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02 April 2008
ATTY. PETE MALABANAN
Head, Disclosure Department
The Philippine Stock Exchange, Inc.
4th Floor, Philippine Stock Exchange Center
Exchange Road, Ortigas Center
Pasig City
Dear Atty. Malabanan:
We are pleased to furnish your good office with a copy of our Definitive SEC Form 20-IS
filed with the Securities and Exchange Commission (SEC).
For your information and guidance.
Very truly yours,
ALEXANDER C. ESCUCHA
First Vice President &
Corporate Information Officer
COVER SHEET
8745 Paseo de Roxas cor. Villar St., 1226 Makati City 4 4 3
SEC Registration Number
C H I N A B A N K I N G C O R P O R A T I O N
(Company’s Full Name)
1 1 F C H I N A B A N K B L D G 8 7 4 5 P A S E O
D E R O X A S C O R V I L L A R S T M A K A T I
(Business Address: No., Street City/ Town / Province)
Atty. LEILANI B. ELARMO 885-5145
Contact Person Company Telephone Number
Preliminary Information Statement*
0 3 2 5 2 0 - I S 0 5 0 8
Month Day FORM TYPE Month Day
Annual Meeting
Secondary License Type, If Applicable
C F D
Dept. Requiring this Doc. Amended Articles Number / Section
Total Amount of Borrowings
1,976
Total No. of Stockholders Domestic Foreign
To be accomplished by SEC Personnel concerned
File Number LCU
Document ID Cashier
STAMPS
* with Notice of Annual Stockholders’ Meeting
and Filing Fee of P5,050.00
Remarks: Please use BLACK ink for scanning purposes
CHINA BANKING CORPORATION
Paseo de Roxas corner Villar St.,
Makati City
March 26, 2008
NOTICE OF ANNUAL STOCKHOLDERS’ MEETING
DEAR STOCKHOLDERS:
Please be notified that pursuant to Article III, Section 1 of the Amended By-Laws of China Banking
Corporation (China Bank), the annual meeting of stockholders of China Bank will be held on May 08, 2008,
Thursday, at 4:00 P.M. at the Penthouse, China Bank Building, Paseo de Roxas corner Villar Street, Makati
City, for the following purposes:
1. Call to Order;
2. Proof of Notice of Meeting;
3. Certification of Quorum;
4. Approval of the Minutes of the annual meeting of stockholders on May 03, 2007;
5. Annual Report to Stockholders;
6. Approval of the Financial Statements for the year ended December 31, 2007;
7. Ratification of all acts of the Board of Directors, Executive Committee, Management,
and all other Committees during the year 2007;
8. Election of the Board of Directors for the ensuing term;
9. Appointment of External Auditors;
10. Such other business as may properly come before it.
Only stockholders of record as of March 26, 2008 shall be entitled to notice of and vote at the
meeting.
In accordance with Article III, Section 9 of the Amended By-Laws, the stock and transfer books of
China Bank will be closed from April 21, 2008 to May 08, 2008.
In case you cannot personally attend the meeting and you wish to be represented thereat, you may
designate your authorized representative by submitting a proxy instrument to the Office of the Corporate
Secretary, 11th floor, China Bank Bldg., Paseo de Roxas cor. Villar St., Makati City, not later than 5:00 p.m.
of May 05, 2008.
ATTY. CORAZON I. MORANDO
Vice-President & Corporate Secretary
SEC FORM 20-IS
INFORMATION STATEMENT PURSUANT TO SECTION 20
OF THE SECURITIES REGULATION CODE
1. Check the appropriate box:
[ ] Preliminary Information Statement
[√] Definitive Information Statement
2. Name of Registrant as specified in its charter: China Banking Corporation
3. Province, country or other jurisdiction of incorporation or organization: Philippines
4. SEC Identification Number: 443 (Exempt Securities)
5. BIR Tax Identification Code: 320-000-444-210
6. Address of principal office: China Bank Bldg., 8745 Paseo de Roxas Postal Code: 1226
cor. Villar St., Makati City
7. Registrant’s telephone number, including area code: (632) 885-5555
8. Date, time and place of the meeting of security holders:
Date: May 8, 2008
Time: 4:00 p.m.
Place: Penthouse, China Bank Bldg., 8745 Paseo de Roxas cor. Villar St., Makati City
9. Approximate date on which the Information Statement is first to be sent or given to security holders:
April 14, 2008
10. Securities registered pursuant to Sections 8 and 12 of the Code or Sections 4 and 8 of the RSA:
Title of Each Number of Shares Outstanding Amount of Debt Outstanding
Class
Common 77,080,426 Short Term P133,760,278,152.00
Long Term - P13,488,891,837.00
11. Are any or all of registrant’s securities listed in a Stock Exchange? Yes [√ ] No [ ]
The above common shares are listed in the Philippine Stock Exchange.
A. GENERAL INFORMATION
1. Date, Time and Place of Meeting of Security Holders
Date : May 8, 2008
Time : 4:00 P.M.
Place : Penthouse, China Bank Building
8745 Paseo de Roxas cor. Villar St., Makati City
Mailing address of principal office : China Bank Building, 8745 Paseo de Roxas cor. Villar St., Makati City
Approximate date on which copies of the Information Statement
are first to be sent or given to security holders : April 14, 2008
We are not asking you for a proxy and you are requested not to send us a proxy
2. Dissenter’s Right of Appraisal
A stockholder has a right to dissent and demand payment of the fair value of his shares in any of the following instances
under Section 81 of the Corporation Code, namely, (a) in case any amendment to the articles of incorporation has the
effect of changing or restricting the rights of any stockholders or class of shares, or of authorizing preferences in any
respect superior to those of outstanding shares of any class, or of extending or shortening the term of corporate existence,
(b) in case of sale, lease, exchange, transfer, mortgage, pledge or other disposition of all or substantially all of the
corporate property and assets, and (c) in case of merger or consolidation.
There are no matters or proposed corporate actions included in the agenda of the meeting which may give rise to the
exercise by a security holder of the right of appraisal.
However, should any proposed corporate action be passed upon at the meeting which may give rise to the right of
appraisal, any stockholder who votes against the proposed corporate action may avail himself of the right of appraisal by
making a written demand on the Bank within thirty (30) days after the meeting for the payment of the fair value of his
shares. In order to perfect such right, the stockholder shall follow the procedures as described under Sections 81 to 86 of
the Corporation Code.
3. Interest of Certain Persons in or Opposition to Matters to be Acted Upon
No director, officer, nominee for election as director, or any associate of such persons, has any substantial interest, direct
or indirect, by security holdings or otherwise, in any matter to be acted upon as contained in the agenda of the meeting
other than election to office.
No director has informed the Bank in writing that he intends to oppose any action to be taken as contained in the agenda of
the meeting.
B. CONTROL AND COMPENSATION INFORMATION
4. Voting Securities and Principal Holders Thereof
(a) Class of Voting Shares: 77,080,426, common shares entitled to vote as of February 29, 2008
(b) Record Date: Stockholders of record as of March 26, 2008 are entitled to notice of and vote at the meeting
(c) Nomination and Election of Directors and Independent Directors and Manner of Voting:
In compliance with Rule 38 of the Amended Implementing Rules and Regulations of the Securities Regulation Code, the
Bank’s Nomination and Corporate Governance Committees adopted rules governing the nomination and election of
directors. The rules pertinently state that the nomination forms shall be submitted to any of the members of the
Committees or to the Corporate Secretary on or before March 11, 2008. The rules likewise state that the Committees shall
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pre-screen the qualifications of the nominees and prepare a final list of candidates, indicating the nominees for
independent directors.
As to the manner of voting, Article III, Section 7 of the Bank’s By-Laws specifies that any stockholder who is not delinquent
in his subscription shall be allowed to vote either in person or by proxy executed in writing by the stockholder or his duly
authorized attorney-in-fact in accordance with the requirements of existing rules and regulations. Following Section 24 of
the Corporation Code, a stockholder may vote such number of shares for as many persons as there are directors to be
elected or he may cumulate said shares and give one candidate as many votes as the number of directors to be elected
multiplied by the number of his shares shall equal, or he may distribute them on the same principle among as many
candidates as he shall see fit, provided that the total number of votes cast by him shall not exceed the number of shares
owned by him as shown in the books of the Bank multiplied by the whole number of directors to be elected.
(d) Security Ownership of Certain Record and Beneficial Owners and Management
(i) Record and beneficial owners holding 5% or more of voting securities as of February 29, 2008:
Title of Name, address of record owner & Name of beneficial owner & No. of
class relationship with issuer relationship with record owner Citizenship Shares Held Percent
Common Sysmart Corporation Henry Sy, Sr. Filipino 13,079,377 16.968
Rm. 426 Makati Stock Exchange Bldg., (99.98% ownership)
Ayala Ave., 1226 Makati City Stockholder
Stockholder
Common SM Investments Corporation Henry Sy, Sr. Filipino 12,558,709 16.293
Rm. 426 Makati Stock Exchange Bldg., (17.8% ownership)
Ayala Ave., 1226 Makati City Stockholder
Stockholder
Common PCD Nominee Corporation Various stockholders/clients* Non-Filipino 15,271,832 19.813
G/F Makati Stock Exchange Bldg.,
Ayala Avenue, Makati City
Stockholder
Common PCD Nominee Corporation Various stockholders/clients* Filipino 4,427,896 5.745
G/F Makati Stock Exchange Bldg.,
Ayala Avenue, Makati City
Stockholder
* Based on the list provided by PCD Nominee Corporation to the Bank’s Transfer Agent, Stock Transfer Services, Inc., as of record date
of March 26, 2008, only The Hongkong & Shanghai Banking Corp., Ltd. holds more than 5% of the Bank’s voting securities, totaling to
14,948,472 shares, or 19.393%.
Mr. Henry Sy, Sr. is the record and beneficial owner of the following common shares as of February 29, 2008:
No. of Shares Held Percent
Direct Holdings: 2,778,507 3.605
Indirect Holdings:
Holdings from various brokers 64,681 0.084
17.80% ownership in SM Investments Corporation 2,237,410 2.903
16.71% ownership in Shoemart, Incorporated 638,915 0.829
99.98% ownership in Sysmart Corporation 13,194,968 17.118
Total 18,914,481 24.539
Mr. Henry Sy, Sr.’s family is known to have substantial holdings in Shoemart, Inc., SM Investments Corporation and
Sysmart Corporation and, as such, could direct the voting or disposition of the shares of said companies.
Except as stated above, the Bank has no knowledge of any person holding more than 5% of the Bank’s outstanding shares
under a voting trust or similar agreement. The Bank is likewise not aware of any arrangement which may result in a
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change in control of the Bank, or of any additional shares which the above-listed beneficial or record owners have the right
to acquire within thirty (30) days, from options, warrants, rights, conversion privilege or similar obligation, or otherwise.
(ii) Directors and Management as of February 29, 2008:
Amount & nature of
Title of Class Name Position beneficial/record Citizenship Percent
ownership
A. Directors
Common Gilbert U. Dee Chairman of the Board 410,160 “r” Filipino 0.532
Common Hans T. Sy Vice-Chairman 91,813 “r” Filipino 0.119
Common Peter S. Dee President & CEO 201,770 “r” Filipino 0.262
Common Joaquin T. Dee Director 1,694,293 “r” Filipino 2.198
Common Dy Tiong Independent Director 7,102 “r” Filipino 0.009
Common Herbert T. Sy Director 14,659 “r” Filipino 0.019
Common Harley T. Sy Director 3,340 “r” Filipino 0.004
Common Pilar N. Liao Independent Director 314 “r” Filipino 0.000
Common Alberto S. Yao Independent Director 253 “r” Filipino 0.000
Common Roberto F. Kuan Independent Director 367 “r” Filipino 0.000
Common Jose T. Sio Director 100 “b” Filipino 0.000
Total 2,424,171 3.145
B. Executive Officers (in addition to Messrs. Gilbert U. Dee, Hans T. Sy and Peter S. Dee)
Common Ricardo R. Chua Exec. Vice-Pres. & COO 4,180 “r” Filipino 0.005
Common Nancy D. Yang Sr. Vice-President 84,720 “r” Filipino 0.110
Common Samuel L. Chiong Sr. Vice-President 1,519 “r” Filipino 0.002
Common Rene J. Sarmiento First Vice-President 759 “r” Filipino 0.001
Common Margarita L. San Juan First Vice-President 2,733 “r” Filipino 0.004
Common Roberto C. Uyquiengco First Vice-President 473 “r” Filipino 0.001
Total 94,384 0.123
TOTAL (for Directors & Executive Officers as a group) 2,518,555 3.268
5. Directors and Executive Officers
(a) Incumbent Directors and Advisor:
Gilbert U. Dee, 72, Chairman of the Board, holds a Bachelor of Science degree in Banking from De La Salle University.
He obtained his MBA in Finance from University of Southern California in 1959. He became the Chairman of the Board of
the Bank in 1989 and a Director since 1969. He was formerly a director of the Philippine Pacific Capital Corporation from
1974 to 1994, Philex Mining Corporation from 1981 to 1986, and CBC Finance Corporation from 1980 to 2002, and
President of GAB Investment Corporation from 1966 to 2004. He currently holds directorships in affiliates/subsidiaries and
other corporations, such as CBC Properties & Computer Center, Inc. (CBC-PCCI), Union Motor Corporation and Super
Industrial Corporation.
