitable combined with                                       posted strong
maintenance of adequate liquidity and                                          growths in assets,
solvency ratios. However, loan and asset                                         loans, deposit
quality continued to be a concern.                                           liabilities and capital
                                                                                    accounts
        Net income after tax (NIAT) for 2007
stood at P238 million, up by 20.1 percent from
P198 million in 2006. Buoyed by gains in
both net interest and non-interest income,
operating income widened by 14.7 percent.
This growth rate is better than the 13.4
percent increase in operating expenses.
There was slight improvement in operating
efficiency with cost-to-income (CTI) ratio down
to 76.1 percent from 76.3 percent last year.
Meanwhile, return on assets (ROA) stabilized
at 2.4 percent while return on equity (ROE)
got better to 16.5 percent from 15.4 percent.

        Total assets stepped up to P10.7 Cooperative Banking System
billion, a 20.7 percent growth rate from last Market Structure of Assets
year’s P8.9 billion. The expansion primarily
                                               2007
came from Luzon- and Mindanao-based            2006
cooperative banks.      For nine consecutive   2005

years, cooperative banks in Luzon accounted    2004

for the biggest share of the industry’s total  2003
                                               2002
assets at 72.1 percent (up from last year’s    2001
66.5 percent). From 1997 to 1998,              2000

cooperative banks situated in Mindanao held    1999

most of the industry’s assets. In 1999, this   1998
                                               1997
changed when the cooperative banks located
                                                    0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
in Luzon took the lead.
                                                                     Luzon             Visayas           Mindanao

      Loans, gross rose by a hefty 22.0
percent to P7.5 billion from P6.2 billion last
year. However, this was saddled by the 36.6
percent and 28.1 percent surge in
non-performing       loans     (NPLs)     and
non-performing assets (NPAs) to P1.0 billion
and P1.4 billion, respectively. Consequently,
NPL and NPA ratios rose to 13.3 percent and
12.8 percent, respectively, from last year’s
11.9 percent and 12.0 percent.


Source: Office of Supervisory Policy Development, Supervision and Examination Sector
102        Cooperative Banks

                                                                              STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007



                                                                                                                 All funding sources supported the
                                                                                                        uptrend in resources. Consistently, bulk of
                                                                                                        funding came from deposit liabilities at 61.0
                                                                                                        percent (up from 60.0 percent last year).
                                                                                                        Deposit liabilities at end-year 2007 reached
                                                                                                        P6.5 billion, a robust increment of 22.8 percent
                                                                                                        from last year’s P5.3 billion. Meantime, the
                                                                                                        liquid assets to deposits ratio slipped to 35.1
                                                                                                        percent from 35.6 percent last year. Likewise,
                                                                                                        cash and due from banks to deposits ratio
                                                                                                        declined to 30.6 percent from 31.3 percent. In
                                                                                                        spite of lower ratios, the industry still kept
                                                                                                        adequate liquid assets to cover for deposit
                                                                                                        liabilities.

                                                                                                               Meanwhile, total capital accounts
                                                                                                        expanded by 14.2 percent to P1.5 billion from
                                                                                                        P1.3 billion. However, as the expansion in total
                                                                                                        assets continued to outpace growth in total
                                                                                                        capital accounts since 2005, the ratio of total
                                                                                                        capital accounts to total assets sustained
                                                                                                        gradual downtrend to 14.4 percent from 15.2
                                                                                                        percent in 2006 and 16.3 percent in 2005.
                                                                                                        Nonetheless, the capital adequacy ratio of the
                                                                                                        industry stood at 14.0 percent as of
                                                                                                        end-September 2007. This is favorably above
 Top Five Regions of Cooperative Banks
 Based on Consolidated Statement of Condition: As of End-December 2007 p/
                                                                                                        the regulatory floor of 10 percent.
 (Amounts in P Billion)


                         Assets                                            Loans
                                                                                                                 On a geographical basis, Central Luzon
 Rank                    Region                 Amount   Rank              Region              Amount
    1     Central Luzon (Region III)             3.3      1     Central Luzon (Region III)       2.4    (Region III) easily led in terms of having the
    2     Cagayan Valley (Region II)             1.1      2     Cagayan Valley (Region II)       0.7
    3
    4
          Northern Mindanao (Region X)
          National Capital Region
                                                 1.0
                                                 0.9
                                                          3
                                                          4
                                                                Northern Mindanao (Region X)
                                                                CALABARZON (Region IV-A)
                                                                                                 0.7
                                                                                                 0.6
                                                                                                        biggest share in assets, loan portfolio, deposit
    5     CALABARZON (Region IV-A)
                      Total
                                                 0.9
                                                 7.2
                                                          5     Central Visayas (Region VII)
                                                                           Total
                                                                                                 0.4
                                                                                                 4.8
                                                                                                        liabilities and capital accounts as a greater
                         % Share                67.3                    % Share                 64.0
                                                                                                        number of cooperative banks are located in
 Rank
                         Deposits
                         Region                 Amount   Rank
                                                                    Capital Accounts
                                                                           Region              Amount
                                                                                                        this region. The top 5 banks held the lion’s
    1
    2
          Central Luzon (Region III)
          National Capital Region
                                                 1.7
                                                 0.7
                                                          1
                                                          2
                                                                Central Luzon (Region III)
                                                                Cagayan Valley (Region II)
                                                                                                 0.3
                                                                                                 0.2
                                                                                                        share in the industry’s total assets, loan
    3
    4
          Cagayan Valley (Region II)
          CALABARZON (Region IV-A)
                                                 0.6
                                                 0.6
                                                          3
                                                          4
                                                                Northern Mindanao (Region X)
                                                                Central Visayas (Region VII)
                                                                                                 0.2
                                                                                                 0.2    portfolio, deposit liabilities and capital accounts
    5     CAR (Region XIV)                       0.4      5     National Capital Region          0.1
                      Total                      4.0                       Total                 1.0    at 67.3 percent, 64.0 percent, 61.5 percent,
                         % Share                61.5                    % Share                 67.8

        p/ Preliminary
                                                                                                        and 67.8 percent, respectively.


                                                                                                        OPERATING NETWORK
                                   Table 49 .     Rural Banking Offices                                        As of end-December 2007, there were
         Cooperative Banking Offices
                                                                                                        122 cooperative bank offices (45 head offices
         As of End-December 2007
                                                                                                        and 77 branches). A total of 11 new offices (1
                                                                                       Branches/        head office and 10 branches) were established
                                                                        Head
                                                         Total
                                                                       Offices
                                                                                         Other          during the year. The new entrant was Misamis
                                                                                        Offices
                                                                                                        Occidental Coop Bank which opened on 16
            Cooperative Banks                                 122              45               77
                                                                                                        April 2007.



                                                                       Source: Office of Supervisory Policy Development, Supervision and Examination Sector
                                                                                         Cooperative Banks   103
       STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007




         A greater number of cooperative bank
offices were situated in Central Luzon (Region
III) with 28 offices (7 head offices and 21 other
offices).    This was followed by those in
Northern Mindanao (Region X) with 16 offices
(5 head offices and 11 other offices), Cagayan
(Region II) and CALABARZON (Region IV-A)
each with 13 offices (3 head offices and 10
other offices). Moreover, there were 11 offices
(4 head offices and 7 other offices) in Western
Visayas (Region VI). The remaining regions
had less than 10 banking offices each.



RESULTS OF OPERATIONS
      For the year 2007, the industry posted a                                    NIAT showed a
NIAT of P238 million, up by P40 million from                                    substantial year-on-
P198 million in 2006.       NIAT showed a                                        year increment of
substantial year-on-year increment of 20.1                                         20.1 percent
percent compared to a moderate 5.1 percent                                        compared to a
growth in 2006.                                                                 moderate 5.1 percent
                                                                                  growth in 2006
         Both net interest income and
non-interest income contributed to the P0.1
billion increment in operating income to P1.0
billion from P0.9 billion in 2006.

        Net interest income, which increased by
15.9 percent to P566 million from P488 million
in 2006, was boosted by stronger lending
activities. Nonetheless, faltering asset quality
during the year weighed down on the
industry’s net interest margin to 7.9 percent
from 8.1 percent in 2006.

       Meanwhile, non-interest income, which
primarily came from fee-based revenues,
picked up by 13.2 percent to P472 million from
P416 million in 2006.

       The 14.7 percent growth in total
operating income bested the slower 13.4
percent increase in total operating expenses.
The increment in operating expenses was
mainly fueled by the continued uptrend in
overhead costs, still the major component of
operating expenses.



Source: Office of Supervisory Policy Development, Supervision and Examination Sector
104    Cooperative Banks

                                                                             STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007


                                                                                                    Net operating income expanded by 19.9
                                                                                            percent to P214 million from P178 million in 2006.
                                                                                            Meantime, both extraordinary credits and
                                                                                            provisions for income tax continued to be
                                                                                            insignificant in level.

 Cooperative Banking System
                                                                                                    Tracked against the 91-day Treasury bill
 Selected Ratios vs. 91-day Treasury Bill Rate                                              (T-bill rate), the funding cost exhibited fluctuating
  (In Percent)
    20.0
                16.9
                                                                                            trend from years 1997 to 2001. In years 1997,
    18.0               16.4
    16.0                    14.9 15.3                                                       1998 and 2001, funding cost was lower than the
           17.2                       17.1 16.3 16.5 16.0 16.4 16.3
    14.0
               15.3     11.9 10.9
    12.0 13.1                     9.9       8.4 8.7 8.0
                                                                                            91-day T-bill rate. This changed in 1999, 2000
    10.0        11.5                                       7.8 7.6
     8.0 10.2
     6.0
                       10.2 9.9
                                  8.8 9.4                                                   and in 2002 up to 2007, when the cost of funds
                                                 7.3 6.4
     4.0
     2.0
                                       5.4 6.0            5.4
                                                               3.4
                                                                                            had a premium over the 91-day T-bill rate. The
     0.0
         1997   1998   1999    2000    2001   2002   2003     2004    2005    2006   2007
                                                                                            premium widened to 423 basis points in 2007
         Earning Asset Yield          Funding Cost          Treasury Bill Rate (91-day)
                                                                                            from 249 basis points in 2006. This benefits the
                                                                                            depositors of cooperative banks by getting higher
                                                                                            yield than that of the benchmark.

                                                                                                   Meanwhile, the rate differential between
                                                                                            earning asset yield and the 91-day T-bill rate
                                                                                            continued to widen on the back of faster decline
                                                                                            of the latter. The rate differential started with a
                                                                                            low of 165 basis points in 1998 to 1,165 basis
                                                                                            points in 2002, contracting to 917 basis points in
                                                                                            2004, before settling to 1,289 basis points in
                                                                                            2007. The earning asset yield had been hovering
                                                                                            around a high level as the industry continued to
                                                                                            play an important intermediation role in providing
                                                                                            continued credit access to its niche market.

                                                                                                  The industry’s interest spread continued to
                                                                                            broaden for the fourth consecutive year as the
                                                                                            gap between earning asset yield and funding cost
                                                                                            widened. Interest spread settled to 8.7 percent in
                                                                                            2007, from 8.6 percent in 2006, 8.0 percent in
                                                                                            2005 and 7.8 percent in 2004.

                                                                                                   Operational efficiency slightly improved
                                                                                            with a lower CTI ratio in 2007. CTI went down to
                                                                                            76.1 percent from 76.3 percent in 2006. This
                                                                                            transpired as the expansion in operating income
                                                                                            of 14.7 percent slightly outpaced the 14.4 percent
                                                                                            increment in operating expenses (net of bad
                                                                                            debts and provisions).       This is the seventh
                                                                                            consecutive year of improvement in the CTI ratio
                                                                                            from a high of 95.5 percent in year 2000.
                                                                                            Cooperative banks in Luzon and in Mindanao
                                                                                            posted better than industry average CTI ratios at
                                                                                            74.9 percent and 73.8 percent, respectively.
                                                                                            Meanwhile, cooperative banks in Visayas
                                                                                            continued to have above average CTI ratio at
                                                                                            89.2 percent.

                                                                  Source: Office of Supervisory Policy Development, Supervision and Examination Sector
                                                                                                                              Cooperative Banks                      105
       STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007


       The expansion in NIAT was matched                          Cooperative Banking System
almost equally by the increase in total assets.                   Comparative Return on Assets (ROA)
                                                                  (In Percent)
As a result, ROA ratio was unchanged from last                       5.0

year’s 2.4 percent.     On a regional basis,                         4.0
                                                                     3.0
cooperative banks in Mindanao consistently                           2.0

held the best ROA ratio at 3.7 percent.                              1.0
                                                                     0.0
Cooperative banks in Luzon and in Visayas                           -1.0
held lower than industry average ROA ratio at                       -2.0

2.3 percent and 1.0 percent, respectively.                          -3.0
                                                                              1998       1999    2000       2001    2002      2003      2004    2005     2006        2007

                                                                                  Industry              Luzon                  Visayas               Mindanao
       The industry’s ROE ratio further
improved to 16.5 percent from 15.4 percent in                     Cooperative Banking System
2006. Mindanao-based cooperative banks still                      Comparative Return on Equity (ROE)
got the best return with an ROE ratio of 18.2                      (In Percent)
                                                                      30.0
percent. This was followed by cooperative                             20.0
banks in Luzon which posted an ROE ratio of                           10.0

17.3 percent. Finally, cooperative banks in the                         0.0
                                                                     (10.0)
Visayas consistently held the lowest ROE at 7.6                      (20.0)
percent.                                                             (30.0)
                                                                     (40.0)
                                                                                  1998    1999 2000          2001    2002     2003 2004         2005    2006 2007

                                                                                   Industry                 Luzon               Visayas                Mindanao




MAJOR BALANCE SHEET TRENDS

ASSETS
        Cooperative banks posted a 20.7
percent or P1.8 billion growth in total assets to
P10.7 billion from P8.9 billion last year. The
expansion primarily came from cooperative
banks in Luzon with year-on-year increase of
31.0 percent to P7.7 billion and from those in
Mindanao with an 11.6 percent growth to P1.8
billion. On the other hand, the total assets of
cooperative banks in Visayas was reduced by
13.5 percent to P1.2 billion.

       Meanwhile, cooperative banks in Luzon
still held the biggest share of cooperative
banks’ total assets at 72.1 percent, up from
66.5 percent last year. This was followed by
the cooperative banks in Mindanao with a share
of 17.1 percent (down from 18.5 percent at                        Cooperative Banking System: Asset Mix

end-year 2006) and those in Visayas at 10.8                            Cash & Due from
                                                                        Banks 18.8%
                                                                                                             Loans (net)
                                                                                                               65.6%
                                                                                                                                Cash and Due from
                                                                                                                                  Banks 18.7%
                                                                                                                                                                      Loans (net)
                                                                                                                                                                        66.5%

percent (down from 15.1 percent).                                   ROPA (net)                                                ROPA(net)
                                                                      4.3%                                                      4.1%


                                                                   Other Assets                                              Other Assets

      Loans, net and cash and due from banks                          8.6%                                                      7.8%


                                                                                                                            Investments (Net)
were still the major components of total assets.                    Investments (Net)
                                                                          2.7%
                                                                                             P8.9 Billion
                                                                                                                                  2.9%
                                                                                                                                                     P10.7 Billion
The share of loans, net rose to 66.5 percent of                                          December 2006                                              December 2007




Source: Office of Supervisory Policy Development, Supervision and Examination Sector
106      Cooperative Banks

                                                                                            STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007




Cooperative Banking System: Balance Sheet Structure                                                                        total assets (from 65.6 percent last year) on the
                                                                                                                           back of a 22.4 percent expansion to P7.1 billion.
                                                                          End-December
             Major Accounts
                                                       2003        2004        2005              2006        2007
                                                                                                                      p/   Cash and due from banks was slightly pared to
 Total Assets                                     100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
                                                                                                                           18.7 percent (from 18.8 percent) of total assets
  Cash and Due from Banks                          14.8 % 14.6 % 15.3 % 18.8 % 18.7 %                                      as growth rate slowed down to 20.0 percent
  Loans, net                                       69.9 % 70.7 % 68.1 % 65.6 % 66.5 %
  Investments, net                                  3.7 %   3.5 %   3.3 %   2.7 %   2.9 %                                  (from 45.1 percent posted in 2006). The rest of
  ROPA, net                                         4.2 %   4.3 %   4.9 %   4.3 %   4.1 %
  Other Assets                                      7.4 %   6.9 %   8.4 %   8.6 %   7.8 %                                  the asset mix consisted of: other assets at 7.8
 Total Liabilities and Capital                    100.0 % 100.0 % 100.0 % 100.0 % 100.0 %                                  percent or P0.8 billion (from 8.6 percent or P0.4
  Deposits                                         57.9 % 58.1 % 58.3 % 60.0 % 61.0 %
  Bills Payable                                    19.1 % 19.5 % 18.6 % 19.1 % 18.9 %
                                                                                                                           billion), real and other properties acquired
  Special Financing
  Other Liabilities
                                                    0.7 %
                                                    5.4 %
                                                            0.6 %
                                                            4.7 %
                                                                    0.6 %
                                                                    6.2 %
                                                                            0.4 %
                                                                            5.3 %
                                                                                    0.4 %
                                                                                    5.3 %
                                                                                                                           (ROPA) at 4.1 percent or P0.4 billion (from 4.3
  Capital Accounts                                 16.9 % 17.1 % 16.3 % 15.2 % 14.4 %                                      percent), and investments, net at 2.9 percent or
   p/        Preliminary
                                                                                                                           P0.3 billion (from 2.7 percent or P0.2 billion).

                                                                                                                                    Meanwhile, the primary source of funding
Cooperative Banking System: Funding Mix
                                                                                                                           still came from deposit liabilities, which
                                   Deposits                                                      Deposits
                                    60.0%                                                         61.0%
                                                                                                                           comprised 61.0 percent (or P6.5 billion) of total
                                          Bills Payable                                               Bills Payable
                                                                                                          18.9%
                                                                                                                           resources, up from 60.0 percent (or P5.3 billion)
                                              19.1%

                                                                                                                           last year. This was followed by bills payable at
  Special
                                    Capital Accounts
                                         15.2%
                                                               Special
                                                              Financing
                                                                                                   Capital Accounts
                                                                                                        14.4%              18.9 percent share (down from 19.1 percent last
               Other Liabilities                                             Other Liabilities
 Financing
   0.4%            5.3%
                           P8.9 Billion
                                                                0.4%
                                                                                 5.3%
                                                                                      P10.7 Billion
                                                                                                                           year) and capital accounts at 14.4 percent
                       December 2006                                               December 2007                           share (down from 15.2 percent). Finally, other
                                                                                                                           liabilities and special financing lagged behind
                                                                                                                           with a share of 5.3 percent and 0.4 percent,
                                                                                                                           respectively (both unchanged from last year).




                                                                                                                           LOANS
                                                                                                                                   As of end-December 2007, loans
                                                                                                                           extended by cooperative banks increased
                              This is the biggest                                                                          further by 22.0 percent or P1.3 billion to P7.5
                                growth rate of                                                                             billion from P6.2 billion last year. This is the
                             loans, gross posted                                                                           biggest growth rate of loans, gross posted by
                              by the cooperative                                                                           the cooperative banking industry.
                               banking industry
                                                                                                                                    Cooperative banks in Luzon had the
                                                                                                                           biggest loan portfolio among the three regions
                                                                                                                           amounting to P5.2 billion or 69.6 percent of the
                                                                                                                           industry’s total loan portfolio.        Moreover,
                                                                                                                           Luzon-based cooperative banks accounted for
                                                                                                                           majority of the industry’s additional loans in
                                                                                                                           2007 with their loan portfolio rising by 32.2
                                                                                                                           percent (or P1.3 billion). Likewise, cooperative
                                                                                                                           banks in Mindanao raised lendings by 17.6
                                                                                                                           percent (or P0.2 billion), to reach P1.4 billion
                                                                                                                           from P1.2 billion at end-year 2006. These
                                                                                                                           expansions were weighed down by the 12.4
                                                                                                                           percent (or P0.1 billion) reduction in outstanding
                                                                                                                           loans of cooperative banks in Visayas to P0.9
                                                                                                                           billion from P1.0 billion.

                                                                                Source: Office of Supervisory Policy Development, Supervision and Examination Sector
                                                                                                                         Cooperative Banks                    107
       STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007


        The Agriculture, Hunting & Forestry                     Cooperative Banking System
                                                                Loan Portfolio Structure
sector was the biggest recipient of credit,                     By Industry Sector
                                                                              December 2006                                             December 2007
accounting for 28.8 percent (or P2.2 billion) of                                       3.0% 1.3%
                                                                                                   2.3%
                                                                                                      2.1%
                                                                                                                                            3.4%1.2% 1.9%
                                                                                                                                                            2.2%
                                                                                                                                                               2.2%
outstanding loans. This was followed by the                        30.1%                                 2.6%
                                                                                                            3.2%
                                                                                                                             28.8%                               2.7%
                                                                                                                                                                    10.8%
                                                                                                              8.0%
Wholesale & Retail Trade, Repair of Motor
Vehicles sector at 24.7 percent share (or P1.9
                                                                                                                                                                   22.1%
billion) and Other Community, Social and                                   24.9%
                                                                                                           22.5%
                                                                                                                                24.7%


Personal Services sector at 22.1 percent                                           P6.2 Billion                                              P7.5 Billion

share (or P1.7 billion).
                                                                                                                                             2006           2007

                                                                       Agriculture, Hunting & Forestry                                       30.1%          28.8%

        Meanwhile, increments in lending                               Wholesale, Retail Trade & Repair
                                                                       Other Community, Social and Personal Activities
                                                                                                                                             24.9%
                                                                                                                                             22.5%
                                                                                                                                                        24.7%
                                                                                                                                                        22.1%
primarily went to the Wholesale & Retail                               Real Estate, Construction, Renting & Bus.Activities                    8.0%          10.8%
                                                                       Fishery                                                                 3.2%         2.7%
Trade, Repair of Motor Vehicles sector with                                Transportation, Storage & Communication                             2.6%         2.2%

P324 million (or 21.1 percent) increase. This                          Manufacturing
                                                                       Private Households w/ Employed Persons
                                                                                                                                               2.1%
                                                                                                                                               2.3%
                                                                                                                                                             2.2%
                                                                                                                                                             1.9%

was followed by the Agriculture, Hunting &                             Education                                                               1.3%          1.2%
                                                                       Others                                                                  3.0%          3.4%
Forestry sector with P317 million (or 17.1
percent) loan growth.      All other industry
sectors posted higher loan balances with the
exception of the Private Households with
Employed Persons sector, which posted a
minimal decline of 0.1 percent or less than P1
million.

        While larger banks settled for
                                                                                             While larger banks
alternative compliance, cooperatives banks
                                                                                           settled for alternative
directly provided credit access to micro, small
                                                                                                compliance,
and medium enterprises, agrarian reform
                                                                                            cooperatives banks
beneficiaries and agricultural cooperatives.
                                                                                             directly provided
Preliminary data as of end-September 2007
                                                                                           credit access to small
showed that the industry was able to provide
                                                                                                and medium
credit to small and medium enterprises (SME)
                                                                                             microenterprises,
at a high of 49.7 percent (or P2.4 billion) of
                                                                                              agrarian reform
total loan portfolio for small enterprises and
                                                                                             beneficiaries and
20.3 percent (or P1.0 billion) for medium
                                                                                                 agricultural
enterprises.
                                                                                                cooperatives
        Preliminary data as of end-September
2007 showed that the industry also surpassed
the prescribed minimum requirements for
agrarian reform credits (10 percent) and
agricultural loans in general (25 percent) with
14.1 percent and 38.6 percent compliance
ratios, respectively. This aggregated to P1.0
billion loans for agrarian reform beneficiaries
and P2.7 billion agricultural loans in general.

      The industry was still marred by the
growing level of bad loans and assets.
Unbroken since 2001, the steady uptrend in
NPLs over the years culminated to P1.0 billion
as of end-December 2007. This resulted to
another double-digit growth rate of 36.6

Source: Office of Supervisory Policy Development, Supervision and Examination Sector
108         Cooperative Banks

                                                             STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007



Cooperative Banking System                                                       percent following last year’s 24.2 percent
NPLs and NPL Coverage Ratio
                                                                                 expansion. Coupled with slower hike in total
 In P Billion                                                       In Percent
   1.0                                                                   50.0    loans, NPL ratio rose to 13.3 percent from 11.9
                                                                         40.0    percent.
                                                                         30.0
   0.5
                                                                         20.0           Geographically, cooperative banks in
                                                                         10.0    Visayas consistently registered the highest NPL
        -                                                                0.0     ratio at 28.4 percent (down from 28.5 percent
            1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
                                                                                 last year), trailed by those in Mindanao at 22.3
            NPLs     Loan Loss Reserves     NPL Ratio     NPL Coverage Ratio
                                                                                 percent (up from 15.5 percent).          Only the
                                                                                 cooperative banks in Luzon posted below
                                                                                 industry NPL ratio at 8.5 percent (up from 7.2
                                                                                 percent). Evidently, cooperative banks in the
                                                                                 Visayas region were still reeling from the effects
                                                                                 of past calamities that struck the region.

                                                                                         Forecl osure     proceedings         and
                                                                                 restructuring activities intensified amidst
                                                                                 deteriorating loan quality. Real and other
                                                                                 properties acquired (ROPA), gross surged by
                                                                                 16.2 percent to P453 million, in stark contrast to
                                                                                 the minimal 3.9 percent increase to P389 million
                                                                                 last year. Meanwhile, restructuring activities
                                                                                 resumed with a 32.2 percent expansion to P158
                                                                                 million, a reversal of last year’s 5.9 percent
                                                                                 decline to P120 million.

Cooperative Banking System                                                              Correspondingly, NPA level rose to its
NPAs and NPA Coverage Ratio                                                      highest level at P1.4 billion, a continuous
 In P Billion
  1.6
                                                                   In Percent
                                                                        35.0
                                                                                 uptrend since 2003. The 28.1 percent growth
  1.4                                                                   30.0     rate in 2007 was second highest to 1998’s 81.8
  1.2
  1.0
                                                                        25.0     percent surge. This outstripped the 20.4 percent
                                                                        20.0
  0.8
                                                                        15.0     increase in gross assets and consequently
  0.6
  0.4                                                                   10.0     brought up the NPA ratio to 12.8 percent from
                                                                        5.0
  0.2
    -                                                                   0.0
                                                                                 12.0 percent last year.
            1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007


             NPAs      NPA Reserves       NPA Ratio      NPA Coverage Ratio              On a geographical basis, cooperative
                                                                                 banks in Visayas reported the highest NPA ratio
                                                                                 at 26.5 percent. Likewise, cooperative banks in
                                                                                 Mindanao also reported above industry NPA
                                                                                 ratio, averaging at 20.5 percent. Finally, those in
                                                                                 Luzon posted better NPA ratio of 8.8 percent.

                                                                                        Despite the increments in capital charges
                                                                                 for loss provisions, these were insufficient to
                                                                                 cover for the increases in both NPLs and NPAs.
                                                                                 As a result, NPL and NPA coverage ratios
                                                                                 declined to 37.4 percent and 26.9 percent,
                                                                                 respectively, from last year’s 45.1 percent and
                                                                                 30.5 percent.


                                                        Source: Office of Supervisory Policy Development, Supervision and Examination Sector
                                                                                                            Cooperative Banks           109
       STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007


       Meanwhile, using an even broader                         Cooperative Banking System
indicator of asset quality, the distressed                      Distressed Assets Ratio
                                                                 In P Billion                                                     In Percent
assets ratio rose anew to 19.7 percent from                       1.6                                                                   35.0
                                                                  1.4
18.6 percent last year and 18.2 percent two                       1.2
                                                                                                                                        30.0

years ago. Cooperative banks in the Visayas                       1.0
                                                                  0.8
                                                                                                                                        25.0

registered the highest distressed assets ratio                    0.6                                                                   20.0

at 35.0 percent, while those in Mindanao and                      0.4
                                                                  0.2
                                                                                                                                        15.0

Luzon reported 28.1 percent and 14.8                              0.0                                                                   10.0
                                                                          1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
percent, respectively.
                                                                         NPAs        Restructured Loans (Performing)       Distressed Ratio




DEPOSIT LIABILITIES
         Funding largely came from deposit
liabilities which increased further by 22.8
percent to P6.5 billion from P5.3 billion last
year.      The P1.2 billion increment in total
deposit liabilities came from savings and time
deposits of 20.9 percent or P0.5 billion and
25.9 percent or P0.7 billion, respectively.

         Moreover, majority of the deposit Cooperative Banking System: Deposit Mix
liabilities were time deposits at 51.7 percent
(up from last year’s 50.7 percent). The                        PESO DEPOSITS

remaining 48.3 percent (down from 49.3             December 2006          December 2007
percent) consisted of demand, NOW and
savings deposits.                              49.3%                  48.3%



        Finally, cooperative banks in Luzon
generated the bulk of the industry’s total
deposit liabilities, accounting for 73.6 percent
share at P4.8 billion. This was followed by                                                    50.7%                                   51.7%

deposits generated by cooperative banks in
                                                                                P5.3 Billion                           P6.5 Billion
Mindanao with a share of 13.2 percent (or P0.9
                                                                                Demand/NOW & Savings
billion) and Visayas with 13.1 percent share (or                                     Deposits
                                                                                                                       Time Deposits

P0.8 billion).



CAPITALIZATION
       Total capital accounts of the industry
rose by 14.2 percent to P1.5 billion from last
year’s P1.3 billion. Both components of capital                                        Both components
supported the expansion, led consistently by                                               of capital
paid-in capital which increased by 16.4 percent                                         supported the
to P1.0 billion. This accounted for 67.7 percent                                          expansion
of the industry’s total capital accounts, slightly
higher than last year’s 66.4 percent share.
Likewise, surplus, surplus reserves and



Source: Office of Supervisory Policy Development, Supervision and Examination Sector
110     Cooperative Banks

                                                                   STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007



                                                                                undivided profits picked up by 9.9 percent to P0.5
                                                                                billion (or 32.3 percent share of the industry’s total
                                                                                capital accounts).

                                                                                       Nonetheless, the ratio of total capital
                                                                                accounts and total assets slid to 14.4 percent from
                                                                                last year’s 15.2 percent. This developed as total
                                                                                assets grew at a faster pace of 20.7 percent
                                                                                compared with the 14.2 percent expansion in total
                                                                                capital accounts. This is the third consecutive year
                                                                                of decline in ratio after peaking at 17.1 percent in
                                                                                2004.
 Cooperative Banking System
 Comparative CAR Under Circular No. 280
                                                                                         Regional distribution of the industry’s
                                                          Solo                  capital accounts barely changed. Consistently,
                                             End-December            End-Sept   cooperative banks in Luzon accounted for majority
                                                                       2007
                                         2004      2005     2006
                                                                                of the industry’s capital at 65.4 percent or P1.0
  (In P Billion)
  Tier 1                                  0.6      0.9       0.8       1.0
                                                                                billion.   Cooperative banks in Mindanao and
  Tier 2                                  0.1      0.2       0.2       0.3      Visayas held smaller portions of 24.4 percent or
  Deductions                              ...      ...       ...       ...
  Qualifying Capital                      0.7      1.1       1.0       1.3
                                                                                P0.4 billion and 10.2 percent or P0.1 billion,
  Risk Weighted Assets (RWA) -
                                          5.2      7.1       8.4       9.4      respectively.
  net
  (In Percent)
  Capital Adequacy Ratio (CAR)            14.0     15.5      12.1     14.0              The capital adequacy framework,
  . . . Less than P50 million                                                   implemented under BSP Circular No. 280, as
                                                                                amended, requires capital charge on bank’s credit
                                                                                and market risks.      The shift to risk-based
                                                                                supervision requires cooperative banks to
                                                                                prudently manage their risks. The industry was
 Cooperative Banking System                                                     able to comply with the 10 percent minimum
 Status of Banks' Compliance with the Minimum Amount of Capital
                                                                                requirement with a capital adequacy ratio (CAR)
 As of End-December 2007
                                                                                of 14.0 percent as of end-September 2007,
   A. Number of Operating Banks                                        45       reflecting a better capital base than the 12.1
      Cooperative Banks                                                         percent ratio posted at end-December 2006.
        -   National Cooperative Bank                                   1
        -   Within Metro Manila                                         2
                                                                                There remained 10 cooperative banks with CAR
        -   Cities of Davao and Cebu                                    -       below the minimum required ratio.
        -   Other Cities
            - 1st Cooperative bank in province located in a city       42
            - Others                                                    -              Meanwhile, compliance of the cooperative
   B. Banks with Capital (K) Equal to or in Excess of
                                                                       41
                                                                                banking industry with the minimum amount of
       the Minimum Required
                                                                                capital was relatively satisfactory at 91.1 percent
      Cooperative Banks
        -   National Cooperative Bank (K ≥ P200.0M)                     1
                                                                                (41 out of 45 banks). The four other banks (or 8.9
        -   Within Metro Manila (K ≥ P20.0M)                            2       percent of the total cooperative banks), which
        -   Cities of Davao and Cebu (K ≥ P10.0M)                       -
        -   Other Cities
                                                                                failed to meet the prescribed 10 percent capital
            - 1st Cooperative bank in province located in a city       38       adequacy ratio, were encouraged to
              (K ≥ P1.25M)
            - Others                                                    -
                                                                                merge/consolidate or increase capitalization to
                                                                                stay viable over the medium term.