Henry Sy, Sr., 83, Honorary Chairman of the Board and Advisor to the Board, holds an Associate in Commercial Science
degree from Far Eastern University in 1952. He was conferred the degree of Doctor in Business Management (Honoris
Causa) by De La Salle University in 1999. He is the concurrent Chairman and President of a number of corporations,
including SM Keppel Land, Inc., First Asia Realty Development Corporation, and Sysmart, Inc. He is also the Chairman
Emeritus of Banco de Oro Universal Bank and Chairman of Shoemart Inc., Highlands Prime Inc., SM Investments
Corporation (the holding company of the SM Group of Companies), and the other companies in the SM conglomerate.
Hans T. Sy, 52, Vice Chairman of the Board and Chairman of the Executive Committee (ExCom), holds a Bachelor of
Science degree in Mechanical Engineering from De La Salle University. He was elected Vice Chairman of the Board and
Chairman of the ExCom in 1989 and has served as a Director since 1986. From 1999 to 2006, he was a Director of
Macroasia Corporation. Also, he was formerly a Director of Fortune Cement Corporation, Pure Foods Corporation, and
Banco De Oro. He currently holds directorships in Best Rubber Corp., ACE Hardware Phils., Inc., Family Entertainment
Center, Inc., HS Food, Inc., Land Building Corp., Market Watch Investments Co., Inc., Multi-Realty Dev’t. Corp., Shopping
Center Mgt. Corp., and Wonderfoods, Inc., among other corporations.
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Peter S. Dee, 66, Director and President & Chief Executive Officer (CEO), holds a Bachelor of Science degree in
Commerce from De La Salle University/University of the East. He has been the Bank’s President & CEO since 1989 and a
Director since 1977. He has had over 30 years of banking experience, having worked with Rizal Commercial Banking
Corporation as Assistant Vice President from 1963 to 1971. Prior to being a Director of China Bank, he served as Vice
President of the Bank beginning 1972 up to 1976. He holds directorships in affiliates/subsidiaries and other corporations,
some of which are CBC-PCCI, CBC Forex Corp. (CBC Forex), Chinabank Insurance Brokers, Inc. (CBC-IBI), Cityland
Dev’t. Corp., Hydee Mgt. & Resources Corp., Can Lacquer, Inc. and GDSK Dev’t. Corp. He is also an Independent
Director of Asean Finance Corporation Limited, Cityland, Inc., and City and Land Developers, Inc.
Joaquin T. Dee, 72, Director, holds a Bachelor of Arts degree in Commerce from Letran College. He was elected Director
of the Bank in 1984. He was the Vice-President for Sales and Administration of Wellington Flour from 1964 to 1994 and
has been a Director/President of Laguna Manufacturing Corporation and Evergreen Weaving Mills. He is presently the
President of JJACCIS Development Corporation, Director/President of Enterprise Realty Corporation, and Chairman of the
Board/Treasurer of Suntree Holdings Corporation.
Dy Tiong, 78, Independent Director, holds a Bachelor of Science degree in Business Administration from National Jean
Kuan College. He has been a Director since 1985. He was formerly the Chairman of Universal Realty Development
Corporation and the Vice-Chairman and Managing Director of Cathay Insurance Co. He has been a Director of CBC
Finance, Inc. from 1980 to 2001, and President of Panelon Development Corporation from 1990 to 1994. He currently
holds directorships in Panelon Phils., Inc., and Chiang Kai Shek College, among other corporations.
Herbert T. Sy, 51, Director, holds a Bachelor of Science degree in Management from De La Salle University. He has been
a Director since 1993 and a director/officer for more than five (5) years in companies engaged in banking, food retailing,
rubber manufacturing, investment, car service and car accessories, real estate development and mall operations. He
presently holds the following positions: Director and Vice-President of Best Rubber Corp., Director of SM Prime Holdings,
Inc., Director and President of Supervalue, Inc., Chairman and President of Sondrik,Inc., and Chairman and President of
Super Shopping Market, Inc.
Harley T. Sy, 48, Director, holds a Bachelor of Science degree in Commerce, major in Finance from De La Salle
University. He became a Director in May 2001. He is the President of SM Investment Corp. He was formerly a Director of
Banco De Oro from 1989 to 1998. His present directorships include the following corporations: ACE Hardware Phils., Inc.,
H.S. Food, Inc., and SM Synergy Properties Holdings, Inc.
Pilar N. Liao, 77, Independent Director, holds a Bachelor’s degree in Home Economics from the College of the Holy Spirit.
She has been a Director of the Bank from 1985-1986, 1999-2000, 2001-2002, and 2003-present, and Advisor to the Board
in 2000-2001 and 2002-2003. She is a Director of Flag International Customs Brokerage and has held directorships in
Security Mutual Fund Corporation from 1954 to 2003 and in Occidental Data Corporation from 1988 to 2000.
Alberto S. Yao, 61, Independent Director, holds a Bachelor of Science degree in Business Administration from Mapua
Institute of Technology. He became a Director in July 2004. He has been the Vice-President for Merchandising of Zenco
Sales, Inc. from 1968 to 1975. His present directorship/ officership in other corporations include Richwell Trading Corp.,
Richwell Phils., Inc., Europlay Distributor Co., Inc., Richphil House, Inc., and Megarich Property Ventures.
Roberto F. Kuan, 59, Independent Director, holds a Bachelor of Science degree in Business Administration from the
University of the Philippines. He obtained his Masters in Business Administration from Asian Institute of Management (AIM)
in 1975 and attended the Top Management Program conducted by AIM in Bali, Indonesia in 1993. He became a Director of
the Bank in May 2005. He has been the Chairman of the Board of Trustees of St. Luke’s Medical Center since 1996,
member of the Board of Trustees of St. Luke’s College of Medicine since 1996, Director of Far Eastern University since
2004, and member of the Board of Trustees of Brent International School of Manila since 1989. He is also the founder and
the President of Chowking Food Corporation from 1985 until March 2000.
Jose T. Sio, 68, Director, holds a Bachelor of Science degree in Commerce, major in Accounting from University of San
Agustin and Master’s degree in Business Administration from New York University. He was elected as Director of the Bank
on November 07, 2007 to serve the unexpired term of Mr. Henry T. Sy, Jr. who resigned effective at the close of business
on August 08, 2007. He used to be a Partner at Sycip Gorres Velayo & Co. (SGV) from 1977 to 1990, and Director of BDO
Capital Investment Corporation from 1999 to 2007. He is presently the Chief Financial Officer of SM Investments
Corporation, President of Rappel Holdings, Inc., and Director of the following corporations: Generali Pilipinas Holding
Company, Inc., SM Keppel Land, Inc., Universal LRT Corporation, Ltd., Consolidated Prime Development Corporation, and
Asia Pacific College.
Note: Messrs. Gilbert U. Dee and Peter S. Dee are related within the fifth civil degree of consanguinity. Messrs. Hans T. Sy, Herbert T. Sy and
Harley T. Sy are related within the second civil degree of consanguinity; Mr. Henry Sy, Sr., is their father.
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(b) Executive Officers:
Ricardo R. Chua, 56, Executive Vice President (EVP) and Chief Operating Officer (COO), holds a Bachelor’s Degree in
Commerce, major in Accounting, from the University of the East. He obtained his Master in Business Management (MBM)
degree from Asian Institute of Management (AIM) in 1975. He became the Bank’s EVP & COO in December 1995. He
joined the Bank in 1975 after a stint with SGV. He has been a Director of the following Bank affiliates/subsidiaries, namely,
CBC-IBI since 1998, CBC Forex since 1997, and CBC-PCCI since 1990. He is also the Chairman of The Manila Banking
Corporation (TMBC)/China Bank Savings, Inc. and Director of other corporations, some of which are BancNet, Inc.,
Philippine Clearing House Corporation, Cash Management Center of the Philippines, and MCBLife.
Reynaldo L. Lao, 64, Senior Vice President since 1995, is the Head of the Consumer Banking Group and concurrent
Head of the Acquired Assets Division. He joined the Bank in 1973 as part of the Planning and Operations Group. He holds
a Bachelor of Science degree in Management from University of the East, completed his MBA course work from Ateneo de
Manila University and attended the Management Development Program conducted by AIM in 1972 and a commercial
banking program conducted by Banker’s Trust of New York in 1981. He is also a Director of CBC-IBI and TMBC/China
Bank Savings, Inc..
Nancy D. Yang, 68, Senior Vice President since 1995, is the Head of the Branch Banking Group. She joined the Bank in
1963, occupying various positions. She holds a Bachelor of Arts degree from the Philippine Women’s University and a
degree in Human Development & Child Psychology from Merrill Palmer Institute in Detroit, Michigan, USA in 1961. She has
attended the Allen Management Program in 1990, BAI Retail Delivery Conference in Phoenix, Arizona, USA in 1994,
Environmental Risk Management Program for Bankers conducted by the Bank of America in 1997, and BAI Retail Delivery
Conference in Miami Beach, Florida in 1999. She is a Director of CBC-IBI and Vice-Chairman of the Board of TMBC/China
Bank Savings, Inc. Ms. Yang is related within second civil degree of consanguinity to Mr. Peter S. Dee, President & CEO.
Samuel L. Chiong, 58, Senior Vice President since 2004, is the Deputy Group Head of Branch Banking Group. He has
been with the Bank since 1984. He obtained a Bachelor of Arts degree in Economics from Ateneo de Manila University and
took the Advanced Bank Management Program from AIM in 1989. He attended the BAI Retail Delivery Conference in Las
Vegas, USA in 2006. Prior to joining the Bank, he was previously connected with Solid Bank and State Investment House.
He is presently a Director/Treasurer of CBC-PCCI and CBC-IBI. He is also the Director/President and Head of Branch
Banking Group of TMBC/China Bank Savings, Inc..
Antonio S. Espedido, Jr., 52, Senior Vice President since 2004, is the Head of Treasury Group. He holds a Bachelor of
Science degree in Business Administration from University of San Francisco. He has had trainings on fund transfer pricing
conducted by The Asian Banker, project management by Euromoney, and portfolio management by Wardley Investment.
He was connected with the Bank of the Philippine Islands from 1984 to 1993, Citytrust from 1995 to 2004, and ACI Phils.
(Forex) as Director from 1996 to 1997. He is currently a Director of CBC Forex and TMBC/China Bank Savings, Inc..
Ramon R. Zamora, 59, Senior Vice President since 2004, is the Group Head for Centralized Operations Group, the Head
for Remittance Business Division, and concurrent Head of Correspondent Banking. He joined the Bank in 1997, after 25
years of banking experience in Citibank N.A. where he held various managerial positions, as a Vice President, from the
Operations Group, to the Marketing Group as a Senior Relationship Manager and Credit Officer, to the Regional Corporate
Audit Group as VP for Global Transaction Banking Specialist covering South Asia Citibank N.A. branches. He obtained his
Bachelor of Arts degree in Economics at the Ateneo de Manila University. He is concurrently a Director of CBC Forex,
CBC-PCCI, Treasurer of CIBI- Insurance, and TMBC/China Bank Savings Inc.
Rhodora Z. Canto, 58, First Vice President since 2004, and was promoted as Senior Vice President effective on 01 March
2008, is the Head of Credit Management Group. She was the Bank’s consultant from 2001 to 2004. Prior to joining the
Bank, she was Vice President of Citicorp Investment Phils. from 1975 to 1983, Vice President & Chief Operating Officer of
City Trust Investment Phils. from 1983 to 1996, Director and President of BPI Securities Corporation from 1996 to 1997,
and Director of Philippine Business Bank from 2000 to 2001. She obtained her Bachelor of Science degree in Business
Administration from the University of the Philippines and her Master in Business Management degree from AIM in 1975.
She is a Director of TMBC/China Bank Savings, Inc..
Margarita L. San Juan, 54, First Vice President II since 2006, is the Head of Account Management Group. She started
with the Bank as Account Officer in 1980, promoted to Senior Account Officer in 1983, Assistant Vice President in 1985,
Vice President in 1988, until her promotion to First Vice President I in 1997. She was previously connected with Ayala
Investment and Development Corporation and with Commercial Bank and Trust Co. She holds a Bachelor of Science
degree in Business Administration, major in Financial Management, from the University of the Philippines. She took the
Advance Bank Management Program from AIM in 1992. She is a Director of TMBC/China Bank Savings, Inc..
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Rene J. Sarmiento, 54, First Vice President since 2002, is the Head of the Trust Group. He was appointed as the Vice
President of the Trust Group in 1994. Before joining the Bank, he occupied several positions in Security Bank Corporation
from 1981 to 1994. He obtained his Bachelor of Science degree in Commerce, major in Accounting, from De La Salle
University and his Master’s degree in Business Management from AIM in 1978. He is a Director of TMBC/China Bank
Savings, Inc..
Alexander C. Escucha, 51, First Vice President since 2002, is the Head of Corporate Planning Division. He joined the
Bank as Vice President in 1994. He holds a Bachelor of Arts degree in Economics cum laude from the University of the
Philippines. Prior to joining the Bank, he was Vice President of The International Corporate Bank. He was President of the
Corporate Planning Society of the Philippines (CPSP) in 1989, President of the Bank Marketing Association of the
Philippines (BMAP) from 1998 to 1999. In 2005, he was President of the Philippine Economic Society (PES) and
concurrently Chairman of the Federation of ASEAN Economic Associations (FAEA). He is currently a Director of
TMBC/China Bank Savings, Inc..