                                                          Source: Office of Supervisory Policy Development, Supervision and Examination Sector
                                                                                           Non-Banks with Quasi-   111
                                                                                           Banking Functions
       STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007


                  NON-BANKS WITH QUASI-BANKING FUNCTIONS (NBQBS)

OVERVIEW
      For the year 2007, the NBQB industry
gave an overall sound performance, indicated
by modest broadening in assets and loans, firm                                 The NBQB industry
bottomline figures, good asset quality,                                         reported modest
adequate liquidity and highly solvent position.                               broadening in assets
                                                                                 and loans, firm
        The industry’s net income after tax                                    bottomline figures,
(NIAT) expanded by 62.3 percent to P3.2 billion                                good asset quality,
from P2.0 billion in 2006. This favorable                                    adequate liquidity and
growth was propelled by the 23.3 percent                                     highly solvent position
increment in total operating income to P4.4
billion from P3.6 billion, resulting from the
parallel uptrend in net interest income and
non-interest income by 40.0 percent (P0.5
billion) and 14.0 percent (P0.3 billion),
respectively. The year-on-year improvement in
NBQBs’ operating income easily mitigated the
11.4 percent increase in operating expenses to
P1.7 billion from P1.5 billion.  Consequently,
the return on assets (ROA) ratio and return on
equity (ROE) ratio picked up to 5.4 percent (vs.
3.9 percent in 2006) and 16.8 percent (vs. 11.8
percent), respectively.

       In terms of financing sources, the
industry continued to obtain a greater part of its
funding needs from bills payable, contributing
65.0 percent of total resources from last year’s
62.5 percent share. Meanwhile, total capital
accounts held 31.6 percent of the industry’s
total resources, down from the 32.2 percent
share a year ago. (Tables 36 and 37)

       With relatively faster pace of growth in
bills payable, the cash and due from
banks-to-bills       payable      ratio,      liquid
assets-to-bills payable ratio and loans,
gross-to-bills payable ratio fell to 21.8 percent
(from 23.0 percent last year), 99.9 percent
(from 106.4 percent) and 32.3 percent (from
33.6 percent), respectively. These transpired
as the year-on-year expansion in cash and due
from banks, liquid assets and loans, gross by
11.3 percent, 10.3 percent and 12.9 percent,
respectively, were slower than the 17.5 percent
increment in bills payable. Nonetheless, the
industry still kept an adequate liquid position.

  Source: Office of Supervisory Policy Development, Supervision and Examination Sector
112   Non-Banks with Quasi-
      Banking Functions
                                        STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007




                                                              From a 16.8 percent reduction in 2006,
                                                      loans, gross [exclusive of interbank loans (IBL)]
                                                      of the industry as of end-2007 expanded by
                                                      23.1 percent to P13.2 billion from P10.7 billion.
                                                      Meantime, IBL dropped by 90.8 percent to P0.1
                                                      billion from P1.1 billion. Notably, this cutback
                                                      came on the back of a 197.8 percent surge in
                                                      2006.

                                                             Despite the 0.5 percent growth in
                                                      non-performing loans (NPL), loan quality got
                   Loan quality got                   better, chiefly on account of the faster
                   better, chiefly on                 expansion in lending. The industry’s NPL ratio
                    account of the                    went down to 3.7 percent (from 4.1 percent last
                   faster expansion                   year). Similarly, the non-performing assets
                      in lending                      (NPA) ratio fell to 3.1 percent, down by 0.4
                                                      percentage point from 3.5 percent ratio.

                                                              As of end-2007, total capital accounts
                                                      climbed by 10.8 percent (or P1.9 billion) to
                                                      P20.0 billion from P18.1 billion last year. This
                                                      favorable development was spurred by the
                                                      simultaneous upsurge in capital stock (9.4
                                                      percent or P0.9 billion) and surplus reserves
                                                      and undivided profits (12.8 percent or P1.0
                                                      billion), bringing their year-end levels to P11.3
                                                      billion and P8.7 billion, respectively.

                                                              Investment houses (IHs) with QB
                                                      continued to maintain a majority stake in the
                                                      industry’s total resources at 89.2 percent (vs.
                                                      88.6 percent last year), with finance companies
                                                      (FCs) with QB accounting for the balance at
                                                      10.8 percent (vs. 11.4 percent).      Meanwhile,
                                                      NIAT of IHs registered a favorable 77.3 percent
                                                      (or P1.3 billion) hike to P3.0 billion, partly
                                                      tempering the 21.2 percent (or less than P0.1
                                                      billion) cutback in FCs’ NIAT to P0.2 billion.




                                                      OPERATING NETWORK
                                                              Total number of operating NBQBs for
                                                      end-2007 remained at 12, comprising of six (6)
                                                      IHs, five (5) FCs and one (1) non-bank with QB.
                                                      Meanwhile, last year’s total number of NBQB
                                                      offices was maintained at 31, inclusive of 19
                                                      branches/other offices. (Schedule 1)



                                  Source: Office of Supervisory Policy Development, Supervision and Examination Sector
                                                                                             Non-Banks with Quasi-   113
                                                                                             Banking Functions
       STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007



RESULTS OF OPERATIONS
       For the review period, the NBQB industry
sustained for the third consecutive year the                                         NBQBs sustained
uptrend in profitability. NBQBs’ NIAT expanded                                         for the third
by 62.3 percent, more than two (2) times the 26.7                                    consecutive year
percent growth reported in 2006, bringing the                                         the uptrend in
bottomline figure to P3.2 billion from P2.0 billion.                                   profitability

       By industry, majority of NIAT came from
IHs, accounting for a hefty 92.6 percent share (or
P3.0 billion).   Meantime, FCs contributed a
marginal 7.4 percent share (or P0.2 billion) to
NBQBs’ total NIAT.

        The growth in net interest income and
non-interest income of 40.0 percent and 14.0
percent, respectively, spurred the 23.3 percent
hike in total operating income to P4.4 billion from
P3.6 billion in 2006. The expansion in net interest                                 Net interest margin
income was prompted by the 22.9 percent fall in                                        of the industry
interest expense combined with the 4.3 percent                                        improved as the
rise in interest income. Net interest margin of the                                 hike in net interest
industry improved to 4.3 percent, 0.6 percentage                                     income outpaced
point higher than last year’s 3.7 percent ratio, as                                 the rise in average
the hike in net interest income outpaced the rise                                      earning assets
in average earning assets.

       Meanwhile, the expansion in non-interest
income was prompted by the year-on-year
improvement in other income and fee-based
income by 209.5 percent (or P0.5 billion) and
18.1 percent (or P0.1 billion), respectively. This
simultaneous upsurge tempered the reduction in
trading income and leasing income by 22.7
percent and 9.0 percent, respectively.

        Meantime, albeit lower by 4.8 percentage
points, non-interest income continued to account
for a larger slice of total operating income at 59.5
percent (vs. 64.3 percent in 2006), relative to net
interest income’s share of 40.5 percent (vs. 35.7
percent).

       IHs with QB held the bulk of the industry’s
total operating income with an 86.4 percent share
(up from 84.5 percent in 2006). Meanwhile, FCs
with QB held the remaining 13.6 percent share
(down from 15.5 percent). Earnings of IHs were
composed primarily of fee-based income and
income generated from trading activities (i.e.,

  Source: Office of Supervisory Policy Development, Supervision and Examination Sector
114         Non-Banks with Quasi-
            Banking Functions
                                                                STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007



                                                                                 underwriting of debt and equity securities) while
                                                                                 a majority of FCs’ earnings came from leasing
                                                                                 income.

                                                                                        Total operating expenses grew by 11.4
                                                                                 percent to P1.7 billion from P1.5 billion in 2006.
                                                                                 This occurred on account of the 29.2 percent
                                                                                 increase in operating expenses other than
                                                                                 write-offs and provisions for losses, bolstered by
                                                                                 the twin rise in other expenses and overhead
                                                                                 cost by 43.8 percent and 24.6 percent,
                                                                                 respectively. Meanwhile, provisions for probable
                                                                                 losses stood at P0.1 billion, 78.9 percent lower
                                                                                 from P0.3 billion.

                                                                                         Overhead costs held the largest portion of
                                                                                 total operating expenses at 70.7 percent share
                                                                                 (or P1.2 billion), followed by other expenses at
                                                                                 26.2 percent share (or P0.4 billion) and loss
                                                                                 provisions at 3.1 percent share (or less than P0.1
                                                                                 billion).

                                                                                          Extraordinary credit increased by a
                              The sizeable                                       sizeable 335.7 percent to P0.9 billion from P0.2
                               increase in                                       billion in 2006, prompted by the 1,014.2 percent
                              extraordinary                                      (or P0.7 billion) rise in profits from assets sold/
                                credit was                                       exchanged to P0.8 billion (vs. 2006’s P0.1
                            prompted by the                                      billion). The year-on-year growth in extraordinary
                           rise in profits from                                  credit partly outweighed the 44.6 percent
                               assets sold/                                      expansion in provisions for income tax to P0.4
                               exchanged                                         billion.

                                                                                       ROA and ROE improved to 5.4 percent
                                                                                 (against 3.9 percent last year) and 16.8 percent
                                                                                 (against 11.8 percent), ensuing from solid
                                                                                 bottomline figures in 2007.

                                                                                        The industry posted an earning asset yield
Non-Banks with Quasi-Banking Functions (NBQBs)                                   of 7.9 percent, 1.3 percentage points lower than
Selected Ratios vs. 91-day Treasury Bill Rate
                                                                                 the 9.2 percent posted in 2006. Despite the
(In Percent)
 20.0                                                                            year-on-year reduction, the spread between
                  17.7    18.1
 18.0                                                                            earning asset yield and the 91-day T-bill rate
          14.7
 16.0
                                                                                 grew to 450 basis points from 380 basis points in
 14.0

 12.0
                  12.1            11.6                  11.0
                                                                                 2006 primarily on account of the faster paced
           10.2            9.8
 10.0                                    8.6    8.5
                                                               9.2               decline in the 91-day T-bill rate.
                   9.9    9.9                           7.4            7.9
   8.0                            6.9    6.2      7.3          6.1
   6.0
           7.1
                                         6.0    6.0     6.4            3.9             Meantime, funding cost dropped 2.2
   4.0                           5.4                           5.4
   2.0                                                                3.4        percentage points to 3.9 percent from 6.1
   0.0                                                                           percent last year. Interest spread grew to 4.0
           1999    2000   2001   2002    2003   2004    2005   2006   2007
                                                                                 percent (vs. 3.1 percent) with the industry further
         Earning Asset Yield     Funding Cost      Treasury Bill Rate (91-day)   improving on loan/asset quality and greater


                                                          Source: Office of Supervisory Policy Development, Supervision and Examination Sector
                                                                                          Non-Banks with Quasi-   115
                                                                                          Banking Functions
        STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007



confidence from the public which translates to
reduced cost of borrowed funds.

        Although lower than last year’s 70 basis
points interest spread, the industry’s funding cost
for the year stood 50 basis points higher than the
91-day T-bill rate. Despite the reduction in
interest spread, the premium presents an
incentive to lenders to the industry as opposed to
risk-free government securities. Nevertheless,
the narrowing margin indicates greater public
confidence in NBQBs.

        The industry’s cost-to-income (CTI) ratio
went up by 1.7 percentage points to 37.1 percent
from 35.4 percent ratio in 2006. The narrow
increment was set off by the 29.2 percent growth
in operating expenses, exclusive of write-offs and
loss provisions, surpassing the 23.3 percent rise
in total operating income. In terms of groups, IHs
reported a better CTI ratio at 33.5 percent (down
from 33.8 percent last year) compared with FCs’
ratio of 60.2 percent (up from 44.3 percent).




MAJOR BALANCE SHEET TRENDS

ASSETS
        The uptrend in total assets is notably
decelerating this year. Following a 26.6 percent
growth last year, total assets expanded by a
slower 12.9 percent to P63.3 billion from P56.1
billion. A large portion of the rise in total resources
was directed towards lending activities as loan, net
rose by 24.8 percent to P12.6 billion. This was
followed by a 16.3 percent growth in net
investments and 11.3 percent hike in cash and
due from banks.         Conversely, cutbacks were
posted by IBL (90.8 percent or P1.0 billion), other
assets (7.9 percent or P0.4 billion) and real and
other properties acquired (ROPA) (3.7 percent or
less than P0.1 billion), bringing their year-end
figures to P0.1 billion, P3.7 billion and P1.3 billion,
respectively.

      The industry continued to direct resources
towards investments and loans as these held more
than three-fourths of NBQBs’ total assets.
   Source: Office of Supervisory Policy Development, Supervision and Examination Sector
116         Non-Banks with Quasi-
            Banking Functions
                                                                       STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007


 Non-Banks with Quasi-Banking Functions (NBQBs)                                               Investments, net again got a sizeable 57.9
 Balance Sheet Structure
                                                                                              percent share (up from 56.2 percent last year)
              Major Accounts
                                                           End-December                       whereas loans, net accounted for 19.8
                                           2003      2004       2005      2006       2007     percent share (up from 17.9 percent). The
  Total Assets
  Cash and Due from Banks
                                          100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
                                            6.6 %   4.5 % 10.6 % 14.4 % 14.2 %
                                                                                              22.3 percent balance was divided to the
  Interbank Loans Receivable (IBL)          5.4 % 12.1 %    0.8 %   1.9 %   0.2 %             following: cash and due from banks with 14.2
  Loans, net                               40.9 % 26.0 % 27.8 % 17.9 % 19.8 %
  Investments, net                         26.4 % 40.3 % 49.0 % 56.2 % 57.9 %                 percent (down from 14.4 percent), other
  ROPA, net                                 4.6 %   4.1 %   3.1 %   2.4 %   2.0 %
  Other Assets                             16.1 % 13.0 %    8.7 %   7.2 %   5.9 %             assets with 5.9 percent (down from 7.2
  Total Liabilities and Capital           100.0% 100.0% 100.0% 100.0% 100.0%
                                                                                              percent), ROPA, net with 2.0 percent (down
  Liabilities
     Bills Payable
                                           42.3 % 51.6 % 65.5 % 67.8 % 68.4 %
                                           36.1 % 45.0 % 61.0 % 62.5 % 65.0 %
                                                                                              from 2.4 percent) and IBL with 0.2 percent
         Deposit Substitutes
         Others
                                           11.4 % 33.3 % 50.9 % 60.2 % 58.4 %
                                           24.8 % 11.7 % 10.1 %  2.2 %  6.6 %
                                                                                              (down from 1.9 percent).
     Other Liabilities                      6.2 %  6.6 %  4.5 %  5.3 %  3.3 %
  Total Capital Accounts                   57.7 % 48.4 % 34.5 % 32.2 % 31.6 %
     Capital Stock
     Surplus, Surplus Reserves &
                                           30.0 % 26.7 % 22.0 % 18.4 % 17.9 %                          The industry’s bills payables grew by
     Undivided Profits                     27.7 %    21.7 %     12.5 %    13.8 %     13.7 %   17.5 percent (or P6.1 billion), to P41.2 billion.
                                                                                              Meantime, liquid assets went up by 10.3
                                                                                              percent (or P3.8 billion) to P41.1 billion,
                                                                                              driven by the combined rise in cash and due
                                                                                              from banks and investments, net (exclusive of
                                                                                              equity investments, net) by 11.3 percent and
                                                                                              10.0 percent, respectively. Nonetheless, the
                                                                                              faster paced growth of bills payable
                                                                                              surpassed the rise in liquid assets, resulting
                                                                                              to lower cash and due from banks-to bills
                                                                                              payable ratio and liquid assets-to-bills
                                                                                              payable ratio to 21.8 percent (vs. 23.0 percent
                                                                                              last year) and 99.9 percent (vs. 106.4
                                                                                              percent). Loans, gross-to-bills payable ratio
                                                                                              likewise narrowed to 32.3 percent from 33.6
                                                                                              percent, despite the rise in gross loans by
                                                                                              12.9 percent to P13.3 billion from P11.8
                                                                                              billion.



                                                                                              LOANS
                                                                                                      Over the course of the year, loan and
  Non-Banks with Quasi-Banking Functions (NBQBs)
                                                                                              asset quality of the industry further improved
  NPLs and NPL Coverage Ratio
  In P Billion                                                                   In Percent
                                                                                              as NPL and NPA ratios abated to 3.7 percent
      2.0                                                                           140.0     (down from 4.1 percent last year) and 3.1
                                                                                    120.0     percent (down from 3.5 percent), respectively.
                                                                                    100.0     The easement in the industry’s NPL ratio
      1.0
                                                                                    80.0      primarily resulted from the growth in total
                                                                                    60.0
                                                                                              loans by 12.9 percent to P13.3 billion from
                                                                                    40.0
                                                                                              P11.8 billion, tempering the slight 3.7 percent
                                                                                    20.0
                                                                                              rise in NPL to P0.5 billion. Meantime, the 2.4
       -                                                                            0.0
              1999   2000   2001   2002    2003     2004    2005   2006    2007               percent decline in NPAs to P2.0 billion
            NPLs     Loan Loss Reserves             NPL Ratio          NPL Coverage Ratio
                                                                                              complemented the 12.6 percent upsurge in
                                                                                              gross assets to P64.1 billion, resulting to the
                                                                                              reduction in the industry’s NPA ratio. (Table
                                                                                              39)


                                                              Source: Office of Supervisory Policy Development, Supervision and Examination Sector
                                                                                                               Non-Banks with Quasi-         117
                                                                                                               Banking Functions
       STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007


       Reflecting the improvement in loan and                     Non-Banks with Quasi-Banking Functions (NBQBs)
asset quality, the industry reduced its loan loss                 NPAs and NPA Coverage Ratio
provisioning over the period. Loan loss reserves                   In P Billion                                                          In Percent
                                                                    6.0                                                                      60.0
and allowance for probable losses on NPAs both
slid by 2.6 percent and 4.0 percent to P0.6 billion
                                                                    4.0                                                                      40.0
and P0.8 billion, respectively. These parallel
cutbacks prompted the contraction in NPL and
NPA coverage ratios to 127.6 percent (vs. 135.9                     2.0                                                                      20.0

percent in 2006) and 41.1 percent (vs.41.7
percent), respectively.                                              -                                                                       0.0
                                                                            1999   2000   2001   2002   2003    2004   2005    2006   2007

                                                                           NPAs       NPA Reserves         NPA Ratio          NPA Coverage Ratio




LIABILITIES
        Total liabilities broadened to P43.3 billion,
13.8 percent higher than last year’s P38.0 billion.
Bills payable grew by 17.5 percent to P41.2
billion from P35.1 billion. Deposit substitutes, a
major component of bills payable, expanded by
9.5 percent (or P3.2 billion) to reach P37.0
billion. On the other hand, other liabilities (i.e.,
bonds payable, accrued taxes and other
expenses, etc.) went down by 29.4 percent to
P2.1 billion from last year’s P3.0 billion.

       As of end-2007, bills payable continued to
be the major component of total liabilities with a
95.1 percent share (up from 92.1 percent last
year). Despite falling by 6.6 percentage points,
the proportion of bills payable attributed to
deposit substitutes settled at a sizeable 89.8
percent from 96.4 percent last year. Meantime,
the balance came from other liabilities with a 4.9
percent share (vs. 7.9 percent).



CAPITAL ACCOUNTS
        Total capital accounts registered an
increment of 10.8 percent to P20.0 billion from
P18.1 billion in 2006. Increased profit retention
and fresh capital infusion contributed to the
overall expansion of the industry’s capital level.
Surplus, surplus reserves and undivided profits
rose by 12.8 percent (or P1.0 billion) to P8.7
billion from P7.7 billion. Meantime, capital stock
broadened by 9.4 percent (or P0.9 billion) to
P11.3 billion from P10.4 billion.



  Source: Office of Supervisory Policy Development, Supervision and Examination Sector
118   Non-Banks with Quasi-
      Banking Functions
                                       STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007



                                                                 Although narrowing by 0.8 percentage
                                                          point, paid-in capital maintained the biggest
                                                          portion of total capital at 56.5 percent from
                                                          57.3 percent last year. The remaining 43.5
                                                          percent share (from 42.7 percent share) was
                                                          provided by surplus, surplus reserves and
                                                          undivided profits.

                                                                 The total capital accounts to total
                                                          assets ratio dropped to 31.6 percent from
                                                          32.2 percent the previous year on the back
                Paid-in capital                           of the faster growth in total assets relative to
                maintained the                            the rise in total capital accounts.      Paid-in
                biggest portion                           capital to total capital accounts likewise went
                of total capital                          down to 56.5 percent from 57.3 percent
                                                          stemming from the slower increment in the
                                                          industry’s capital stock. Nonetheless, the
                                                          industry stayed solvent.




                                   Source: Office of Supervisory Policy Development, Supervision and Examination Sector
                                                                                       Non-Stock Savings and   119
                                                                                           Loan Associations
       STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007


        NON STOCK SAVINGS AND LOAN ASSOCIATIONS (NSSLAS)

OVERVIEW
      The NSSLA industry demonstrated a
modest performance in the year 2007.                                       The industry’s
Despite having adequate liquidity and                                 modest performance
solvency positions plus continued growth in                              in 2007 is highly
resources, investment activities and deposit                              reflective of the
base, loans and asset quality remained a                                     prevailing
major concern as little progress was made in                          difficult environment
addressing non-performing accounts.                                       confronting the
                                                                              financial
       The industry’s total assets grew to                                      sector
P74.0 billion from P70.6 billion last year.
However, the growth in resources exhibited a
slow down, from 5.1 percent in 2006 to 4.8
percent in 2007. This was also way below the
highest asset expansion of 26.6 percent in
year 2000. Total capital accounts likewise
trended downwards with a 1.6 percent
reduction during the year following increments
in end-2006 of 3.5 percent. Together, the
opposite movements in these accounts
brought the industry’s capital to assets ratio
lower to 80.9 percent from last year’s 86.1
percent.

        The industry maintained aversion
towards risk with more funds kept in highly
liquid assets. As a result, cash and due from
banks and liquid assets increased by 27.3
percent and 32.2 percent, respectively and
accounted for 148.4 percent (down from 179.1
percent) and 218.5 percent (down from 253.8
percent), respectively, of total deposits. The
decline in these ratios can be attributed to the
growth in total deposits outpacing the rise in
both cash and due from banks and liquid
assets.

       The concern over the credit quality of
the industry remained as the nonperforming
loan (NPL) ratio rose over the year to 21.6
percent from last year’s 20.7 percent.
Moreover, the corresponding NPL coverage
ratio declined to 62.1 percent from 64.8
percent as loan loss reserves (LLRs) slid by
4.3 percent. The non-performing assets (NPA)
ratio, on the other hand, improved to 14.7


Source: Office of Supervisory Policy Development, Supervision and Examination Sector
  120       Non-Stock Savings and
            Loan Associations
                                                               STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007


                                                                                    percent from 15.3 percent. However, the
                                                                                    industry allocated less provision for probable
                                                                                    losses resulting to a lower NPA coverage ratio
                                                                                    at 61.9 percent from 64.6 percent.

                                                                                           Finally, asset and funding mix
                                                                                    continued to be composed mainly of lendings
                                                                                    (64.6 percent) and paid-in capital of
                                                                                    association members (71.1 percent),
                                                                                    respectively.

                                                                                    OPERATING NETWORK
                                                                                            As of end-year 2007, the number of
                                                                                    operating NSSLAs stood at 77, fewer by 5
                                                                                    entities from 82 at end-2006. The industry
                                                                                    had a total operating network of 116 offices,
                                                                                    inclusive of 39 satellite offices. (Schedule 1)


                                                                                    MAJOR BALANCE SHEET TRENDS
                                                                                    ASSETS
                    Total resources of                                                      Although at a slower pace than in the
                        the NSSLA                                                   previous year, the total resources of the
                   industry continued                                               NSSLA industry continued to grow by 4.8
                    to grow, although                                               percent to P74.0 billion from P70.6 billion last
                     at a slower pace                                               year. Cash and due from banks, investments,
                        than in the                                                 net and real and other properties acquired
                      previous year                                                 (ROPA), net grew by 27.3 percent, 43.9
                                                                                    percent and 16.3 percent, respectively,
                                                                                    offsetting the combined 4.3 percent decline in
                                                                                    loans, net and other assets.

Non Stock Savings and Loan Associations (NSSLAs)                                            As their primary business, NSSLAs
Balance Sheet Structure                                                             continued to devote the majority or 64.6
                                               End-December
                                                                                    percent (down from last year’s 70.5 percent)
       Major Accounts
                                 2003      2004       2005      2006      2007      of their assets in lending activities. After loans,
 Total Assets                    100.0 % 100.0 % 100.0 % 100.0 % 100.0 %            preference in liquid assets over other forms
   Cash and Due from Banks         8.2 %   8.1 %   9.3 %  17.5 %  21.3 %
   Loans, net                     78.3 %  79.6 %  76.4 %  70.5 %  64.6 %            continued as cash and due from banks and
   Investments, net                8.4 %   6.4 %   8.8 %   7.3 %  10.0 %
   ROPA, net                       0.8 %   0.4 %   0.5 %   0.0 %   0.1 %            investments, net, occupying the second and
   Other Assets                    4.2 %   5.5 %   5.0 %   4.6 %   4.0 %
                                                                                    third highest spot in terms of proportion to
 Total Liabilities and Capital
   Liabilities
                                 100.0%
                                  11.0 %
                                           100.0%
                                           11.8 %
                                                     100.0%
                                                      12.5 %
                                                                100.0%
                                                                 13.9 %
                                                                          100.0%
                                                                           19.1 %
                                                                                    total assets, increased their shares to 21.3
       Deposits
       Bills Payable
                                   6.4 %
                                   0.6 %
                                             7.2 %
                                             0.6 %
                                                       8.1 %
                                                       0.7 %
                                                                  9.8 %
                                                                  0.8 %
                                                                           14.3 %
                                                                            0.7 %
                                                                                    percent (from 17.5 percent) and 10.0 percent
       Other Liabilities           4.0 %     4.0 %     3.7 %      3.3 %     4.1 %   (from 7.3 percent), respectively. Other assets
   Capital Accounts               89.0 %   88.2 %     87.5 %     86.1 %    80.9 %
       Paid-In Capital            80.7 %   80.5 %     80.9 %    77.2 %     71.1 %   posted a lower share of 4.0 percent (from 4.6
       Surplus and Reserves        8.3 %     7.7 %     6.6 %      8.9 %     9.8 %
                                                                                    percent), whereas ROPA, net accounted for
                                                                                    the remaining 0.1 percent.

                                                                                            Total liabilities of the industry at P14.2
                                                                                    billion accounted for only 19.1 percent (up

                                                     Source: Office of Supervisory Policy Development, Supervision and Examination Sector
                                                                                                          Non-Stock Savings and                121
                                                                                                              Loan Associations
       STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007


from 13.9 percent last year) of total fund
sources. These were mostly in the form of
deposit liabilities amounting to P10.6 billion or
14.3 percent.

       Most of the industry’s funds came from
contributions of association members as
paid-in capital comprised 71.1 percent share
of total fund sources. The remaining 9.8
percent were in the form of surplus and
reserves.


LOANS
        The industry’s loan quality weakened                    Non Stock Savings and Loan Associations (NSSLAs)
during the year. The NPL level posted a                         NPLs and NPL Coverage Ratio
meager improvement of 0.2 percent to P11.9                       In P Billion                                                             In Percent

billion. This was, in fact, four times more than                  14.0                                                                         100.0
                                                                  12.0
the P2.5 billion and P2.8 billion worth of                        10.0                                                                         75.0

problems loans reported at end-2001 and end                        8.0
                                                                                                                                               50.0
-2002, respectively. Correspondingly, the                          6.0
                                                                   4.0
industry’s total loan portfolio exhibited a                        2.0
                                                                                                                                               25.0

downtrend by 4.1 percent to P55.2 billion from                       -                                                                         0.0

last year’s P57.5 billion. Consequently, the                                1999    2000   2001   2002   2003   2004   2005     2006   2007


NPL ratio rose to an all-time high of 21.6                                         NPLs
                                                                                   NPL Ratio
                                                                                                                       Loan Loss Reserves
                                                                                                                       NPL Coverage Ratio
percent from last year’s 20.7 percent. The 4.3
percent decline in loan loss reserves (LLRs)
to P7.4 billion from last year’s P7.7 billion
                                                                Non Stock Savings and Loan Associations (NSSLAs)
outpaced the 0.2 percent decline in NPLs,
                                                                NPAs and NPA Coverage Ratio
thereby trimming the NPL coverage ratio to
                                                                 In P Billion                                                            In Percent
62.1 percent from 64.8 percent.                                  14.0                                                                         100.0

                                                                 12.0

       Meantime, the industry’s NPAs slightly                    10.0
                                                                                                                                              75.0


declined by 0.1 percent to P11.9 billion from                      8.0
                                                                                                                                              50.0
P12.0 billion last year. With expansion in                         6.0


gross assets, the NPA ratio improved to 14.7                       4.0
                                                                                                                                              25.0
                                                                   2.0
percent from 15.3 percent. The industry
                                                                     -                                                                        0.0
however had lower loss provisioning for on                                 1999     2000   2001   2002   2003   2004   2005    2006    2007

bad assets resulting to a narrower NPA                                   NPAs         NPA Reserves         NPA Ratio          NPA Coverage Ratio
coverage ratio at 61.9 percent from 64.6
percent.



DEPOSIT LIABILITIES
      The industry’s deposit liabilities (i.e.,
savings and time deposit accounts) peaked to
P10.6 billion, reflecting a significant 53.6
percent or P3.7 billion expansion from last
year’s P6.9 billion. Consequently, the


Source: Office of Supervisory Policy Development, Supervision and Examination Sector
122   Non-Stock Savings and
      Loan Associations
                                    STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007


                                                    proportion of deposit liabilities to the industry’s
                                                    total resources rose to 14.3 percent from 9.8
                                                    percent at year-end 2006, making it the
                                                    second largest source of funds.

                                                           Savings deposits accounted for the
                                                    bulk of the industry’s deposit liabilities at 88.1
                                                    percent (down from last year’s 94.8 percent).
                                                    The rest came from time deposits at 11.9
                                                    percent (up from 5.2 percent).



                                                    CAPITALIZATION
                                                           Substantial funding continued to come
                                                    from capital accounts which at end-year 2007
                                                    stood at P59.8 billion, down by P1.0 billion or
                                                    1.6 percent from end-year 2006. Capital
                                                    accounts consistently remained the primary
                                                    source of funds accounting for 80.9 of total
                                                    resources. In terms of composition, members’
                                                    paid-in contributions covered 71.1 percent of
                                                    total capital accounts while surplus, surplus
                                                    reserves and undistributed profits held the
                                                    remaining 9.8 percent.

                                                          The     i n d u st r y’s total ca p i t al
                                                    accounts-to-total assets ratio remained high
                                                    even as the ratio inched down to 80.9 percent
                                                    from 86.1 percent last year.




                              Source: Office of Supervisory Policy Development, Supervision and Examination Sector
                                                                                       Offshore Banking Units   123
       STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007


                              OFFSHORE BANKING SYSTEM

OVERVIEW
       At end-2007, the number of offshore
banking units (OBUs) operating in the country
remained at seven (7), consisting of 4
originating from Europe, 2 from America and 1
from Asia.

        Total assets of the offshore banking
system amounted to $3.7 billion, the highest
since 1997, although the level barely changed
from end-2006.       The system’s resources
continued to be funded mainly from sources
abroad (98.8 percent of funding mix), given
the limited authority to accept local deposits.
Likewise, a major portion of total assets (at
84.1     percent)     were     channeled       to
non-Philippine resident recipients. Net income
after tax (NIAT) almost tripled to $11 million in
2007 from last year’s $4 million with improved
operational efficiency (Tables 42 and 43).

RESULTS OF OPERATIONS
       Notwithstanding muted asset growth,
NIAT almost tripled to $11 million in 2007 from
                                                                          NIAT almost tripled
$4 million in 2006 as a result of more efficient
                                                                            to $11 million in
operations.        Operating expenses were
                                                                              2007 from $4
reduced substantially by 28.0 percent (or $7
                                                                          million in 2006 as a
million), complemented by the 3.4 percent (or
                                                                             result of more
$1 million) rise in operating income.
                                                                          efficient operations
        Net interest income was static at $15
million.    Interest earned on loans and
advances soared by 207.6 percent (or $122
million) from renewed lending activities.
Likewise, interest on deposits rose by 20.5
percent (or $13 million) from increased
placements in other banks aside from the 36.6
percent (or $1 million) hike in income from
trade and other bills.         However, the
corresponding rise in interest paid on
interbank borrowings netted out these gains.
Interest paid on these borrowings expanded
by 22.5 percent (or $49 million) as OBUs
sourced more funds from other banks than
from their head office/branches. Meanwhile,
non-interest income rose by 7.1 percent (or $1


Source: Office of Supervisory Policy Development, Supervision and Examination Sector
       124              Offshore Banking Units

                                                                                                  STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007


                                                                                                                           million) to $15 million mainly from commissions,
                                                                                                                           fees and other charges. Thus, the share of other
                                                                                                                           operating income to total operating income
                                                                                                                           climbed to 50.0 percent (from 48.3 percent in
                                                                                                                           2006), at level with interest income.

                                                                                                                                  More streamlined operations brought
 Offshore Banking System: Cost-to-Income Ratio                                                                             down operating expenses by 28.0 percent (or $7
   (In P Billions)                                                                                     (In Percent)        million) to $18 million from $25 million in 2006.
    50.0                                                                                                       95.0        This favorable development together with the 3.4
    40.0                                                                                                       80.0        percent increase in operating income boosted
    30.0                                                                                                       65.0        NIAT to $11 million.
    20.0                                                                                                       50.0

    10.0                                                                                                       35.0
                                                                                                                                  The industry showed better performance
                                                                                                                           of profitability ratios in 2007. The annualized
       0.0                                                                                                     20.0
             1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007                                                        cost-to-income ratio improved to 60.0 percent
                     Operating                     Operating Expense                             Cost to                   from 86.2 percent in 2006. Likewise, return on
                     Income                        (net of bad debt/prov)                        Income
                                                                                                                           assets rose to 0.3 percent from 0.1 percent.
                                                                                                                           (Table 42)

                                                                                                                           MAJOR BALANCE SHEET TRENDS
                                                                                                                           ASSETS
                                                                                                                                   Total assets were almost unchanged at
                                                                                                                           $3,690 million from end-2006’s $3.7 billion but
                                                                                                                           moved sideways. OBUs continued to place
                                                                                                                           majority of their funds in loans and discounts.
                                                                                                                           The account swelled by 35.8 percent to $2.1
                                                                                                                           billion from $1.6 billion. Consequently, the
                                                                                                                           proportion of total loan portfolio to gross assets
                                                                                                                           rose to 57.8 percent (from 42.8 percent in 2006).
                                                                                                                           In contrast, investments in bonds and other
                                                                                                                           securities dwindled to just $0.8 billion from $1.3
                                                                                                                           billion as a result of the low interest environment.
                                                                                                                           Thus, the share of investments in bonds and
                                                                                                                           other securities to OBU assets was at 20.4
                                                                                                                           percent (down from 36.4 percent in 2006).
                                                                                                                           Meanwhile, lendings to banks grew by 13.2
                                                                                                                           percent to $0.7 billion.

Offshore Banking System: Selected Asset Accounts                                                                                  Evidently, OBUs continued to place more
In US$ Million
2000
                                                               In US$ Million
                                                               2000
                                                               1800
                                                                                               1,985
                                                                                                                           funds outside the Philippines. Fund channeled
1800
1600
1400
                                    1,415
                                                               1600
                                                               1400
                                                                                                                           to non-residents slightly increased to 84.1
                                                               1200
1200
1000
                                                      936      1000
                                                                800             685
                                                                                                                           percent (or $3.1 billion from 83.8 percent in 2006
 800
 600
 400
                  601


                              158
                                                403             600
                                                                400
                                                                                         151
                                                                                                            403
                                                                                                                  350      of total assets. For the third consecutive year,
                                                                200
 200
   0
             30


        Due from Banks         Loans         Inv't in Bonds/
                                                                  0
                                                                          29

                                                                      Due from Banks      Loans          Inv't in Bonds/
                                                                                                                           the main recipients of loans were non-resident
                  In the Phils. (Resident)
                                              Securities
                                                                      Outside the Phils. (Non-Resident)
                                                                                                           Securities
                                                                                                                           borrowers at 92.9 percent or $2.0 billion of total
                 December 2006                                                         December 2007                       loans (vs. 89.9 percent or $1.4 billion last year).
                                                                                                                           On the other hand, the share of resident
                                                                                                                           borrowers to total loans dropped to 7.1 percent


                                                                                      Source: Office of Supervisory Policy Development, Supervision and Examination Sector
                                                                                                                        Offshore Banking Units                            125
       STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007



(or $0.2 billion) from 10.1 percent. Likewise,
funds lent to non-resident banks comprised
96.0 percent (or $0.7 billion) of total due from
banks with the remaining 4.0 percent (or less
than half of $0.1 billion) going to resident
banks. Meanwhile, investment in bonds and
securities issued by non-residents fell by 62.6
percent (or $0.6 billion) to $0.4 billion, while
those issued by residents were maintained at
$0.4 billion. Proceeds from matured/sold
investments in bonds and securities issued by
non-residents were directed to higher yielding
loans.

       OBUs relied more on other banks for
funding than from their head office/branches,                                               OBUs relied more
the erstwhile main source of funding.                                                       on other banks for
Although due to other banks dropped by 25.8                                                 funding than from
percent (or $0.6 billion), it still comprised 44.5                                           their head office/
percent (or $1.6 billion) of total liabilities. Due                                            branches, the
to head office/branches, though up slightly by                                                erstwhile main
10.6 percent, funded only 15.9 percent (or                                                  source of funding
$0.6 billion) of total resources.

       Meanwhile, other liabilities remained
the second largest source of funds, expanding
by 59.4 percent (or $0.5 billion) to $1.4 billion
from $0.9 billion in 2006. Almost the entire
amount of such liabilities originated outside                  Offshore Banking System: Funding Mix
the Philippines.                                                      Deposits of                  Due to Other Banks               Deposits of                Due to Other Banks
                                                                     Non-Residents                       60.3%                    Non-Residents                      44.5%
                                                                    Other than Banks                                             Other than Banks
                                                                          0.6%                                                         0.4%


         Deposits of non-residents other than
banks was less than one percent of total                        Other Liabilities
                                                                    24.7%


liabilities at $16 million (down from $22 million                        Due to Head
                                                                                                                            Other Liabilities
                                                                                                                                39.2%
                                                                                                                                                                       Due to Head
                                                                                                                                                                      Office/Branches
                                                                        Office/Branches
last year) as OBUs have limited authority to                                 14.4%
                                                                                           $3,673 Million                                            $3,690 Million
                                                                                                                                                    December 2007
                                                                                                                                                                           15.9%

                                                                                          December 2006
accept deposits.


LOANS
       Loans to residents were concentrated
in 3 main economic activities. More than half
of the loans were granted to the
manufacturing sector at 57.0 percent or $86
million (up from 6.5 percent or $10 million in
2006).     The transportation, storage and
communications sector was a far second at
22.8 percent or $34 million (up from 21.7
percent or $34 million). The electricity, gas
and water sector was a far third at 6.4 percent
or $10 million (down from 39.0 percent or $62


Source: Office of Supervisory Policy Development, Supervision and Examination Sector
126            Offshore Banking Units

                                                                          STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007

Offshore Banking System
Loan Portfolio Structure
                                                                                              million). The collections from matured loans to
By Industry Sector
                                                               December 2007
                                                                                              the other industry sectors (public administration
              December 2006
                   6.5%
                                 17.9%                                       13.1%
                                                                                     0.7%
                                                                                              and defense, compulsory social security;
  21.7%                                  0.7%
                                            3.1%
                                            4.8%
                                                                                       6.4%   agriculture and fishery and forestry; and
                                             6.3%      57.0%
                                                                                              electricity, gas and water) were relent to the
                   39.0%
                                                                                      22.8%
                                                                                              manufacturing sector which soared by 735.0
                 $ 158 Million                                   $ 151 Million                percent or $76 million.
                                                                     2006        2007
          Manufacturing
          Transportation, Storage & Communication
                                                                      6.5%
                                                                     21.7%
                                                                                     57.0%
                                                                                     22.8%
                                                                                                     The bulk or 75.3 percent of loans to
          Electricity, Gas & Water
          Public Administration & Defense
                                                                     39.0%
                                                                      6.3%
                                                                                      6.4%
                                                                                      0.0%
                                                                                              residents had medium-term duration (maturity of
          Real Estate, Renting & Business Activities
          Agriculture, Fishery & Forestry
                                                                      4.8%
                                                                      3.1%
                                                                                      0.0%
                                                                                      0.0%
                                                                                              more than a year to 5 years).       Long-term
          Mining and Quarrying
          Others
                                                                      0.7%
                                                                     17.9%
                                                                                      0.7%
                                                                                     13.1%
                                                                                              (maturity of more than 5 years) and short-term
                                                                                              (up to 1 year maturity) lendings accounted for
                                                                                              13.7 percent and 11.0 percent of total loans,
                                                                                              respectively.




                                                               Source: Office of Supervisory Policy Development, Supervision and Examination Sector
                                                                                                                                  Trust   127

       STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007


                                      TRUST OPERATIONS

OVERVIEW

        The trust industry has proven its
resiliency. After a 3.2 percent contraction in                                                   The trust
2006, the industry sprung back and recorded                                                    industry has
a remarkable 34.9 percent growth in 2007.                                                       proven its
This came on the back of the sharp rise in                                                       resiliency
investment management accounts (IMA) of
119.6 percent together with the 24.2 percent
growth in trust and other fiduciary accounts
(TOFA) weighed down by the 12.8 percent
decline in common trust funds/unit investment
trust funds (CTFs/UITFs).       There was a
marked preference for IMA over TOFA and
UITFs, as investors opted for higher yield trust
products.

        Total assets and accountabilities of the
industry breached the trillion mark at P1,176.7
billion as of end-December 2007. This was
higher by 34.9 percent or P304.4 billion as of
end-December 2006 and by 32.5 percent or
P288.9 billion a semester ago. Universal and
Commercial banks were the dominant players
with a market share of 93.9 percent (or
P1,105.5 billion), down from 95.0 percent.
Meanwhile, both thrift banks and investment
houses increased their shares to 4.1 percent
or P47.7 billion (from 3.7 percent or P32.5
billion in 2006) and 2.0 percent or P23.5
billion (from 1.3 percent or P11.4 billion),
respectively. (Schedule 4)

        Trust assets of universal and
                                                                Trust System: Market Structure of Assets
commercial banks, which were the hardest hit
                                                                   Universal and                        Universal and
by the UITF meltdown last year, grew by 33.4                     Conmercial Banks
                                                                      95.0%
                                                                                                      Conmercial Banks
                                                                                                           93.9%

percent (or P277.1 billion) in 2007 after
declining by 4.6 percent (or P39.6 billion) in
2006. However, new placements were                                        NBFIs
                                                                          1.3%
                                                                                                             NBFIs
                                                                                                             2.0%
                                                                                    Thrift Banks
directed to IMA and TOFA which rose by                                                 3.7%                              Thrift Banks
                                                                                                                            4.1%


105.2 percent and 23.8 percent, respectively.                                P872.3 Billion
                                                                            December 2006
                                                                                                                     P1,176.7 Billion
                                                                                                                     December 2007
In contrast, CTFs/UITFs still diminished but at
a much slower pace of 13.4 percent (P23.4
billion) than the 38.3 percent (P108.7 billion)
decline in 2006.




Source: Office of Supervisory Policy Development, Supervision and Examination Sector
128   Trust

                               STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007


                                                  TOFA funded more than half of the
                                           industry’s total trust assets at 53.3 percent
                                           (down from 58.5 percent). IMA accounts were
                                           fast increasing and contributed 33.8 percent (up
                                           from 21.4 percent). On the other hand, CTFs/
                                           UITFs still contracted to 12.9 percent (from 20.1
                                           percent). (Schedule 4a)

                                                    Meanwhile, percentage share of
                                           peso-denominated accountabilities to total
                                           accountabilities was 89.4 percent or P1,052.0
                                           billion (vs. 84.0 percent or P732.5 billion in
                                           2006). The remaining 10.6 percent or P124.7
                                           billion (vs. 16.0 percent or P139.9 billion) was
                                           foreign-currency denominated, which declined
                                           by 10.8 percent or P15.2 billion.



                                           OPERATING NETWORK
                                                  As of end-December 2007, there were 56
                                           financial institutions (29 universal and
                                           commercial banks, 18 thrift banks and 9
                                           investment houses) authorized to engage in trust
                                           operations.    Of the 56, however, only 48 (28
                                           universal and commercial banks, 13 thrift banks
                                           and 7 investment houses) had outstanding trust
                                           assets/accountabilities.


                                           RESULTS OF OPERATIONS
                                                    The industry remained profitable in 2007.
                                           However, the 34.9 percent increase in trust
                                           assets failed to translate to higher profits for the
                                           industry as operating income slid by 3.9 percent
            Structural reforms             to 4.2 billion from 4.3 billion in 2006. The
             instituted by the             general reduction in trust fee charges brought on
         industry in response to           by heightened competition and market volatility
          the 2006 UITF episode            dragged down operating income. Trust income
            such as improving              from fees and commissions was up by only 1.8
           competency of UITF              percent to P6.2 billion. However, trust expenses
           marketing personnel             grew at a faster rate of 14.4 percent to P2.1
           and conduct of client           billion from P1.8 billion.      Structural reforms
            suitability tests on           instituted by the industry in response to the 2006
          prospective investors            UITF episode such as improving competency of
         padded trust expenses             UITF marketing personnel and conduct of client
                                           suitability tests on prospective investors padded
                                           trust expenses. Thus, cost-to-income ratio rose
                                           to 33.1 percent from 29.6 percent. Meantime,

                         Source: Office of Supervisory Policy Development, Supervision and Examination Sector
                                                                                                                                                                   Trust          129

       STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007


return on assets slid to 0.4 percent from 0.5
percent (Table 45)

       Universal and commercial banks earned
almost all of the P4.2 billion operating income of
the industry at 96.2 percent or P4.0 billion,
(down from 98.3 percent or P4.3 billion last
year).     Thrift banks and NBFIs, which shared
the remaining 3.8 percent, increased their trust
operating income by 95.5 percent and 400.0
percent, respectively. (Schedule 4e)




ASSETS
        The industry bounced back in 2007 as
total assets rose by 34.9 percent (or P304.4
billion) to P1,176.7 billion, after sliding by 3.2
percent to P872.3 billion last year.          The
expansion in trust assets was accounted for by
IMA accounts which soared by 119.6 percent (or
P210.7 billion) and TOFA accounts which grew
by 24.2 percent (or P118.8 billion) In contrast,
CTFs/UITFs continued to fall but at a slower rate
of 12.8 percent (or P21.8 billion) compared to
the 39.0 percent decline posted in 2006.

        The trust industry remained conservative,
investing most of its funds in assets that ensure
steady cash flow stream.        Majority or 40.3                                             The trust industry
percent (vs. 49.8 percent last year) of trust                                                     remained
assets were in risk-free government securities.                                                conservative,
Following BSP’s pronouncement allowing trust                                                 investing most of
entities to access the special deposit account                                              its funds in assets
(SDA) facility, the proportion of cash and due                                              that ensure steady
from banks over total assets almost doubled to                                               cash flow stream
26.3 percent from 13.4 percent. A significant
amount of cash and due from banks was in
SDAs which yielded competitive returns.
Meanwhile, investments in private instruments
and stocks comprised 19.0 percent (vs. 20.4
percent) of total assets.
                                                                   Trust System: Asset Mix
       Noticeably, majority (or 63.4 percent) of                                     Loans and Discounts    Investments in Gov't                      Loans and Discounts    Investments in Gov't

additional funds in the trust industry were                                 Cash & due
                                                                            from banks
                                                                                            5.1%                 Securities
                                                                                                                  49.8%
                                                                                                                                         Cash & due
                                                                                                                                         from banks
                                                                                                                                            26.3%
                                                                                                                                                             4.0%                 Securities
                                                                                                                                                                                   40.3%
                                                                               13.4%

retained in cash and due from banks which                             Others 5.3%                                                   Others 5.3%
                                                                       ROPA 0.1%                                                    ROPA 0.1%
soared by 164.7 percent (or P192.9 billion) to                     Investments in Real
                                                                       Estate 1.9%                                             Investments in Real
                                                                                                                               Estate 1.4%
P310.0 billion. Moreover, some P45.9 billion (or                      Investments in CTFs
                                                                             4.0%
                                                                                         Investments in Private
                                                                                                                                   Investments in CTFs 3.6%
                                                                                                                                                                Investments in Private
                                                                                          Instruments & Stocks

25.8 percent of additional funds) were invested                                                  20.4%                                                          Instruments & Stocks
                                                                                                                                                                       19.0%

                                                                                            P872.3 Billion                                                    P1,176.7 Billion
in privately issued financial instruments and                                             December 2006                                                    December 2007




Source: Office of Supervisory Policy Development, Supervision and Examination Sector
130   Trust

                                    STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007




                                               about P39.8 billion (or 9.2 percent) channeled to
                                               government securities. Declining interest rates on
                                               government securities prompted the industry to
                                               place more funds in better yielding private
                                               instruments.

                                                      The industry was flushed with liquidity as
                                               indicated by the ratios. Cash and due from banks
                                               as well as liquid assets to total accountabilities
                                               ratios were at their record highs at 26.4 percent
                                               (from 13.4 percent in 2006) and 85.6 percent
                                               (from 83.5 percent), respectively, as funds were
                                               kept in cash and due from banks. Meantime,
                                               subdued lending pushed down loans, gross to
                                               total accountabilities to a record low of 3.7
                                               percent from 5.2 percent. (Tables 44 and 45)

                                                      All three major fund categories placed
                                               most of their funds in government securities.
                                               Private debt and equity instruments were the
                                               second preferred investment for TOFA, while
                                               both UITF and IMA opted for cash and due from
                                               banks. IMA was the most liquid fund category
                                               with cash and due from banks-to-total
                                               accountabilities ratio shooting up to 39.1 percent
                                               (from 14.4 percent last year). Likewise liquid
                                               assets-to-total accountabilities ratio of the fund
                                               rose to 94.7 percent from 86.3 percent.

                                                      Asset quality further improved in 2007 as
                                               the industry curbed its level of bad assets.
                 Asset quality
                                               Non-performing loans (NPL) ratio favorably fell to
              further improved in
                                               4.4 percent from 5.0 percent as NPLs were
                  2007 as the
                                               trimmed by 16.0 percent while keeping loans at
              industry curbed its
                                               manageable level. Likewise, the non-performing
              level of bad assets
                                               assets (NPA) ratio was at its lowest in five years
                                               at 0.3 percent as the stock of bad assets
                                               continued to thin by 12.5 percent.

                                                     In terms of loss provisioning, soured loans
                                               were more than adequately covered as the NPL
                                               coverage ratio further widened to 114.5 percent
                                               from 105.4 percent in 2006. Similarly, the NPA
                                               coverage ratio strengthened to 98.8 percent from
                                               93.5 percent as a result of the 4.5 percent decline
                                               in ROPA.




                            Source: Office of Supervisory Policy Development, Supervision and Examination Sector
                                                                                                                                                                      Trust           131

       STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007



ACCOUNTABILITIES
       TOFA funded more than half or 51.9                       Trust System: IMA, CTF/UITF and TOFA Distribution
                                                                In P Billion
percent (or P610.2 billion) of the industry’s                     1,400.0


total trust resources. IMA and CTF/UITF                           1,200.0

                                                                  1,000.0
accounts contributed the remaining 32.9                             800.0
                                                                                                                                                                                      UITF

percent (P387.0 billion) and 12.7 percent                           600.0                                                                                                             CTF

(P149.1 billion), respectively.                                     400.0                                                                                                             IMA
                                                                    200.0
                                                                                                                                                                                      TOFA
                                                                       -
       Major TOFA accounts and their                                              2001             2002       2003           2004          2005           2006         2007


corresponding shares are as follows: personal                   Note: BSP Circular No. 447 dated 3 Sept. 2004 created UITFs and phased out CTFs within a period of two years which ended 1
                                                                October 2006, except tax-exempt, long-term CTFs which shall be completely phased out on 1 October 2009

trust – 14.8 percent, employee benefit plans
under trust – 11.6 percent, pre-need plans –
8.7 percent and other trust and fiduciary
                                                                Trust System: Funding Mix
accounts – 8.6 percent. Of the major TOFA                                                Pre-need    Other                                          Pre-need        Other     Other Trust &

accounts, personal trust rose strongly by 41.7                             Personal
                                                                                          Plans
                                                                                          10.9%
                                                                                                  Institutional
                                                                                                     Trust
                                                                                                     4.7%
                                                                                                                Other Trust &
                                                                                                                  Fiduciary
                                                                                                                 Accounts             Personal
                                                                                                                                                     Plans
                                                                                                                                                     8.7%
                                                                                                                                                                 Institutional Fiduciary
                                                                                                                                                                    Trust
                                                                                                                                                                    3.1%
                                                                                                                                                                                Accounts
                                                                                                                                                                                  8.6%
                                                                                                                                                                                          UITFs
percent (P51.4 billion) after a momentary lull                              Trust
                                                                            14.1%
                                                                                                                    7.3%                Trust
                                                                                                                                       14.8%
                                                                                                                                                                                          12.7%

                                                                 Escrow 2.6%
in 2006, with the issuance of the BSP                                                                                               Escrow 2.7%

                                                                 Emp. Benefit

guidelines on living trusts under Circular No.                   Plans 13.3%

                                                                  Administratorship
                                                                                                                                Emp. Benefit
                                                                                                                                Plans 11.6%



521 dated 21 March 2006 (amended by                                    3.3%
                                                                                    Other
                                                                                Accountabilities      IMA
                                                                                                                     UITFs
                                                                                                                     19.6%
                                                                                                                                Administratorship
                                                                                                                                     2.4%
                                                                                                                                                      Other
                                                                                                                                                  Accountabilities             IMA

Circular No. 553 dated 22 December 2006).                                           4.0%             20.2%                                            2.5%                    32.9%



Likewise, other trust and fiduciary accounts,                                              P872.3 Billion
                                                                                          December 2006
                                                                                                                                                            P1,176.7 Billion
                                                                                                                                                            December 2007

which are subject to reserves, rose by 59.1
percent. Meanwhile, employee benefit plans
under trust and pre-need plans exhibited
slower growth at 17.2 percent (vs. 20.2
percent last year) and 7.7 percent (vs. 20.6
percent), respectively.

       As of end-2007, there were 18
universal and commercial banks, 7 thrift
banks and 3 investment houses with
outstanding CTF/UITF accountabilities
amounting to P152.1 billion. Of the said
amount, P9.2 billion tax-exempt CTFs
remained. These CTFs are to be phased out
by 01 October 2009 in accordance with the
provisions of Circular No. 447 dated 03
September 2004.

COMPARATIVE GROWTH TRENDS
         Trust assets of trust-licensed banks
amounted to P1,153.2 billion as of
end-December 2007. This amount was 34.7
percent of these banks’ total domestic deposit
liabilities (net of trust deposits of trust-licensed
entities) which stood at P3,320.2 billion as of
end-year 2007. This ratio was higher by 7.2



Source: Office of Supervisory Policy Development, Supervision and Examination Sector
   132          Trust

                                                           STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007


                                                                            percentage points than last year’s ratio of 27.5
                                                                            percent.

Domestic Deposit Liabilities (Net of Trust Deposits)                                As shown in the chart, there was steady
of Banks with Trust Functions Vs. Trust Assets                              growth in the level of domestic deposit liabilities
 In P Billion                                                  In Percent   of trust-licensed banks from end-year 2002 to end
  3,500.0                                                           60.0
 3,000.0                                                           50.0     -year 2007. During the same period, the level of
 2,500.0                                                           40.0
                                                                            trust asset growth of these trust-licensed banks
 2,000.0                                                           30.0
 1,500.0                                                           20.0     took a downturn in 2006 on account of the UITF
 1,000.0                                                           10.0     meltdown. Nevertheless, trust assets picked up
   500.0                                                           0.0
        -                                                          (10.0)
                                                                            anew in 2007 as high net worth clients opted for
                2002     2003    2004   2005    2006    2007
                                                                            IMA placements which delivered better yield.
                Deposit Liabilities            Trust Assets
                % Growth Deposits              % Growth Trust
                                                                                     Meantime, the growth rate of trust assets
                                                                            was on a declining trend from year 2003 (19.3
                                                                            percent) to 2006 (negative 3.5 percent), but
                                                                            rebounded sharply in 2007 (34.0 percent). On
                                                                            the other hand, the growth rate of deposit
                                                                            liabilities was relatively stable in years 2002,
                                                                            2003, 2005 and 2007 ranging to a high 6.2
                                                                            percent in 2007 and a low 4.8 percent in 2002.

                                                                                   Steep growth rates in deposit liabilities
                                                                            transpired in 2004 (17.8 percent) and in 2006
                                                                            (17.5 percent). These had inverse relation with
                                                                            the growth rates in trust assets. In 2004, the
                                                                            expansion in trust assets slid to 14.7 percent
                                                                            (from 19.3 percent in 2005). This was the year
                                                                            when the BSP issued Circular No. 447 providing
                                                                            the guidelines on UITF and the gradual phaseout
                                                                            of CTFs. Likewise, with the UITF episode in
                                                                            2006, trust assets declined by 3.5 percent, a
                                                                            reversal of the 11.2 percent growth rate in 2005.




                                                   Source: Office of Supervisory Policy Development, Supervision and Examination Sector
                                                                                       List of Tables
       STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007




LIST OF TABLES
THE PHILIPPINE BANKING SYSTEM
        TABLE 1                    FINANCIAL HIGHLIGHTS
        TABLE 2                    SELECTED PERFORMANCE INDICATORS
        TABLE 3                    REGIONAL PROFILE
        TABLE 4                    DENSITY RATIO
        TABLE 5                    AUTOMATED TELLER MACHINES (ATMS)
        TABLE 6                    PROFITABILITY INDICATORS
        TABLE 7                    COMPOSITION OF OPERATING INCOME, BY BANK TYPE
        TABLE 8                    ASSET QUALITY INDICATORS

UNIVERSAL        AND    COMMERCIAL BANKING INDUSTRY
        TABLE 9                    FINANCIAL HIGHLIGHTS
        TABLE 10                   SELECTED PERFORMANCE INDICATORS
        TABLE 11                   REGIONAL PROFILE
        TABLE 12                   AUTOMATED TELLER MACHINES (ATMS)
        TABLE 13                   BANKS AUTHORIZED TO ENGAGE IN E-BANKING OPERATIONS
        TABLE 14                   PROFITABILITY INDICATORS
        TABLE 15                   ASSET QUALITY INDICATORS

THRIFT BANKING INDUSTRY
        TABLE 16                   FINANCIAL HIGHLIGHTS
        TABLE 17                   SELECTED PERFORMANCE INDICATORS
        TABLE 18                   REGIONAL PROFILE
        TABLE 19                   AUTOMATED TELLER MACHINES (ATMS)
        TABLE 20                   BANKS AUTHORIZED TO ENGAGE IN E-BANKING OPERATIONS
        TABLE 21                   PROFITABILITY INDICATORS
        TABLE 22                   ASSET QUALITY INDICATORS

RURAL BANKING INDUSTRY
        TABLE 23                   FINANCIAL HIGHLIGHTS
        TABLE 24                   SELECTED PERFORMANCE INDICATORS
        TABLE 25                   REGIONAL PROFILE
        TABLE 26                   AUTOMATED TELLER MACHINES (ATMS)
        TABLE 27                   BANKS AUTHORIZED TO ENGAGE IN E-BANKING OPERATIONS
        TABLE 28                   PROFITABILITY INDICATORS
        TABLE 29                   PROFITABILITY INDICATORS, BY REGION
        TABLE 30                   ASSET QUALITY INDICATORS

COOPERATIVE BANKING INDUSTRY
        TABLE 31                   FINANCIAL HIGHLIGHTS
        TABLE 32                   SELECTED PERFORMANCE INDICATORS
        TABLE 33                   REGIONAL PROFILE
        TABLE 34                   PROFITABILITY INDICATORS
        TABLE 35                   PROFITABILITY INDICATORS, BY REGION
        TABLE 36                   ASSET QUALITY INDICATORS

Source: Office of Supervisory Policy Development, Supervision and Examination Sector
List of Tables
                  STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007




NON-BANKS WITH QUASI-BANKING FUNCTIONS (NBQBS)
       TABLE 37            FINANCIAL HIGHLIGHTS
       TABLE 38            SELECTED PERFORMANCE INDICATORS
       TABLE 39            PROFITABILITY INDICATORS
       TABLE 40            ASSET QUALITY INDICATORS

NON-STOCKS SAVINGS AND LOAN ASSOCIATIONS (NSSLAS)
       TABLE 41            SELECTED PERFORMANCE INDICATORS
       TABLE 42            ASSET QUALITY INDICATORS

OFFSHORE BANKING UNITS (OBUS)
       TABLE 43            FINANCIAL HIGHLIGHTS
       TABLE 44            SELECTED PERFORMANCE INDICATORS

TRUST OPERATIONS
       TABLE 45            FINANCIAL HIGHLIGHTS
       TABLE 46            SELECTED PERFORMANCE INDICATORS
       TABLE 47            BALANCE SHEET STRUCTURE




                  Source: Office of Supervisory Policy Development, Supervision and Examination Sector
        STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007




Table 1. Philippine Banking System: Financial Highlights


 Levels (P Billion)                                   2003          2004         2005     2006        2007p/
 Income Statement
   Total Operating Income                              174.2         189.7        217.5    246.5       267.0
     Net Interest Income                               102.9         128.4        148.8    155.4       168.1
     Non-interest Income                                71.3          61.3         68.7     91.1        98.8
   Operating Expenses                                  143.7         152.2        169.2    191.1       206.5
     Bad Debts/Provisions for Probable
     Losses                                             23.7          19.7         22.8     27.3        24.1
     Other Operating Expenses                          120.1         132.5        146.4    163.8       182.3
   Net Operating Income                                 30.4          37.5         48.3     55.4        60.5
   Extraordinary Credits/(Charges)                      19.1           8.0          9.5     12.3        16.4
   Net Income Before Tax (NIBT)                         49.6          45.5         57.7     67.7        76.9
   Provisions for income tax                             9.7          10.4         13.2     10.3        14.0
   Net Income After Tax (NIAT)                          39.9          35.1         44.5     57.4        62.9

 Balance Sheet
   Total Assets 1/                                   3,661.1       4,024.4      4,319.1   4,865.6    5,133.6
     Cash and Due from Banks                           285.1         320.3        385.8     633.1      750.4
     Interbank Loans Receivable (IBL)                  280.0         260.9        349.2     432.5      388.4
     Loans, gross (exclusive of IBL)                 1,702.3       1,770.4      1,804.4   1,995.4    2,212.8
       Allowance for Probable Losses                   160.8         160.9        144.9     133.1      116.0
     Loans, net (exclusive of IBL)                   1,540.9       1,609.5      1,659.6   1,862.3    2,096.9
     Investment, net                                   990.5       1,249.0      1,289.8   1,289.8    1,265.7
     ROPA, net 2/                                      223.5         235.9        209.7     198.7      181.1
     Other Assets                                      341.2         348.7        425.1     449.2      451.1
   Total Liabilities                                 3,181.8       3,521.8      3,807.9   4,296.6    4,531.8
     Deposits                                        2,469.2       2,767.1      2,970.8   3,497.6    3,664.4
     Bills Payable                                     381.0         386.8        464.6     379.8      415.4
     Special Financing                                   1.0           0.7          0.2       0.2        0.1
     Other Liabilities                                 295.5         315.9        321.5     343.5      370.9
      Unsecured Subordinated Debt                       35.1          51.4         50.8      75.6       81.0
   Total Capital Accounts 3/                           479.4         502.6        511.2     569.0      601.8

 1/   Adjusted to net off the account "Due from Head Office" with "Due to Head Office" of branches of foreign banks
 2/   Per Circular No. 494 dated 20 September 2005, ROPOA is renamed as Real and Other Properties Acquired (ROPA).
 3/   Inclusive of the portion of the "Net Due To Head Office" which qualified as capital
 p/   Preliminary data




Source: Office of Supervisory Policy Development, Supervision and Examination Sector
                             STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007