Philip S.L. Tsai, 57, First Vice President since 2006, is the Region Head for the Bank’s Metro Manila South and Southern
Luzon Branches. He has been with the Bank since 1978. He holds a Bachelor of Science degree in Business
Administration from the University of the Philippines and obtained his MBA from Roosevelt University in Chicago, Illinois.
He has also attended the International Management Training conducted by Chemical Bank in New York in 1973, and the
BAI Retail Delivery Conference in Las Vegas, USA in 2006.
Roberto C. Uyquiengco, 59, First Vice President since 2006, is the Region Head for the Bank’s Metro Manila North and
Northern Luzon Branches. He has been with the Bank since 1984. He holds a Bachelor of Science degree in Commerce,
major in Accounting, from La Salle College-Bacolod and Bachelor of Laws from the University of Negros Occidental
Recoletos. He has attended the Advanced Bank Management Program conducted by AIM in 1993, and the BAI Retail
Delivery Conference in LAS Vegas, USA in 2007.
Note: All the foregoing officers have been involved in the banking industry for more than five (5) years.
(c) Nominees for election as Directors and Independent Directors and term of office thereof:
Nominee as Person who nominated Nominee as Person who nominated &
Director Independent Director relationship with nominee
Gilbert U. Dee Linda Susan Mendoza Dy Tiong Johnny TK Cheng, Jr., son-in-law
Hans T. Sy Henry Sy, Sr., Sysmart Corp., SM Alberto S. Yao Lucky Securities, Inc., no relation
Investments Corp., and Shoemart, Inc.
Peter S. Dee Nancy Yang Roberto F. Kuan Regina Capital Development Corp., no
relation
Joaquin T. Dee Christopher Dee
Harley T. Sy Henry Sy, Sr., Sysmart Corp., SM
Investments Corp., and Shoemart, Inc.
Herbert T. Sy Henry Sy, Sr., Sysmart Corp., SM
Investments Corp., and Shoemart, Inc.
Jose T. Sio SM Investments Corp. and Shoemart,
Inc.
Ricardo R. Chua Zenaida Milan
Upon initial determination, based on the Nomination Forms and attachments submitted to the Nominations and Corporate
Governance Committees, the nominees for directors and independent directors were found to possess all the qualifications
and none of the disqualifications of a director or independent director.
The Nominations Committee is composed of Messrs. Dy Tiong (Chairman), Joaquin T. Dee, and Hans T. Sy.
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(d) Involvement in Legal Proceedings
To the best of the company’s knowledge, the Bank, its affiliates, subsidiaries, Directors and Officers have not been
involved for the past five (5) years in any legal proceeding affecting their ability or integrity and/or involving a material or
substantial portion of their property before any court of law or administrative body in the Philippines or elsewhere, save
those filed in the ordinary conduct of the Bank’s business.
(e) Significant Employees
The Bank values its human resources. It expects each employee to do his share in achieving the Bank’s set goals.
(f) Relationships and Related Transactions
In the ordinary course of business, the Bank has loans and other transactions with its directors, officers, stockholders, and
related interests (DOSRI), which were made substantially on terms not less favorable to the Bank than those offered to
others. Full disclosures for these transactions were made through reports with the appropriate regulatory agency.
The Bank has the following subsidiaries and affiliates:
(i) CBC Properties and Computer Center, Inc. – incorporated on April 14, 1982 to render general services of computer
and other computer-related products and services solely to the Bank. It is 100% owned by the Bank, with one (1)
share each assigned to Messrs. Gilbert U. Dee, Peter S. Dee, Ricardo R. Chua, Samuel L. Chiong, and Ramon R.
Zamora, all officers of the Bank.
(ii) CBC Forex Corporation – incorporated on February 18, 1997, with the primary purpose of engaging in the business of
dealing and brokering in all currencies, entering into spot and forward foreign exchange contracts with local or foreign
individuals and other entities, acting as brokers for the purpose of bringing together sellers and buyers of foreign
exchange. It is 100% owned by the Bank, with one (1) share each assigned to Messrs. Peter S. Dee, Ricardo R.
Chua, Antonio S. Espedido, Jr., Ramon R. Zamora, and Ms. Minda A. Lim, all officers of the Bank.
(iii) Chinabank Insurance Brokers, Inc. – incorporated on November 03, 1998, with the primary purpose to act as a broker
in soliciting, procuring, negotiating, receiving, managing and forwarding applications for fire, casualty, plate glass,
automobiles, trucks and other motor vehicles accident, health, burglary, rent, marine, credit, disability, life, and all other
kinds of insurance, and doing such other business as may be delegated to brokers or such companies in the conduct
of a general insurance brokerage business. It is 100% owned by the Bank, with one (1) share each assigned to
Messrs. Peter S. Dee, Ricardo R. Chua, Reynaldo L. Lao, Samuel L. Chiong, and Ms. Nancy D. Yang, all officers of
the Bank.
(iv) Manulife Chinabank Life Assurance Corporation – the Board approved on August 2, 2006 the joint project proposal of
the Bank with The Manufacturers Life Insurance Company (Manulife). Under the proposal, the Bank will invest in a life
insurance company owned by Manulife and such company will be offering innovative insurance and financial products
for health, wealth and education through the Bank’s branches nationwide. The life insurance company was
incorporated as The Pramerica Life Insurance Company, Inc. in 1998 but the name was changed to Manulife
Chinabank Life Assurance Corporation (MCB Life) on March 23, 2007. The Bank acquired 5% interest of MCB Life on
August 8, 2007
(v) The Manila Banking Corporation (TMBC) – after the Bank’s tender offer on TMBC shares ended on 15 January 2008,
the Bank now owns 90.79%* of the outstanding common shares thereof. In pursuance of such acquisition, the Board
approved on October 3, 2007 the use, appropriation and registration of the names “China Bank Savings, Inc.” as
TMBC’s corporate name and “ChinaBank Savings” as its business name or tradename, as well as all other proprietary
rights and privileges appurtenant thereto, subject to conditions, and subject further to the approval by the regulatory
offices. Further, the Bangko Sentral ng Pilipinas approved in its letter dated August 22, 2007 the appointment of some
of the officers of the Bank as concurrent directors and/or senior officers of the savings bank.
With respect to First Sovereign Asset Management (SPV-AMC), Inc., the Board of Directors approved on 02 May 2007 its
sale to any interested party/ies, subject to conditions. The Bank’s shareholdings consisting of 1,249,994 shares in the
company have been disposed of through Deeds of Assignment of Shares of Stock executed by the Bank on 12 June 2007.
* The Bank’s beneficial ownership as defined under Philippine Financial Reporting Standard (PFRS) 3 is 91.82%.
7
6. Compensation of Directors and Executive Officers
Bonuses & Other
Name Year Salary Compensation TOTAL
Total for the 5 most highly 2008 (estimates) P28,189,867.00 P34,187,394.00 P62,377,261.00
compensated executive officers* 2007 (actual) 25,627,152.00 33,760,275.00 59,387,427.00
2006 (actual) 23,245,416.00 30,354,878.00 53,600,294.00
Total for all officers and directors 2008 (estimates) 427,455,785.00 317,520,127.00 744,975,912.00
2007 (actual) 388,596,168.00 311,043,525.00 699,639,693.00
2006 (actual) 335,287,968.00 290,604,888.00 625,892,856.00
* Messrs. Gilbert U. Dee, Peter S. Dee, Ricardo R. Chua, Reynaldo L. Lao, and Ms. Nancy D. Yang.
There are no actions to be taken as regards any bonus, profit sharing, pension or retirement plan, granting of extension of
any option, warrant or right to purchase any securities between the Bank and its directors and officers.
In accordance with Article IV, Section 11, and Article VIII, Section 1(a) of the Bank’s Amended By-Laws, the members of
the Board of Directors are entitled to a per diem of P500.00 for attendance at each meeting of the Board or of any
committees and to 4% of the Bank’s net earnings
7. Independent Public Accountants
Sycip Gorres Velayo & Co. (SGV & Co.) has been the Bank’s independent accountant for more than 20 years and is again
recommended for appointment at the scheduled annual stockholders’ meeting.
None of the Bank’s auditors have resigned for the past many years, much less, for the past 2 years. In compliance with
SEC Memorandum Circular No. 8, Series of 2003, and SRC Rule 68 (3) b (iv) on the rotation of the external auditors or
signing partners of a firm every after five (5) years, Ms. Josephine Adrienne A. Abarca was assigned in 2007 as SGV &
Co.’s partner-in-charge for the Bank, in lieu of Mr. Wilson P. Tan.
Representatives of SGV & Co. are expected to be present at the meeting to respond to any matter that may be pertinently
raised during the meeting. Their representative will be given the opportunity to make a statement if they so desire.
Fiscal Year Audit Fees and Other-related Tax Fees
Fees
2007 P 1,400,000.00 ---
2006 P 1,288,000.00 ---
The above audit fees are inclusive of the following: (a) Other assurance and related services by the External Auditor that
are reasonably related to the performance of the audit or review of the Bank’s financial statements and (b) All Other Fees.
The Bank’s Audit Committee approves the audit fees and fees for non-audit services, if any, of external auditors, as
emphasized in Article III, Section 4 of the Committee’s Charter.
The Audit Committee is composed of Messrs. Alberto S. Yao (Chairman), Joaquin T. Dee, and Robert F. Kuan.
Per SGV & Co.’s representation during the Audit Committee meeting on February 20, 2008, they have not encountered any
difficulties in performing the audit or disagreements with Management on financial accounting, disclosures and reporting
matters.
8. Compensation Plans – not applicable
8
C. ISSUANCE AND EXCHANGE OF SECURITIES
9. Authorization or Issuance of Securities Other than for Exchange – not applicable
10. Modification or Exchange of Securities – not applicable
11. Financial and Other Information
(a) Brief Description of the general nature and scope of the business of the Bank, attached as Annex “A”
(b) Market Information, Dividends, and Top 20 Stockholders, attached as Annex “B”
(c) Discussion of Compliance with leading practice on Corporate Governance, attached as Annex “C”
(d) Management’s Discussion and Analysis or Plan of Operation, attached as Annex “D”
(e) Statement of Management Responsibility for Financial Statements, attached as Annex “E”
(f) Audited Financial Statements, attached as Annex “F”
12. Mergers, Consolidations, Acquisitions and Similar Matters
The Board of Directors on June 21, 2007 authorized the Bank to enter into a Memorandum of Agreement with the
shareholders of The Manila Banking Corporation (TMBC) for the purchase of 87.52% of the total subscribed capital stock
thereof. The Bank’s tender offer on the remaining shares ended on January 15, 2008, totaling the Bank’s ownership of
TMBC to 90.79%* of the outstanding common shares to date. In pursuance of such acquisition, the Board approved on
October 3, 2007 the use, appropriation and registration of the names “China Bank Savings, Inc.” as TMBC’s corporate
name and “ChinaBank Savings” as its business name or tradename, as well as all other proprietary rights and privileges
appurtenant thereto, subject to conditions, and subject further to the approval by the regulatory offices. Further, the Bangko
Sentral ng Pilipinas approved in its letter dated August 22, 2007 the appointment of the some of the officers of the Bank as
concurrent directors and/or senior officers of the savings bank.
* The Bank’s beneficial ownership as defined under Philippine Financial Reporting Standard (PFRS) 3 is 91.82%.
13. Acquisition or Disposition of Property – not applicable
14. Restatement of Accounts – not applicable
9
D. OTHER MATTERS
15. Action with Respect to Reports
The following are to be submitted for approval during the stockholders’ meeting:
a) Minutes of the Stockholders’ Meeting held on May 03, 2007, which contain, among others, the (i) annual
report to stockholders and financial statements, (ii) approval, confirmation and ratification of all acts of the
Board of Directors, Executive Committee, Management and other Committees during the year 2006, (iii)
election of the Board of Directors, (iv) appointment of external and internal auditors, (v) amendment of Article
Sixth (a) of the Bank’s Amended Articles of Incorporation to increase the Bank’s authorized capital stock from
P10.0 Billion to P16.0 Billion, and (vi) declaration of 25% cash dividend and 25% stock dividend to comply with
the minimum subscription and paid-up capital requirements on the increase in capital stock;
b) Annual Report to Stockholders;
c) Approval of the Financial Statements for the year ended December 31, 2007;
d) Ratification of all acts of the Board of Directors, Executive Committee, Management and other Committees
during the year 2007;
e) Election of the Board of Directors;
f) Appointment of external and internal auditors; and
g) All matters as contained in the agenda of the meeting, and other businesses as may properly come before the
stockholders
16. Matters Not Required to be Submitted – not applicable
17. Amendment of Charter, By-laws or Other Documents – not applicable
18. Other Proposed Action – not applicable
19. Voting Procedures
In accordance with Article III, Section 6 of the Bank’s Amended By-Laws, no meeting of stockholders shall be competent to
transact business unless a majority of the outstanding capital stock is represented.
With respect to the election of the members of the Board of Directors, Article III, Section 7 of the Bank’s Amended By-Laws
specifies that any stockholder who is not delinquent in his subscription shall be allowed to vote either in person or by proxy
executed in writing by the stockholder or his duly authorized attorney-in-fact in accordance with the requirements of
existing rules and regulations. Following Section 24 of the Corporation Code, a stockholder may vote such number of
shares for as many persons as there are directors to be elected or he may cumulate said shares and give one candidate
as many votes as the number of directors to be elected multiplied by the number of his shares shall equal, or he may
distribute them on the same principle among as many candidates as he shall see fit, provided that the total number of votes
cast by him shall not exceed the number of shares owned by him as shown in the books of the Bank multiplied by the
whole number of directors to be elected. Eleven (11) nominees receiving the highest number of votes shall be elected
directors.