Table 2. Philippine Banking System: Selected Performance Indicators

Growth Rates                                             2003         2004         2005         2006         2007p/
Income Statement
   Total Operating Income                                  6.1 %       8.9 %       14.6 %       13.4 %         8.3 %
    Net Interest Income                                    6.4 %      24.8 %       15.9 %        4.4 %         8.2 %
    Non-interest Income                                    5.7 %    (14.1 %)       12.1 %       32.8 %         8.4 %
   Operating Expenses                                      0.6 %       5.9 %       11.2 %       13.0 %         8.0 %
    Bad Debts/Provisions for Probable
    Losses                                               (7.5 %)    (16.6 %)       15.4 %       19.9 %      (11.7 %)
    Other Operating Expenses                               2.4 %      10.3 %       10.5 %       11.9 %        11.3 %
   Net Operating Income                                  42.7 %       23.1 %       28.8 %       14.7 %         9.3 %
   Extraordinary Credits/(Charges)                      212.3 %     (58.3 %)       18.6 %       30.4 %        32.8 %
   Net Income Before Tax (NIBT)                          80.5 %      (8.3 %)       27.0 %       17.3 %        13.5 %
   Provisions for income tax                            667.6 %        7.4 %       27.7 %     (22.5 %)        36.0 %
   Net Income After Tax (NIAT)                           52.3 %     (12.1 %)       26.8 %       29.1 %         9.5 %
Balance Sheet
   Total Assets 1/                                        5.3 %        9.9 %        7.3 %       12.7 %         5.5 %
    Cash and Due from Banks                            (14.1 %)       12.3 %       20.5 %       64.1 %        18.5 %
    Interbank Loans Receivable (IBL)                     29.2 %      (6.8 %)       33.8 %       23.9 %      (10.2 %)
    Loans, gross (exclusive of IBL)                       3.7 %        4.0 %        1.9 %       10.6 %        10.9 %
        Allowance for Probable Losses                     5.5 %        0.0 %     (10.0 %)      (8.1 %)      (12.9 %)
    Loans, net (exclusive of IBL)                         3.5 %        4.5 %        3.1 %       12.2 %        12.6 %
    Investment, net                                      12.6 %       26.1 %        3.3 %        0.0 %       (1.9 %)
    ROPA, net 2/                                          8.4 %        5.6 %     (11.1 %)      (5.2 %)       (8.9 %)
    Other Assets                                        (3.3 %)        2.2 %       21.9 %        5.7 %         0.4 %
   Total Liabilities                                      5.7 %       10.7 %        8.1 %       12.8 %         5.5 %
    Deposits                                              4.9 %       12.1 %        7.4 %       17.7 %         4.8 %
    Bills Payable                                         6.7 %        1.5 %       20.1 %     (18.3 %)         9.4 %
    Special Financing                                  (38.8 %)     (33.1 %)     (69.0 %)     (15.3 %)      (13.2 %)
    Other Liabilities                                   (1.2 %)        6.9 %        1.8 %        6.8 %         8.0 %
     Unsecured Subordinated Debt                              -       46.2 %      (1.1 %)       48.9 %         7.1 %
   Total Capital Accounts3/                                3.2 %       4.8 %        1.7 %       11.3 %         5.8 %

Selected Ratios
Profitability
   Cost-to-Income Ratio                                  68.9 %       69.8 %       67.3 %       66.5 %       68.3 %
   Return on Assets (ROA)                                 1.1 %        0.9 %        1.1 %        1.3 %        1.3 %
   Return on Equity (ROE)                                 8.5 %        7.1 %        8.8 %       10.6 %       10.8 %
Liquidity
   Cash and Due from Banks to Deposits                   11.5 %       11.6 %       13.0 %       18.1 %       20.5 %
   Liquid Asset to Deposits Ratio4/                      47.9 %       53.2 %       53.0 %       52.0 %       51.8 %
   Loans (gross) to Deposits                             80.3 %       73.4 %       72.5 %       69.4 %       71.0 %
Asset quality
   Non-performing Loans (NPL) Ratio                      13.8 %       12.5 %        8.4 %        6.1 %        5.0 %
   NPL Ratio (exclusive of IBL)                          16.1 %       14.4 %       10.0 %        7.5 %        5.8 %
   NPL Coverage Ratio                                    51.5 %       58.0 %       72.9 %       75.0 %       81.5 %
   Non-performing Assets (NPA) to Gross
   Assets                                                13.2 %       11.8 %        8.8 %        6.9 %        5.9 %
   NPA Coverage Ratio                                    30.9 %       33.2 %       38.4 %       37.3 %       39.8 %
   Distressed Asset Ratio                                27.0 %       25.3 %       19.7 %       15.8 %       13.2 %
Capital Adequary
   Total Capital Accounts to Total Assets                13.1 %       12.5 %       11.8 %       11.7 %       11.7 %
                                                                                                                   a/
   Capital Adequacy Ratio (solo basis)5/                 16.0 %       17.4 %       16.4 %       16.9 %       14.7 %

 1/ Adjusted to net off the account "Due from Head Office" with "Due to Head Office" of branches of foreign banks
 2/ Per Circular No. 494 dated 20 September 2005, ROPOA is renamed as Real and Other Properties Acquired (ROPA).
 3/ Inclusive of the portion of the "Net Due To Head Office" which qualified as capital
 4/ Liquid Assets refers to Cash and Due from Banks plus Investment, net (less equity investments, net)
 5/ Based on the new framework provided for under Circular No. 280 dated 29 March 2001, formally adopted 1 July
    2001; Under Circular No. 360 dated 3 December 2002, adopted 1 July 2003, Universal/Commercial Banks are to
    incorporate market risks in addition to credit risks; Under Circular No. 538 dated 4 August 2006, effective 1 July
    2007, U/KBs are to incorporate operational risk in addition to credit and market risks.
 p/ Preliminary data
 a/ Data as of end-September 2007


                              Source: Office of Supervisory Policy Development, Supervision and Examination Sector
       STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007




 Table 3. Philippine Banking Offices: Regional Profile


                                                                                 End-December 2007
                                                            End-
                                                          December                       Head     Branches/
                                                            2006             Total                  Other
                                                                                        Offices
                                                                                                   Offices

   TOTAL                                                        7,710          7,744        847       6,897

   Nationwide                                                   7,666          7,703        847       6,856

     National Capital Region (NCR)                              2,649          2,659        101       2,558
     Luzon                                                      3,007          3,041        454       2,587
      Region I      - Ilocos                                      379            369         62         307
      Region II     - Cagayan                                     231            239         37         202
      Region III    - Central Luzon                               812            816        110         706
      Region IV-A - CALABARZON                                  1,170          1,164        153       1,011
      Region IV-B - MIMAROPA                                       86            118         26          92
      Region V      - Bicol                                       219            222         45         177
      Cordillera Autonomous Region (CAR)                          110            113         21          92
     Visayas                                                    1,075          1,061        165        896
      Region VI   - Western Visayas                               439            413         78        335
      Region VII - Central Visayas                                503            515         61        454
      Region VIII - Eastern Visayas                               133            133         26        107
     Mindanao                                                      935            942       127        815
      Region IX        -   Western Mindanao                        122            128        17        111
      Region X         -   Northern Mindanao                       252            253        47        206
      Region XI        -   Southern Mindanao                       253            253        21        232
      Region XII       -   Central Mindanao                        168            169        21        148
      ARMM                                                          26             24         2         22
      CARAGA                                                       114            115        19         96
   Overseas                                                         44             41         0         41
     Asia-Pacific                                                   24             23         0         23
     Europe                                                         10              9         0          9
     North America                                                   7              6         0          6
     Middle East                                                     3              3         0          3




Source: Office of Supervisory Policy Development, Supervision and Examination Sector
                                      STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007




Table 4. Philippine Banking System: Density Ratio


                                                           End-December 2006                    End-December 2007
                                                                             No. of                              No. of
                                                       Banking              persons         Banking             persons
                                                      Offices per          served by       Offices per         served by
                                                         City/               each             City/              each
                                                      Municipality          Banking        Municipality         Banking
                                                                            Office 1/                           Office 1/


 Nationwide                                                           5         11,345                   5           11,516

    National Capital Region (NCR)                                  156           4,131                156             4,174
    Luzon                                                             4         12,562                   4           12,376
    Region I       - Ilocos                                           3         12,607                   3           13,212
    Region II      - Cagayan                                          2         13,589                   3           13,366
    Region III     - Central Luzon                                    6         11,558                   6           11,736
    Region IV-A - CALABARZON                                          8          9,319                   8            9,581
    Region IV-B - MIMAROPA                                            2         31,637                   2           15,697
    Region V       - Bicol                                            2         24,153                   2           24,290
    Cordillera Autonomous Region (CAR)                                1         14,177                   1           14,092
    Visayas                                                           3         16,375                   2           17,810
    Region VI         - Western Visayas                               3         15,973                   3           19,588
    Region VII        - Central Visayas                               4         12,898                   4           12,854
    Region VIII       - Eastern Visayas                               1         30,851                   1           31,481
    Mindanao                                                          2         22,085                   2           22,371
    Region IX         -   Western Mindanao                            2        26,388                    1           25,661
    Region X          -   Northern Mindanao                           3        15,885                    3           16,093
    Region XI         -   Southern Mindanao                           5        16,155                    4           16,485
    Region XII        -   Central Mindanao                            3        22,218                    3           22,591
    ARMM                                                              0       124,800                    0          138,358
    CARAGA                                                            2        20,725                    2           20,943

 1/ Philippine population based on National Statistics Office (NSO) data




                                       Source: Office of Supervisory Policy Development, Supervision and Examination Sector
           STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007




Table 5. Philippine Banking System: Automated Teller Machines (ATMs)
As of end-periods indicated

                                                        On-site                  Off-site               Total

                                                  Dec '06 Dec '07          Dec '06 Dec '07         Dec '06 Dec '07

 NATIONWIDE                                          4,898      5,118        1,969         2,037    6,867       7,155

   National Capital Region (NCR)                     2,221      2,294        1,107         1,105    3,328       3,399
   Luzon                                             1,421      1,497           513         547     1,934       2,044
    Region I       - Ilocos                            157         164           23          23       180        187
    Region II      - Cagayan                            75          81            7           8        82         89
    Region III     - Central Luzon                     378         396          125         120       503        516
    Region IV-A - CALABARZON                           609         620          319         341       928        961
    Region IV-B - MIMAROPA                              21          36            4          10        25         46
    Region V       - Bicol                             111         125           11          17       122        142
    Cordillera Autonomous Region (CAR)                  70          75           24          28        94        103
   Visayas                                             660         691          223         241       883        932
    Region VI       - Western Visayas                  267         270           67          78       334        348
    Region VII      - Central Visayas                  310         333          147         153       457        486
    Region VIII     - Eastern Visayas                   83          88            9          10        92         98
   Mindanao                                            596         636          126         144       722        780
    Region IX       -   Western Mindanao                84          88           13          17        97        105
    Region X        -   Northern Mindanao              143         150           40          45       183        195
    Region XI       -   Southern Mindanao              181         200           44          46       225        246
    Region XII      -   Central Mindanao               113         119           24          28       137        147
    ARMM                                                18          20                        0        18         20
    CARAGA                                              57          59             5          8        62         67




    Source: Office of Supervisory Policy Development, Supervision and Examination Sector
                           STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007

Table 6. Philippine Banking System: Profitability Indicators

 Levels (P Billion)                                     2003        2004         2005        2006        2007 p/
 Total Operating Income                                  174.2      189.7         217.5       246.5      267.0
    Net Interest Income                                  102.9      128.4         148.8       155.4      168.1
      Interest Income                                    204.6      243.4         279.7       301.3      304.6
      Interest Expenses                                  101.8      114.9         130.9       145.9      136.4
    Non-interest Income                                   71.3        61.3         68.7        91.1        98.8
      Fee-based income                                    24.3        27.4         28.8        30.5        36.5
      Trading Income                                      32.9        15.7         23.0        40.7        39.5
      Trust department income                              4.4         4.7          4.0         4.3         4.1
      Other income                                         9.7        13.5         12.9        15.5        18.7
 Operating Expenses                                      143.7      152.2         169.2       191.1      206.5
    Bad Debts/Provisions for Probable
    Losses                                                23.7        19.7        22.8         27.3        24.1
    Other Operating Expenses                             120.1       132.5       146.4        163.8       182.3
 Net Operating Income                                     30.4        37.5        48.3         55.4        60.5
 Extraordinary Credits/(Charges)                          19.1         8.0         9.5         12.3        16.4
 Net Income Before Tax (NIBT)                             49.6        45.5        57.7         67.7        76.9
 Provisions for income tax                                 9.7        10.4        13.2         10.3        14.0
 Net Income After Tax (NIAT)                              39.9        35.1        44.5         57.4        62.9
 Growth Rates
 Total Operating Income                                   6.1 %    8.9 % 14.6 %              13.4    %     8.3 %
    Net Interest Income                                   6.4 % 24.8 % 15.9 %                 4.4    %     8.2 %
      Interest Income                                     3.2 % 18.9 % 15.0 %                 7.7    %     1.1 %
      Interest Expenses                                   0.1 % 13.0 % 13.9 %                11.5    %   (6.5 %)
    Non-interest Income                                   5.7 % (14.1 %) 12.1 %              32.8    %     8.4 %
      Fee-based income                                  11.2 % 12.8 %       5.1 %             5.9    %   19.6 %
      Trading Income                                    (2.5 %) (52.4 %) 46.6 %              77.2    %   (3.0 %)
      Trust department income                           30.7 %     6.5 % (15.6 %)             8.8    %   (4.3 %)
      Other income                                      14.3 % 39.3 % (4.3 %)                20.7    %   20.3 %
 Operating Expenses                                       0.6 %    5.9 % 11.2 %              13.0    %     8.0 %
    Bad Debts/Provisions for Probable
    Losses                                             (7.5 %) (16.6 %)          15.4   % 19.9 % (11.7 %)
    Other Operating Expenses                             2.4 % 10.3 %            10.5   % 11.9 % 11.3 %
 Net Operating Income                                  42.7 % 23.1 %             28.8   % 14.7 %    9.3 %
 Extraordinary Credits/(Charges)                      212.3 % (58.3 %)           18.6   % 30.4 % 32.8 %
 Net Income Before Tax (NIBT)                          80.5 % (8.3 %)            27.0   % 17.3 % 13.5 %
 Provisions for income tax                            667.6 %     7.4 %          27.7   % (22.5 %) 36.0 %
 Net Income After Tax (NIAT)                           52.3 % (12.1 %)           26.8   % 29.1 %    9.5 %
       1/
 Selected Ratios
 Earning Asset Yield 1/                                  7.4 %        8.0   %     8.6   %      8.7   %     8.3     %
 Funding Cost 2/                                         3.6 %        3.8   %     3.9   %      3.9   %     3.4     %
 Interest Spread 3/                                      3.8 %        4.2   %     4.7   %      4.8   %     5.0     %
                    4/
 Net Interest Margin                                     3.7 %        4.2   %     4.6   %      4.5   %     4.6     %
 Non-interest Income to Total Operating
 Income                                                 40.9 %      32.3    %    31.6   %    37.0    %   37.0      %
 Cost-to-Income Ratio 5/                                68.9 %      69.8    %    67.3   %    66.5    %   68.3      %
 Return on Assets (ROA)6/                                1.1 %       0.9    %     1.1   %     1.3    %    1.3      %
 Return on Equity (ROE) 6/                               8.5 %       7.1    %     8.8   %    10.6    %   10.8      %

  1/ Earning Asset Yield refers to the ratio of interest income to average earning assets
  2/ Funding Cost refers to the ratio of interest expenses to average interest-bearing liabilities
  3/ Interest Spread refers to the difference between earning asset yield and funding cost
  4/ Net Interest Margin refers to the ratio of net interest income to average earning assets
  5/ Cost-to-Income Ratio refers to operating expenses, exclusive of bad debts and provisions to total operating
     income
  6/ ROA and ROE refers to the ratio of annualized NIAT to average assets and capital, respectively.
  p/ Preliminary Data



                           Source: Office of Supervisory Policy Development, Supervision and Examination Sector
       STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007




  Table 7. Philippine Banking System: Composition of Operating Income


                                                     2003          2004          2005    2006    2007

     Total Operating Income                         100.0%       100.0%        100.0%   100.0%   100.0%

     Net Interest Income
                                                                                                        p/
     All Banks                                      59.1%         67.7%         68.4%   63.0%    63.0%
     Domestic Banks                                 58.8%         66.1%         68.2%   63.3%    64.7%p/
       Private Domestic UBs                         50.0%         60.1%         64.4%   58.5%    61.3%
       Private Domestic KBs                         60.8%         71.0%         66.4%   59.3%    67.0%
       Government Banks                             78.4%         78.9%         78.2%   77.6%    67.0%
       Thrift Banks                                 73.7%         76.5%         77.6%   71.8%    74.8%
       Rural Banks                                  69.6%         70.6%         71.1%   70.6%    73.8%p/
                                                                                                         p/
      Cooperative Banks                             53.0%         51.4%         52.5%   54.0%    54.5%
     Foreign Bank Branches/
     Subsidiaries                                   60.4%         76.3%         69.6%   62.0%    55.1%
       Foreign Bank Branches                        59.6%         76.2%         70.1%   60.6%    51.3%
       Foreign Bank Subsidiaries                    66.8%         76.7%         58.9%   72.8%    83.3%

     Non-Interest Income
                                                                                                        p/
     All Banks                                      40.9%         32.3%         31.6%   37.0%    37.0%
                                                                                                        p/
     Domestic Banks                                 41.2%         33.9%         31.8%   36.7%    35.3%
       Private Domestic UBs                         50.0%         39.9%         35.6%   41.5%    38.7%
       Private Domestic KBs                         39.2%         29.0%         33.6%   40.7%    33.0%
       Government Banks                             21.6%         21.1%         21.8%   22.4%    33.0%
       Thrift Banks                                 26.3%         23.6%         22.4%   28.2%    25.2%
                                                                                                        p/
       Rural Banks                                  30.4%         29.4%         28.9%   29.5%    26.2%
      Cooperative Banks                             47.0%         48.6%         47.5%   46.1%    45.5%p/
     Foreign Bank Branches/
     Subsidiaries                                   39.6%         23.7%         30.4%   38.0%    44.9%
      Foreign Bank Branches                         40.4%         23.8%         29.9%   39.4%    48.7%
       Foreign Bank Subsidiaries                    33.2%         23.3%         41.1%   27.2%    16.8%
     p/ Preliminary




Source: Office of Supervisory Policy Development, Supervision and Examination Sector
                                 STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007

                                                                                 1/
Table 8. Philippine Banking System: Asset Quality Indicators

                                                                                                                   p/
 Levels (P Billion)                                       2003         2004           2005       2006       2007
 Total Assets                                            3,661.1      4,024.4         4,319.1   4,865.6    5,133.6
 Gross Assets2/                                          3,816.3      4,189.0         4,470.8   4,994.6    5,256.2
 Total Loan Portfolio (TLP)                              1,961.4      2,017.2         2,139.1   2,405.3    2,590.0
 Interbank Loans Receivable (IBL)                          280.0        260.9           349.2     432.5      388.4
 TLP, exclusive of IBL                                   1,681.4      1,756.3         1,790.0   1,972.8    2,201.6
 TLP, net (exclusive of IBL)                             1,540.9      1,609.5         1,659.6   1,862.3    2,096.9
 Non-performing Loans (NPL)                                271.4        252.9           178.9     147.2      128.4
 Loan Loss Reserves (LLR)                                  139.9        146.7           130.4     110.4      104.7
 ROPA, gross 3/                                            238.8        253.8           230.9     217.2      198.9
 Allowance for ROPA                                         15.3         17.9            21.3      18.6       17.9
 Restructured Loans (RL), gross                            139.0        128.5           106.0      86.4       71.4
 RL, performing 4/                                          83.5         68.5            56.0      50.5       41.1
 Distressed Assets 5/                                      593.7        575.2           465.9     414.9      368.4
 Non-performing Assets (NPAs) 6/                           502.1        495.7           395.4     345.5      307.9
 Allowance for Probable Losses on NPAs                     155.2        164.6           151.7     129.0      122.5
 Growth Rates
 Total Assets                                               5.3 %        9.9 %        7.3 %       12.7 %      5.5 %
 Gross Assets2/                                             5.4 %        9.8 %        6.7 %       11.7 %      5.2 %
 TLP                                                        6.5 %        2.8 %        6.0 %       12.4 %      7.7 %
 IBL                                                      29.2 %       (6.8 %)       33.8 %       23.9 %   (10.2 %)
 TLP (exclusive of IBL)                                     3.5 %        4.5 %        1.9 %       10.2 %     11.6 %
 TLP, net (exclusive of IBL)                                3.5 %        4.5 %        3.1 %       12.2 %     12.6 %
 NPL                                                        0.7 %      (6.8 %)     (29.2 %)     (17.7 %)   (12.8 %)
 LLR                                                        3.3 %        4.9 %     (11.1 %)     (15.3 %)    (5.2 %)
 ROPA, gross 3/                                             9.7 %        6.3 %      (9.0 %)      (5.9 %)    (8.4 %)
 Allowance for ROPA                                       34.8 %        16.8 %       19.2 %     (12.8 %)    (3.8 %)
 RL, gross                                                  4.9 %      (7.5 %)     (17.5 %)     (18.5 %)   (17.4 %)
 RL, performing 4/                                        (0.2 %)     (18.0 %)     (18.2 %)     (10.0 %)   (18.6 %)
 Distressed Assets 5/                                       4.0 %      (3.1 %)     (19.0 %)     (10.9 %)   (11.2 %)
 NPAs6/                                                     3.1 %      (1.3 %)     (20.2 %)     (12.6 %)   (10.9 %)
 Allowance for Probable Losses on NPAs                      5.7 %        6.1 %      (7.8 %)     (15.0 %)    (5.0 %)

 Selected Ratios
 RL to TLP                                                 7.0 %        6.3 %           4.9 %     3.6 %      2.8 %
 LLR to TLP                                                7.1 %        7.3 %           6.1 %     4.6 %      4.0 %
 NPL Ratio (inclusive of IBL)                             13.8 %       12.5 %           8.4 %     6.1 %      5.0 %
 NPL Ratio (exclusive of IBL)                             16.1 %       14.4 %          10.0 %     7.5 %      5.8 %
 NPL Coverage 7/                                          51.5 %       58.0 %          72.9 %    75.0 %     81.5 %
 NPA to Gross Assets                                      13.2 %       11.8 %           8.8 %     6.9 %      5.9 %
 NPA Coverage 8/                                          30.9 %       33.2 %          38.4 %    37.3 %     39.8 %
 Distressed Assets Ratio 9/                               27.0 %       25.3 %          19.7 %    15.8 %     13.2 %

1/ Asset Quality Indicators defined per BSP Circular No. 202 dated 27 May 1999 amended by BSP Circular No. 351
   dated 19 September 2002
2/ Gross Assets refers to Total Assets, net of reserves plus Loan Loss Reserves (LLR) plus provision for ROPA
3/ Per Circular No. 494 dated 20 September 2005, ROPOA is renamed as Real and Other Properties Acquired (ROPA).
4/ Data as of end-2003 are based on current RLs. Figures for end-2004 and subsequent years are based on
   performing RLs.
5/ Distressed Assets refers to NPLs plus ROPA, gross and Current RLs as of end-2003. Performing RLs replaced
   current RLs from end-2004 and subsequent years.
6/   NPA refers to NPLs plus ROPA, gross
7/   NPL Coverage refers to the ratio of LLR to NPL
8/   NPA Coverage refers to the ratio of LLR (for Loans and ROPA) to NPAs
9/   Distressed Assets Ratio refers to the ratio of Distressed Assets to TLP plus ROPA
p/   Preliminary data

                                 Source: Office of Supervisory Policy Development, Supervision and Examination Sector
       STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007




Table 9. Universal and Commercial Banking System: Financial Highlights

Levels (P Billion)                                          2003          2004         2005         2006           2007
Income Statement
  Total Operating Income                                      151.2        163.8        188.3        211.0          224.8
   Net Interest Income                                         86.4        109.4        127.1        130.2          136.9
   Non-interest Income                                         64.8         54.4         61.2         80.8           87.8
  Operating Expenses                                          121.4        127.2        140.3        158.1          167.6
   Bad Debts/Provisions for Probable Losses                    21.9         17.9         19.6         24.4           20.6
   Other Operating Expenses                                    99.6        109.2        120.7        133.7          147.0
 Net Operating Income                                          29.8         36.6         48.1         52.9           57.2
 Extraordinary Credits/(Charges)                               18.0          6.1          7.5         10.4           15.2
 Net Income Before Tax                                         47.7         42.7         55.6         63.3           72.4
 Provisions for Income Tax                                      9.1          9.5         12.9          9.1           12.5
 Net Income After Tax (NIAT)                                   38.7         33.3         42.7         54.2           59.9
Balance Sheet
 Total Assets 1/                                            3,297.2      3,617.6       3,856.4     4,289.3         4,488.3
    Cash and Due from Banks                                   243.6        274.5         334.0       556.3           667.7
    Interbank Loans Receivable (IBL)                          274.0        254.8         340.0       403.1           341.4
    Loans, gross (exclusive of IBL)                         1,492.8      1,541.7       1,546.0     1,690.7         1,862.3
     Allowance for Probable Losses                            149.7        149.4         132.3       117.5           100.1
    Loans, net (exclusive of IBL)                           1,342.5      1,392.3       1,413.7     1,573.2         1,762.3
    Investments, net                                          942.9      1,188.1       1,215.8     1,206.8         1,180.9
    ROPA, net 2/                                              188.3        194.9         171.6       155.2           138.9
    Other Assets                                              305.8        313.0         381.4       394.7           397.1
 Total Liabilities                                          2,873.4      3,170.7       3,407.7     3,796.9         3,965.0
    Deposits                                                2,209.8      2,472.3       2,628.4     3,071.1         3,185.5
    Bills Payable                                             350.8        352.2         431.1       338.3           361.1
    Special Financing                                           0.5          0.2           0.0         0.0             0.0
    Other Liabilities                                         277.1        294.6         297.4       311.9           337.4
    Unsecured Subordinated Debt                                35.1         51.4          50.8        75.6            81.0
 Total Capital Accounts 3/                                    423.8        446.9         448.8       492.4           523.2
1/ Adjusted to net off the account "Due from Head Office" with "Due to Head Office" of branches of foreign banks
2/ Per Circular No. 494 dated 20 September 2005, ROPOA is renamed as Real and Other Properties Acquired (ROPA).
3/ Inclusive of the portion of the "Net Due to Head Office" which qualified as capital




Source: Office of Supervisory Policy Development, Supervision and Examination Sector
                               STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007

Table 10. Universal and Commercial Banking System: Selected Performance Indicators

Growth Rates                                                      2003          2004       2005         2006           2007
Income Statement
   Total Operating Income                                           6.5 %         8.3 %     15.0 %       12.0 %           6.5 %
     Net Interest Income                                            6.9 %        26.6 %     16.2 %        2.4 %           5.2 %
     Non-interest Income                                            5.9 %      (16.0 %)     12.5 %       31.9 %           8.7 %
   Operating Expenses                                             (0.5 %)         4.7 %     10.3 %       12.7 %           6.0 %
     Bad Debts/Provisions for Probable Losses                     (9.0 %)      (18.0 %)      9.0 %       24.7 %        (15.7 %)
     Other Operating Expenses                                       1.6 %         9.7 %     10.5 %       10.8 %          10.0 %
   Net Operating Income                                           49.3 %         23.0 %     31.2 %       10.1 %           8.1 %
   Extraordinary Credits                                         237.4 %       (65.9 %)     22.9 %       38.8 %          46.0 %
   Net Income Before Tax                                          88.9 %       (10.4 %)     30.0 %       14.0 %          14.3 %
   Provisions for Income Tax                                     972.3 %          4.5 %     35.6 %     (29.1 %)          37.0 %
   Net Income After Tax (NIAT)                                    58.3 %       (13.9 %)     28.4 %       27.0 %          10.5 %
Balance Sheet
   Total Assets 1/                                                  5.0 %         9.7 %      6.6 %       11.2 %           4.6 %
     Cash and Due from Banks                                     (17.7 %)        12.7 %     21.7 %       66.5 %          20.0 %
     Interbank Loans Receivable (IBL)                              31.1 %       (7.0 %)     33.4 %       18.6 %        (15.3 %)
     Loans, gross (exclusive of IBL)                                3.2 %         3.3 %      0.3 %        9.4 %          10.2 %
       Allowance for Probable Losses                                6.0 %       (0.2 %)   (11.5 %)     (11.2 %)        (14.8 %)
     Loans, net (exclusive of IBL)                                  2.9 %         3.7 %      1.5 %       11.3 %          12.0 %
     Investments, net                                              12.2 %        26.0 %      2.3 %      (0.7 %)         (2.1 %)
     ROPA, net 2/                                                   8.9 %         3.5 %   (12.0 %)      (9.6 %)        (10.5 %)
     Other Assets                                                 (4.1 %)         2.3 %     21.8 %        3.5 %           0.6 %
   Total Liabilities                                                5.2 %        10.3 %      7.5 %       11.4 %           4.4 %
     Deposits                                                       3.9 %        11.9 %      6.3 %       16.8 %           3.7 %
     Bills Payable                                                  7.5 %         0.4 %     22.4 %     (21.5 %)           6.7 %
     Special Financing                                           (51.9 %)      (65.9 %)   (85.3 %)     (61.4 %)        (15.4 %)
     Other Liabilities                                            (0.8 %)         6.3 %      0.9 %        4.9 %           8.2 %
     Unsecured Subordinated Debt                                    0.0 %        46.2 %    (1.1 %)       48.9 %           7.1 %
   Total Capital Accounts 3/                                        3.7 %         5.5 %      0.4 %        9.7 %           6.3 %
Selected Ratios
Profitability
   Cost-to-Income                                                 65.8 %         66.7 %     64.1 %       63.4 %          65.4 %
   Return on Assets (ROA)                                          1.2 %          1.0 %      1.1 %        1.3 %           1.4 %
   Return on Equity (ROE)                                          9.3 %          7.6 %      9.5 %       11.5 %          11.8 %
Liquidity
   Cash and Due from Banks to Deposits                            11.0 %         11.1 %     12.7 %       18.1 %          21.0 %
   Liquid Assets to Deposits 4/                                   49.5 %         55.2 %     55.1 %       54.1 %          54.4 %
   Loans, gross to Deposits                                       80.0 %         72.7 %     71.8 %       68.2 %          69.2 %
Asset quality
   Non-performing Loans (NPL)                                     14.1 %         12.7 %      8.2 %        5.7 %           4.5 %
   NPL, exclusive of IBL                                          16.7 %         14.8 %     10.0 %        7.0 %           5.3 %
  NPL Coverage                                                    53.0 %         60.4 %     77.5 %       82.6 %          93.3 %
  Non-performing Assets (NPA) to Gross Assets                     12.9 %         11.4 %      8.4 %        6.3 %           5.2 %
  NPA Coverage                                                    32.6 %         35.6 %     41.2 %       40.6 %          44.0 %
  Distressed Assets                                               27.1 %         25.2 %     19.1 %       14.9 %          12.3 %
Capital Adequacy
  Total Capital Accounts to Total Assets                          12.9 %         12.4 %     11.6 %       11.5 %          11.7 %
                                                                                                                              a/
  Capital Adequacy Ratio (Solo) 5/                                15.7 %         17.6 %     16.3 %       17.0 %          14.7 %
1/ Adjusted to net off the account "Due from Head Office" with "Due to Head Office" of branches of foreign banks
2/ Per Circular No. 494 dated 20 September 2005, ROPOA is renamed as Real and Other Properties Acquired (ROPA).
3/ Inclusive of the portion of the "Net Due to Head Office" which qualified as capital
4/ Liquid Assets refers to Cash and Due from Banks plus Investments,net (less equity investments, net)
5/ Based on the new framework provided for under Circular No. 280 dated 29 March 2001, formally adopted 1 July 2001;
   Under Circular No. 360 dated 3 December 2002, adopted 1 July 2003, Universal/Commercial Banks are to incorporate
   market risks in addition to credit risks; Under Circular No. 538 dated 4 August 2006, effective 1 July 2007, U/KBs are to
   incorporate operational risk in addition to credit and market risks.
a/ Data as of end-September 2007


                                Source: Office of Supervisory Policy Development, Supervision and Examination Sector
       STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007




Table 11. Universal and Commercial Banking System: Regional Profile



                                                                                  End-December 2007
                                                         End-
                                                       December                                   Branches/
                                                                                         Head
                                                         2006                Total                  Other
                                                                                        Offices
                                                                                                   Offices

TOTAL                                                         4,313            4,275         38       4,237

Nationwide                                                    4,269            4,234         38       4,196

   National Capital Region (NCR)                              2,025            2,011         37       1,974

   Luzon                                                      1,187            1,184          0       1,184
    Region I      - Ilocos                                       147              138                   138
    Region II     - Cagayan                                       75               73                    73
    Region III    - Central Luzon                                332              333                   333
    Region IV-A - CALABARZON                                     454              450                   450
    Region IV-B - MIMAROPA                                        25               39                    39
    Region V      - Bicol                                         98               96                    96
    Cordillera Autonomous Region (CAR)                            56               55                    55
   Visayas                                                       575              563         0         563
    Region VI   - Western Visayas                                240              222                   222
    Region VII - Central Visayas                                 263              271                   271
    Region VIII - Eastern Visayas                                 72               70                    70
   Mindanao                                                      482              476         1         475
    Region IX       -   Western Mindanao                          75               75         1          74
    Region X        -   Northern Mindanao                        117              113                   113
    Region XI       -   Southern Mindanao                        137              138                   138
    Region XII      -   Central Mindanao                          94               92                    92
    ARMM                                                          21               21                    21
    CARAGA                                                        38               37                    37
Overseas                                                          44               41         0          41
    Asia-Pacific                                                  24               23                    23
    Europe                                                        10                9                     9
    North America                                                  7                6                     6
    Africa                                                         3                3                     3




Source: Office of Supervisory Policy Development, Supervision and Examination Sector
                        STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007




Table 12. Universal and Commercial Banking System
Automated Teller Machines (ATMs)
As of Periods Indicated

                                                On-Site                 Off-Site                  Total
                                          Dec '06 Dec '07          Dec '06 Dec '07         Dec '06 Dec '07

NATIONWIDE                                  4,334       4,470        1,844      1,913        6,178      6,383

 National Capital Region (NCR)              1,930       1,960        1,031      1,034        2,961      2,994
 Luzon                                      1,271       1,325          490         524       1,761      1,849
 Region I        - Ilocos                     140         141           21          21         161        162
 Region II       - Cagayan                     71          75            7           8          78         83
 Region III      - Central Luzon              338         347          116         113         454        460
 Region IV-A     - CALABARZON                 533         540          308         328         841        868
 Region IV-B     - MIMAROPA                    21          36            4          10          25         46
 Region V        - Bicol                      104         117           11          17         115        134
 Cordillera Autonomous Region (CAR)            64          69           23          27          87         96
 Visayas                                       613        638          213         227         826        865
 Region VI     - Western Visayas               251        252           64          72         315        324
 Region VII    - Central Visayas               281        301          140         145         421        446
 Region VIII   - Eastern Visayas                81         85            9          10          90         95
 Mindanao                                      520        547          110         128         630        675
 Region IX     -   Western Mindanao             77         79            11         15          88         94
 Region X      -   Northern Mindanao           128        133            35         40         163        173
 Region XI     -   Southern Mindanao           151        162            38         40         189        202
 Region XII    -   Central Mindanao            102        107            22         26         124        133
 ARMM                                           17         19          -                        17         19
 CARAGA                                         45         47             4           7         49         54




                        Source: Office of Supervisory Policy Development, Supervision and Examination Sector
            STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007




Table 13. Universal and Commercial Banks Authorized to
Engage in E-Banking Operations
As of End-December 2007


                                                                                                               Mobile/
                                                                                                            Internet thru
                                                                             Non-
                    Name of Bank                             Mobile                  Internet   Proprietary Bancnet's & Cash Card
                                                                            Mobile
                                                                                                             Megalink's
                                                                                                               Switch

Domestic Banks
 1 Allied Banking Corporation
 2 Asia United Bank Corporation
 3 Banco de Oro Universal Bank
 4 Bank of Commerce
 5 Bank of the Philippines Islands
 6 China Bank
 7 Development Bank of the Philippines 1/
 8 East West Banking Corporation
 9 Equitable PCI Bank
 10 Export and Industry Bank
 11 International Exchange Bank
 12 Land Bank of the Philippines
 13 Metropolitan Bank and Trust Company
 14 Philippine Bank of Communications
 15 Philippine National Bank
 16 Philippine Trust Company
 17 Rizal Commercial Banking Corporation
 18 Security Bank Corporation
 19 Union Bank of the Philippines
 20 United Coconut Planters Bank
Subsidiary of a Foreign Bank
 21 ABN AMRO Bank
 22 Maybank
 23 Chinatrust Bank
Branches of Foreign Banks
 24 ANZ Banking Group, Ltd.
 25 Bank of America, N.A.
 26 Citibank, N.A. (Phils.)
 27 Deutsche Bank AG
 28 JP Morgan Chase Bank
 29 Korea Exchange Bank
 30 Mizuho Bank (formerly Fuji Bank, Ltd.)
 31 Standard Chartered Bank
32    The Bank of Tokyo-Mitsubishi, Ltd.
 33   The Hongkong & Shanghai Banking Corp. Ltd.
 Branches of Foreign Banks
1/    Internet operation has efinancing for small and medium enterprises.




     Source: Office of Supervisory Policy Development, Supervision and Examination Sector
                                  STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007

Table 14. Universal and Commercial Banking System: Profitability Indicators

Levels (P Billion)                                               2003         2004         2005          2006          2007
Total Operating Income                                            151.2        163.8         188.3        211.0          224.8
  Net Interest Income                                              86.4        109.4         127.1        130.2          136.9
   Interest Income                                                173.9        207.3         238.6        253.2          248.5
   Interest Expenses                                               87.6         97.9         111.6        123.0          111.5
  Non-interest Income                                              64.8         54.4          61.2         80.8           87.8
   Fee-based Income                                                20.2         22.7          23.6         24.7           29.9
   Trading Income                                                  32.0         15.3          22.4         39.0           37.6
   Trust Department Income                                          4.3          4.6           3.9          4.3            4.0
   Other Income                                                     8.2         11.9          11.3         12.9           16.3
Operating Expenses                                                121.4        127.2         140.3        158.1          167.6
  Bad Debts/Provisions for Probable Losses                          21.9        17.9          19.6         24.4           20.6
  Other Operating Expenses                                          99.6       109.2         120.7        133.7          147.0
Net Operating Income                                                29.8        36.6          48.1         52.9           57.2
Extraordinary Credits                                               18.0         6.1           7.5         10.4           15.2
Net Income Before Tax                                               47.7        42.7          55.6         63.3           72.4
Provisions for Income Tax                                            9.1         9.5          12.9          9.1           12.5
Net Income After Tax (NIAT)                                         38.7        33.3          42.7         54.2           60.0
Growth Rates
Total Operating Income                                             6.5 %        8.3 %   15.0 %            12.0 %          6.5 %
  Net Interest Income                                              6.9 %       26.6 %   16.2 %             2.4 %          5.2 %
   Interest Income                                                 3.1 %       19.2 %   15.1 %             6.1 %        (1.9 %)
   Interest Expenses                                             (0.4 %)       11.9 %   13.9 %            10.3 %        (9.3 %)
  Non-interest Income                                              5.9 %     (16.0 %)   12.5 %            31.9 %          8.7 %
   Fee-based Income                                              11.6 %        12.3 %    4.0 %             4.5 %         21.2 %
   Trading Income                                                (2.1 %)     (52.4 %)   46.7 %            74.0 %        (3.5 %)
   Trust Department Income                                       30.9 %         7.0 % (14.4 %)             8.0 %        (5.8 %)
   Other Income                                                  16.8 %        44.0 %  (4.8 %)            14.3 %         26.5 %
Operating Expenses                                               (0.5 %)        4.7 %   10.3 %            12.7 %          6.0 %
  Bad Debts/Provisions for Probable Losses                       (9.0 %)     (18.0 %)    9.0 %            24.7 %       (15.7 %)
  Other Operating Expenses                                         1.6 %        9.7 %   10.5 %            10.8 %         10.0 %
Net Operating Income                                             49.3 %        23.0 %   31.2 %            10.1 %          8.1 %
Extraordinary Credits                                           237.4 %      (65.9 %)   22.9 %            38.8 %         46.0 %
Net Income Before Tax                                            88.9 %      (10.4 %)   30.0 %            14.0 %         14.3 %
Provisions for Income Tax                                       972.3 %         4.5 %   35.6 %          (29.1 %)         37.0 %
Net Income After Tax (NIAT)                                      58.3 %      (13.9 %)   28.4 %            27.0 %         10.5 %
Selected Ratios
Earning Asset Yield 1/                                            6.9 %         7.5 %        8.1 %         8.2 %          7.7 %
Funding Cost 2/                                                   3.5 %         3.6 %        3.7 %         3.7 %          3.1 %
Interest Spread 3/                                                3.4 %         3.9 %        4.4 %         4.5 %          4.6 %
Net Interest Margin4/                                             3.4 %         4.0 %        4.3 %         4.2 %          4.3 %
Non-interest Income to Total Operating Income                    43.1 %        33.2 %       32.5 %        38.3 %         39.1 %
Cost-to-Income 5/                                                65.8 %        66.7 %       64.1 %        63.4 %         65.4 %
Return on Assets (ROA) 6/                                         1.2 %         1.0 %        1.1 %         1.3 %          1.4 %
Return on Equity (ROE) 6/                                         9.3 %         7.6 %        9.5 %        11.5 %         11.8 %
1/ Earning Asset Yield refers to the ratio of interest income to average earning assets
2/ Funding Cost refers to the ratio of interest expenses to average interest-bearing liabilities
3/ Interest Spread refers to the difference between earning asset yield and funding cost
4/ Net Interest Margin refers to the ratio of net interest income to average earning assets
5/ Cost-to-Income Ratio refers to the ratio of operating expenses (exclusive of bad debts and provisions) to total operating
   income
6/ ROA and ROE refers to the ratio of annualized NIAT to average assets and capital, respectively.

                                   Source: Office of Supervisory Policy Development, Supervision and Examination Sector
       STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007

                                                                                                        1/
    Table 15. Universal and Commercial Banking System: Asset Quality Indicators

    Levels (P Billion)                                      2003          2004          2005         2006          2007
    Total Assets                                           3,297.2        3,617.6       3,856.4      4,289.3       4,488.3
    Gross Assets 2/                                        3,441.2        3,770.6       3,994.2      4,401.5       4,593.9
    Total Loan Portfolio (TLP)                             1,747.2        1,784.2       1,872.7      2,073.3       2,194.8
    Interbank Loans Receivable (IBL)                         274.0          254.8         340.0        403.1         341.4
    TLP, exclusive of IBL                                  1,473.1        1,529.4       1,532.7      1,670.2       1,853.4
    TLP, net (exclusive of IBL)                            1,342.5        1,392.3       1,413.6      1,573.2       1,762.3
    Non-performing Loans (NPL)                               245.5          227.0         153.7        117.4          97.6
    Loan Loss Reserves (LLR)                                 130.0          137.1         119.1         97.0          91.1
    ROPA, gross 3/                                           202.3          210.8         190.3        170.3         153.3
    Allowance for ROPA                                        14.0           15.9          18.7         15.2          14.5
    Restructured Loans (RL), gross                           134.3          123.5          99.0         79.9          65.4
    RL, performing 4/                                         79.8           64.9          50.8         47.4          38.1
    Distressed Assets 5/                                     527.7          502.8         394.8        335.1         289.1
    Non-performing Assets (NPAs) 6/                          442.3          430.4         334.5        276.5         239.7
    Allowance for Probable Losses on NPAs
                                                              144.0         153.0         137.8        112.2         105.6
    Growth Rates
    Total Assets                                              5.0 %         9.7 %         6.6 %        11.2 %         4.6 %
                  2/
    Gross Assets                                              5.0 %         9.6 %         5.9 %        10.2 %         4.4 %
    TLP                                                       6.6 %         2.1 %         5.0 %        10.7 %         5.9 %
    IBL                                                     31.1 %        (7.0 %)        33.4 %        18.6 %      (15.3 %)
    TLP (exclusive of IBL)                                    3.0 %         3.8 %         0.2 %         9.0 %        11.0 %
    TLP, net (exclusive of IBL)                               2.9 %         3.7 %         1.5 %        11.3 %        12.0 %
    NPL                                                       0.2 %       (7.5 %)      (32.3 %)      (23.6 %)      (16.8 %)
    LLR                                                       3.6 %         5.5 %      (13.2 %)      (18.5 %)       (6.1 %)
                  3/
    ROPA, gross                                             10.5 %          4.2 %       (9.7 %)      (10.5 %)      (10.0 %)
    Allowance for ROPA                                      38.0 %         13.7 %        17.7 %      (19.0 %)       (4.6 %)
    RL, gross                                                 4.9 %       (8.0 %)      (19.9 %)      (19.2 %)      (18.2 %)
    RL, performing 4/                                       (0.9 %)      (18.7 %)      (21.8 %)       (6.7 %)      (19.5 %)
    Distressed Assets 5/                                      3.7 %       (4.7 %)      (21.5 %)      (15.1 %)      (13.7 %)
    NPAs 6/                                                   3.3 %       (2.7 %)      (22.3 %)      (17.3 %)      (13.3 %)
    Allowance for Probable Losses on NPAs                     6.2 %         6.3 %      (10.0 %)      (18.6 %)       (5.9 %)
    Selected Ratios
    RL to TLP                                                 7.6 %         6.9   %        5.2   %     3.8 %         3.0 %
    LLR to TLP                                                7.4 %         7.7   %        6.4   %     4.7 %         4.2 %
    NPL (inclusive of IBL)                                   14.1 %        12.7   %        8.2   %     5.7 %         4.5 %
    NPL (exclusive of IBL)                                   16.7 %        14.8   %       10.0   %     7.0 %         5.3 %
    NPL Coverage 7/                                          53.0 %        60.4   %       77.5   %    82.6 %        93.3 %
    NPA to Gross Assets                                      12.9 %        11.4   %        8.4   %     6.3 %         5.2 %
    NPA Coverage 8/                                          32.6 %        35.6   %       41.2   %    40.6 %        44.0 %
    Distressed Assets 9/                                     27.1 %        25.2   %       19.1   %    14.9 %        12.3 %
   1/ Asset Quality Indicators defined per BSP Circular No. 351 dated 19 September 2002
   2/ Gross Assets refers to Total Assets, net of reserves plus Loan Loss Reserves (LLR) plus provision for ROPA
   3/ Per Circular No. 494 dated 20 September 2005, Real and Other Properties Owned or Acquired (ROPOA) is renamed as
      Real and Other Properties Acquired (ROPA).
   4/
      Data as of end-2003 are based on current RLs. Figures for end-2004 and subsequent years are based on performing RLs.
   5/ Distressed Assets refers to NPLs plus ROPA, gross and Current RLs as of end-2003. Performing RLs replaced current
      RLs from end-2004 and subsequent years.
   6/ NPA refers to NPLs plus ROPA, gross excluding performing sales contracts receivable per BSP Circular No. 380 dated 28
      March 2003
   7/ NPL Coverage refers to the ratio of LLR to NPL
   8/ NPA Coverage refers to the ratio of valuation reserves (for Loans and ROPA) to NPAs
   9/ Distressed Assets Ratio refers to the ratio of Distressed Assets to TLP plus ROPA, gross




Source: Office of Supervisory Policy Development, Supervision and Examination Sector
                       STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007




Table 16. Thrift Banking System: Financial Highlights


Levels (P Billion)                                     2003      2004       2005        2006        2007
Income Statement
  Total Operating Income                                14.4       15.9       18.1        22.5        26.8
   Net Interest Income                                  10.6       12.2       14.0        16.2        20.1
   Non-interest Income                                   3.7        3.7        4.1         6.4         6.8
  Operating Expenses                                    15.0       16.5       19.4        22.6        26.9
   Bad Debts/Provisions for Probable
   Losses                                                1.6        1.4        2.7         2.5         2.9
   Other Operating Expenses                             13.5       15.1       16.7        20.1        24.0
  Net Operating Income (Loss)                           (0.7)      (0.6)      (1.3)       (0.1)       (0.0)
  Extraordinary Credits/(Charges)                        0.8        1.4        1.4         1.4         0.7
  Net Income Before Tax                                  0.1        0.7        0.1         1.3         0.6
  Provisions for Income Taxes                            0.3        0.6        ..          0.6         0.7
  Net Income After Tax (NIAT)                           (0.2)       0.1        0.1         0.7        (0.1)
Balance Sheet
 Total Assets                                         274.3      305.4      346.0       440.9       485.6
   Cash and Due from Banks                             23.7       27.2       31.3        52.1        53.3
   Interbank Loans Receivable (IBL)                     5.9        6.1        9.2        29.4        47.0
   Loans, gross (exclusive of IBL)                    153.5      164.6      184.8       221.5       249.7
     Allowance for Probable Losses                      8.4        8.3        8.9        11.9        11.6
   Loans, net (exclusive of IBL)                      145.1      156.3      175.8       209.6       238.1
   Investments, net                                    43.0       55.0       67.6        76.3        77.1
   ROPA, net 1/                                        28.0       33.0       29.6        32.5        30.4
   Other Assets                                        28.5       27.8       32.5        40.9        39.7
 Total Liabilities                                    233.1      265.8      300.7       384.0       429.4
   Deposits                                           197.2      223.7      261.3       332.1       364.6
   Bills Payable                                       22.2       25.9       23.5        30.4        41.5
   Special Financing                                    0.3        0.3        ..          ..          ..
   Other Liabilities                                   13.4       15.8       15.9        21.5        23.3
 Total Capital Accounts                                41.2       39.7       45.3        56.9        56.2
       Surplus, Surplus Reserves & Undivided Profits
1/ Per Circular No. 494 dated 20 September 2005, ROPOA is renamed as Real and Other Properties
   Acquired (ROPA).
. . Less than P0.05 billion




                        Source: Office of Supervisory Policy Development, Supervision and Examination Sector
         STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007


Table 17. Thrift Banking System: Selected Performance Indicators

Growth Rates                                             2003          2004         2005         2006       2007
Income Statement
   Total Operating Income                                 (0.7 %)      10.9 %           13.7 %    24.5 %    19.2 %
     Net Interest Income                                  (2.6 %)      14.7 %           15.3 %    15.2 %    24.2 %
     Non-interest Income                                    5.0 %      (0.1 %)           8.3 %    56.6 %     6.5 %
   Operating Expenses                                       7.5 %      10.2 %           17.2 %    16.5 %    19.0 %
     Bad Debts/Provisions for Probable
     Losses                                               16.0 %       (7.4 %)    89.8 %  (7.9 %)   14.6 %
     Other Operating Expenses                              6.5 %       12.3 %     10.3 %   20.5 %   19.6 %
   Net Operating Income (Loss)                         (234.4 %)         3.8 % (106.4 %) (94.8 %) (45.8 %)
   Extraordinary Credits/(Charges)                        97.9 %       79.0 %      4.1 %  (2.9 %) (50.2 %)
   Net Income Before Tax                                (88.4 %)      615.5 % (85.1 %) 1,110.9 % (50.4 %)
   Provisions for Income Taxes                            63.5 %       73.0 % (98.5 %) 6,653.7 %    14.0 %
   Net Income After Tax (NIAT)                         (137.9 %)      147.9 % (17.4 %)   591.4 % (109.3 %)
Balance Sheet
   Total Assets                                            8.2 %       11.4 %     13.3 %          27.4 %    10.1 %
     Cash and Due from Banks                              12.7 %       14.8 %     15.0 %          66.4 %      2.2 %
     Interbank Loans Receivable (IBL)                   (22.0 %)         2.2 %    51.3 %         220.3 %    59.8 %
     Loans, gross (exclusive of IBL)                       6.4 %         7.2 %    12.2 %          19.9 %    12.8 %
         Allowance for Probable Losses                   (2.0 %)       (0.9 %)     7.8 %          32.5 %    (2.0 %)
     Loans, net (exclusive of IBL)                         6.9 %         7.7 %    12.5 %          19.2 %    13.6 %
     Investments, net                                     20.6 %       28.0 %     22.9 %          12.9 %      1.0 %
     ROPA, net 1/                                          7.4 %       17.9 % (10.1 %)             9.7 %    (6.5 %)
     Other Assets                                          4.5 %       (2.6 %)    16.7 %          26.1 %    (2.9 %)
   Total Liabilities                                      10.5 %       14.0 %     13.2 %          27.7 %    11.8 %
     Deposits                                             14.1 %       13.5 %     16.8 %          27.1 %      9.8 %
     Bills Payable                                       (1.5 %)       16.7 %    (9.3 %)          29.2 %    36.7 %
     Special Financing                                   (2.5 %)       (0.4 %) (100.0 %)           0.0 %      0.0 %
     Other Liabilities                                  (12.6 %)       18.5 %      0.3 %          35.3 %      8.3 %
   Total Capital Accounts                                (3.0 %)       (3.8 %)    14.1 %          25.6 %    (1.3 %)
Selected Ratios
Profitability
   Cost-to-Income                                         93.8 %        94.9 %          92.1 %    89.2 %    89.4 %
   Return on Assets (ROA)                                 (0.1 %)        0.0 %           0.0 %     0.2 %    (0.0 %)
   Return on Equity (ROE)                                 (0.6 %)        0.3 %           0.2 %     1.3 %    (0.1 %)
Liquidity
   Cash and Due from Banks to Deposits                    12.0 %        12.2 %          12.0 %    15.7 %    14.6 %
   Liquid Assets to Deposits 2/                           33.7 %        36.7 %          37.7 %    38.5 %    35.6 %
   Loans, gross to Deposits                               80.9 %        76.3 %          74.2 %    75.5 %    81.4 %
Asset quality
   Non-performing Loans (NPL)                             12.1 %        11.0 %           8.9 %     8.3 %     6.9 %
   NPL, exclusive of IBL                                  12.6 %        11.4 %           9.3 %     9.4 %     8.2 %
   NPL Coverage                                           38.8 %        37.0 %          47.9 %    49.3 %    47.3 %
   Non-performing Assets (NPA) to Gross
   Assets                                                 16.2 %        15.9 %          12.5 %    11.4 %     9.9 %
   NPA Coverage                                           18.7 %        17.2 %          23.4 %    25.6 %    25.5 %
   Distressed Assets                                      27.4 %        27.6 %          23.9 %    20.6 %    17.0 %
Capital Adequacy
   Total Capital Accounts to Total Assets                 15.0 %        13.0 %          13.1 %    12.9 %    11.6 %
                                       3/                                                                          a/
   Capital Adequacy Ratio (CAR)                           18.9 %        16.2 %          17.3 %    16.0 %    14.6 %

 1/ Per Circular No. 494 dated 20 September 2005, ROPOA is renamed as Real and Other Properties Acquired (ROPA).
 2/ Liquid Assets refers to Cash and Due from Banks plus Investments,net (less equity investments, net)
 3/ Based on Circular No. 280 dated 29 March 2001, formally adopted 1 July 2001
 a/ Data as of end-September 2007

 Source: Office of Supervisory Policy Development, Supervision and Examination Sector
                      STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007




Table 18. Thrift Banking Offices: Regional Profile


                                                                         End-December 2007
                                                End-
                                              December                                        Branches/
                                                                                 Head
                                                2006               Total                        Other
                                                                                Offices
                                                                                               Offices
Nationwide                                           1,322           1,336              82          1,254

  National Capital Region (NCR)                        555              580             38            542

  Luzon                                                510              505             32            473

  Region I       - Ilocos                               38               39              1             38
  Region II      - Cagayan                               9               11              2              9
  Region III     - Central Luzon                       147              138             11            127
  Region IV-A - CALABARZON                             261              251             13            238
  Region IV-B - MIMAROPA                                13               25              2             23
  Region V       - Bicol                                31               32              2             30
  Cordillera Autonomous Region (CAR)                    11                9              1              8
  Visayas                                              175              170             12            158

  Region VI     - Western Visayas                       61               56               5             51
  Region VII    - Central Visayas                      105              103               7             96
  Region VIII   - Eastern Visayas                        9               11                             11
  Mindanao                                              82               81               -             81

  Region IX     -   Western Mindanao                     9               10                             10
  Region X      -   Northern Mindanao                   30               31                             31
  Region XI     -   Southern Mindanao                   28               25                             25
  Region XII    -   Central Mindanao                     8                8                              8
  ARMM                                                   1                1                              1
  CARAGA                                                 6                6                              6




                      Source: Office of Supervisory Policy Development, Supervision and Examination Sector
         STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007




Table 19. Thrift Banking System: Automated Teller Machines (ATMs)
As of periods indicated


                                                    On-site                  Off-site               Total
                                              Dec '06 Dec '07          Dec '06 Dec '07         Dec '06 Dec '07

Nationwide                                         503        577           113          112      616       689

 National Capital Region (NCR)                     288        331            76           71      364       402

 Luzon                                             140        161            23           23      163       184
 Region I       - Ilocos                            16          21             2          2        18       23
 Region II      - Cagayan                            3           5                        -         3        5
 Region III     - Central Luzon                     34          43            9           7        43       50
 Region IV-A - CALABARZON                           74          78           11          13        85       91
 Region IV-B - MIMAROPA                                          -            -           -         -        -
 Region V       - Bicol                               7          8                        -         7        8
 Cordillera Autonomous Region                         6          6             1          1         7        7

 Visayas                                            47          53           10           14       57       67
 Region VI        - Western Visayas                 16          18             3           6       19       24
 Region VII       - Central Visayas                 29          32             7           8       36       40
 Region VIII      - Eastern Visayas                  2           3                         -        2        3

 Mindanao                                           28          32             4           4       32       36
 Region IX        -   Western Mindanao               4           6             -           -        4        6
 Region X         -   Northern Mindanao              8          10             2           2       10       12
 Region XI        -   Southern Mindanao             13          13             1           1       14       14
 Region XII       -   Central Mindanao               3           3             1           1        4        4
 ARMM                                                            -                         -        -        -
 CARAGA                                                          -                         -




  Source: Office of Supervisory Policy Development, Supervision and Examination Sector
                               STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007




Table 20. Thrift Banks Authorized to Engage in E-Banking Operations
As of End-December 2007


                                                                                            Mobile/
                                                       Non-                               Internet via       Cash
            Name of Bank                  Mobile                  Internet    Proprietary Bancnet or
                                                      Mobile                                                 Card
                                                                                           Megalink
                                                                                             Switch

 Financial Institution-Linked Thrift Banks

  1. BPI Direct
  2. BPI-Family Bank
  3. HSBC Savings Bank
  4. RCBC Savings Bank

  Non-Linked Thrift Banks

  5. Citystate Savings Bank

  6. Premiere Development Bank

  7. Robinsons Savings Bank
        Branches of Foreign Banks
  8. The Manila Bank

  9. Asiatrust Development Bank

  10. Insular Life Savings Bank

  11. GE Money/Keppel Bank

  12. Philippine Savings Bank

  13. Planters Development Bank




                               Source: Office of Supervisory Policy Development, Supervision and Examination Sector
        STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007

 Table 21. Thrift Banking System: Profitability Indicators

 Levels (P Billion)                                    2003          2004           2005           2006          2007
      Total Operating Income                              14.4          15.9            18.1          22.5             26.8
         Net Interest Income                              10.6          12.2            14.0          16.2             20.1
           Interest Income                                20.6          24.4            27.8          32.7             37.7
           Interest Expenses                              10.0          12.2            13.8          16.5             17.7
         Non-interest Income                               3.7           3.7             4.1           6.4              6.8
           Fee-based Income                                2.0           2.5             2.7           3.2              3.7
           Trading Income                                  0.8           0.4             0.6           1.8              1.9
           Trust Department Income                         0.1           0.1               ..          0.1              0.1
           Other Income                                    0.8           0.8             0.7           1.3              1.1
      Operating Expenses                                  15.0          16.5            19.4          22.6             26.9
         Bad Debts/Provisions for
         Probable Losses                                   1.6           1.4             2.7           2.5              2.9
         Other Operating Expenses                         13.5          15.1            16.7          20.1             24.0
      Net Operating Income (Loss)                         (0.7)         (0.6)           (1.3)         (0.1)            (0.0)
      Extraordinary Credits/(Charges)                      0.8           1.4             1.4           1.4              0.7
      Net Income Before Tax                                0.1           0.7             0.1           1.3              0.6
      Provisions for Income Tax                            0.3           0.6               ..          0.6              0.7
      Net Income After Tax (NIAT)                         (0.2)          0.1             0.1           0.7             (0.1)
 Growth Rates
   Total Operating Income                              (0.7 %)        10.9 %         13.7 %        24.5 %         19.2 %
      Net Interest Income                              (2.6 %)        14.7 %         15.3 %        15.2 %         24.2 %
        Interest Income                                  1.6 %        18.3 %         14.1 %        17.5 %         15.4 %
        Interest Expenses                                6.5 %        22.0 %         12.8 %        19.8 %          6.7 %
      Non-interest Income                                5.0 %       (0.1 %)          8.3 %        56.6 %          6.5 %
        Fee-based Income                                12.7 %        22.5 %          9.2 %        18.7 %         14.9 %
        Trading Income                                (15.4 %)      (53.2 %)         47.0 %       206.3 %          7.5 %
        Trust Department Income                         23.8 %       (8.9 %)       (68.2 %)       101.1 %         93.3 %
        Other Income                                    11.9 %         0.3 %        (4.1 %)        75.8 %       (19.5 %)
   Operating Expenses                                    7.5 %        10.2 %         17.2 %        16.5 %         19.0 %
      Bad Debts/Provisions for
      Probable Losses                                  16.0 %        (7.4 %)         89.8 %    (7.9 %)   14.6 %
      Other Operating Expenses                          6.5 %        12.3 %          10.3 %    20.5 %    19.6 %
   Net Operating Income (Loss)                      (234.4 %)          3.8 %      (106.4 %)    94.8 % (45.8 %)
   Extraordinary Credits/(Charges)                     97.9 %        79.0 %           4.1 %    (2.9 %) (50.2 %)
   Net Income Before Tax                             (88.4 %)       615.5 %        (85.1 %) 1,110.9 % (50.4 %)
   Provisions for Income Tax                           63.5 %        73.0 %        (98.5 %) 6,653.7 %    14.0 %
   Net Income After Tax (NIAT)                      (137.9 %)       147.9 %        (17.4 %) 591.4 % (109.3 %)
 Selected Ratios
   Earning Asset Yield 1/                               10.6 %        11.4 %         11.5 %        11.2 %        10.8 %
   Funding Cost 2/                                       4.8 %         5.2 %          5.2 %         5.1 %         4.6 %
   Interest Spread 3/                                    5.8 %         6.2 %          6.3 %         6.1 %         6.2 %
   Net Interest Margin 4/                                5.4 %         5.7 %          5.8 %         5.5 %         5.8 %
   Non-interest Income to Total
   Operating Income                                     26.1 %        23.6 %         22.4 %        28.2 %        25.2 %
   Cost-to-Income Ratio 5/                              93.8 %        94.9 %         92.1 %        89.2 %        89.4 %
   Return on Assets (ROA) 6/                            (0.1 %)        0.0 %          0.0 %         0.2 %        (0.0 %)
   Return on Equity (ROE) 6/                            (0.6 %)        0.3 %          0.2 %         1.3 %        (0.1 %)

 1/  Earning Asset Yield refers to the ratio of interest income to average earning assets
 2/  Funding Cost refers to the ratio of interest expenses to average interest-bearing liabilities
 3/  Interest Spread refers to the difference between earning asset yield and funding cost
 4/  Net Interest Margin refers to the ratio of net interest income to average earning assets
 5/  Cost-to-Income Ratio refers to the ratio of operating expenses (exclusive of bad debts and provisions) to total
     operating income
  6/ ROA and ROE refers to the ratio of annualized NIAT to average assets and capital, respectively.
 . . Less than P0.05 billion

Source: Office of Supervisory Policy Development, Supervision and Examination Sector
                          STATUS REPORT ON     THE   PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007

                                                                             1/
Table 22. Thrift Banking System: Asset Quality Indicators

Levels (P Billion)                                       2003       2004          2005     2006        2007
  Total Assets                                           274.3       305.4        346.0     440.9       485.6
  Gross Assets                                           282.8       314.0        356.5     454.1       498.2
  Total Loan Portfolio (TLP)                             158.5       169.3        193.2     249.2       294.7
  Interbank Loans Receivable (IBL)                         5.9         6.1          9.2      29.4        47.0
  TLP, exclusive of IBL                                  152.6       163.2        184.0     219.8       247.7
  TLP, net (exclusive of IBL)                            145.1       156.3        175.8     209.6       238.1
  Non-performing Loans (NPL)                              19.2        18.6         17.1      20.6        20.2
  Loan Loss Reserves (LLR)                                 7.4         6.9          8.2      10.1         9.6
  ROPA, gross                                             29.1        34.7         31.9      35.6        33.4
  Allowance for ROPA                                       1.1         1.7          2.3       3.1         3.0
  Restructured Loans (RL), gross                           3.9         4.3          6.2       5.6         4.9
  RL, performing                                           3.1         3.0          4.8       2.5         2.1
  Distressed Assets                                       51.3        56.3         53.8      58.6        55.8
  Non-performing Assets (NPAs)                            45.7        49.8         44.7      51.6        49.3
  Allowance for Probable Losses on NPAs                    8.5         8.6         10.5      13.2        12.6
Growth Rates
 Total Assets                                             8.2 %    11.4 % 13.3 % 27.4 % 10.1 %
 Gross Assets 2/                                          8.0 %    11.0 % 13.5 % 27.4 %       9.7 %
 TLP                                                      5.1 %      6.8 % 14.1 % 29.0 % 18.3 %
 IBL                                                   (22.0 %)      2.2 % 51.3 % 220.3 % 59.8 %
 TLP (exclusive of IBL)                                   6.5 %      7.0 % 12.8 % 19.4 % 12.7 %
 TLP, net (exclusive of IBL)                              6.9 %      7.7 % 12.5 % 19.2 % 13.6 %
 NPL                                                      9.7 %    (3.1 %) (7.8 %) 20.1 % (1.6 %)
 LLR                                                    (1.2 %)    (7.6 %) 19.3 % 23.7 % (5.7 %)
 ROPA, gross 3/                                           7.4 %    19.2 % (8.0 %) 11.6 % (6.0 %)
 Allowance for ROPA                                       8.1 %    52.5 % 34.2 % 36.2 % (1.4 %)
 RL, gross                                               23.2 %      9.7 % 44.8 % (9.3 %) (13.1 %)
 RL, performing4/                                        42.5 %    (1.8 %) 57.0 % (47.9 %) (14.6 %)
 Distressed Assets 5/                                     9.9 %      9.6 % (4.4 %)   9.0 % (4.8 %)
 NPAs6/                                                   2.6 %      9.0 % (10.3 %) 15.5 % (4.4 %)
 Allowance for Probable Losses on NPAs                  (0.1 %)      0.2 % 22.2 % 26.4 % (4.7 %)