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this report is
true, complete and correct. This report is signed in the City of Makati on 2nd day of April 2008.
CHINA BANKING CORPORATION
By:
ATTY. CORAZON I. MORANDO
Vice President & Corporate Secretary
10
Annex “A”
BUSINESS AND GENERAL INFORMATION
1) Description of Business
China Banking Corporation (CHIB) was incorporated on July 20, 1920 and commenced business on August 16 of the
same year as the first privately owned local commercial bank in the Philippines. It resumed operations after World War II
on July 23, 1945 and played a key role in the post-war reconstruction and economic recovery by providing financial support
to businesses and entrepreneurs. CHIB was listed on the local stock exchange in 1947 and acquired its universal banking
license in 1991. The Bank mainly caters to the Chinese-Filipino commercial sector. Its core banking franchise stems
mainly from its 87-year history in the Philippines, a factor that has enabled it to become deeply entrenched within the
socioeconomic fabric of the Chinese-Filipino community. The Bank’s market comprises the corporate, commercial, middle
and retail markets. It provides a wide range of domestic and international banking services, and is one of the largest
commercial banks in the country in terms of assets and capital.
Key milestones of China Bank (CHIB) history include:
a. 1920 - CHIB was established as the first privately owned local commercial bank in the Philippines
b. 1947 - CHIB was listed on the local stock exchange in 1947
c. 1969 - CHIB became the first bank in Southeast Asia to process deposit accounts on-line
d. 1988 - CHIB was the first Philippine bank to offer telephone banking; joined seven other banks in setting up
BancNet, the country’s largest ATM network
e. 1991 - CHIB acquired its universal banking license
f. 2005 - CHIB launched China Bank Online e-banking portal for retail and corporate customers
g. 2007 - CHIB acquired Manila Bank with 75 branch licenses
CHIB’s main business include corporate and SME lending, retail loans including mortgage and auto loans, treasury and
foreign exchange trading, trust and investment management, insurance products through Chinabank Insurance Brokers,
Inc. & MCB Life, internet banking and mobile banking services and inward remittances through tie-ups with remittance
companies and exchange houses in the Middle East, Asia and major US cities.
On its 87th year, CHIB reported net income of P3.68 billion with an ROE of 15.57% and ROA of 2.25%. There were
historical milestones on CHIB’s 87th year. One was the establishment of a bancassurance alliance with Manulife, the 5th
largest insurance company in the world. The joint venture company was named Manulife China Bank Life Assurance
Company or MCB Life. This allowed the selling of life insurance and investment products at China Bank branches,
generating another source of income. CHIB initiated the acquisition of The Manila Banking Corporation (TMBC) last June
2007 and effectively obtained control last Sept 2007. With TMBC’s 75 branch licenses (of which 27 are operating), this
acquisition provides China Bank with a platform for higher growth trajectory, accelerating its plan for branch expansion. The
26 operating TMBC branches were fully integrated into the China Bank network in Feb 2008 while their Ayala Avenue head
office was retained and will be relaunched as China Bank Savings, Inc. The strong financial performance in 2007 also led
to ratings upgrade from Capital Intelligence, a Cyprus-based credit rating agency to “BBB-“ from “BB+” and the outlook
from “Negative” to “Stable”. Fitch Ratings also maintained the national rating of ”AA-“.
The Bank has the following subsidiaries and affiliates:
Subsidiary Ownership Date of Principal Activities
Incorporation
CBC Properties and Computer Center Inc. 100% April 14, 1982 Computer services
CBC Forex Corporation 100% February 18, 1997 Foreign exchange
Chinabank Insurance Brokers, Inc. 100% November 03, 1998 Insurance brokerage
The Manila Banking Corporation 90.79%* May 23, 1960 Financial markets
Manulife China Bank Life Assurance Corp.** 5% February 20, 1998 Insurance products
* The Bank’s beneficial ownership as defined under Philippine Financial Reporting Standard (PFRS) 3 is 91.82%.
** The life insurance company was incorporated as The Pramerica Life Insurance Company Inc. on February 20, 1998 but
the name was changed to Manulife China Bank Life Assurance Corporation (MCB Life) on March 23, 2007. CHIB acquired
5% interest of MCB Life on August 8, 2007.
11
2) Business of Issuer
(a) Principal Products and Services
CHIB main businesses include deposit taking, corporate and middle market lending, retail loans including mortgage and
auto loans, insurance products through its subsidiary & affiliate, treasury and foreign exchange trading, trust and
investment management, internet banking and mobile banking services, inward remittances through tie-ups with remittance
companies and exchange houses in the Middle East, Asia and major US cities. The income from these products/services is
divided into two categories, namely (1) interest income from the Bank’s deposit taking and lending/investment activities
which accounts for 81% of revenues and (2) other income (includes service charges, fees & commissions, trading gain,
foreign exchange gain, trust fees, income from sale of acquired assets and other miscellaneous income) which account for
19% of revenues.
DEPOSITS AND RELATED SERVICES: ChinaCheck Plus Account; Regular Savings Accounts-Statement Savings, Passbook Savings;
MoneyPlus Savings Account; Diamond Savings Account; Certificate of Time Deposit; Manager’s Check; Gift Check; TellerCard (ATM Card); Electronic
Banking Channels-China Bank Online (Internet Banking, Mobile Banking), TellerPhone (Phone Banking), China Bank ATM
LOANS AND CREDIT FACILITIES: Agriculture, Commercial and Industrial Financing; Personal Loans; Pre-export Financing (Direct and
Indirect Exporters); Special Lending Programs-Countryside Loan Fund (CLF), Countryside Loan Fund, Credit Support for the Environment, Agri-
Business and Small and Medium Enterprises (CLF– CREAM), Industrial Guarantee and Loan Fund (IGLF), Micro, Small and Medium Enterprise
(MSME) Financing, Sustainable Logistics Development Program (SLDP), Environmental Development Program (EDP), Industrial and Large Projects
Program (I/LP), SSS-GSIS Special Financing Program, SSS Industry Loan Program, SSS 1-3-10, SSS Special Financing Program for Tourism
Projects, SSS Hospital Financing Program, SSS Financing Program for Educational Institutions, SSS Special Financing Program for Vocational and
Technical Schools; Guarantee Programs - Small Business Guarantee Finance Corporation (SB Corporation), Trade and Investment Development
Cooperation (Designated as Philippine Export and Import Credit Agency – PHILEXIM), Overseas Chinese Credit Guarantee Fund, Export-Import
Bank of the United States (USEXIM) Guarantee; Consumer Loans - HOMEPlus Real Estate Loans, Contract to Sell Financing, AUTOPlus Vehicle
Loan
INTERNATIONAL BANKING PRODUCTS & SERVICES: Import and Export Financing; Foreign and Domestic Commercial Letters of
Credit; Standby Letters of Credit; Collection of Clean and Documentary Bills; Bank Guaranty (Shipside Bond); Foreign and Domestic Remittances;
Purchase and Sale of Foreign Exchange; Travel Funds; Servicing of Foreign Loans and Investments; Trade Inquiry; Trust Receipt Facility;
Correspondent Banking Services - LC Confirmations/LC Advising, Foreign Currency Checks and Drafts Clearing Services; Foreign Currency Deposit
Unit Services - US$ Savings and Time Deposit, Euro Savings and Time Deposit, Foreign Currency Loans
REMITTANCE BUSINESS PRODUCTS: China Bank On-Time Remittance; Credit to China Bank Deposit Account; Credit to China Bank On-
Time Remittance Card; Cash Payout through any China Bank branch; Cash Payout through any branch of M. Lhuillier Financial Services; Bank-
to-Bank Fund Transfer; Door-to-Door Cash Delivery; Western Union Money Transfer Service
TREASURY PRODUCTS AND SERVICES: Peso-Denominated - Fixed Rate Treasury Notes and Retail Treasury Bonds, Treasury Bills,
Prime Corporate Bonds; US$-Denominated - ROP Bonds, BSP Bonds, Prime Corporate Bonds
TRUST AND INVESTMENT MANAGEMENT SERVICES: Investment Management Arrangement - Investment Advisory, Investment
Agency; Corporate Trust - Collateral/Mortgage Trust; Estate Planning - Testamentary Trust, Living Trust, Life Insurance Trust, Educational Trust;
Employee Benefit Planning - Retirement Plan, Provident Plan; Other Fiduciary Services – Custodianship, Escrow Agency, Loan Agency; Unit
Investment Trust Funds - China Bank Dollar Fund, China Bank GS Fund
CASH MANAGEMENT SERVICES: Automatic Debit Arrangement (ADA); Bills Pay Plus Multi-Channel Bills Payment Services (Over-the-
Counter, ATM, TellerPhone and China Bank Online); BancNet Payment System (ATM, Point-of-Sale and BancNet Online); Check Depot Post-Dated
Check Warehousing Service; Sure Collect Check Deposit Pick-up Services; Comprehensive Payroll Offering (Crediting and Outsourcing); BIR eFPS
Online Tax Payments; SSSNet Employee Contribution Facility; SSSNet Loan Repayment Facility; Automatic Credit Arrangement; Stockholders’
Dividend Credit Facility; Check Write Plus (Corporate and Manager’s Check Writing System); China Bank Online (Corporate); Sweeping/Pooling;
Upload Pro File Delivery System
Provincial Cash Deposit Pick-Up Services; Customized Bank Statement Generation System; San Miguel Corporation Cash Dividend Direct Credit
Program
INSURANCE PRODUCTS: Life Insurance - Endowment Plans, Group Life Insurance, Mortgage Redemption Insurance/Term Insurance; Non-
Life Insurance - Fire Insurance (Building and Content, Fire and Allied Perils), Motor Car Insurance, Surety/Bonds (Judicial/Performance/Fidelity),
Marine Cargo/Hull Casualty, Comprehensive General Liability (C.G.L.), Products Liability, Accident Health, HMO Plans/Medical Insurance,
Personal/Travel Insurance (Student Personal Accident Insurance, Group Personal Accident Insurance), Contractor’s All Risk (IAR) Insurance/Erector’s
All Risk Insurance, Director’s and Officers Liability Insurance; Electronic Equipment Insurance; Specialized Insurance Programs - Special Scheme–
Captivate Insurance Company, Risk Management Services/Risk Survey/Profile Report
12
MCB LIFE BANCASSURANCE PRODUCTS: Inspire–total education and protection program; Achieve-life insurance (available in peso &
dollar), Enrich – protection and investment in one; Her Life–total protection for women; His Life–total protection for men/breadwinner
OTHER SERVICES: Armored Car Deposit Pick-up Services; Night Depository Services; BIR Payments; PhilHealth Payments SSS Payments;
SSS Pension Accounts; Direct Deposit Facility for U.S. Pensioner; Safety Deposit Boxes; Domestic Collections Prepaid Card Reloads - Phone Cards
(Landline and Mobile line), Internet Cards, Satellite TV, Internet Game Cards
ACCEPTANCE OF PAYMENTS: Credit Cards - AIG Visa/Mastercard, Allied Bank Visa, Banco De Oro Credit Card, Banco Filipino Visa,
Bankard/RCBC, Citibank Card Services, Citibank Visa/Mastercard, East West Card, HSBC Cards, Metrobank Card, MMO Card, Onecard
International, Security Bank Diners/Mastercard, Standard Chartered Visa/Mastercard, Union Bank Visa; Telecommunications - Beeper 150, Digitel,
Eastern Telecom, Globe Telecoms, Green Dot, ICC-Bayantel, Innove (formerly Islacom), Mobiline, PLDT, PT & T, Smart Communications; Cable TV
Companies - Destiny Cable, My Destiny SBC, Sky Cable (Gold and Silver), ZPDEE; Insurance / Pre-need - CBC Insurance Brokers, Inc, Fortune Life,
Fortune Medicare, Great Life Financial, Manila Bankers Insurance, Manila Memorial, New York Life Insurance, Paramount Life & General Insurance,
Provident Plans, Pru Life UK , Prudential Life Plans, Sun Life of Canada, Philippines; Loans - China Bank Loan Payments, Chinatrust Salary Stretch
Loans, CitiFinancial Corporation, CitiSavings (CSI) Loans, Citystate Savings Bank, PSBank Loans Standard Chartered Bank EZ Loan; Utility
Companies – Easytrip, Manila Water Company, Inc., Manila Water Services Co., Meralco, PSC – E-Pass, Subic Water, Visayan Electric Company,
Inc.; Internet – Infocom, EDSAMAIL; Government Institution - BIR (Bancnet online only), NSO Helpline Plus, PSC - E-Pass, SSS; Schools - La Salle
Greenhills, St. Jude College, Inc. (Manila); Others - Directories Philippine Corporation, Far East Broadcasting (FEBC) Phils., FG Financial Co. Inc.,
Mimosa Golf and Country Club, Nationlink Pay
ACCEPTANCE OF DONATIONS: Bantay Bata; Church of Jesus Christ of Latter Day Saints; Knowledge Channel; Piso Para sa Pasig
(b) Distribution Methods of Products and Services:
China Bank made its products and services available across multiple distribution and delivery channels: 187 branch
network (of which 186 are China Bank branches and 1 Manila Bank branch); 249 ATM network (159 in-branch and 90 off-
site ATMs nationwide; founding member of the BancNet consortium, (access to more than 3,000 ATMs nationwide of the
BancNet, Megalink and Expressnet networks; and online banking (through the Bank’s e-portal www.chinabank.ph )
METRO MANILA BRANCHES
1. MAKATI MAIN BRANCH (HO) - CBC Bldg., 8745 Paseo de Roxas cor. Villar Sts., Makati City
2. BINONDO BUSINESS CENTER - CBC Bldg., Dasmariñas cor. Juan Luna Sts. Binondo, Manila
3. ANTIPOLO CITY BRANCH - G/F Budget Lane Arcade, No. 6, Provincial Road, Brgy. San Jose, Antipolo City, Rizal
4. ARANETA AVE. BRANCH - Philippine Whithasco Bldg., 420 Araneta Avenue, cor. Bayani St., QC
5. ARRANQUE BRANCH - Don Felipe Building, 675 Tomas Mapua St., Sta. Cruz, Manila
6. ASUNCION BRANCH - Units G6 & G7 Chinatown Steel Towers, Asuncion St., San Nicolas, Manila
7. AYALA-ALABANG BRANCH - G/F, CBC-Building Acacia Ave., Madrigal Business Park, Ayala Alabang, Muntinlupa City
8. BALINTAWAK-BONIFACIO BR. - 657 A. Bonifacio Avenue, Balintawak, Quezon City
9. BALUT BRANCH - North Bay Shopping Center, Honorio Lopez Boulevard, Balut, Tondo, Manila
10. BANAWE BRANCH - CBC Building, 680 Banawe Avenue, Sta. Mesa Hts. District I, Quezon City
11. BF HOMES BRANCH* - Aguirre cor. El Grande Aves., United BF Homes, Parañaque City
12. BF RESORT VILLAGE BRANCH* - BF Resort Drive cor. Gloria Diaz St., BF Resort Village Talon Dos, Las Piñas City
13. BEL-AIR BRANCH* - 48 Avant Bldg. Jupiter cor. Mars Sts. Bel Air Village, Makati City
14. BLUMENTRITT BRANCH - 1777-1781 Cavite corner Leonor Rivera St., Blumentritt, Sta. Cruz, Manila
15. BO. KAPITOLYO BRANCH* - G/F P&E Building, 12 United corner First Sts. Bo. Kapitolyo, Pasig City
16. CAINTA BRANCH - CBC Bldg (Beside Sta. Lucia East Mall), Felix Ave. (Imelda Ave.), Cainta, Rizal
17. CAPITOL HILLS BRANCH* - G/F Design Pro Building Capitol Hills, Old Balara, Quezon City
18. COMMONWEALTH AVENUE BRANCH - LGF Ever Gotesco Mall, Commonwealth Center Commonwealth Avenue corner,
Don Antonio Road, Quezon City
19. CORINTHIAN HILLS BRANCH* - G/F The Clubhouse, Corinthian Hills, Temple Drive Brgy. Ugong Norte, Quezon City
20. CUBAO-ARANETA BRANCH - Unit 16, New Frontier Cinema Theater Arcade, Gen. Roxas Ave., Araneta Shopping Center,
Cubao, Quezon City
21. CUBAO-AURORA BRANCH - 911 Aurora Boulevard Extension corner Miami Street, Cubao, Quezon City
22. D. TUAZON BRANCH* - 174 A-B D. Tuazon St., Brgy. Maharlika, Sta. Mesa Heights, Quezon City
23. DASMARIÑAS VILLAGE BRANCH - 2283 Pasong Tamo Ext. corner Lumbang Street Makati City
24. DON ANTONIO BRANCH* - G/F Royale Place, Don Antonio Ave., Brgy. Old Balara, Quezon City
25. DEL MONTE AVENUE BRANCH - G. Araneta Avenue corner Del Monte Avenue, Quezon City
26. DIVISORIA-STA. ELENA BRANCH - Unit G-22 New Divisoria Condominium Center Sta. Elena St. near corner Tabora St.
Binondo, Manila
27. E. RODRIGUEZ SR. BLVD. BRANCH - CBC Bldg., #286 E. Rodriguez Sr. Blvd., Brgy. Damayang Lagi, QC
13
28. ERMITA BRANCH - Ground Floor A, Ma. Natividad Bldg., #470 T. M. Kalaw cor. Cortada Sts., Ermita, Manila
29. ESPAÑA BRANCH* - España cor. Valencia Sts., Sampaloc, Manila
30. EXAMINER BRANCH - No. 1525 Quezon Ave. cor. Examiner St., West Triangle, Quezon City
31. FAIRVIEW BRANCH - G/F Angelenix House, Fairview Ave. corner Camaro St., Quezon City
32. FILINVEST CORPORATE CITY BRANCH - G/F Wilcon Depot, Alabang- Zapote road cor. Bridgeway Ave. Filinvest Corporate
City, Alabang, Muntinlupa
33. GIL PUYAT AVENUE BRANCH - G/F HPL Bldg., No. 60 Sen. Gil Puyat Ave., Makati City
34. GREENHILLS BRANCH - G/F Gift Gate Bldg, Greenhills Shopping Center, San Juan, Metro Manila
35. GREENHILLS-ORTIGAS BRANCH - CBC-Building, 14 Ortigas Avenue Greenhills, San Juan, Metro Manila
36. ILAYA BRANCH - #947 APL-YSL Bldg., Ilaya, Tondo, Manila
37. J. ABAD SANTOS AVENUE BRANCH - 2159 J. Abad Santos Ave., cor. Batangas St., Tondo, Manila
38. KALOOKAN BRANCH - CBC Bldg., 167 Rizal Avenue Extension, Grace Park, Kalookan City
39. KALOOKAN- MONUMENTO BRANCH* - 779 Mc Arthur Highway, Kalookan City
40. KARUHATAN BRANCH - No. 248 McArthur Highway, Karuhatan, Valenzuela City
41. LAS PIÑAS BRANCH - CBC- Bldg., Alabang-Zapote Road cor. Aries St., Pamplona Park Subd., Las Piñas City
42. LAS PIÑAS- MANUELA BRANCH - Alabang-Zapote Road cor.Philamlife Ave., Pamplona Dos, Las Piñas City
43. LEGASPI VILLAGE -AIM BRANCH - G/F Cacho-Gonzales Building, 101 Aguirre cor. Trasierra Streets, Legaspi Village, Makati
City
44. LEGASPI VILLAGE -C. PALANCA BRANCH - Suite A, Basic Petroleum Building 104 C. Palanca Jr. Street Legaspi Village,
Makati City
45. LEGASPI VILLAGE - SALCEDO BRANCH - G/F Fedman Suites, 199 Salcedo Street Legaspi Village, Makati City
46. LIBIS BRANCH - Blue Building, 188 E. Rodriguez Jr. Avenue Libis, Quezon City
47. MAKATI AVENUE BRANCH - G/F CBC Building, Makati Ave. cor. Hercules St. Makati City
48. MALABON-CONCEPCION BRANCH - Gen. Luna corner Paez Streets, Concepcion, Malabon
49. MALABON-POTRERO BRANCH - CBC Bldg., McArthur Highway, Potrero, Malabon
50. MALANDAY BRANCH - Km 614 McArthur Highway, Malanday Valenzuela City
51. MALINTA BRANCH - AGT Building, 425 Gen. Luis Street Paso de Blas, Malinta, Valenzuela City
52. MANDALUYONG-BONI AVE. BR. - G/F VOS Bldg. Boni Avenue corner San Rafael Street Mandaluyong City
53. MANDALUYONG-PIONEER BR. - UG-05 Globe Telecom Plaza Tower I Pioneer Street, Mandaluyong City
54. MARIKINA BRANCH - 308 J.P. Rizal Street, Sta. Elena, Marikina City
55. MARIKINA- SSS VILLAGE BRANCH* - Lilac cor. Rainbow Sts. SSS Village, Concepcion Dos, Marikina City
56. MASANGKAY BRANCH - 959-961 G. Masangkay Street, Binondo, Manila
57. NAVOTAS BRANCH - CBC Building, 551 M. Naval Street, Bangkulasi, Navotas, Metro Manila
58. NOVALICHES BRANCH - 954 Quirino Highway, Novaliches Proper, Novaliches, Quezon City
59. NOVALICHES-TALIPAPA BRANCH - 528 Copengco Bldg., Quirino Highway, Talipapa, Novaliches, Quezon City
60. ONGPIN BRANCH - G/F Se Jo Tong Building, 808 Ongpin Street, Sta. Cruz, Manila
61. ORTIGAS-ADB AVE. BRANCH - LGF City & Land Mega Plaza ADB Ave. cor. Garnet Rd. Ortigas Ctr. Pasig City
62. ORTIGAS CENTER BRANCH - Unit 101 Parc Chateau Condominium Onyx corner Sapphire Streets, Ortigas Center, Pasig City
63. ORTIGAS COMPLEX BRANCH - G/F Padilla Building, Emerald Avenue cor. Ruby Road, Ortigas Center, Pasig City
64. ORTIGAS-JADE DRIVE BRANCH - Unit G-03, Antel Global Corporate Center Jade Drive, Ortigas Center, Pasig
65. PACO BRANCH - Gen. Luna corner Escoda Street, Paco, Manila
66. PARAÑAQUE-DR. A. SANTOS AVE. BRANCH - Unit 1 & 2 Kingsland Building, Dr. A. Santos Avenue, Sucat, Parañaque
City
67. PARAÑAQUE-SUCAT BRANCH - MTF Building, Dr. A. Santos Ave. corner Kabesang Segundo St., Parañaque City
68. PASAY-LIBERTAD BRANCH - CBC-Building, 184 Libertad Street, Antonio Arnaiz Ave., Pasay City
69. PASAY-ROXAS BLVD. BRANCH - GF Unit G-01 Antel Seaview Towers 2626 Roxas Blvd., Pasay City
70. PASIG- MERCEDES BRANCH* - Commercial Motors Corp. Compound Mercedes Ave., Pasig City
71. PASIG-SANTOLAN BRANCH - G/F Felmarc Business Center, Amang Rodriguez Avenue, Santolan, Pasig City
72. PASONG TAMO-CITYLAND BRANCH - Units UG30-UG32 Cityland Pasong Tamo Tower 2210 Pasong Tamo St., Makati City
73. PHILAM BRANCH* - #8 East Lawin Drive, Philam Homes, QC
74. QUEZON AVE. BRANCH - No. 18 GND Bldg., Quezon Ave. cor. D. Tuazon St., Q.C.
75. QUIAPO BRANCH - 216-220 Villalobos St., Quiapo, Manila
76. ROOSEVELT AVE. BRANCH - CBC Bldg., #293 Roosevelt Ave., San Francisco Del Monte, Quezon City
77. SALCEDO VILLAGE-TORDESILLAS BRANCH - G/F Prince Tower Condominium 14 Tordesillas St., Salcedo Village,
Makati City
78. SALCEDO VILLAGE-VALERO BRANCH - G/F Valero Tower, 122 Valero Street Salcedo Village, Makati City
79. SAN JUAN BRANCH - 17 (new) F. Blumentritt St., San Juan, M. M.
80. SHAW-PASIG BRANCH - G/F RCC Center, No. 104 Shaw Boulevard, Pasig City
81. SHAW-SUMMIT ONE BRANCH - Unit 102 Summit One Office Tower 530 Shaw Boulevard Mandaluyong City
82. SM CITY BICUTAN BRANCH - LGF, Bldg. B, SM City Bicutan Doña Soledad Ave. cor. West Service Rd.,Parañaque City
83. SM CITY SAN LAZARO BRANCH - 2/F SM City San Lazaro, Felix Huertas St. cor. A.H. Lacson Ext., Sta. Cruz, Manila
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84. SM CITY TAYTAY - Unit 147 Bldg. B, SM City Taytay, Manila East Road, Brgy. Dolores, Taytay, Rizal