Selected Ratios
 RL to TLP                                               2.5   %     2.5   %       3.2 %    2.2 %       1.6 %
 LLR to TLP                                              4.7   %     4.1   %       4.2 %    4.1 %       3.2 %
 NPL Ratio (inclusive of IBL)                           12.1   %    11.0   %       8.9 %    8.3 %       6.9 %
 NPL Ratio (exclusive of IBL)                           12.6   %    11.4   %       9.3 %    9.4 %       8.2 %
 NPL Coverage 7/                                        38.8   %    37.0   %      47.9 %   49.3 %      47.3 %
 NPA to Gross Assets                                    16.2   %    15.9   %      12.5 %   11.4 %       9.9 %
 NPA Coverage8/                                         18.7   %    17.2   %      23.4 %   25.6 %      25.5 %
 Distressed Assets Ratio 9/                             27.4   %    27.6   %      23.9 %   20.6 %      17.0 %
1/ Asset Quality Indicators defined per BSP Circular No. 202 dated 27 May 1999 amended by BSP Circular No.
   351 dated 19 September 2002
2/ Gross Assets refers to Total Assets, net of reserves plus Loan Loss Reserves (LLR) plus provision for ROPA
3/ Per Circular No. 494 dated 20 September 2005, Real and Other Properties Owned or Acquired (ROPOA) is
   renamed as Real and Other Properties Acquired (ROPA).
4/ Data as of end-2003 are based on current RLs. Figures for end-2004 and subsequent years are based on
   performing RLs.
5/ Distressed Assets refers to NPLs plus ROPA, gross and Current RLs as of end-2003. Performing RLs
   replaced current RLs from end-2004 and subsequent years.
6/ NPA refers to NPLs plus ROPA, gross excluding performing sales contracts receivable per BSP Circular No.
   380 dated 28 March 2003
7/ NPL Coverage refers to the ratio of LLR to NPL
8/ NPA Coverage refers to the ratio of valuation reserves (for Loans and ROPA) to NPAs
9/ Distressed Assets Ratio refers to the ratio of Distressed Assets to TLP plus ROPA, gross



                           Source: Office of Supervisory Policy Development, Supervision and Examination Sector
       STATUS REPORT ON    THE   PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007




    Table 23. Rural Banking System: Financial Highlights


     Levels (P Billion)                                    2003      2004       2005     2006    2007 p/
     Income Statement
       Total Operating Income                                 8.0       9.3      10.2     12.1    14.3
         Net Interest Income                                  5.6       6.5       7.3      8.5    10.6
         Non-interest Income                                  2.4       2.7       3.0      3.6     3.8
       Operating Expenses                                     6.8       7.9       8.9      9.8    11.2
         Bad Debts/Provisions for Probable
         Losses                                               0.2       0.3        0.5     0.4     0.7
         Other Operating Expenses                             6.6       7.6        8.4     9.4    10.5
       Net Operating Income                                   1.2       1.4        1.4     2.4     3.1
       Extraordinary Credits/(Charges)                        0.4       0.5        0.5     0.5     0.4
       Net Income Before Tax                                  1.6       1.8        1.9     2.9     3.6
       Provisions for Income Tax                              0.2       0.3        0.4     0.5     0.8
       Net Income After Tax (NIAT)                            1.4       1.5        1.5     2.3     2.8
     Balance Sheet
      Total Assets                                          84.0       94.9     109.1    126.6   149.0
        Cash and Due from Banks                             16.9       17.6      19.3     23.1    27.4
        Loans, gross                                        51.8       59.3      68.3     77.1    93.3
          Allowance for Probable Losses                      2.5        2.9       3.3      3.4     3.9
        Loans, net                                          49.3       56.4      65.0     73.7    89.4
        Investments, net                                     4.4        5.7       6.2      6.5     7.4
        ROPA, net 1/                                         7.0        7.7       8.0     10.6    11.3
        Other Assets                                         6.4        7.5      10.7     12.7    13.5
      Total Liabilities                                     70.6       80.0      93.2    108.2   128.2
        Deposits                                            58.9       67.3      76.7     89.0   107.7
        Bills Payable                                        6.9        7.4       8.6      9.4    10.7
        Special Financing                                    0.1        0.2       0.1      0.1     0.1
        Other Liabilities                                    4.7        5.2       7.8      9.7     9.6
      Total Capital Accounts                                13.4       14.9      15.9     18.4    20.9

     1/ Per Circular No. 494 dated 20 September 2005, ROPOA is renamed as Real and Other Properties
        Acquired (ROPA).
     p/ Preliminary




Source: Office of Supervisory Policy Development, Supervision and Examination Sector
                        STATUS REPORT ON    THE   PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007


Table 24. Rural Banking System: Selected Performance Indicators


 Growth Rates                                          2003       2004        2005       2006        2007 p/
 Income Statement
    Total Operating Income                             12.6   %    15.9 %     10.6   %   18.3   %    18.3   %
      Net Interest Income                              17.9   %    17.5 %     11.4   %   17.4   %    23.7   %
      Non-interest Income                               2.2   %    12.0 %      8.7   %   20.5   %     5.4   %
    Operating Expenses                                  7.8   %    16.5 %     12.3   %   10.0   %    14.7   %
      Bad Debts/Provisions for Probable
      Losses                                             5.3 %     43.7 %     45.3 % (15.4 %)   71.9 %
      Other Operating Expenses                           7.8 %     15.6 %     11.0 % 11.4 %     12.4 %
    Net Operating Income                               50.7 %      12.5 %       0.4 % 72.0 %    33.1 %
    Extraordinary Credits                              (2.3 %)     21.7 %       3.0 %   2.5 % (14.2 %)
    Net Income Before Tax                              32.9 %      14.8 %       1.1 % 53.5 %    24.7 %
    Provisions for Income Tax                          22.3 %      21.8 %     30.7 % 38.0 %     45.9 %
    Net Income After Tax (NIAT)                        35.0 %      13.5 %     (4.6 %) 57.5 %    19.8 %
 Balance Sheet
    Total Assets                                       11.2 %      13.0 % 15.0 %         16.0 %    17.7 %
     Cash and Due from Banks                           18.4 %       3.6 %    9.9 %       19.7 %    18.7 %
     Loans, gross                                      10.7 %      14.5 % 15.1 %         12.9 %    21.0 %
       Allowance for Probable Losses                    4.3 %      16.0 % 14.5 %           1.7 %   13.7 %
     Loans, net                                        11.1 %      14.4 % 15.2 %         13.5 %    21.3 %
     Investments, net                                  14.0 %      30.2 %    8.1 %         4.8 %   14.9 %
     ROPA, net 1/                                     (1.5 %)      11.1 %    3.8 %       31.9 %     6.9 %
     Other Assets                                       7.8 %      17.1 % 42.2 %         19.4 %     5.7 %
    Total Liabilities                                  11.6 %      13.3 % 16.5 %         16.1 %    18.5 %
     Deposits                                          13.5 %      14.2 % 14.0 %         16.1 %    21.0 %
     Bills Payable                                    (3.7 %)       8.1 % 15.9 %           9.1 %   14.3 %
     Special Financing                               (20.6 %)      21.5 % (13.4 %)       (7.8 %) (17.6 %)
     Other Liabilities                                 15.3 %       9.2 % 50.7 %         24.3 % (0.5 %)
    Total Capital Accounts                              8.8 %      11.2 %    6.9 %       15.6 %    13.4 %
 Selected Ratios
 Profitability
    Cost to Income                                      82.1%      81.9%       82.2%      77.4%       73.6%
    Return on Assets (ROA)                               1.7%       1.7%        1.5%       2.0%        2.0%
    Return on Equity (ROE)                              10.6%      10.9%        9.6%      13.6%       14.2%
 Liquidity
    Cash and Due from Banks to Deposits                 28.8%      26.1%       25.2%      25.9%       25.4%
    Liquid Assets to Deposits 2/                        36.0%      34.5%       33.1%      33.1%       32.3%
    Loans, gross to Deposits                            88.0%      88.2%       89.1%      86.6%       86.6%
 Asset quality
   Non-performing Loans (NPL exclusive of
   IBL)                                                 12.1%      11.4%       11.1%      11.1%       10.2%
   NPL Coverage                                         36.1%      37.3%       38.2%      34.4%       38.0%
   Non-performing Assets (NPA) to Gross
   Assets                                               15.5%      15.1%       13.6%      12.5%       11.3%
   NPA Coverage                                         18.3%      18.9%       20.7%      19.9%       22.9%
   Distressed Assets                                    23.7%      22.7%       21.4%      22.7%       20.9%
 Capital Adequacy
                                                                                                               a/
   Capital Adequacy Ratio (CAR) 3/                      16.5%      16.7%       16.0%      15.0%       15.7%
   Total Capital Accounts to Total Assets               16.0%      15.7%       14.6%      14.6%       14.0%
 1/ Per Circular No. 494 dated 20 September 2005, ROPOA is renamed as Real and Other Properties Acquired (ROPA).
 2/ Liquid assets refers to Cash and Due from Banks plus Investments, net (less equity investments, net)
 3/ Based on Circular No. 280 dated 29 March 2001, formally adapted 1 July 2001
 p/ Preliminary
 a/ Data as of end-September 2007


                        Source: Office of Supervisory Policy Development, Supervision and Examination Sector
       STATUS REPORT ON     THE   PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007




 Table 25. Rural Banking Offices: Regional Profile


                                                                                 End-December 2007
                                                           End-
                                                         December                                Branches/
                                                                                        Head
                                                           2006             Total                  Other
                                                                                       Offices
                                                                                                  Offices

   Nationwide                                                  1,964         2,011        682       1,329

       National Capital Region (NCR)                               68            67         25         42

       Luzon                                                   1,246         1,281        400         881
       Region I      - Ilocos                                    186            183        58         125
       Region II     - Cagayan                                   136            142        32         110
       Region III    - Central Luzon                             308            317        92         225
       Region IV-A - CALABARZON                                  443            450       137         313
       Region IV-B - MIMAROPA                                     47             53        23          30
       Region V      - Bicol                                      85             89        40          49
       Cordillera Autonomous Region (CAR)                         41             47        18          29
       Visayas                                                   303            305       143         162
       Region VI        - Western Visayas                        127            124         69         55
       Region VII       - Central Visayas                        126            131         50         81
       Region VIII      - Eastern Visayas                         50             50         24         26
       Mindanao                                                  347            358       114         244
       Region IX        -   Western Mindanao                       36            41         14         27
       Region X         -   Northern Mindanao                      90            93         42         51
       Region XI        -   Southern Mindanao                      87            89         20         69
       Region XII       -   Central Mindanao                       63            64         20         44
       ARMM                                                         4             2          2          -
       CARAGA                                                      67            69         16         53




Source: Office of Supervisory Policy Development, Supervision and Examination Sector
                          STATUS REPORT ON   THE   PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007




Table 26. Rural Banking System: Automated Teller Machines (ATMs)
As of periods indicated

                                                   On-site                Off-site                  Total
                                            Dec '06 Dec '07         Dec '06 Dec '07          Dec '06 Dec '07

Nationwide                                         61        71           12         12           73         83

 National Capital Region (NCR)                      3          3            -          -            3            3

 Luzon                                             10        11             -          -          10         11
 Region I       - Ilocos                            1          2                                    1            2
 Region II      - Cagayan                           1          1                                    1            1
 Region III     - Central Luzon                     6          6            -                       6            6
 Region IV-A - CALABARZON                           2          2            -                       2            2
 Region IV-B - MIMAROPA                             -          -                                    -            -
 Region V       - Bicol                                        -                                    -            -
 Cordillera Autonomous Region (CAR)                            -                                    -            -
 Visayas                                             -         -            -          -            -            -
 Region VI      - Western Visayas                                                                   -            -
 Region VII     - Central Visayas                                                                   -            -
 Region VIII    - Eastern Visayas                                                                   -            -
 Mindanao                                          48        57           12         12           60         69
 Region IX      -   Western Mindanao                3         3             2          2           5          5
 Region X       -   Northern Mindanao               7         7             3          3          10         10
 Region XI      -   Southern Mindanao              17        25             5          5          22         30
 Region XII     -   Central Mindanao                8         9             1          1           9         10
 ARMM                                               1         1             -          -           1          1
 CARAGA                                            12        12             1          1          13         13




                          Source: Office of Supervisory Policy Development, Supervision and Examination Sector
           STATUS REPORT ON    THE   PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007


Table 27. Rural Banks Authorized to Engage in E-Banking Operations
As of End-December 2007

                                                                                              Mobile/
                                                         Non-                               Internet via   Cash
            Name of Bank                    Mobile                  Internet    Proprietary Bancnet or
                                                        Mobile                                             Card
                                                                                             Megalink
                                                                                              Switch

 Domestic Banks
   1. Agribusiness Rural Bank, Inc.
   2. Cantilan Bank
   3. Rural Bank of Abucay, Inc.
   4. Rural Bank of Cauayan, Inc.
   5. Bangko Luzon, Inc.
   6. Bank of Florida
   7. GM Bank, Inc.
   8. Green Bank
  9. Philippine Rural Banking Corp.
  10. Rural Bank of Jaen, Inc.
  11. New Rural Bank of Victorias, Inc.
  12. Bangko Mabuhay (RB of Tanza)
  13. Unity Bank
  14. Rang-ay Bank, Inc.
  15. First Isabela Cooperative Bank
  16. Zambales Rural Bank, Inc.
  17. First Community Bank, Inc.
  18. 1st Valley Bank, Inc.
  19. Bangko Kabayan-Ibaan Rural Bank
  20. Upland Rural Bank of Dalaguete
  21. Rural Bank of San Enrique (Iloilo)
  22. Gateway Rural Bank, Inc.
  23. Sarangani Rural Bank, Inc.
  24. First Macro Bank (RB of Pateros)
  25. Rural Bank of Cotabato, Inc.
  26. Cooperative Bank of Misamis Oriental
  27. Rural Bank of Cainta, Inc.
  28. Rural Bank of Jimenez (Mis. Occ) Inc.
  29. Community Rural Bank of Clarin (Mis. Occ) Inc.
  30. Rural Bank of Pagbilao, Inc.
  31. Asian Hills Bank Inc.
  32. Rural Bank of Bogo (Cebu), Inc.
  33. Rural Bank of Katipunan (ZN), Inc.
  34. Rural Bank of Labason (ZN), Inc.
  35. Rural Bank of Dulag (LEYTE), Inc.
  36. Ormon Bank (Bay, Laguna)
  37. Rural bank of Tiaong (Quezon)
  38. Quezon Capital Rural Bank,Inc.
  39. Rural Bank of Placer, Inc.
  40. Bank of Makati (A Rural Bank)
  41. Rural Bank of Lebak (Sultan Kudarat)
  42. Classic Rural Bank, Inc.
  43. Enterprise Bank, Inc.
  44. Rural Bank of Camalig (Albay), Inc.
  45. Rural Bank of Santiago de Libon, Inc.
  46. One Network Rural Bank, Inc.

    Source: Office of Supervisory Policy Development, Supervision and Examination Sector
                            STATUS REPORT ON    THE   PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007

Table 28. Rural Banking System: Profitability Indicators


Levels (P Billion)                                      2003        2004        2005        2006          2007p/
  Total Operating Income                                    8.0        9.3        10.2         12.1          14.3
    Net Interest Income                                     5.6        6.5         7.3          8.5          10.6
      Interest Income                                       9.4       10.9        12.4         14.4          17.2
      Interest Expenses                                     3.8        4.4         5.1          5.9           6.6
    Non-interest Income                                     2.4        2.7         3.0          3.6           3.8
      Fee-based Income                                      1.8        2.0         2.2          2.3           2.6
      Other Income                                          0.6        0.7         0.7          1.2           1.2
  Operating Expenses                                        6.8        7.9         8.9          9.8          11.2
    Bad Debts/Provisions for Probable
    Losses                                                  0.2         0.3         0.4         0.4           0.7
    Other Operating Expenses                                6.6         7.6         8.4         9.4          10.5
  Net Operating Income                                      1.2         1.4         1.4         2.4           3.1
  Extraordinary Credits/(Charges)                           0.4         0.5         0.5         0.5           0.4
  Net Income Before Tax                                     1.6         1.8         1.9         2.9           3.6
  Provision for Income Tax                                  0.2         0.3         0.4         0.5           0.8
  Net Income After Tax (NIAT)                               1.4         1.5         1.5         2.3           2.8
Growth Rates
 Total Operating Income                                 12.6 %      15.9 %      10.6 %      18.3 %        18.3 %
   Net Interest Income                                  17.9 %      17.5 %      11.4 %      17.4 %        23.7 %
     Interest Income                                      7.9 %     16.2 %      14.0 %      16.2 %        19.3 %
     Interest Expenses                                  (4.0 %)     14.3 %      17.9 %      14.5 %        13.0 %
   Non-interest Income                                    2.2 %     12.0 %       8.7 %      20.5 %          5.4 %
     Fee-based Income                                     6.4 %      8.3 %      12.4 %       5.7 %          9.8 %
     Other income                                       (8.4 %)     25.3 %       0.5 %      65.1 %        (2.3 %)
 Operating Expenses                                       7.8 %     16.5 %      12.3 %      10.0 %        14.7 %
   Bad Debts/Provisions for Probable
   Losses                                                 5.3 %     43.7 %      45.3 % (15.4 %)            71.9 %
   Other Operating Expenses                               7.8 %     15.6 %      11.0 % 11.4 %              12.4 %
 Net Operating Income                                   50.7 %      12.5 %        0.4 % 72.0 %             33.1 %
 Extraordinary Credits/(Charges)                        (2.3 %)     21.7 %        3.0 %   2.5 %          (14.2 %)
 Net Income Before Tax                                  32.9 %      14.8 %        1.1 % 53.5 %             24.7 %
 Provision for Income Tax                               22.3 %      21.8 %      30.7 % 38.0 %              45.9 %
 Net Income After Tax (NIAT)                            35.0 %      13.5 %      (4.6 %) 57.5 %             19.8 %
Selected Ratios
                     1/
 Earning Asset Yield                                    17.6 %      18.0 %      17.8 %      18.3 %        18.7 %
 Funding Cost 2/                                         6.1 %       6.2 %       6.4 %       6.4 %         6.1 %
 Interest Spread 3/                                     11.5 %      11.8 %      11.4 %      11.8 %        12.6 %
                     4/
 Net Interest Margin                                    10.4 %      10.8 %      10.4 %      10.8 %        11.5 %
 Non-interest Income to Total Operating
 Income                                                 30.4 %      29.4 %      28.9 %      29.4 %        26.2 %
 Cost-to-Income 5/                                      82.1 %      81.9 %      82.2 %      77.4 %        73.6 %
 Return on Assets (ROA) 6/                               1.7 %       1.7 %       1.5 %       2.0 %         2.0 %
 Return on Equity (ROE) 6/                              10.6 %      10.9 %       9.6 %      13.6 %        14.2 %
  1/ Earning Asset Yield refers to the ratio of interest income to average earning assets
  2/ Funding Cost refers to the ratio of interest expenses to average interest-bearing liabilities
  3/ Interest Spread refers to the difference between earning asset yield and funding cost
  4/ Net Interest Margin refers to the ratio of net interest income to average earning assets
     Cost -to-Income Ratio refers to the ratio of operating expenses (exclusive of bad debts and provisions) to
  5/
     total operating income
  6/ ROA and ROE refers to the ratio of annualized NIAT to average assets and capital, respectively.
  p/ Preliminary

                            Source: Office of Supervisory Policy Development, Supervision and Examination Sector
          STATUS REPORT ON    THE   PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007




Table 29. Rural Banking System: Regional Profitability Indicators


                                                          End- December 2007p/

                          Earning                                    Net                   Return on Return on
                                        Funding      Interest                   Cost to
       Region              Asset                                   Interest                  Asset    Equity
                                         Cost        Spread                     Income
                           Yield                                    Margin                  (ROA)     (ROE)


 Industry                    18.7 %         6.1 %       12.6 %       11.5 %       73.6 %       2.0 %    14.2 %
  NCR                        24.5 %         7.2 %       17.3 %       16.0 %       52.9 %       3.0 %    24.3 %
  Region 1                   13.3 %         5.0 %         8.3 %        7.6 %      89.9 %       0.8 %     5.9 %
  Region 2                   21.0 %         7.1 %       14.0 %       13.1 %       79.9 %       1.9 %    14.0 %
  Region 3                   14.8 %         4.6 %       10.2 %         9.5 %      76.8 %       1.9 %    11.7 %
  CALABARZON                 16.5 %         5.0 %       11.5 %         9.7 %      83.3 %       1.6 %    11.6 %
  MIMAROPA                   18.7 %         4.6 %       14.1 %       12.9 %       68.0 %       3.2 %    14.2 %
  Region 5                   16.0 %         9.5 %         6.6 %        6.5 %      78.8 %       1.3 %     9.1 %
  Region 6                   16.9 %         5.7 %       11.2 %       10.4 %       87.2 %       1.1 %     8.7 %
  Region 7                   20.5 %         9.5 %       11.0 %         9.3 %      75.9 %       2.0 %    15.5 %
  Region 8                   17.0 %         6.6 %       10.5 %       10.4 %       77.3 %       1.8 %    12.3 %
  Region 9                   20.2 %         4.9 %       15.3 %       15.9 %       81.5 %       2.1 %     9.7 %
  Region 10                  21.0 %         7.7 %       13.3 %       12.6 %       72.6 %       2.6 %    16.6 %
  Region 11                  18.6 %         3.4 %       15.2 %       14.9 %       59.7 %       3.1 %    20.1 %
  Region 12                  22.5 %         8.7 %       13.8 %       12.3 %       84.8 %       1.2 %    10.4 %
  CAR                        15.7 %         3.4 %       12.3 %       11.7 %       76.6 %       1.7 %     9.5 %
  ARMM                        7.0 %         2.6 %         4.4 %        5.2 %      96.3 %       0.2 %     0.7 %
  CARAGA                     23.5 %         6.6 %       16.9 %       16.2 %       84.0 %       2.2 %    15.7 %
  p/ Preliminary




   Source: Office of Supervisory Policy Development, Supervision and Examination Sector
                             STATUS REPORT ON   THE   PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007

Table 30. Rural Banking System: Asset Quality Indicators 1/

Levels (P Billion)                                       2003       2004        2005        2006         2007 p/
  Total Assets                                             84.0       94.9       109.1       126.6         149.0
                2/
  Gross Assets                                             86.5       97.7       112.3       129.8         153.0
  Total Loan Portfolio (TLP)                               51.6       58.9        67.8        76.6          93.0
  Non-performing Loans (NPL)                                6.2        6.7         7.5         8.5           9.5
  Loan Loss Reserves (LLR)                                  2.3        2.5         2.9         2.9           3.6
  ROPA, gross3/                                             7.2        8.0         8.3        10.9          11.7
  Allowance for ROPA                                        0.2        0.3         0.3         0.3           0.4
  Restructured Loans (RL), gross                            0.7        0.6         0.7         0.7           0.9
  RL, performing 4/                                         0.5        0.4         0.4         0.5           0.7
  Distressed Assets 5/                                     13.9       15.2        16.3        19.9          21.9
  Non-performing Assets (NPAs) 6/                          13.4       14.7        15.3        16.3          17.4
  Allowance for Probable Losses on NPAs                     2.5        2.8         3.2         3.2           4.0

Growth Rates
  Total Assets                                           11.2 % 13.0 %          15.0 %      16.0 %        17.7 %
               2/
  Gross Assets                                           10.8 % 13.0 %          14.9 %      15.6 %        17.9 %
  TLP                                                    10.5 % 14.3 %          15.1 %      13.0 %        21.4 %
  NPL                                                   (3.6 %)    7.9 %        11.9 %      12.7 %        12.2 %
  LLR                                                   (0.2 %) 11.6 %          14.4 %        1.6 %       23.9 %
               3/
  ROPA, gross                                           (1.3 %) 11.8 %            4.0 %     31.1 %         7.0 %
  Allowance for ROPA                                      6.4 % 33.6 %          11.2 %        9.6 %       11.2 %
  RL, gross                                            (40.3 %) (2.3 %)         17.6 %      (0.4 %)       25.6 %
                  4/
  RL, performing                                       (39.3 %) (10.3 %)        (8.0 %)     22.6 %        41.1 %
  Distressed Assets 5/                                  (4.4 %)    9.3 %          7.2 %     22.4 %        10.0 %
  NPAs 6/                                               (2.4 %)    9.6 %          4.1 %       6.5 %        6.6 %
  Allowance for Probable Losses on NPAs                   0.3 % 13.3 %          14.1 %        2.3 %       22.6 %
Selected Ratios
 RL to TLP                                               1.3   %     1.1 %       1.1 %       1.0   %       1.0 %
 LLR to TLP                                              4.4   %     4.3 %       4.2 %       3.8   %       3.9 %
 NPL Ratio                                              12.1   %    11.4 %      11.1 %      11.1   %      10.2 %
 NPL Coverage 7/                                        36.1   %    37.3 %      38.2 %      34.4   %      38.0 %
 NPA to Gross Assets                                    15.5   %    15.0 %      13.6 %      12.5   %      11.3 %
 NPA Coverage 8/                                        18.3   %    18.9 %      20.7 %      19.9   %      22.9 %
 Distressed Assets Ratio 9/                             23.7   %    22.7 %      21.4 %      22.7   %      20.9 %
1/ Asset Quality Indicators defined per BSP Circular No.202 dated 27 May 1999 amended by BSP Circular No. 351
   dated 19 September 2002
2/ Gross Assets refers to Total Assets, net of reserves plus Loan Loss Reserves (LLR) plus provision for ROPA
3/ Per Circular No. 494 dated 20 September 2005, ROPOA is renamed as Real and Other Properties Acquired
   (ROPA).
4/ Data as of end-2003 are based on current and past due restructured loans. Figures for end-2004 and
   subsequent years are based on performing and non-performing RLs.
5/ Distressed Assets refers to NPLs plus ROPA, gross and Current RLs as of end-2003. Performing RLs replaced
   current RLs from end-2004 and subsequent years.
6/ NPA refers to NPLs plus ROPA, gross excluding performing sales contracts receivable per BSP Circular No. 380
   dated 28 March 2003.
7/ NPL Coverage refers to the ratio of LLR to NPL.
8/ NPA Coverage refers to the ratio of valuation reserves (for Loans and ROPA) to NPAs.
9/ Distressed Assets Ratio refers to the ratio of Distressed Assets to TLP plus ROPA, gross
p/ Preliminary



                             Source: Office of Supervisory Policy Development, Supervision and Examination Sector
       STATUS REPORT ON    THE   PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007




 Table 31. Cooperative Banking System: Financial Highlights


     Levels (P Billion)                                  2003       2004       2005     2006   2007p/
     Income Statement
     Total Operating Income                                 0.6        0.7        0.8    0.9     1.0
       Net Interest Income                                  0.3        0.4        0.4    0.5     0.6
       Non-interest Income                                  0.3        0.3        0.4    0.4     0.5
     Operating Expenses                                     0.5        0.6        0.7    0.7     0.8
       Bad Debts/Provisions for Probable
       Losses                                               ...        ...        ...    ...     ...
       Other Operating Expenses                             0.5        0.6        0.6    0.7     0.8
     Net Operating Income                                   0.1        0.1        0.2    0.2     0.2
     Extraordinary Credits/(Charges)                        ...        ...        ...    ...     ...
     Net Income Before Tax                                  0.1        0.1        0.2    0.2     0.2
     Provisions for Income Tax                              ...        ...        ...    ...     ...
     Net Income After Tax (NIAT)                            0.1        0.1        0.2    0.2     0.2

     Balance Sheet
     Total Assets                                           5.7        6.4        7.5    8.9    10.7
      Cash and Due from Banks                               0.8        0.9        1.2    1.7     2.0
      Loans, gross                                          4.2        4.8        5.4    6.2     7.5
        Allowance for Probable Losses                       0.2        0.3        0.3    0.4     0.4
      Loans, net                                            4.0        4.5        5.1    5.8     7.1
      Investments, net                                      0.2        0.2        0.2    0.2     0.3
      ROPA, net 1/                                          0.2        0.3        0.4    0.4     0.4
      Other Assets                                          0.4        0.4        0.6    0.4     0.8
     Total Liabilities                                      4.7        5.3        6.3    7.5     9.2
      Deposits                                              3.3        3.7        4.4    5.3     6.5
      Bills Payable                                         1.1        1.3        1.4    1.7     2.0
      Special Financing                                     ...        ...        ...    ...     ...
      Other Liabilities                                     0.3        0.3        0.5    0.5     0.6
     Total Capital Accounts                                 1.0        1.1        1.2    1.3     1.5
  1/ Per Circular No. 494 dated 20 September 2005, ROPOA is renamed as Real and Other Properties
      Acquired (ROPA).
  p/ Preliminary
. . . Less than P0.05 billion




Source: Office of Supervisory Policy Development, Supervision and Examination Sector
                           STATUS REPORT ON    THE   PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007


Table 32. Cooperative Banking System: Selected Performance Indicators

Growth Rates                                         2003       2004         2005        2006         2007 p/
Income Statement
   Total Operating Income                             4.3 %     13.3 %      12.6 %      11.7 %        14.7 %
     Net Interest Income                              7.0 %      9.8 %      15.1 %      14.8 %        15.9 %
     Non-interest Income                              1.5 %     17.2 %      10.1 %       8.2 %        13.2 %
   Operating Expenses                                 0.4 %     14.0 %       9.7 %      11.5 %        13.4 %
     Bad Debts/Provisions for Probable
     Losses                                        42.9 %  94.9 %            1.9 %      10.6 %        (5.6 %)
     Other Operating Expenses                      (0.5 %) 11.4 %           10.2 %      11.5 %        14.4 %
   Net Operating Income                            27.0 %   9.8 %           26.5 %      12.6 %        19.9 %
   Extraordinary Credits/(Charges)                 20.2 %   8.6 %           77.8 %     (26.6 %)       19.4 %
   Net Income Before Tax                           26.1 %   9.7 %           32.7 %       6.3 %        19.8 %
   Provisions for Income Tax                      473.6 % (42.7 %)          53.2 %     486.0 %        (0.2 %)
   Net Income After Tax (NIAT)                     25.7 %   9.9 %           32.6 %       5.1 %        20.1 %
Balance Sheet
   Total Assets                                      6.2 %      13.2 %      17.1 %       18.3 %      20.7 %
    Cash and Due from Banks                          8.3 %      11.7 %      23.2 %       45.1 %      20.0 %
    Loans, gross                                     5.1 %      14.9 %      12.9 %       13.9 %      22.0 %
     Allowance for Probable Losses                   0.3 %      21.8 %      16.3 %       12.7 %      15.0 %
    Loans, net                                       5.4 %      14.5 %      12.7 %       14.0 %      22.4 %
    Investments, net                                17.2 %       8.7 %       8.4 %       (2.3 %)     27.2 %
    ROPA, net 1/                                     6.7 %      13.7 %      34.7 %        3.5 %      16.3 %
    Other Assets                                     4.1 %       5.2 %      42.3 %      (39.5 %)    118.7 %
   Total Liabilities                                 4.7 %      13.0 %      18.1 %       20.0 %      21.9 %
    Deposits                                        11.8 %      13.5 %      17.6 %       21.7 %      22.8 %
    Bills Payable                                   (9.6 %)     15.7 %      11.2 %       21.6 %      19.5 %
    Special Financing                              (14.7 %)     (0.3 %)      1.4 %      (10.1 %)      1.5 %
    Other Liabilities                               (3.9 %)      0.0 %      55.0 %        1.3 %      21.4 %
   Total Capital Accounts                           13.9 %      14.1 %      12.1 %        9.9 %      14.2 %
Selected Ratios
Profitability
   Cost to Income                                     79.5%      78.2%        76.4%       76.3%        76.1%
   Return on Assets (ROA)                              2.4%       2.4%         2.7%        2.4%         2.4%
   Return on Equity (ROE)                             14.4%      13.9%        16.3%       15.4%        16.5%
Liquidity
   Cash and Due from Banks to Deposits                25.5%      25.1%       26.3%        31.3%        30.6%
   Liquid Assets to Deposits 2/                       31.4%      30.9%       31.7%        35.6%        35.1%
   Loans, gross to Deposits                          127.5%     129.1%      124.0%       116.1%       115.3%
Asset quality
   Non-performing Loans (NPL exclusive
   of IBL)                                            12.0%      11.3%        11.0%       11.9%        13.3%
   NPL Coverage                                       39.8%      41.5%        43.1%       45.1%        37.4%
   Non-performing Assets (NPA) to Gross
   Assets                                             12.7%      12.3%        12.3%       12.0%        12.8%
   NPA Coverage                                       27.3%      28.0%        27.4%       30.5%        26.9%
   Distressed Assets                                  19.5%      18.4%        18.2%       18.6%        19.7%
Capital Adequacy
                                                                                                                a/
   Capital Adequacy Ratio (CAR) 3/                    14.6%      14.0%        15.5%       12.1%        14.0%
   Total Capital Accounts to Total Assets             16.9%      17.1%        16.3%       15.2%        14.4%
 1/ Per Circular No. 494 dated 20 September 2005, ROPOA is renamed as Real and Other Properties Acquired (ROPA).
 2/ Liquid assets refers to Cash and Due from Banks plus Investments, net (less equity investments, net)
 3/ Based on Circular No. 280 dated 29 March 2001, formally adapted 1 July 2001
 p/ Preliminary
 a/ Data as of end-September 2007


                            Source: Office of Supervisory Policy Development, Supervision and Examination Sector
       STATUS REPORT ON    THE   PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007