85. SM FAIRVIEW BRANCH - LGF, SM City Fairview Quirino Avenue corner Regalado Avenue Fairview, QC
86. SM MALL OF ASIA - G/F Main Mall Arcade, SM Mall of Asia, Bay Blvd., Pasay City
87. SM MEGAMALL BRANCH - LGF Building A, SM Megamall, E. delos Santos Avenue corner J. Vargas St., Mandaluyong City
88. SM NORTH EDSA BRANCH - Cyberzone Carpark Bldg., SM City North Avenue corner EDSA, Quezon City
89. SM SOUTHMALL BRANCH - SM Southmall, Alabang-Zapote Road Talon-Almanza, Las Piñas City
90. STO. CRISTO BRANCH - 711-715 Sto. Cristo cor. Commercio Sts. Binondo, Manila
91. T. ALONZO BRANCH - Abeleda Business Center 908 T. Alonzo corner Espeleta Streets, Sta. Cruz, Manila
92. TIMOG AVE. BRANCH - G/F Prince Jun Condominium, 42 Timog Ave., Q.C.
93. TOMAS MORATO BRANCH - 229 T. Morato Ave cor Sct. Borromeo St. Brgy. South Triangle, Quezon City
94. TRINOMA BRANCH - Unit P002, Level P1, Triangle North of Manila, North Avenue corner EDSA, Quezon Cit
95. TUTUBAN CENTER BRANCH - Cluster Bldg. 1, Tutuban Center, C.M. Recto Ave. cor. Dagupan Street, Manila
96. TUTUBAN PRIME BLOCK BRANCH - Rivera Shophouse, Podium Area, Tutuban Center Prime Block, C.M. Recto Ave. corner
Rivera Street, Manila
97. VALENZUELA BRANCH - CBC-Bldg., Mc Arthur Highway cor. V. Cordero St., Marulas, Valenzuela City
98. VISAYAS AVE. BRANCH - CBC-Building, Visayas Avenue corner Congressional Ave. Ext., Quezon City
99. WEST AVE. BRANCH - 82 West Avenue, Quezon City
100. XAVIERVILLE BRANCH* - 65 Xavierville Ave., Loyola Heights, Quezon City
PROVINCIAL BRANCHES
1. ANGELES CITY BRANCH - CBC-Building, 949 Henson St., Angeles City
2. ANGELES- MIRANDA EXT. BRANCH* - Miranda Ext. Cor. Asuncion St.,San Nicolas Angeles City
3. BACOLOD-ARANETA BRANCH -CBC-Building, Araneta corner San Sebastian Streets, Bacolod City
4. BACOLOD-NORTH DRIVE BRANCH - Anesa Bldg., B.S. Aquino Drive, Bacolod City
5. BAGUIO CITY BRANCH - G/F Juniper Bldg., A. Bonifacio Rd., Baguio City
6. BALANGA CITY BRANCH - G/F Dilig Building, Don Manuel Banzon Street, Balanga City, Bataan
7. BATANGAS CITY BRANCH - P. Burgos Street, Batangas City
8. BUTUAN CITY BRANCH - T. Calo corner San Francisco Streets, Leon Kilat, Butuan City
9. CABANATUAN CITY - Melencio cor. Sanciangco Sts. Cabanatuan City
10. CABANATUAN-MAHARLIKA BRANCH - CBC-Building, Maharlika Highway Cabanatuan City
11. CAGAYAN DE ORO-BORJA BRANCH - J. R. Borja Street, Cagayan de Oro City
12. CAGAYAN DE ORO-CARMEN BRANCH - G/F GT Realty Building, Max Suniel St. corner Yakal St., Carmen, Cagayan de
Oro City
13. CAGAYAN DE ORO- DIVISORIA BRANCH* - RN Abejuela St., South Divisoria, Cagayan de Oro City
14. CAGAYAN DE ORO-LAPASAN BRANCH - CBC Building, Claro M. Recto Avenue, Lapasan, Cagayan de Oro City
15. CALAMBA- REAL CROSSING BRANCH* - 5A1 Barangay Uno Crossing, Calamba, Laguna
16. CATBALOGAN BRANCH - CBC Bldg. Del Rosario St. cor. Taft Avenue, Catbalogan City, Samar
17. CAUAYAN CITY BRANCH - G/F Prince Christopher Bldg. Maharlika Highway, Cauayan City, Isabela
18. CAVITE-DASMARIÑAS BRANCH - G/F CBC Bldg., Gen. E. Aguinaldo Highway, Dasmarinas, Cavite
19. CAVITE-IMUS BRANCH - G/F CBC Bldg., Nueno Avenue Tanzang Luma, Imus, Cavite
20. CAVITE-ROSARIO BRANCH - G/F CBC Building, Gen Trias Drive, Rosario, Cavite
21. CAVITE- SM CITY BACOOR BRANCH - LGF SM City Bacoor Tirona Highway corner Aguinaldo Highway Bacoor, Cavite
22. CEBU- A. REYES* Mahogany Court, Archbishop Reyes Ave., Cebu City
23. CEBU-BANILAD BRANCH - CBC Bldg., AS Fortuna St., Banilad, Cebu City
24. CEBU- COLON BRANCH* - Colon cor. P. Lopez Sts., Cebu City
25. CEBU-F. RAMOS BRANCH - F. Ramos Street, Cebu City
26. CEBU-GUADALUPE BRANCH - CBC Building, M. Velez Street, cor. V. Rama Ave., Guadalupe, Cebu City
27. CEBU – LAHUG BRANCH - JY Square Mall, No. 1 Salinas Dr., Lahug, Cebu City
28. CEBU-LAPU LAPU BRANCH - Gaisano Mactan Mall, Pajo, Lapu-Lapu City
29. CEBU- MAGALLANES BRANCH (MAIN) - CBC Bldg., Magallanes corner Jakosalem Sts., Cebu City
30. CEBU-MANDAUE BRANCH - SV Cabahug Building 155-B SB Cabahug Street, Brgy. Centro, Mandaue City, Cebu
31. CEBU-MANDAUE NORTH ROAD BRANCH - 447 North Road, Tabok, Mandaue City
32. CEBU-SM CITY BRANCH - Upper G/F, SM City Cebu, Juan Luna cor. A. Soriano Avenue, Cebu City
33. CEBU- SUBANGDAKU BRANCH - G/F Mandaue Friendship Building I, Subangdaku, Mandaue City, Cebu
34. CEBU-TALISAY BRANCH - CBC Bldg., 1055 Cebu South National Road Bulacao, Talisay City, Cebu
35. COTABATO CITY BRANCH - No. 76 S.K. Pendatun Avenue, Cotabato City, Maguindanao
36. DAGUPAN CITY BRANCH - 209 Perez Boulevard, Dagupan City
37. DAGUPAN- NEPO MALL BRANCH* - 101 G/F Nepo Mall, Arellano Bani St., Dagupan City
38. DAVAO-BAJADA BRANCH - Km. 3, J.P. Laurel Ave., Bajada, Davao City
39. DAVAO-BUHANGIN BRANCH - Buhangin Road, Davao City
40. DAVAO- J.P. LAUREL BRANCH* - Adolfo Bldg. J.P. Laurel Ave. cor. Palm Drive, Bajada District, Davao City
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41. DAVAO-MATINA BRANCH - McArthur Highway, Matina, Davao City
42. DAVAO-RECTO BRANCH - CBC Bldg., C.M. Recto Ave. cor. J. Rizal St. Davao City
43. DAVAO-STA. ANA BRANCH - R. Magsaysay Avenue corner F. Bangoy Street, Sta. Ana District, Davao City
44. DAVAO-TAGUM BRANCH - 153 Pioneer Avenue, Tagum, Davao del Nort
45. DIPOLOG CITY BRANCH - CBC Building, Gen Luna corner Gonzales Streets Dipolog City
46. DUMAGUETE CITY BRANCH - Du An Sim Bldg., Legaspi St., Dumaguete City, Negros Or.
47. GEN. SANTOS CITY BRANCH - CBC Bldg., I. Santiago Blvd., Gen. Santos City South Cotabato
48. GENERAL SANTOS- ROXAS AVE. BRANCH* - Pres. Roxas Ave. cor. Lapu-Lapu St., General Santos City
49. ILIGAN CITY BRANCH - Lai Building, Quezon Avenue Extension Pala-o, Iligan City
50. ILOILO-IZNART BRANCH - G/F John A. Tan Bldg., Iznart St., Iloilo City
51. ILOILO-MABINI BRANCH - A. Mabini Street, Iloilo City
52. ILOILO-RIZAL BRANCH - CBC Building, Rizal cor. Gomez Streets, Brgy. Ortiz, Iloilo City
53. KIDAPAWAN CITY BRANCH- G/F EVA Building, Quezon Blvd. cor. Tomas Claudio Street, National Highway, Kidapawan City
54. LA UNION BRANCH - Quezon Avenue, National Highway, San Fernando, La Union
55. LAGUNA - CALAMBA BRANCH - CBC-Building, National Highway, Crossing, Calamba, Laguna
56. LAOAG CITY BRANCH - Liberato Abadilla Street, Brgy 17 San Francisco Laoag City
57. LEGAZPI CITY BRANCH - G/F Emma Chan Bldg., F. Imperial St., Legazpi City
58. LUCENA CITY BRANCH - 233 Quezon Avenue, Lucena City
59. MARILAO BRANCH- G/F, SM City Marilao Km. 21, Brgy. Ibayo, Marilao, Bulacan
60. MASBATE BRANCH - Domingo cor. Zurbito Sts., Masbate, Masbate
61. NAGA CITY BRANCH - Penafrancia corner Panganiban Streets Naga City
62. ORMOC CITY BRANCH - Hotel Don Felipe Building A. Bonifacio Street, 6541 Ormoc City, Leyte
63. OZAMIZ CITY BRANCH - Gomez corner Burgos Streets, Ozamiz City
64. PAGADIAN CITY BRANCH - Marasigan Building, F.S. Pajares Avenue, Pagadian City
65. PANGASINAN-URDANETA BRANCH - The Sanctuary Commercial Building Nat’l Highway, Urdaneta, Pangasinan
66. PUERTO PRINCESA CITY BRANCH - Malvar Street near corner Valencia Street Puerto Princesa City, Palawan
67. ROXAS CITY BRANCH - 1063 Roxas Ave. cor. Bayot Drive, Roxas City, Capiz
68. SAN FERNANDO BRANCH - CBC Bldg., V. Tiomico Street City of San Fernando, Pampanga
69. SAN FERNANDO-DOLORES BRANCH - CBC Bldg., McArthur Highway, Dolores, City of San Fernando, Pampanga
70. SAN JOSE CITY BRANCH - Maharlika Highway, Brgy. Malasin, San Jose City
71. SAN PABLO CITY BRANCH - M. Paulino Street, San Pablo City
72. SANTIAGO CITY - Navarro Bldg., Maharlika Highway near corner Bayaua St., Santiago City, Isabela
73. SM CITY CLARK BRANCH - G/F (Units 172-173) SM City Clark, M. Roxas St., CSEZ, Angeles City, Pampanga
74. SM CITY LIPA BRANCH - G/F (Units 1111-1113) SM City Lipa, Ayala Highway, Brgy. Maraouy, Lipa City, Batangas
75. SM CITY PAMPANGA - Unit AX3 102, Building 4, SM City Pampanga, Mexico, Pampanga
76. SM CITY STA. ROSA BRANCH - G/F SM City Sta. Rosa, Bo. Tagapo, Sta. Rosa, Laguna
77. SORSOGON BRANCH - CBC Bldg., Ramon Magsaysay Ave., Sorsogon City, Sorsogon
78. TABACO CITY BRANCH - Ziga Ave. corner Berces Street, Tabaco City, Albay
79. TACLOBAN CITY BRANCH - Carlos Chan Building P. Zamora Street, Tacloban City
80. TAGBILARAN CITY BRANCH - G/F Melrose Bldg. Carlos P. Garcia Avenue, Tagbilaran City, Bohol
81. TARLAC BRANCH - CBC Building, Panganiban near corner F. Tanedo Street, Tarlac City, Tarlac
82. TUGUEGARAO CITY BRANCH - A. Bonifacio Street, Tuguegarao, Cagayan
83. URDANETA- ALEXANDER BRANCH* - Alexander cor. Belmonte Sts., Urdaneta City
84. VALENCIA BRANCH - A. Mabini Street, Valencia, Bukidnon
85. ZAMBOANGA CITY BRANCH - CBC-Building, Gov. Lim Avenue corner Nuñez Street, Zamboanga City
86. ZAMBOANGA- GUIWAN BRANCH - G/F Yang’s Tower, M.C. Lobregat National Highway, Guiwan, Zamboanga City
MANILA BANK BRANCH (to be renamed “China Bank Savings, Inc.”)
1. MANILA BANK – AYALA BRANCH – Manila Bank Bldg., Ayala Avenue, Makati City
*formerly The Manila Banking Corporation (Manila Bank) branch
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OFF BRANCH ATM DIRECTORY
Metro Manila
1. ALABANG TOWN CENTER - Alabang Town Center, Alabang-Zapote Road Muntinlupa City
2. ALI MALL - ATM Booth #1, Upper G/F Ali Mall P. Tuazon Blvd, Araneta Center, Cubao Quezon City
3. CHERRY FOODARAMA - Cherry Foodarama, Shaw Boulevard Mandaluyong City
4. CHANG KAI SHEK - Chiang Kai Shek College 1274 P. Algue, Manila
5. CHINA BANK ONLINE CENTER - Starbucks, China Bank Building 8745 Paseo de Roxas corner Villar Street Makati City
6. DASMARIÑAS VILLAGE ASSOCIATION OFFICE - 1417 Campanilla St., Dasmariñas Village, Makati City
7. EASTWOOD-CYBERMALL- 2/F Eastwood CyberMall Eastwood Avenue Eastwood City CyberPark, Bagumbayan Quezon City
8. FARMER'S MARKET - ATM Booth #4, Farmer's Market Araneta Center, Quezon City
9. GATEWAY MALL - Booth 4, Level 2 Gateway Mall Cubao, Quezon City
10. GLORIETTA 1 - 2/F Glorietta 1 (near BLIMS) Ayala, Makati City
11. GLORIETTA 4 - Between Modern China and Banana Leaf & Curry Glorietta 4, Makati City
12. GLORIETTA 4 – B1 Basement 1, Glorietta 4, Makati City
13. GREENBELT 3 - Greenbelt 3, Makati Avenue Drop-Off Area Makati City
14. GREENHILLS THEATRE MALL - Main Entrance, Greenhills Theatre Mall San Juan, Metro Manila
15. JACKMAN EMPORIUM - G/F Jackman Emporium Department Store Grace Park, Caloocan City
16. JGC PHILS ALABANG - JGC PHILS. Building, Prime Street Madrigal Business Park-Phase III Ayala Alabang, Muntinlupa City
17. MARKET! MARKET! 1 - Market! Market! Fort Bonifacio Global City, Taguig, Metro Manila
18. MARKET! MARKET! 2 - 2/F Market! Market! Fort Bonifacio Global City, Taguig, Metro Manila
19. MARKET! MARKET! 3 - G/F ATM Center, Fiesta Market, Market! Market! Fort Bonifacio Global City, Taguig, Metro Manila
20. MEDICAL CITY - Medical City, Ortigas Avenue, Pasig City
21. METRO POINT MALL - 3/F Metro Point Mall, EDSA corner Taft Avenue, Pasay City
22. METROWALK - ATM 1 Building C G/F Metrowalk Commercial Complex Meralco Avenue, Pasig City
23. MOA - SOUTH PARKING - G/F South Parking, SM Mall of Asia, (Between Gonuts Donuts & RudyProject) Bay Boulevard, Pasay
City
24. MOA – ADMIN - 2/F Main Mall, SM Mall of Asia, (Between Breastfeeding Section & Traffic Footwear) Bay Boulevard, Pasay City
25. MOA - FOOD COURT - 2/F Main Mall, SM Mall of Asia, (Between Timex & Dave's Fun House) Bay Boulevard, Pasay City
26. MRT-BONI STATION - EDSA, Quezon City
27. MRT-CUBAO STATION - EDSA, Quezon City
28. MRT-NORTH AVENUE STATION - EDSA, Quezon City
29. MRT-SHAW BOULEVARD STATION - EDSA, Mandaluyong City
30. NOVA SQUARE - G/F Nova Square, 689 Quirino Highway, corner P. Dela Cruz, Brgy. San Bartolome, Novaliches, Quezon City
31. PEOPLE SUPPORT - G/F People Support Center, Ayala Avenue, corner Sen. Gil Puyat Avenue, Makati City
32. POWERPLANT P1 (Concourse) – Stall No. 060 Ground Level, Power Plant Mall, Makati City
33. PUREGOLD – E-RODRIGUEZ – ATM # 1, Cosco Building, E. Rodriguez Ave., corner G. Araneta Ave., Quezon City
34. ROBINSON'S GALLERIA 1 - Level 1-181, Robinson's Galleria, EDSA corner Ortigas Avenue, Pasig City
35. ROBINSON'S GALLERIA 2 - Level 1-181 Robinson's Galleria, EDSA corner Ortigas Avenue, Pasig City
36. ROBINSON'S PLACE-MANILA - G/F Padre Faura Wing Entrance, Pedro Gil corner Adriatico Street, Ermita, Manila
37. SHOP AND RIDE - Shop and Ride Shopping Center #248 Gen. Luis Street, Novaliches Proper Novaliches, Quezon City
38. SM CITY FAIRVIEW- SM City Fairview, Quirino Avenue corner Regalado Avenue, Fairview, Quezon City
39. SM CITY MANILA – ATM #3 Upper Ground Floor Main Entrance, Arroceros Side SM City Manila
40. SM CITY MARILAO OFFSITE – ATM# 1, SM City Marilao (near Main Entrance), Marilao, Bulacan
41. SM CUBAO - G/F SM Cubao, Times Square Avenue Camp Murphy & University Subdivision Quezon City
42. SM MEGA B - Level 2, Building B, SM Megamall EDSA corner Julia Vargas Street Mandaluyong City
43. SM SOUTHMALL - SM Southmall ATM Center (near Main Entrance), Alabang-Zapote Road Barangay Almanza, Las Piñas City
44. TAFT-U.N - G/F Times Plaza, T.M. Kalaw corner Gen. Luna Street, Manila
45. TARGET MALL - G/F near Star Search, Sta. Rosa Commercial Complex, Barangay Balibago, Sta. Rosa, Laguna
46. THE FORT - G/F Bonifacio Technology Center, 31st Street corner 2nd Avenue, Bonifacio Global City Taguig City
47. TIENDESITAS - People’s Village (beside Mail and More) Frontera Verde, Ortigas Avenue corner C-5, Pasig City
48. WALTERMART – MAKATI - G/F Waltermart Makati (near Mercury Drug) 790 Chino Roces Avenue corner Antonio Arnaiz, Makati
City
49. 168 SHOPPING MALL - 3/F Shopping Mall, Sta. Elena Street Binondo Manila
Luzon
1. ADVENTIST UNIVERSITY OF THE PHILIPPINES - Adventist University of the Philippines Puting Kahoy Silang, Sta. Rosa,
Cavite
2. A G & P - Atlantic, Gulf, and Pacific Company of Manila, Inc. San Roque, Bauan, Batangas
3. DLSU - HEALTH SCIENCE CAMPUS - De La Salle University Health Campus, Inc., Congressional Road Dasmariñas, Cavite
4. DLSU – DASMARIÑAS De La Salle University, Dasmariñas, Cavite City
5. GOOD SAMARITAN HOSPITAL - Good Samaritan Compound, Burgos Ave., Cabanatuan City
17
6. HOLY ANGEL UNIVERSITY - Sto. Rosario Street, Angeles City, Pampanga
7. JENRA MALL - Jenra Grand Mall, Angeles City, Pampanga
8. LORMA HOSPITAL - Lorma Hospital, City of San Fernando La Union
9. MAGIC STAR MALL - UG/F, Magic Star Mall, Romulo Boulevard Barangay Cut-Cut 1, Tarlac City
10. PACIFIC MALL - Pacific Mall Building, Landco Business Park F. Imperial Street corner Circumferential Road Legaspi City
11. PAVILLION MALL - G/F Building A, Pavillion Mall, San Antonio Biñan, Laguna
12. SM CITY-BACOOR - SM City-Bacoor (near Main Entrance along Aguinaldo Highway) TIrona Highway corner Aguinaldo Highway,
Bacoor, Cavite
13. SM CITY-BAGUIO - Lower G/F SM City Baguio, Luneta Hill Upper Session Road corner Governor Park Road, Baguio City
14. SM CITY-BATANGAS - SM City Batangas, Pallocan West Batangas City
15. SM CITY-CLARK - G/F SM City Clark, (Fronting Transport Terminal) M. Roxas Street, CSEZ, Angeles City, Pampanga
16. SM CITY-DASMARINAS SM City-Dasmariñas, Cavite City
17. SM CITY-LIPA - Near Transport Terminal, SM City-Lipa Ayala Highway, Lipa City
18. SM CITY PAMPANGA - Main Entrance Beside Covered Walk SM City Pampanga, Barangay San Jose San Fernando, Pampanga
19. TARGET MALL 2 - Canopy Area, Sta. Rosa Commercial Complex Brgy. Balibago, Sta. Rosa, Laguna
20. UNION CHRISTIAN COLLEGE - Union Christian College, Widdoes Street Barangay II, San Fernando, La Union
21. WALTERMART STA. ROSA – 1 Upper G/F Waltermart Sta. Rosa National Highway, Mall Entrance, San Lorenzo Village,
Balibago Road, Sta. Rosa Laguna
22. WALTERMART STA. ROSA – 2 Upper G/F Waltermart Sta. Rosa National Highway, (between Goldilocks and Mall Exit), San
Lorenzo Village, Balibago Road, Sta. Rosa, Laguna
23. WESLEYAN UNIVERSITY - Wesleyan University of the Philippines Mabini Extension, Cabanatuan City
24. CALTEX-SLEX 1 - South Luzon Expressway - Northbound Barangay San Antonio San Pedro Laguna
Visayas
1. GAISANO TALISAY CEBU - G/F Gaisano Fiesta Mall, Tabunok, Talisay Cebu City
2. LA NUEVA - La Nueva Supermart, Inc., G.Y. Dela Serna St., Lapu-lapu, Cebu City
3. LAPU-LAPU CITY - Gaisano Mactan Mall, Pusok Lapu-Lapu City, Cebu
4. LEE SUPER PLAZA - G/F Lee Super Plaza, M. Perdices corner San Jose Street, Dumaguete City
5. SKYRISE REALTY - G/F Skyrise IT Bldg., Gorordo Ave., corner N. Escario St., Cebu City
6. SM BACOLOD - G/F Building A, ATM # 3, SM City Bacolod Reclamation Area, Bacolod City
7. SM DELGADO - SM Delgado (beside SM Supermarket), Delgado corner Valeria Street, Iloilo City
8. UNIVERSITY OF SAN CARLOS - University of San Carlos, Main University Building P. Del Rosario Street, Cebu City
Mindanao
1. DIPOLOG CENTER MALL - Dipolog Center Mall, 138 Rizal Avenue Dipolog City
2. CDO MEDICAL CENTER - CDO Medical Center Bldg. 2, Tiano corner Nacalaban St., Cagayan de Oro
3. GAISANO MALL-BAJADA DAVAO - G/F (fronting Hang Ten) Gaisano Mall of Davao, J.P. Laurel Avenue, Bajada, Davao City
4. GAISANO MALL-CAGAYAN DE ORO – Unit # 3, Second Level Atrium Gaisano Mall, Corrales Extension, corner CM Recto
Ave., Cagayan de Oro City
5. KCC MALL –GENSAN - G/F KCC Mall GenSan, j. Catolico Sr. Avenue General Santos City, South Cotabato
6. LIM KET KAI MALL - LimKetKai Center, Cagayan de Oro City
7. SM CITY-CAGAYAN DE ORO – ATM Center (2), Main Entrance, SM City-Cagayan de Oro City
8. SM CITY-DAVAO – ATM Center (1) SM City-Davao, Quimpo Boulevard Ecoland Subdivision, Barangay Matina, Davao City
9. SOUTHWAY MALL - Southway Square Mall corner Gov. Lim Purisima and Magno Sts., Zamboanga City
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3) Status of Publicly Announced New Products and Services
Product Status
Life insurance Products (thru MCB Life)
-- Enrich Fully operational
-- Achieve Fully operational
-- Her Life Fully operational
-- His Life Fully operational
-- Inspire Fully operational
4) Competition
As of Dec 2007, the number of commercial banks (KB) totaled 37 of which 17 are private domestic commercial banks,
18 are branches/subsidiaries of foreign banks and 2 are government-controlled banks. Key financial indicators such as
resources, loans (net) deposits, loans (net) and equity registered positive growth for the KB industry. Total assets
reached P 4.79 trillion. The top banks namely Metrobank, BDO Unibank, Inc., BPI, Landbank and DBP comprised
53.64% of the total assets and 58.32% of the total loans (net) of the commercial banking industry. Total deposits of the
commercial banking industry registered at P 3.40 trillion. Meanwhile, total equity of the commercial banking industry
reached P505.43 billion, up by 14.55 % from last year’s P441.24 billion.
Although less volatile than the previous years’, the financial landscape in 2007 was marked by rapidly declining
investment yields, an appreciating peso exchange rate, rising operating costs and the looming possibility of a spill over
from the US sub-prime problem. Nevertheless, Philippine banks had to navigate through this unfamiliar territory and
confront limited profit opportunities for Treasury activities and margin compression for traditional lending businesses.
To compensate, most banks concentrated on expanding market share and customer relationships by channeling
resources to businesses with superior returns, network development and ramping up on fee-based services.
The Philippine banking system formally adopted Basle II reporting standards last July 1, 2007 while compliance with
FIRB & AIRB reporting rules is scheduled for 2010. As expected, capital adequacy ratios among banks declined with
the inclusion of operational risk and foreign currency denominated sovereign bonds in the computation. Consequently,
several banks were constrained to build up their equity base back to acceptable levels through the issuance of Tier I or
Tier II hybrid or subordinated equity issues.
Against this challenging business and regulatory backdrop, CHIB consistently delivered value to its clients &
stakeholders in terms of market capitalization and record profits of P 3.68 billion. While being the 10th largest commercial
bank with assets of P176 billion as of Dec 2007, CHIB is the 4th largest bank in market value. Total branch network
reached 187 by year-end 2007.
5) Transactions with and/or dependence on related parties
In the ordinary course of business, the Bank has loans and other transactions with its subsidiaries and affiliates, and
with certain directors, officers, stockholders and related interest (DOSRI). These loans and other transactions are made
on the same terms as with other individuals and businesses of comparable risks and in compliance with all regulatory
requirements. Other related party transactions conducted in the normal course of business include the availment of
computer and general banking services of an affiliate to meet the Bank’s reporting requirements.
6) Trademarks, Licenses, Franchises, etc.
China Bank is operating under a universal banking license obtained in 1991.
7) Sources and Availability of raw materials and the names of principal suppliers. Not applicable.
8) Disclose how dependent the business is upon a single customer or a few customers. Not applicable.
9) Need for any government approval of principal products or services.
The Bank informs the BSP of all its products and services.
10) Effect of existing or probable governmental regulations on the business.
The Bank strictly complied with the Bangko Sentral ng Pilipinas (BSP) requirements in terms of reserves, liquidity
position, limits on loan exposure, cap on foreign exchange holdings, provision for losses, anti-money laundering
provisions and other reportorial requirements.
19
11) Amount spent on research and development activities
(In ‘000) 2007 2006 2005
Education & Training 12,625 8,302 6,702
Advertising Expenses 27,545 18,858 22,679
Technology 153,101 62,756 68,541
12) Cost and effect of compliance with environmental laws Not applicable.