 Table 33. Cooperative Banking Offices: Regional Profile


                                                                                 End-December 2007
                                                            End-
                                                          December                             Branches/
                                                                                       Head
                                                                             Total               Other
                                                            2006                      Offices
                                                                                                Offices

 Nationwide                                                        111            122      45         77

     National Capital Region (NCR)                                    1                1    1          -

     Luzon                                                           64            71      22         49
     Region I      - Ilocos                                           8             9       3          6
     Region II     - Cagayan                                         11            13       3         10
     Region III    - Central Luzon                                   25            28       7         21
     Region IV-A - CALABARZON                                        12            13       3         10
     Region IV-B - MIMAROPA                                           1             1       1
     Region V      - Bicol                                            5             5       3          2
     Cordillera Autonomous Region (CAR)                               2             2       2
     Visayas                                                         22            23      10         13
     Region VI        - Western Visayas                              11            11       4          7
     Region VII       - Central Visayas                               9            10       4          6
     Region VIII      - Eastern Visayas                               2             2       2          -
     Mindanao                                                        24            27      12         15
     Region IX  - Western Mindanao                                    2             2       2          -
     Region X   - Northern Mindanao                                  15            16       5         11
     Region XI  - Southern Mindanao                                   1             1       1          -
     Region XII - Central Mindanao                                    3             5       1          4
     Autonomous Region of Muslim Mindanao                             -             -       -          -
     CARAGA                                                           3             3       3          -




Source: Office of Supervisory Policy Development, Supervision and Examination Sector
                             STATUS REPORT ON     THE   PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007


Table 34. Cooperative Banking System: Profitability Indicators

 Levels (P Billion)                                       2003         2004         2005        2006         2007 p/
 Total Operating Income                                       0.6          0.7         0.8            0.9       1.0
   Net Interest Income                                        0.3          0.4         0.4            0.5       0.6
     Interest Income                                          0.7          0.8         0.9            1.0       1.2
     Interest Expenses                                        0.4          0.4         0.4            0.5       0.6
   Non-interest Income                                        0.3          0.3         0.4            0.4       0.5
     Fee-based Income                                         0.2          0.3         0.3            0.3       0.3
     Other Income                                             0.1          0.1         0.1            0.1       0.1
 Operating Expenses                                           0.5          0.6         0.7            0.7       0.8
   Bad Debts/Provisions for Probable
   Losses                                                      ...          ...         ...            ...       ...
   Other Operating Expenses                                   0.5          0.6         0.6            0.7       0.8
 Net Operating Income                                         0.1          0.1         0.2            0.2       0.2
 Extraordinary Credits/(Charges)                               ...          ...         ...            ...       ...
 Net Income Before Tax                                        0.1          0.1         0.2            0.2       0.2
 Provision for Income Tax                                      ...          ...         ...            ...       ...
 Net Income After Tax (NIAT)                                  0.1          0.1         0.2            0.2       0.2
 Growth Rates
 Total Operating Income                                     4.3 %      13.3 %      12.6   %     11.7 %       14.7 %
   Net Interest Income                                      7.0 %       9.8 %      15.1   %     14.8 %       15.9 %
     Interest Income                                        2.9 %      12.1 %      10.0   %     16.0 %       17.3 %
     Interest Expenses                                    (0.7 %)      14.3 %       5.4   %     17.1 %       18.7 %
   Non-interest Income                                      1.5 %      17.2 %      10.1   %      8.2 %       13.2 %
     Fee-based Income                                       3.9 %      11.0 %       3.3   %      8.8 %       11.8 %
     Other income                                         (5.8 %)      37.7 %      23.9   %     14.6 %       16.4 %
 Operating Expenses                                         0.4 %      14.0 %       9.7   %     11.5 %       13.4 %
   Bad Debts/Provisions for Probable
   Losses                                                 42.9 % 94.9 %             1.9   % 10.6 %           (5.6 %)
   Other Operating Expenses                               (0.5 %) 11.4 %           10.2   % 11.5 %           14.4 %
 Net Operating Income                                     27.0 %    9.8 %          26.5   % 12.6 %           19.9 %
 Extraordinary Credits/(Charges)                          20.2 %    8.6 %          77.8   % (26.6 %)         19.4 %
 Net Income Before Tax                                    26.1 %    9.7 %          32.7   %    6.3 %         19.8 %
 Provision for Income Tax                                473.6 % (42.7 %)          53.2   % 486.0 %          (0.2 %)
 Net Income After Tax (NIAT)                              25.7 %    9.9 %          32.6   %    5.1 %         20.1 %
 Selected Ratios
 Earning Asset Yield 1/                                   16.3 %       16.5 %      16.0   %     16.4 %       16.3 %
 Funding Cost 2/                                           8.4 %        8.7 %       8.0   %      7.8 %        7.6 %
 Interest Spread 3/                                        7.9 %        7.8 %       8.0   %      8.6 %        8.7 %
 Net Interest Margin 4/                                    7.9 %        7.9 %       8.0   %      8.1 %        7.9 %
 Non-interest Income to Total Operating
 Income                                                   47.0 %       48.6 %      47.5   %     46.0 %       45.5 %
 Cost-to-Income 5/                                        79.5 %       78.2 %      76.4   %     76.3 %       76.1 %
 Return on Assets (ROA) 6/                                 2.4 %        2.4 %       2.7   %      2.4 %        2.4 %
 Return on Equity (ROE) 6/                                14.4 %       13.9 %      16.3   %     15.4 %       16.5 %

   1/ Earning Asset Yield refers to the ratio of interest income to average earning assets
   2/ Funding Cost refers to the ratio of interest expenses to average interest-bearing liabilities
   3/ Interest Spread refers to the difference between earning asset yield and funding cost
   4/ Net Interest Margin refers to the ratio of net interest income to average earning assets
   5/ Cost -to-Income Ratio refers to the ratio of operating expenses (exclusive of bad debts and provisions) to
      total operating income
   6/ ROA and ROE refers to the ratio of annualized NIAT to average assets and capital, respectively.
    p/ Preliminary
  . . . Less than P0.05 billion

                              Source: Office of Supervisory Policy Development, Supervision and Examination Sector
       STATUS REPORT ON    THE   PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007




Table 35. Cooperative Banking System: Regional Profitability Indicators


                                                        End- December 2007 p/

                       Earning                                   Net                    Return on Return on
                               Funding Interest                             Cost to
     Region             Asset                                  Interest                   Asset    Equity
                                Cost   Spread                               Income
                        Yield                                   Margin                   (ROA)     (ROE)

Industry                   16.3%         7.6%        8.7%           7.9%       76.1%         2.4%     16.5%

  NCR                     13.1 %         6.1 %       7.0 %         4.7 %      78.0 %        0.6 %     3.6 %

  Region 1                16.2 %         7.1 %       9.1 %         9.1 %      74.2 %        2.7 %    25.5 %

  Region 2                23.0 %         7.2 %     15.8 %         15.1 %      74.7 %        4.3 %    22.9 %

  Region 3                12.5 %         8.2 %       4.3 %         3.0 %      78.4 %        1.7 %    16.6 %

  CALABARZON              17.2 %         5.1 %     12.1 %         11.4 %      71.0 %        3.7 %    28.3 %

  MIMAROPA                21.6 %         7.5 %     14.1 %         14.2 %      66.0 %        2.9 %    14.3 %

  Region 5                14.9 %         9.7 %       5.2 %         6.5 %      93.4 %        0.6 %     3.8 %

  Region 6                13.8 %       13.6 %        0.2 %       (0.9 %) 145.3 %           (2.0 %)   88.3 %

  Region 7                17.6 %         7.9 %       9.7 %        10.2 %      69.1 %        3.2 %    13.2 %

  Region 8                18.6 %         8.1 %     10.5 %         11.1 %      86.2 %        2.1 %     9.4 %

  Region 9                15.7 %         8.6 %       7.0 %         7.2 %      73.5 %        1.5 %     7.9 %

  Region 10               17.9 %         6.5 %     11.5 %         11.6 %      79.1 %        3.3 %    18.4 %

  Region 11               18.3 %       10.1 %        8.3 %         8.0 %      90.2 %        0.1 %     0.9 %

  Region 12               22.8 %         6.7 %     16.2 %         17.2 %      59.6 %        7.9 %    26.5 %

  CAR                     20.1 %         6.6 %     13.4 %         10.7 %      65.5 %        2.6 %    18.7 %

  ARMM                     0.0 %         0.0 %       0.0 %         0.0 %        0.0 %       0.0 %     0.0 %

  CARAGA                  16.0 %         5.6 %     10.4 %         10.8 %      79.9 %        2.3 %    10.6 %

  p/ Preliminary




Source: Office of Supervisory Policy Development, Supervision and Examination Sector
                               STATUS REPORT ON   THE   PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007

                                                                                     1/
Table 36. Cooperative Banking System: Asset Quality Indicators


Levels (P Billion)                                           2003        2004        2005         2006        2007p/

     Total Assets                                               5.7          6.4          7.5         8.9        10.7
     Gross Assets 2/                                            5.9          6.6          7.8         9.2        11.1
     Total Loan Portfolio (TLP)                                 4.2          4.8          5.4         6.2         7.5
     Non-performing Loans (NPL)                                 0.5          0.5          0.6         0.7         1.0
     Loan Loss Reserves (LLR)                                   0.2          0.2          0.3         0.3         0.4
                  3/
     ROPA, gross                                                0.2          0.3          0.4         0.4         0.5
     Allowance for ROPA                                         ...          ...          ...         ...         ...
     Restructured Loans (RL), gross                             0.1          0.1          0.1         0.1         0.2
     RL, performing 4/                                          0.1          0.1          0.1         0.1         0.1
     Distressed Assets 5/                                       0.9          0.9          1.1         1.2         1.6
     Non-performing Assets (NPAs)6/                             0.7          0.8          1.0         1.1         1.4
     Allowance for Probable Losses on NPAs                      0.2          0.2          0.3         0.3         0.4
Growth Rates
 Total Assets                                                 6.2 %      13.2 %      17.1 % 18.3 %            20.7 %
              2/
 Gross Assets                                                 5.9 %      13.2 %      17.0 % 18.7 %            20.4 %
 TLP                                                          5.0 %      14.4 %      12.8 % 14.8 %            21.9 %
 NPL                                                       (15.4 %)        7.8 %       9.4 % 24.2 %           36.6 %
 LLR                                                        (1.6 %)      12.3 %      13.8 % 30.0 %            13.0 %
 ROPA, gross 3/                                               6.4 %      13.6 %      34.8 %     3.9 %         16.2 %
 Allowance for ROPA                                         (7.9 %)        9.1 %     35.9 % 24.8 %            11.5 %
 RL, gross                                                  (2.6 %)        2.9 %     (0.6 %) (5.9 %)          32.2 %
 RL, performing 4/                                          (1.0 %)      (2.6 %)       1.2 % (11.5 %)         16.2 %
 Distressed Assets 5/                                       (8.3 %)        8.1 %     16.1 % 13.5 %            28.4 %
 NPAs 6/                                                    (9.3 %)        9.7 %     16.5 % 16.5 %            28.1 %
 Allowance for Probable Losses on NPAs                      (1.7 %)      12.2 %      14.2 % 29.9 %            13.0 %
Selected Ratios
     RL to TLP                                                3.0 %       2.7 %       2.3 %        1.9 %       2.1 %
     LLR to TLP                                               4.8 %       4.7 %       4.8 %        5.4 %       5.0 %
     NPL Ratio                                               12.0 %      11.3 %      11.0 %       11.9 %      13.3 %
     NPL Coverage 7/                                         39.8 %      41.6 %      43.1 %       45.1 %      37.4 %
     NPA to Gross Assets                                     12.7 %      12.3 %      12.3 %       12.0 %      12.8 %
     NPA Coverage 8/                                         27.4 %      27.9 %      27.4 %       30.5 %      27.0 %
     Distressed Assets Ratio 9/                              19.4 %      18.4 %      18.2 %       18.6 %      19.7 %

1/ Asset Quality Indicators defined per BSP Circular No.202 dated 27 May 1999 amended by BSP Circular No. 351
   dated 19 September 2002
2/ Gross Assets refers to Total Assets, net of reserves plus Loan Loss Reserves (LLR) plus provision for ROPA
3/ Per Circular No. 494 dated 20 September 2005, ROPOA is renamed as Real and Other Properties Acquired
   (ROPA).
4/ Data as of end-2003 are based on current and past due restructured loans. Figures for end-2004 and subsequent
   years are based on performing and non-performing RLs.
5/ Distressed Assets refers to NPLs plus ROPA, gross and Current RLs as of end-2003. Performing RLs replaced
   current RLs from end-2004 and gross excluding performing sales contracts receivable per BSP Circular No. 380
6/ NPA refers to NPLs plus ROPA,subsequent years.
   dated 28 March 2003
7/   NPL Coverage refers to the ratio of LLR to NPL.
8/   NPA Coverage refers to the ratio of valuation reserves (for Loans and ROPA) to NPAs.
9/   Distressed Assets Ratio refers to the ratio of Distressed Assets to TLP plus ROPA.
p/   Preliminary
…    Less than P0.05 billion

                               Source: Office of Supervisory Policy Development, Supervision and Examination Sector
       STATUS REPORT ON    THE   PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007




 Table 37. Non-Banks with Quasi-Banking Functions (NBQBs)
 Financial Highlights

  Levels (P Billion)                                    2003       2004       2005      2006    2007
   Income Statement
   Total Operating Income                                  2.0        2.3         2.8     3.6     4.4
     Net Interest Income                                   0.8        1.0         1.4     1.3     1.8
     Non-interest Income                                   1.2        1.3         1.4     2.3     2.6
   Operating Expenses                                      1.1        1.0         1.5     1.5     1.7
     Bad Debts/Provisions for Probable
     Losses                                                 ...       0.1         0.2     0.2     0.1
     Other Operating Expenses                              1.1        0.9         1.3     1.3     1.6
   Net Operating Income                                    0.9        1.3         1.3     2.1     2.7
   Extraordinary Credits/(Charges)                         0.6        0.4         0.6     0.2     0.9
   Net Income Before Tax                                   1.4        1.7         1.9     2.3     3.6
   Provisions for Income Tax                               0.1        0.5         0.3     0.3     0.4
   Net Income After Tax (NIAT)                             1.3        1.2         1.6     2.0     3.2

   Balance Sheet
   Total Assets                                          28.7        33.5       44.3     56.1    63.3
    Cash and Due from Banks                               1.9         1.5        4.7      8.1     9.0
    Interbank Loans Receivable (IBL)                      1.6         4.1        0.4      1.1     0.1
    Loans, gross (exclusive of IBL)                      12.7         9.4       12.9     10.7    13.2
      Allowance for Probable Losses                       1.0         0.7        0.6      0.7     0.6
    Loans, net (exclusive of IBL)                        11.7         8.7       12.3     10.1    12.6
    Investments, net                                      7.6        13.5       21.7     31.5    36.7
    ROPA, net 1/                                          1.3         1.4        1.4      1.3     1.3
    Other Assets                                          4.6         4.4        3.9      4.1     3.7
   Total Liabilities                                     12.2        17.3       29.0     38.0    43.3
    Bills Payable                                        10.4        15.1       27.0     35.1    41.2
    Other Liabilities                                     1.8         2.2        2.0      3.0     2.1
   Total Capital Accounts                                16.6        16.2       15.3     18.1    20.0

   1/ Per Circular No. 494 dated 20 September 2005, ROPOA is renamed as Real and Other Properties
      Acquired (ROPA).
. . . Less than P50 million




Source: Office of Supervisory Policy Development, Supervision and Examination Sector
                             STATUS REPORT ON      THE   PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007

Table 38. Non-Banks with Quasi-Banking Functions (NBQBs)
Selected Performance Indicators

 Growth Rates                                               2003         2004         2005          2006         2007
 Income Statement
   Total Operating Income                                 (18.0 %)       17.9 %        20.4   %     27.3 %       23.3    %
     Net Interest Income                                  (29.0 %)       24.4 %        42.7   %   (10.9 %)       40.0    %
     Non-interest Income                                   (8.1 %)       13.3 %         3.7   %     67.1 %       14.0    %
   Operating Expenses                                      (5.2 %)       (9.2 %)       51.8   %      0.3 %       11.4    %
     Bad Debts/Provisions for Probable
     Losses                                               (63.8 %)      199.8 %      138.0 %        50.4 %      (78.9 %)
     Other Operating Expenses                              (1.8 %)      (13.7 %)       45.4 %      (5.9 %)        29.2 %
   Net Operating Income                                   (29.7 %)        51.4 %      (2.9 %)       58.9 %        32.0 %
   Extraordinary Credits/(Charges)                        164.2 %       (34.2 %)       54.7 %     (63.3 %)      335.7 %
   Net Income Before Tax                                   (1.8 %)        18.3 %        9.5 %       21.7 %        59.9 %
   Provisions for Income Tax                              (52.2 %)      233.5 %      (34.9 %)      (2.5 %)        44.6 %
   Net Income After Tax (NIAT)                              11.5 %       (6.0 %)       27.2 %       26.7 %        62.3 %
 Balance Sheet
   Total Assets                                            (2.0 %)        16.5 %       32.4 %       26.6 %        12.9 %
     Cash and due from Banks                                96.1 %      (20.6 %)     213.7 %        71.9 %        11.3 %
     Interbank Loans Receivable (IBL)                        0.1 %      161.3 %      (91.2 %)     197.8 %       (90.8 %)
     Loans, gross (exclusive of IBL)                        52.6 %      (26.2 %)       37.5 %     (16.8 %)        23.1 %
       Allowance for Probable Losses                         7.2 %      (30.0 %)     (13.8 %)       13.1 %       (2.6 %)
     Loans, net (exclusive of IBL)                          58.0 %      (25.9 %)       41.4 %     (18.2 %)        24.8 %
     Investments, net                                     (25.4 %)        77.7 %       61.2 %       45.1 %        16.3 %
     ROPA, net 1/                                         (24.5 %)         2.6 %        1.1 %      (2.7 %)       (3.7 %)
     Other Assets                                         (37.7 %)       (5.3 %)     (11.9 %)        4.7 %       (7.9 %)
   Total Liabilities                                       (9.5 %)        42.0 %       68.0 %       31.1 %        13.8 %
     Bills Payable                                          24.1 %        45.0 %       79.6 %       29.6 %        17.5 %
     Other Liabilities                                    (64.9 %)        24.6 %     (10.8 %)       51.3 %      (29.4 %)
   Total Capital Accounts                                    4.3 %       (2.2 %)      (5.6 %)       18.1 %        10.8 %
 Selected Ratios
 Profitability
   Cost-to-Income 2/                                        54.2 %        39.7 %       47.9 %       35.4 %       37.1 %
   Return on Assets (ROA)                                    4.5 %         3.9 %        4.0 %        3.9 %        5.4 %
   Return on Equity (ROE)                                    8.0 %         7.5 %        9.9 %       11.8 %       16.8 %
 Liquidity
   Cash and Due from Banks to Bills Payable                 18.1 %         9.9 %       17.3 %       23.0 %       21.8 %
   Liquid Assets to Bills Payable 3/                        52.1 %        76.8 %       84.3 %      106.4 %       99.9 %
   Loans, gross to Bills Payable                           137.2 %        89.1 %       48.9 %       33.6 %       32.3 %
 Asset Quality
   Non-performing Loans (NPL)                                5.8 %        4.0 %         4.8 %        4.1 %        3.7 %
   NPL Coverage                                            114.6 %      124.8 %        91.0 %      135.9 %      127.6 %
   Non-performing Assets (NPA) to Gross
   Assets                                                    7.6 %         6.1 %        4.8 %        3.5 %        3.1 %
   NPA Coverage                                             53.6 %        41.4 %       33.4 %       41.7 %       41.1 %
 Capital Adequacy
   Total Capital Accounts to Total Assets                   57.7 %        48.4 %       34.5 %       32.2 %       31.6 %
   Paid-in Capital to Total Capital Accounts                52.0 %        55.1 %       63.8 %       57.3 %       56.5 %
 Business Mix
   Total Investments (gross) to Total Assets                27.5 %        40.5 %       49.4 %       52.7 %       55.4 %
   Total Loans (gross) to Total Assets                      49.6 %        40.1 %       29.9 %       21.0 %       21.0 %

 1/ Per Circular No. 494 dated 20 September 2005, ROPOA is renamed as Real and Other Properties Acquired (ROPA).
 2/ Cost-to-Income Ratio refers to operating expenses, exclusive of bad debts and provisions to total operating income
 3/ Liquid Assets refers to Cash and Due from Banks plus Investments,net (less equity investments,net)


                              Source: Office of Supervisory Policy Development, Supervision and Examination Sector
       STATUS REPORT ON       THE   PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007


     Table 39. Non-Banks with Quasi-Banking Functions (NBQBs)
     Profitability Indicators

      Levels (P Billion)                                       2003         2004        2005         2006         2007
      Total Operating Income                                       2.0         2.3          2.8          3.6           4.4
        Net Interest Income                                        0.8         1.0          1.4          1.3           1.8
         Interest Income                                           0.9         1.2          2.4          2.7           2.8
         Interest Expenses                                         0.6         0.8          1.6          1.9           1.5
        Non-interest Income                                        1.2         1.3          1.4          2.3           2.6
         Fee-based Income                                          0.5         0.7          0.7          0.6           0.7
         Trading Income                                            0.4         0.6          0.7          1.5           1.1
         Other Income                                              0.2         0.1          0.1          0.3           0.8
      Operating Expenses                                           1.1         1.0          1.5          1.5           1.7
        Bad Debts/Provisions for Probable
        Losses                                                    ...          0.1          0.2          0.3           0.1
        Other Operating Expenses                                  1.1          0.9          1.4          1.3           1.6
      Net Operating Income                                        0.9          1.3          1.3          2.1           2.7
      Extraordinary Credits/(Charges)                             0.6          0.4          0.6          0.2           0.9
      Net Income Before Tax                                       1.4          1.7          1.9          2.3           3.6
      Provisions for Income Tax                                   0.1          0.5          0.3          0.3           0.4
      Net Income After Tax (NIAT)                                 1.3          1.2          1.6          2.0           3.2
      Growth Rates
      Total Operating Income                                 (18.0 %) 17.9 %     20.4 %               27.3 %       23.3 %
        Net Interest Income                                  (29.0 %) 24.4 %     42.7 %             (10.9 %)       40.0 %
          Interest Income                                    (17.3 %) 31.8 % 104.0 %                  12.0 %        4.3 %
          Interest Expenses                                  (27.9 %) 31.5 % 104.6 %                  21.8 %     (22.9 %)
        Non-interest Income                                   (8.1 %) 13.3 %      3.7 %               67.1 %       14.0 %
          Fee-based Income                                   (17.3 %) 24.9 % (0.0 %)                (13.8 %)       18.1 %
          Trading Income                                     177.7 %    36.5 %   13.6 %             125.1 %      (22.7 %)
          Other Income                                       (54.4 %) (60.1 %) (33.7 %)             357.1 %      209.5 %
      Operating Expenses                                      (5.2 %) (9.2 %) 51.8 %                   0.3 %       11.4 %
        Bad Debts/Provisions for Probable
        Losses                                               (63.8 %)     199.8 % 138.0 %             50.4 %     (78.9 %)
        Other Operating Expenses                              (1.8 %)     (13.7 %) 45.4 %            (5.9 %)       29.2 %
      Net Operating Income                                   (29.7 %)       51.4 % (2.9 %)            58.9 %       32.0 %
      Extraordinary Credits/(Charges)                        164.2 %      (34.2 %) 54.7 %           (63.3 %)     335.7 %
      Net Income Before Tax                                   (1.8 %)       18.3 %   9.5 %            21.7 %       59.9 %
      Provisions for Income Tax                              (52.2 %)     233.5 % (34.9 %)           (2.5 %)       44.6 %
      Net Income After Tax (NIAT)                              11.5 %      (6.0 %) 27.2 %             26.7 %       62.3 %
      Selected Ratios
      Earning Asset Yield 1/                                     8.6 %       8.5 %      11.0 %         9.2   %       7.9 %
      Funding Cost 2/                                            6.2 %       6.0 %       7.4 %         6.1   %       3.9 %
      Interest Spread 3/                                         2.4 %       2.5 %       3.5 %         3.1   %       4.0 %
      Net Interest Margin 4/                                     5.0 %       4.8 %       5.3 %         3.7   %       4.3 %
      Non-interest Income to Total Operating
      Income                                                   59.2 %       57.0 %      49.0 %        64.3   %     59.5 %
      Cost-to-Income 5/                                        54.2 %       39.7 %      47.9 %        35.4   %     37.1 %
      Return on Assets (ROA) 6/                                 4.5 %        3.9 %       4.0 %         3.9   %      5.4 %
      Return on Equity (ROE) 6/                                 8.0 %        7.5 %       9.9 %        11.8   %     16.8 %

      1/   Earning Asset Yield refers to the ratio of interest income to average earning assets
      2/   Funding Cost refers to the ratio of interest expenses to average interest-bearing liabilities
      3/   Interest Spread refers to the difference between earning asset yield and funding cost
      4/   Net Interest Margin refers to the ratio of net interest income to average earning assets
      5/   Cost-to-Income Ratio refers to operating expenses, exclusive of bad debts and provisions to total operating income
      6/   ROA and ROE refers to the ratio of annualized NIAT to average assets and capital, respectively.
     ...   Less than P50 million


Source: Office of Supervisory Policy Development, Supervision and Examination Sector
                                STATUS REPORT ON    THE   PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007



Table 40. Non-Banks with Quasi-Banking Functions (NBQBs)
Asset Quality Indicators 1/

 Levels (P Billion)                                        2003         2004         2005         2006          2007
   Total Assets                                               28.7         33.5         44.3         56.1          63.3
   Gross Assets 2/                                            30.0         34.4         45.1         57.0          64.1
   Total Loan Portfolio (TLP)                                 14.2         13.4         13.2         11.8          13.3
   Interbank Loans Receivable (IBL)                            1.6          4.1          0.4          1.1           0.1
   TLP, (exclusive of IBL)                                    12.7          9.4         12.9         10.7          13.2
   TLP, net (exclusive of IBL)                                11.7          8.7         12.3         10.1          12.6
   Non-performing Loans (NPL)                                  0.8          0.5          0.6          0.5           0.5
   Loan Loss Reserves (LLR)                                    1.0          0.7          0.6          0.7           0.6
   ROPA, gross 3/                                              1.6          1.6          1.5          1.5           1.5
   Allowance for ROPA                                          0.3          0.2          0.1          0.2           0.2
   Restructured Loans (RL), gross                              0.3          0.4          0.3          0.2           0.1
   RL, current                                                 0.2          0.2          0.2          0.1           ...
   Non-performing Assets (NPAs) 4/                             2.3          2.1          2.2          2.0           2.0
   Allowance for Probable Losses on NPAs                       1.2          0.9          0.7          0.8           0.8
 Growth Rates
   Total Assets                                            (2.0 %)      16.5 %       32.4 %       26.6 %         12.9 %
   Gross Assets 2/                                         (2.6 %)      14.7 %       31.1 %       26.4 %         12.6 %
   TLP                                                      44.3 %     (5.8 %)      (1.4 %)     (11.0 %)         12.9 %
   IBL                                                       0.1 %    161.3 %      (91.2 %)     197.8 %        (90.8 %)
   TLP (exclusive of IBL)                                   52.6 %    (26.2 %)       37.5 %     (16.8 %)         23.1 %
   TLP, net (exclusive of IBL)                              58.0 %    (25.9 %)       41.4 %     (18.2 %)         24.8 %
   NPL                                                    (19.9 %)    (35.7 %)       18.2 %     (24.2 %)          3.7 %
   LLR                                                       7.2 %    (30.0 %)     (13.8 %)       13.1 %        (2.6 %)
   ROPA, gross 3/                                         (31.3 %)     (1.7 %)      (2.7 %)        0.5 %        (4.4 %)
   Allowance for ROPA                                     (52.5 %)    (23.5 %)     (28.2 %)       30.5 %        (8.9 %)
   RL, gross                                              (34.3 %)       7.9 %     (17.6 %)     (43.8 %)       (24.7 %)
   RL, current                                            (58.3 %)      41.6 %     (34.3 %)     (45.0 %)       (56.7 %)
   NPAs 4/                                                (32.3 %)     (7.5 %)        2.6 %      (6.7 %)        (2.4 %)
   Allowance for Probable Losses on NPAs                  (16.0 %)    (28.5 %)     (17.2 %)       16.6 %        (4.0 %)

 Selected Ratios
   RL to TLP                                                2.3 %        2.7 %        2.2 %        1.4 %         0.9 %
   LLR to TLP                                               6.7 %        5.0 %        4.3 %        5.5 %         4.8 %
   NPL Ratio (inclusive of IBL)                             5.8 %        4.0 %        4.8 %        4.1 %         3.7 %
   NPL Ratio (exclusive of IBL)                             6.5 %        5.7 %        4.9 %        4.5 %         3.8 %
                  5/
   NPL Coverage                                           114.6 %      124.8 %       91.0 %      135.9 %       127.6 %
   NPA to Gross Assets                                      7.6 %        6.1 %        4.8 %        3.5 %         3.1 %
   NPA Coverage 6/                                         53.6 %       41.4 %       33.4 %       41.7 %        41.1 %
 1/ Asset Quality Indicators defined per BSP Circular No. 351 dated 19 September 2002
 2/ Gross Assets refers to Total Assets, net of reserves plus Loan Loss Reserves (LLR) plus provision for ROPA
 3/ Per Circular No. 494 dated 20 September 2005, ROPOA is renamed as Real and Other Properties Acquired (ROPA).
 4/ NPA refers to NPLs plus ROPA, gross excluding performing sales contracts receivable per BSP Circular No. 380
    dated 28 March 2003
  5/ NPL Coverage refers to the ratio of LLR to NPL
  6/ NPA Coverage refers to the ratio of valuation reserves (for Loans and ROPA) to NPAs
. . . Less than P50 million

                                 Source: Office of Supervisory Policy Development, Supervision and Examination Sector
       STATUS REPORT ON    THE   PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007


Table 41. Non-Stock Savings and Loan Associations (NSSLAs)
Selected Performance Indicators

 Levels (P Billion)                              2003          2004         2005          2006         2007
 Balance Sheet
   Total Assets                                      61.4          66.9         67.2          70.6         74.0
     Cash and Due from Banks                          5.1           5.4          6.3          12.4         15.7
     Loans, gross                                    52.1          59.4         58.5          57.5         55.2
       Allowance for Probable Losses                  4.0           6.1          7.2           7.7          7.4
     Loans, net                                      48.1          53.2         51.3          49.8         47.8
     Investments, net                                 5.2           4.3          5.9           5.2          7.4
     ROPA, net 1/                                     0.5           0.3          0.4           ...          ...
     Other Assets                                     2.6           3.7          3.3           3.2          3.0
   Total Liabilities                                  6.8           7.9          8.4           9.8         14.2
     Deposits                                         3.9           4.8          5.5           6.9         10.6
     Bills Payable                                    0.4           0.4          0.5           0.6          0.5
     Other Liabilities                                2.4           2.7          2.5           2.3          3.0
   Total Capital Accounts                            54.6          59.0         58.8          60.8         59.8
 Growth Rates
 Balance Sheet
   Total Assets                                   11.9 %         9.0 %         0.4 %        5.1 %         4.8 %
     Cash and Due from Banks                      54.2 %         7.7 %       15.2 %        97.4 %        27.3 %
     Loans, gross                                 11.9 %        14.0 %       (1.5 %)      (1.6 %)       (4.1 %)
       Allowance for Probable Losses              44.5 %        53.0 %       17.1 %         7.5 %       (4.3 %)
     Loans, net                                    9.8 %        10.8 %       (3.7 %)      (2.9 %)       (4.1 %)
     Investments, net                             32.7 %      (17.4 %)       38.5 %      (13.0 %)        43.9 %
     ROPA, net 1/                                 64.9 %      (43.8 %)       26.9 %      (90.6 %)        16.3 %
     Other Assets                               (28.7 %)        42.5 %       (9.1 %)      (2.5 %)       (7.4 %)
   Total Liabilities                             (2.2 %)        16.9 %         6.3 %       16.8 %        44.2 %
     Deposits                                      5.2 %        22.3 %       13.5 %        26.7 %        53.6 %
     Bills Payable                              (16.3 %)         9.5 %         6.2 %       27.2 %      (12.6 %)
     Other Liabilities                           (9.8 %)         9.5 %       (6.6 %)      (6.6 %)        30.5 %
   Total Capital Accounts                         13.9 %         8.0 %       (0.4 %)        3.5 %       (1.6 %)
 Selected Ratios
 Liquidity
    Cash and Due from Banks to
    Deposits                                    128.5 %   113.2 %   114.9 %              179.1 %       148.4 %
    Liquid Assets to Deposits 2/                260.5 %   202.3 %   223.7 %              253.8 %       218.5 %
    Loans, gross to Deposits                  1,325.2 % 1,235.6 % 1,072.3 %              832.8 %       519.9 %
 Asset Quality
    Non-performing Loans (NPL)                    16.7 %        15.3 %       19.2 %        20.7 %       21.6 %
    NPL Coverage                                  46.0 %        67.6 %       64.0 %        64.8 %       62.1 %
    Non-performing Assets (NPA) to
    Gross Assets                                  14.1 %        12.8 %       15.6 %        15.3 %       14.7 %
    NPA Coverage                                  43.5 %        65.6 %       62.0 %        64.6 %       61.9 %
 Capital Adequacy
    Total Capital Accounts to Total
    Assets                                        89.0 %        88.2 %       87.5 %        86.1 %       80.9 %
   Paid-in Capital to Total Capital
   Accounts                                       90.6 %        91.3 %       92.5 %        89.7 %       87.9 %
 Business Mix
   Total Investments (gross) to Total
   Assets                                          8.4 %         6.4 %        8.8 %         7.3 %       10.0 %
   Total Loans (gross) to Total Assets            84.9 %        88.8 %       87.1 %        81.5 %       74.5 %
 1/ Per Circular No. 494 dated 20 September 2005, ROPOA is renamed as Real and Other Properties Acquired (ROPA).
 2/ Liquid Assets refers to Cash and Due from Banks plus Investments,net (less equity investments,net)
  ...
      Less than P50 million


Source: Office of Supervisory Policy Development, Supervision and Examination Sector
                           STATUS REPORT ON    THE   PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007




Table 42. Non-Stock Savings and Loan Associations (NSSLAs)
Asset Quality Indicators 1/


 Levels (P Billion)                                        2003        2004        2005         2006         2007

    Total Assets                                             61.4         66.9        67.2        70.6             74.0
    Gross Assets 2/                                          65.4         73.0        74.4        78.3             81.4
    Total Loan Portfolio (TLP)                               52.1         59.4        58.5        57.5             55.2
    TLP, exclusive of IBL                                    52.1         59.4        58.5        57.5             55.2
    TLP, net (exclusive of IBL)                              48.1         53.2        51.3        49.8             47.8
    Non-performing Loans (NPL)                                8.7          9.1        11.2        11.9             11.9
    Loan Loss Reserves (LLR)                                  4.0          6.1         7.2         7.7              7.4
    ROPA, gross 3/                                            0.5          0.3         0.4         ...              ...
    Non-performing Assets (NPAs) 4/                           9.2          9.4        11.6        12.0             11.9
    Allowance for Probable Losses on NPAs                     4.0          6.1         7.2         7.7              7.4
 Growth Rates
    Total Assets                                           11.9 %    9.0 %           0.4 %   5.1 %             4.8 %
    Gross Assets2/                                         13.4 % 11.7 %             1.8 %   5.4 %             3.9 %
    TLP                                                    11.9 % 14.0 %           (1.5 %) (1.6 %)           (4.1 %)
    TLP (exclusive of IBL)                                 11.9 % 14.0 %           (1.5 %) (1.6 %)           (4.1 %)
    TLP, net (exclusive of IBL)                             9.8 % 10.8 %           (3.7 %) (2.9 %)           (4.1 %)
    NPL                                                   191.3 %    4.2 %         23.6 %    6.1 %           (0.2 %)
    LLR                                                    44.5 % 53.0 %           17.1 %    7.5 %           (4.3 %)
    ROPA, gross 3/                                         64.9 % (43.8 %)         26.9 % (90.6 %)           16.3 %
    NPAs4/                                                179.7 %    1.6 %         23.7 %    3.2 %           (0.1 %)
    Allowance for Probable Losses on NPAs                  44.5 % 53.0 %           17.1 %    7.5 %           (4.3 %)
 Selected Ratios
    LLR to TLP                                              7.7 %      10.3 %      12.3 %       13.4 %       13.4 %
    NPL Ratio (inclusive of IBL)                           16.7 %      15.3 %      19.2 %       20.7 %       21.6 %
    NPL Ratio (exclusive of IBL)                           16.7 %      15.3 %      19.2 %       20.7 %       21.6 %
    NPL Coverage 5/                                        46.0 %      67.6 %      64.0 %       64.8 %       62.1 %
    NPA to Gross Assets                                    14.1 %      12.8 %      15.6 %       15.3 %       14.7 %
    NPA Coverage 6/                                        43.5 %      65.6 %      62.0 %       64.6 %       61.9 %

 1/ Asset Quality Indicators defined per BSP Circular No. 202 dated 27 May 1999 amended by BSP Circular No. 351
     dated 19 September 2002
 2/ Gross Assets refers to Total Assets, net of reserves plus Loan Loss Reserves (LLR) plus provision for ROPA
 3/ Per Circular No. 494 dated 20 September 2005, ROPOA is renamed as Real and Other Properties Acquired (ROPA).
 4/ NPA refers to NPLs plus ROPA, gross
 5/ NPL Coverage refers to the ratio of LLR to NPL
 6/ NPA Coverage refers to the ratio of LLR (for Loans and ROPA) to NPAs
 ...
     Less than P50 million




                            Source: Office of Supervisory Policy Development, Supervision and Examination Sector
       STATUS REPORT ON    THE   PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007




 Table 43. Offshore Banking System: Financial Highlights


  Levels ($ Million)                                    2003       2004        2005         2006    2007
  Income Statement
    Total Operating Income                                   19          19            33      29      30
      Net Interest Income                                     8           9            16      15      15
      Non-interest Income                                    11          10            17      14      15
    Operating Expenses                                       12          14            23      25      18
      Provisions for Probable Losses                          1           1             5       0       0
      Other Operating Expenses                               11          13            18      25      18
    Net Operating Income                                      7           5            10       4      12
    Net Income Before Tax                                     7           5            10       4      13
    Provision for Income Tax                                  1           0             0       0       1
    Net Income After Tax (NIAT)                               6           5            10       4      11

  Balance Sheet
   Total Assets                                           604         805      2,252        3,673   3,690
    Allowance for Probable Losses                          85          77         33            7       7
   Gross Assets                                           689         882      2,285        3,680   3,697
    Due from Other Banks                                  171         131        413          631     714
    Loans, gross                                          282         256        550        1,573   2,136
     Investments in Bonds and Other
     Securities                                           215         474      1,301        1,340     753
    Other Assets                                           21          21         21          136      94
   Total Liabilities                                      604         805      2,252        3,673   3,690
     Deposits of Non-residents Other
     than Banks                                            26          22         18           22      16
    Due to Other Banks                                    193         210      1,307        2,214   1,642
    Other Liabilities                                      15          23        393          907   1,446
     Net Due to Head Office/Branches -
     Abroad                                               370         550         534        530     586




Source: Office of Supervisory Policy Development, Supervision and Examination Sector
                       STATUS REPORT ON    THE   PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007




Table 44. Offshore Banking System: Selected Performance Indicators


Growth Rates                                   2003            2004          2005          2006           2007
Income Statement
  Total Operating Income                         (5.0 %)     0.0 %           73.7 %     0.0 %               3.4 %
    Net Interest Income                        (61.9 %)     12.5 %           77.8 %   (6.3 %)               0.0 %
    Non-interest Income                     (1,200.0 %)    (9.1 %)           70.0 % (17.6 %)                7.1 %
  Operating Expenses                           (25.0 %)     16.7 %           64.3 %     8.7 %            (28.0 %)
    Provisions for Probable Losses             (66.7 %)      0.0 %          400.0 % (100.0 %)               0.0 %
    Other Operating Expenses                   (15.4 %)     18.2 %           38.5 %    38.9 %            (28.0 %)
  Net Operating Income                           75.0 % (28.6 %)            100.0 % (60.0 %)             200.0 %
  Net Income Before Tax                         133.3 % (28.6 %)            100.0 % (60.0 %)             225.0 %
  Provision for Income Tax                         0.0 % (100.0 %)            0.0 %     0.0 %            200.0 %
  Net Income After Tax (NIAT)                   100.0 % (16.7 %)            100.0 % (60.0 %)             175.0 %

Balance Sheet
 Total Assets                                       4.7 %       33.3 %      179.8 %         63.1 %          0.5 %
   Allowance for Probable Losses                  (1.2 %)      (9.4 %)      (57.1 %)      (78.8 %)          0.0 %
 Gross Assets                                       3.9 %       28.0 %      159.1 %         61.1 %          0.5 %
   Due from Other Banks                             4.9 %     (23.4 %)      215.3 %         52.8 %         13.2 %
   Loans, gross                                  (15.1 %)      (9.2 %)      114.8 %       186.0 %          35.8 %
   Investments in Bonds and Other
   Securities                                     45.3 %      120.5 %       174.5 %         3.0 %        (43.8 %)
   Other Assets                                    5.0 %        0.0 %         0.0 %       547.6 %        (30.9 %)
 Total Liabilities                                 4.7 %       33.3 %       179.8 %        63.1 %           0.5 %
   Deposits of Non-residents Other
   than Banks                                    (10.3 %)     (15.4 %) (18.2 %)            22.2 %        (27.3 %)
   Due to Other Banks                             (9.0 %)        8.8 % 522.4 %             69.4 %        (25.8 %)
   Other Liabilities                              (6.3 %)       53.3 % 1,608.7 %          130.8 %          59.4 %
   Net Due to Head Office/Branches -
   Abroad                                         15.6 %        48.6 %       (2.9 %)        (0.7 %)        10.6 %
Selected Ratios
Profitability
 Cost-to-Income Ratio                             57.9 %        68.4 %        54.6 %        86.2 %         60.0 %
 Return on Assets (ROA)                            1.0 %         0.7 %         0.7 %         0.1 %          0.3 %




                        Source: Office of Supervisory Policy Development, Supervision and Examination Sector
             STATUS REPORT ON   THE   PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007




Table 45. Total Trust Operations (Philippine Banks & NBFIs): Financial Highlights

Levels (P Billion)                                            2003         2004         2005        2006    2007
Income and Expense
  Total Trust Income                                              4.7          4.9            5.5     6.2       6.2
   Fees and Commissions                                           4.7          4.9            5.4     6.1       6.2
   Other Income                                                   ...          ...            ...     ...       ...
  Total Trust Expenses                                            1.6          1.3            1.5     1.8       2.1
    Compensation / Fringe Benefits                                0.6          0.5            0.6     0.7       0.7
    Depreciation / Amortization                                   0.1          0.1            ...     0.1       0.1
    Management and Professional Fees                              ...          ...            0.1     0.1       0.1
    Taxes and Licenses                                            0.1          0.2            0.2     0.3       0.3
    Other Expenses                                                0.8          0.5            0.6     0.7       0.8
  Operating Income / (Loss)                                       3.1          3.6            4.0     4.3       4.2

Assets and Accountabilities
 Total Trust Assets                                            707.0        812.8           901.0   872.3   1,176.7
   Cash and Due from Banks                                      84.0        105.1           106.5   117.1     310.0
   Loans and Discounts (net)                                    62.8         63.2            62.2    44.3      47.6
   Investments in:                                             524.9        592.3           695.4   664.2     757.2
     Government Securities (net)                               342.0        423.7           486.4   434.4     474.3
     Private Instruments and Shares of Stocks
     (net)                                                     140.5        118.5           158.0   177.9    223.8
     CTFs / UITFs                                               29.6         37.2            36.5    35.2     42.8
     Real Estate (net)                                          12.6         12.8            14.4    16.6     16.3
     Asset-Backed Securities                                     0.2          ...             ...     ...      ...
   Real & Other Properties Acquired in
   Settlement of Loans (net)                                     0.9          0.7             0.6     0.4       0.3
   Other Assets                                                 34.4         51.6            36.4    46.4      61.5
 Total Trust Accountabilities                                  707.0        812.8           901.0   872.3   1,176.7
   Trust and Other Fiduciary Accounts                          343.9        394.2           452.5   491.4     610.2
     Administratorship                                          25.2         27.5            29.3    29.1      27.8
     Employees Benefit Plans Under Trust                        73.1         84.3            96.5   116.1     136.0
     Escrow                                                     51.3         16.1            16.6    22.8      31.6
     Personal Trust                                             95.7        117.4           143.6   123.2     174.7
     Pre-need Plans                                             61.6         73.5            79.0    95.3     102.6
     Other Institutional Trust                                  10.4         21.4            44.9    41.3      36.4
     Others                                                     26.5         53.9            42.6    63.6     101.1
   Common Trust Funds / Unit Investment
   Trust Funds                                                 249.4        296.8           280.2   170.9    149.1
   Investment Management Accounts                              102.1        111.2           150.3   176.2    387.0
   Other Accountabilities / Unearned Income                     11.7         10.7            18.0    33.8     30.5

. . . Less than P0.05 billion




     Source: Office of Supervisory Policy Development, Supervision and Examination Sector
                           STATUS REPORT ON   THE   PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007


Table 46. Total Trust (Philippine Banks and NBFIs) : Selected Performance Indicators

Growth Rates                                           2003         2004         2005         2006         2007
Income and Expense
  Total Trust Income                                    33.3%        3.8%         11.2 %       12.7%         1.5 %
   Fees and Commissions                                 33.8%        4.5%         11.1 %       12.9%         1.8 %
   Other Income                                        (4.0 %)    (60.4 %)        47.4 %     (10.7 %)     (80.0 %)
  Total Trust Expenses                                  41.5%     (19.2 %)        13.8 %       22.8%        14.4%
   Compensation / Fringe Benefits                       21.9%      (5.9 %)        12.1 %       15.0%          8.9%
   Depreciation / Amortization                           6.7%     (12.5 %)      (14.3 %)       37.5%        12.1%
   Management and Professional Fees                     34.4%     (34.9 %)      139.3 %        59.7%        35.5%
   Taxes and Licenses                                   19.3%       88.9%          8.6 %       42.9%       (0.3 %)
   Other Expenses                                       67.9%     (40.5 %)        13.7 %       18.2%        23.1%
  Operating Income / (Loss)                             29.4%       15.7%         10.3 %        9.0%       (3.9 %)
Assets and Accountabilities
 Total Trust Assets                                     18.5%       15.0   %     10.8 %       (3.2 %)      34.9 %
   Cash and Due from Banks                            (26.3 %)      25.1   %       1.3 %       10.0 %     164.7 %
   Loans and Discounts (net)                             2.1%        0.6   %     (1.5 %)     (28.8 %)       7.6 %
   Investments in:                                      32.6%       12.8   %     17.4 %       (4.5 %)      14.0 %
     Government Securities (net)                        33.0%       23.9   %     14.8 %      (10.7 %)       9.2 %
     Private Instruments and Shares of Stocks
     (net)                                              35.7%     (15.7 %)        33.3 %      12.6 %       25.8 %
     CTFs / UITFs                                       22.5%       25.7 %       (1.8 %)      (3.7 %)      21.6 %
     Real Estate (net)                                  14.6%        1.7 %        12.2 %      15.5 %       (2.0 %)
     Asset-Backed Securities                            17.5%     (97.2 %)      (83.3 %)     100.0 %         0.0 %
   Real & Other Properties Acquired in
   Settlement of Loans (net)                            35.8%     (22.3 %)      (13.1 %)     (40.3 %)      (6.0 %)
   Other Assets                                         39.5%       50.0 %      (29.5 %)       27.4 %       32.7 %
 Total Trust Accountabilities                          (0.5 %)      15.0 %        10.8 %      (3.2 %)       34.9 %
   Trust and Other Fiduciary Accounts                   35.1%       14.6 %        14.8 %        8.6 %       24.2 %
     Administratorship                                  13.7%        9.0 %         6.5 %      (0.6 %)      (4.5 %)
     Employees Benefit Plans Under Trust                27.0%       15.4 %        14.5 %       20.2 %       17.2 %
     Escrow                                             10.8%     (68.6 %)         3.1 %       37.4 %       38.4 %
     Personal Trust                                     87.0%       22.6 %        22.3 %     (14.2 %)       41.7 %
     Pre-need Plans                                     28.3%       19.4 %         7.5 %       20.6 %        7.7 %
     Other Institutional Trust                         388.1%     105.0 %       110.0 %       (8.0 %)     (12.0 %)
     Others                                            (2.0 %)    102.8 %       (20.8 %)       49.1 %       59.1 %
   Common Trust Funds / Unit Investment                103.5%       19.0 %       (5.7 %)     (39.0 %)     (12.8 %)
   Investment Management Accounts                        7.6%        8.9 %        35.2 %       17.3 %     119.6 %
   Other Accountabilities / Unearned Income           (95.1 %)     (6.8 %)        70.2 %       87.6 %      (9.8 %)
Selected Ratios
Profitability
  Cost-to-Income Ratio                                  34.1%       26.5 %       27.2 %        29.6 %       33.1 %
  Return on Trust Assets                                 0.5%        0.5 %        0.5 %         0.5 %        0.4 %
Liquidity
  Cash and Due from Banks to Total
  Accountabilities                                      11.9%       12.9 %       11.8 %        13.4 %       26.4 %
  Liquid Assets to Total Accountabilities               79.4%       80.0 %       83.6 %        83.5 %       85.6 %
  Loans (gross) to Total Accountabilities                9.6%        8.4 %        7.4 %         5.2 %        3.7 %
Asset Quality
  Non-performing Loans (NPL) Ratio                       6.1%        5.1 %        6.8 %        5.0 %        4.4 %
  NPL Coverage Ratio                                   118.3%      140.9 %       94.3 %      105.4 %      114.5 %
  Non-performing Assets (NPA) to Gross
  Assets                                                 0.8%        0.6 %        0.6 %         0.4 %        0.3 %
  NPA Coverage Ratio                                    97.1%      115.0 %       84.9 %        93.5 %       98.8 %

                           Source: Office of Supervisory Policy Development, Supervision and Examination Sector
         STATUS REPORT ON    THE   PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007




Table 47. Total Trust Operations (Philippine Banks & NBFIs): Balance Sheet Structure

                                                            2003        2004         2005       2006     2007
 Total Trust Assets                                        100.0%       100.0%      100.0% 100.0%        100.0%
  Cash and Due from Banks                                   11.9%        12.9%       11.8% 13.4%          26.3%
  Loans and Discounts (net)                                  8.9%         7.8%        6.9%   5.1%          4.0%
  Investments in:                                           74.2%        72.9%       77.2% 76.1%          64.3%
    Government Securities (net)                             48.4%        52.1%       54.0% 49.8%          40.3%
    Private Instruments and Shares of Stocks
    (net)                                                    19.9%       14.6%       17.5%      20.4%    19.0%
    CTFs / UITFs                                              4.2%        4.6%        4.1%       4.0%     3.6%
    Real Estate (net)                                         1.8%        1.6%        1.6%       1.9%     1.4%
    Asset-Backed Securities                                     ...         ...         ...        ...      ...
  Real & Other Properties Acquired in
                                                              0.1%         0.1%          0.1%    0.1%     0.1%
  Settlement of Loans (net)
   Other Assets                                               4.9%         6.3%          4.0%    5.3%     5.3%

 Total Trust Accountabilities                              100.0%       100.0%      100.0% 100.0%        100.0%
   Trust and Other Fiduciary Accounts                       48.7%        48.5%       50.2% 56.3%          51.9%
     Administratorship                                       3.6%         3.4%        3.2%   3.3%          2.4%
     Employees Benefit Plans Under Trust                    10.3%        10.4%       10.7% 13.3%          11.6%
     Escrow                                                  7.3%         2.0%        1.8%   2.6%          2.7%
     Personal Trust                                         13.5%        14.4%       15.9% 14.1%          14.8%
     Pre-need Plans                                          8.7%         9.0%        8.8% 10.9%           8.7%
     Other Institutional Trust                               1.5%         2.6%        5.0%   4.7%          3.1%
     Others                                                  3.8%         6.6%        4.7%   7.3%          8.6%
   Common Trust Funds / Unit Investment                     35.3%        36.5%       31.1% 19.6%          12.7%
   Investment Management Accounts                           14.4%        13.7%       16.7% 20.2%          32.9%
   Other Accountabilities / Unearned Income                  1.6%         1.3%        2.0%   4.0%          2.5%

. . . Less than 0.05 percent
Figures may not add up due to rounding-off.




  Source: Office of Supervisory Policy Development, Supervision and Examination Sector
                                                                                       List of Schedules
       STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007




 LIST OF SCHEDULES
   SCHEDULE 1          PHYSICAL COMPOSITION
                       FINANCIAL INSTITUTIONS UNDER BSP SUPERVISION/REGULATION
                       AS OF SEMESTERS-ENDED INDICATED

   SCHEDULE 2          COMPARATIVE STATEMENT OF CONDITION
                       PHILIPPINE FINANCIAL INSTITUTIONS
                       (BANKS AND NON-BANKS)
                       AS OF SEMESTERS-ENDED INDICATED
  SCHEDULE 2.a COMPARATIVE STATEMENT OF CONDITION
                       PHILIPPINE BANKING SYSTEM
                       AS OF SEMESTERS-ENDED INDICATED
  SCHEDULE 2.b COMPARATIVE STATEMENT OF CONDITION
                       UNIVERSAL & COMMERCIAL BANKING SYSTEM
                       AS OF SEMESTERS-ENDED INDICATED
   SCHEDULE 2.c COMPARATIVE STATEMENT OF CONDITION
                       THRIFT BANKING SYSTEM
                       AS OF SEMESTERS-ENDED INDICATED
  SCHEDULE 2.d COMPARATIVE STATEMENT OF CONDITION
                       RURAL & COOPERATIVE BANKING SYSTEM
                       AS OF SEMESTERS-ENDED INDICATED
  SCHEDULE 2.e COMPARATIVE STATEMENT OF CONDITION
                       NON-BANK FINANCIAL INSTITUTIONS
                       AS OF SEMESTERS-ENDED INDICATED
  SCHEDULE 3           SELECTED CONTINGENT ACCOUNTS
                       PHILIPPINE BANKING SYSTEM
                       AS OF SEMESTERS-ENDED INDICATED
   SCHEDULE 3.a SELECTED CONTINGENT ACCOUNTS
                       UNIVERSAL & COMMERCIAL BANKING SYSTEM
                       AS OF SEMESTERS-ENDED INDICATED
   SCHEDULE 3.b SELECTED CONTINGENT ACCOUNTS
                       THRIFT BANKING SYSTEM
                       AS OF SEMESTERS-ENDED INDICATED
  SCHEDULE 4           TRUST & FUND MANAGEMENT OPERATIONS
                       ASSETS AND ACCOUNTABILITIES
                       PHILIPPINE BANKS & NON-BANK FINANCIAL INSTITUTIONS (NBFIS)
                       AS OF SEMESTERS-ENDED INDICATED
  SCHEDULE 4.a TRUST & FUND MANAGEMENT OPERATIONS
                       ASSETS AND ACCOUNTABILITIES
                       PHILIPPINE BANKS & NON-BANK FINANCIAL INSTITUTIONS (NBFIS)
                       BY TRUST OPERATIONS
                       AS OF SEMESTERS-ENDED INDICATED
  SCHEDULE 4.b TRUST & FUND MANAGEMENT OPERATIONS
                       ASSETS AND ACCOUNTABILITIES
                       UNIVERSAL & COMMERCIAL BANKING SYSTEM
                       AS OF SEMESTERS-ENDED INDICATED




Source: Office of Supervisory Policy Development, Supervision and Examination Sector
List of Schedules

                        STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, SECOND SEMESTER 2007




SCHEDULE 4.c TRUST & FUND MANAGEMENT OPERATIONS
                    ASSETS AND ACCOUNTABILITIES
                    THRIFT BANKING SYSTEM
                    AS OF SEMESTERS-ENDED INDICATED

SCHEDULE 4.d TRUST & FUND MANAGEMENT OPERATIONS
                    ASSETS AND ACCOUNTABILITIES
                    NON-BANK FINANCIAL INSTITUTIONS (NBFIS)
                    AS OF SEMESTERS-ENDED INDICATED

SCHEDULE 4.e TRUST & FUND MANAGEMENT OPERATIONS
                    INCOME AND EXPENSES
                    PHILIPPINE BANKS & NON-BANK FINANCIAL INSTITUTIONS (NBFIS)
                    AS OF SEMESTERS-ENDED INDICATED

SCHEDULE 5          COMPARATIVE STATEMENT OF INCOME & EXPENSES
                    PHILIPPINE BANKS & NON-BANKS
                    WITH QUASI-BANKING FUNCTIONS (NBQBS)
                    FOR THE PERIOD-ENDED INDICATED

SCHEDULE 5.a COMPARATIVE STATEMENT OF INCOME & EXPENSES
                    PHILIPPINE BANKING SYSTEM
                    FOR THE PERIOD-ENDED INDICATED

SCHEDULE 5.b COMPARATIVE STATEMENT OF INCOME & EXPENSES
                    UNIVERSAL & COMMERCIAL BANKING SYSTEM
                    FOR THE PERIOD-ENDED INDICATED

SCHEDULE 5.c COMPARATIVE STATEMENT OF INCOME & EXPENSES
                    THRIFT BANKING SYSTEM
                    FOR THE PERIOD-ENDED INDICATED

SCHEDULE 5.d COMPARATIVE STATEMENT OF INCOME & EXPENSES
                    RURAL & COOPERATIVE BANKING SYSTEM
                    FOR THE PERIOD-ENDED INDICATED

SCHEDULE 5.e COMPARATIVE STATEMENT OF INCOME & EXPENSES
                    NON-BANK FINANCIAL INSTITUTIONS
                    FOR THE PERIOD-ENDED INDICATED




                       Source: Office of Supervisory Policy Development, Supervision and Examination Sector
 Schedule 1
 PHYSICAL COMPOSITION
 Financial Institutions Under BSP Supervision/Regulation
 As of Semesters-Ended Indicated



                                                                           DECEMBER 2006                                    JUNE 2007                           DECEMBER 2007
TYPE OF FINANCIAL INSTITUTIONS (FIs)                                                HEAD          OTHER                        HEAD   OTHER                               HEAD   OTHER
                                                                     TOTAL                                       TOTAL                                      TOTAL
                                                                                   OFFICE        OFFICES                      OFFICE OFFICES                             OFFICE OFFICES

BSP SUPERVISED/REGULATED FIs                                         20,811           7,131        13,680        21,007          7,174        13,833         21,394       7,234   14,160


I. BANKS                                                               7,710            862          6,848         7,738           858          6,880         7,744        847     6,897

  A. Universal and Commercial Banks                                    4,313             39          4,274         4,297             38         4,259         4,275         38     4,237
      Universal Banks                                                  3,807             17          3,790         3,785             16         3,769         3,801         17     3,784
        Private Domestic Banks
      Domestic Banks                                                   3,383             11          3,372         3,357             10         3,347         3,372         11     3,361
         Government Banks                                                412               3           409           413              3           410           414          3      411
        Branches of Foreign Banks
      Branches of Foreign Banks                                           12               3              9           15              3            12               15       3       12

      Commercial Banks                                                   506             22            484           512             22           490           474         21      453
         Private Domestic Banks
         Domestic Banks                                                  423               8           415           427              8           419           388          7      381
         Subsidiaries of Foreign Banks                                    67               3            64            69              3            66               70       3       67
        Branches of Foreign Banks
      Branches of Foreign Banks                                           16             11               5           16             11              5              16      11        5

  B. Thrift Banks                                                      1,322             84          1,238         1,333             83         1,250         1,336         82     1,254

      Financial Institution Linked Banks                                 628             17            611           615             16           599           614         16      598
         Domestic Bank Controlled                                        533             11            522           520             10           510           521         10      511
         Foreign Bank Controlled                                          89               5            84            89              5            84               87       5       82
         NBFI Controlled                                                    6              1              5             6             1              5              6        1        5

      Non-Linked                                                         694             67            627           718             67           651           722         66      656


  C. Rural and Cooperative Banks                                       2,075            739          1,336         2,108           737          1,371         2,133        727     1,406
         Rural Banks                                                   1,949            691          1,258         1,974           688          1,286         1,989        677     1,312
         Microfinance-oriented Rural Banks                                15               4            11            17              4            13               22       5       17
         Cooperative Banks                                               111             44             67           117             45            72           122         45       77

II. NON-BANK FINANCIAL INSTITUTIONS (NBFIs)                          13,094           6,262          6,832       13,262          6,309          6,953        13,643       6,380    7,263


  A. With Quasi-Banking Function                                          31             12             19            31             12            19               31      12       19
      Investment Houses                                                   16               6            10            16              6            10               16       6       10
      Financing Companies                                                 14               5              9           14              5              9              14       5        9
      Other Non-Bank with QBF Function                                      1              1                            1             1                             1        1

                                                  1/
  B. Without Quasi-Banking Functions                                 13,063           6,250          6,813       13,231          6,297          6,934        13,612       6,368    7,244
      Investment Houses                                                   23             20               3           23             20              3              23      20        3
      Financing Companies                                                 41             23             18            41             23            18               42      24       18
      Investment Companies                                                10             10                           10             10                             10      10
      Securities Dealers/Brokers                                          18             18                           18             18                             18      18
      Lending Investors                                                     2              2                            2             2                             2        2
      Pawnshops                                                      12,839           6,084          6,755       13,011          6,135          6,876        13,391       6,207    7,184
      Venture Capital Corporations                                          4              4                            3             3                             3        3
      Government Non-Bank Financial Institutions                            2              2                            2             2                             2        2
      Non-Stock Savings & Loan Associations                              119             82             37           116             79            37           116         77       39
      Credit Card Companies                                                 5              5                            5             5                             5        5

III. OFFSHORE BANKING UNITS (OBUs)                                          7              7                            7             7                             7        7



  1/ Except for pawnshops, one government non-bank financial institution and non-stock savings and loan associations, all NBFIs without quasi-banking functions include
    subsidiaries/affiliates of banks/quasi-banks pursuant to Section 130 of R.A. No. 7653 and non-subsidiary/affiliate investment houses with trust/IMA licenses.



  Source : Supervisory Data Center, Supervision and Examination Sector
Schedule 2
COMPARATIVE STATEMENT OF CONDITION
PHILIPPINE FINANCIAL INSTITUTIONS (Banks and Non-Banks)
As of Semesters-Ended Indicated
(Amounts in Billion Pesos)

                                                                                               ALL BANKS/NBFIs                                               ALL BANKS        1/                    NON-BANK FINANCIAL INSTITUTIONS (NBFIs)
                 Selected Accounts
                                                                            End-Dec '06            End-Jun '07 r/          End-Dec '07 p/   End-Dec '06      End-Jun '07 r/        End-Dec '07 p/   End-Dec '06     End-Jun '07 r/   End-Dec '07 p/

ASSETS                                                                              5,090.176              5,196.028            5,368.811        4,865.618        4,971.497             5,133.630         224.557          224.531        235.181

  Cash and Due from Banks                                                             661.895                 778.097            783.970           633.130          744.340               750.378          28.765           33.757         33.593
  Loan Portfolio (net) 2/                                                           2,399.921              2,370.214            2,590.201        2,294.858        2,265.050             2,485.294         105.063          105.164        104.906
  Investments (net)                                                                 1,359.598              1,423.923            1,342.004        1,289.778        1,360.246             1,265.738          69.820           63.677         76.266
  ROPA (net) 3/                                                                       201.925                 194.105            184.383           198.680          190.868               181.070           3.245            3.237          3.312
  Other Assets                                                                        466.836                 429.690            468.253           449.172          410.993               451.150          17.664           18.696         17.103

LIABILITIES AND CAPITAL                                                             5,090.176              5,196.028            5,368.811        4,865.618        4,971.497             5,133.630         224.557          224.531        235.181

  Liabilities                                                                       4,391.764              4,497.791            4,638.192        4,296.604        4,404.122             4,531.793          95.159           93.669        106.399

      Deposit Liabilities                                                           3,504.465              3,675.928            3,674.994        3,497.557        3,667.616             3,664.384           6.907            8.311         10.610
         Peso Liabilities                                                           2,574.661              2,767.613            2,866.732        2,567.754        2,759.302             2,856.122           6.907            8.311         10.610
             Demand and NOW                                                           477.221                 565.212            561.281           477.221          565.212               561.281            -                 -             -
             Savings                                                                1,407.616              1,368.793            1,420.031        1,401.068        1,360.759             1,410.471           6.548            8.035          9.560
             Time                                                                     689.825                 833.608            885.420           689.465          833.332               884.370           0.360            0.277          1.050
         Foreign Currency                                                             929.804                 908.314            808.263           929.804          908.314               808.263            -                 -             -
      Bills Payable                                                                   445.383                 405.069            488.205           379.778          342.725               415.402          65.604           62.344         72.803
         Deposits Substitutes                                                           46.950                 35.414              49.491            9.326            5.180                 8.865          37.624           30.233         40.626
         Others                                                                       398.433                 369.656            438.714           370.452          337.545               406.537          27.981           32.111         32.177
      Special Financing                                                                   0.171                  0.167              0.148            0.171            0.167                 0.148            -                 -             -
         Time Certificates of Deposits - SF                                               0.099                  0.094              0.084            0.099            0.094                 0.084            -                 -             -
         Special Time Deposits                                                            0.072                  0.073              0.065            0.072            0.073                 0.065            -                 -             -
      Unsecured Subordinated Debt                                                       75.629                 72.841              80.981           75.629           72.841                80.981            -                 -             -
      Other Liabilities                                                               366.116                 343.786            393.863           343.468          320.773               370.877          22.648           23.013         22.986

  Capital Accounts                                                                    698.412                 698.238            730.619           569.014          567.375               601.837         129.398          130.863        128.782

      Capital Stock                                                                   357.058