13) Total number of employees
Below is the breakdown of the manpower complement in 2007 as well as the projected headcount for 2008:
2008 2007
Officer Staff TOTAL Officer Staff TOTAL
Marketing 416 195 611 316 140 456
Operations 404 2,198 2,602 344 1,988 2,332
Technical 67 149 216 52 119 171
Support 106 456 562 99 431 530
TOTAL 993 2,998 3,991 811 2,678 3,489
*Excludes contractual employees
The Bank concluded last Dec 2007 its new three-year CBA with the CBC Employees Association (CBCEA), effective from
01 August 2007 to 01 August 2010. The new CBA package reached a total of P488 million.
20
Annex “B”
MARKET INFORMATION AND RELATED MATTERS
(1) Market Information
• Principal market where the equity is traded – Philippine Stock Exchange Inc. (PSE)
• Market Value
Unadjusted prices:
2006 HIGH LOW CLOSE
Jan – Mar 685.00 600.00 685.00
Apr – Jun 905.00 685.00 870.00
Jul – Sept 890.00 685.00 685.00
Oct – Dec 710.00 630.00 680.00
Adjusted prices (for 25% stock dividend with ex-date on 07 August 2006):
2006 HIGH LOW CLOSE
Jan – Mar 548.00 480.00 548.00
Apr – Jun 724.00 548.00 696.00
Jul – Sept 870.00 676.00 685.00
Oct – Dec 710.00 630.00 680.00
Actual prices:
2007 HIGH LOW CLOSE
Jan – Mar 935.00 680.00 870.00
Apr – Jun 930.00 845.00 920.00
Jul – Sept 920.00 780.00 880.00
Oct – Dec 730.00 650.00 660.00
Adjusted prices (for 25% stock dividend with ex-date on 01 October 2007):
2007 HIGH LOW CLOSE
Jan – Mar 748.00 544.00 696.00
Apr – Jun 744.00 676.00 736.00
Jul – Sept 736.00 624.00 704.00
Oct – Dec 730.00 650.00 660.00
• Market value as of December 31, 2007 (last trading day): P660.00
• Price Information as of February 29, 2008 (latest practicable trading date): P630.00
21
(2) Holders
• Top 20 Stockholders
(As of 2/29/2008)
Name of Stockholders Number of Shares Percent
1. PCD Nominee Corporation (Non-Filipino) 15,271,832 19.813
2. Sysmart Corporation 13,079,377 16.968
3. SM Investments Corporation 12,558,709 16.293
4. PCD Nominee Corporation (Filipino) 4,427,896 5.745
5. Shoe Mart, Inc. 3,823,552 4.960
6. Henry Sy, Sr. 2,837,260 3.681
7. CBC Employees Retirement Plan 1,740,669 2.258
8. Joaquin Dee &/or family 1,694,293 2.198
9. JJACCIS Development Corporation 1,524,345 1.978
10. GDSK Development Corporation 1,179,904 1.531
11. SM Development Corp. 647,795 0.840
12. Robert Y. Dee, Jr. 485,320 0.630
13. Domingo T. Dee 478,608 0.621
14. Gilbert U. Dee 410,160 0.532
15. Hydee Management & Resource Corp. 360,190 0.467
16. Estate of Allen Cham 360,189 0.467
17. Regina Yui Dee 312,842 0.406
18. Kuan Yan Tan’s Charity (Phil.), Inc. 259,515 0.337
19. The First Resources Mgt. & Sec. Corp. 236,664 0.307
20. Ansaldo, Godinez & Co., Inc. 229,909 0.298
TOTAL 61,919,029 80.330%
Total number of shareholders (As of 2/29/2008) – 1,976
(3) Dividend History
2007 2006 2005 2004 2003
Stock Dividend 25% 25% 35% 20% 20%
Cash Dividend 25% 30% 35% 5% 5%
Authorized and Issued Capital
Authorized Capital - P16.0 billion divided into 160 million shares
Issued Shares - 77,080,426
There is no restriction that limits the ability of the Bank to pay dividends other than what is required under the Corporation
Code. However, any dividends declared by the Bank are subject to the approval primarily of the Bangko Sentral ng
Pilipinas, Philippine Stock Exchange, Inc. and Securities and Exchange Commission.
(4) Unregistered Securities
There were no unregistered securities sold by the Bank for the past three (3) years. However, there were new securities
issued resulting from the declaration of 25% stock dividend to comply with the minimum subscription and paid-up capital
requirements on the increase in capital stock of the Bank from P10.0 Billion to P16.0 Billion, which securities distribution
was exempt from registration requirement under Sec 10.1 (d) of the Securities Regulation Code.
22
Annex “C”
DISCUSSION OF COMPLIANCE WITH LEADING PRACTICE ON CORPORATE GOVERNANCE
China Bank’s corporate governance practices are benchmarked against the best practices in the industry. Its mission
statement of becoming a leading provider of quality services and a primary catalyst in the creation of wealth while
maintaining the highest ethical standards and sense of responsibility and fairness, underscores the Bank’s commitment to
sound values.
China Bank has a Manual on Corporate Governance, duly approved by the Board of Directors, which contains the
principles of good corporate governance and best practices and is kept updated with the new governance-related
regulatory issuances. Compliance with the provisions and requirements of the said Manual is monitored by the
Compliance Office which continually works to identify and control compliance risks.
Upon their election, the members of the Board are issued a copy of their general and specific duties and responsibilities as
prescribed by the Manual of Regulations for Banks (MORB), which they acknowledged receipt and certified that they read
and fully understood the same. Copies of the acknowledgement receipt and certification are submitted to Bangko Sentral
ng Pilipinas (BSP) within the prescribed period. Moreover, the Directors individually submit a Sworn Certification that they
posses all the qualifications as enumerated in the MORB. These certifications are submitted to BSP after their election.
Additional certifications are executed by Independent Directors to comply with Securities Regulation Codes and BSP rules
which are then submitted to the Securities and Exchange Commission (SEC).
In addition, the Bank has in place an evaluation system for the Board of Directors and for the individual Directors, and
starting 2005, an evaluation system also for the various Board Committees: Audit Committee, Corporate Governance
Committee, Risk Management Committee, and Compensation Committee. Self-evaluation of performance is done
annually where the results are summarized by the Compliance Officer, discussed by the Corporate Governance
Committee, and reported to the Board of Directors.
Based on the results of the annual evaluation, there are no significant deviations and in general, the Bank has complied
with the provisions and requirements of the Corporate Governance Manual.
A copy of the Bank’s Manual on Corporate Governance is made available to all employees to enjoin bank-wide
compliance. Likewise, briefings are regularly conducted for supervisors and officers to raise the level of awareness and
understanding of the principles, concepts, and elements of good corporate governance.
As an indication of its modest success in corporate governance, China Bank’s annual report has been a consistent finalist
in the “Best Annual Report Awards” program of the Management Association of the Phils. (MAP) and the Philippine Stock
Exchange (PSE) every year since its inception in 2003. The awards, open to all public listed companies, is heavily
weighted in terms of transparency, disclosure and good governance practices.
23
Annex “D”
MANAGEMENT DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(Last Three Years 2007, 2006, 2005)
1) Financial and Operating Highlights
Balance Sheet
In Million Pesos 2007 2006 2005
Assets 175,687 155,647 132,951
Investments 41,525 49,579 44,161
Loan Portfolio (Net) 87,329 71,404 61,453
Total Deposits 140,456 121,629 102,457
Capital 26,735 24,982 21,932
Balance Sheet – 2007 vs 2006
Total asset base grew by 12.88% to P175.7 billion in 2007 mainly from higher loans and deposits. Loans grew by 22%,
faster than the industry, while deposits increased by 15%, boosted by another year of record growth in low cost deposits.
Cash and other cash items (COCI) increased by 18.38% to P3.08 billion from P2.60 billion mainly from cash in vault
requirements of new branches. Due from BSP grew by 34.08% to P12.43 billion from P9.27 billion from higher placement
in Reserve Deposit Account (RDA) with BSP. Due from other banks (DFOB) increased by 90.87% to P4.65 billion from
P2.44 billion due to higher placements/balances with correspondent banks. Interbank loans grew by 23.84% to P11.82
billion from P9.55 billion due to higher overnight deposits (RRP) with BSP as of year-end 2007.
As part of its revenue diversification strategy and risk management, CHIB reallocated its assets resulting in a decline in
government securities holdings by 16.24% to P41.53 billion from P49.58 billion in 2006. Consequently, its share to total
assets fell to 23.6% from 31.8% last year. Financial Assets at Fair Value through Profit and Loss (FAVPL) decreased by
64.97% or P8.88 billion to P4.79 billion from P13.67 billion while Available-for-Sale Financial Assets (AFS) increased by
20.7% from P20.09 billion in 2006 to P24.26 billion from additional volume of high-yielding government securities. Held-to-
Maturity Financial Assets (HTM) fell by 21.07% or P3.33 billion to P12.48 billion from P15.81 billion in 2006 which can be
attributed to maturities of various securities.
Loans and receivables (net) grew by 22.30% or P15.93 billion to P87.33 billion from P71.40 billion in 2006, in line with the
Bank’s plan of massive loans growth and revenue replacement strategy. The increase in loan volume can be attributed to
higher portfolio across business lines – loans to corporations, middle market and consumers – with consumer lending
growing fastest at 41%. Strengthening of the credit process and establishing safeguards through Internal Credit Risk
Rating System (ICRRS), formation of Credit Committee, decentralization of credit authorities maintained the quality of our
portfolio even as we continued to expand. Meanwhile, NPLs slightly dropped to P7.58 billion from P7.64 billion in 2006,
leading to improved NPL ratio of 5.73% from 6.47%. The Bank provided P301 million in additional loan loss reserves,
bringing the total loan loss reserves to P6.8 billion and loan loss coverage ratio to 90.5%.
Accrued interest receivables which include accruals of interest income from AFS, FAVPL and HTM grew by 58.77% to
P1.47 billion from P928 million. Equity investments grew by 270.35% to P 11.98 million from P 3.23 million from
investment in MCB Life and CBC-PCCI. Bank premises, furnitures and equipment increased by 28.93% to P4.25 billion
from P3.30 billion because of branch expansion costs and technology-related upgrade. There was a slight drop in
Investment properties from P4.38 billion to P4.35 billion in 2007 from sale of acquired assets. Deferred tax assets
increased by 46.90% to P815.30 million from P554.99 million from the recognition of deferred tax assets on provision for
losses. The increase of 140.25% of other assets to P3.96 billion from P1.65 billion can be attributed to accounts related
to the TMBC acquisition: goodwill, branch licenses, escrow deposits.
On the liability side, total deposits grew by 15.48% to P140.46 billion from P121.63 billion as both demand and savings
deposits expanded by 34.40% and 27.44%, respectively. CASA (ADB) deposits grew by 36.16% from P27.1 billion to
P36.9 billion in 2007. This growth which was double that of the previous 2 years was supported by a highly successful
deposit raffle promo and the expansion of branch network. Bills payable dropped by 30.49% to P2.66 billion from P3.83
24
billion due to lower need for bank borrowings and the pay-off of some government program lending accounts. Manager’s
checks grew by 18.84% to P293 million from P246 million as demand for this product increased from branch expansion.
As accrued interest payable on long term deposits increased, accrued interest, taxes and other expenses grew by 16.22%
to P3.19 billion from P2.75 billion. Other liabilities grew by 6.12% to P2.35 billion which included CHIB’s P 0.56 billion
payable to former shareholders of TMBC in relation to the Manila Bank acquisition.
Capital funds reached P26.74 billion, a P 1.71 billion or 7.02% growth from Dec. 2006 level of P24.98 billion mainly from
profits retained for the period. Net Accumulated Unrealized Gains on Available for Sale Financial Assets decreased by
33.19% or P521.81 million to P1.05 billion from P1.57 billion due to unfavorable market rates affecting our AFS portfolio.
The Bank declared a 25% cash dividend and 25% stock dividend with issue date of October 30, 2007.
Balance Sheet – 2006 vs 2005
Total assets expanded by 17.07% from P132.95 billion to P155.65 billion mainly from the build up of interest accruing
assets. Cash and other cash (COCI) items increased by 8.06% to P2.60 billion from P2.41 billion in 2005 from the higher
deposits which required increased reserves. Similarly, Due from BSP (DFBSP) grew by 102.92% to P9.27 billion from
2005. Meanwhile, Due from Other Banks (DFOB) dropped by 32.08% to P2.44 billion from P3.59 billion in 2005 due to
lower foreign bank placements. Interbank Loans Receivables (IBCL) increased by P3.33 billion to P9.55 billion from P6.22
billion in 2005 as excess liquidity funds were placed with BSP.
The interest rate volatility in the bond market resulted in the continued repositioning of our government securities holdings.
Consequently. Financial Assets at Fair Value through Profit and Loss (FVPL) decreased by 21.16% or P3.67 billion to
P13.67 billion from P 17.34 billion while Available-for-Sale Financial Assets (AFS) increased 96.60% from P10.22 billion in
2005 to P20.09 billion from additional volume of high-yielding government securities. Held-to-Maturity Financial Assets
(HTM) fell by 4.73% or P784.63 million from P16.60 billion in 2005.
Receivables from customers (net) grew by 16.19% to P71.40 billion from P61.45 billion in 2005, right on track with the
Bank’s plan to accelerate lending to quality borrowers. The Bank remained a leading provider of credit to the middle market
sector but stepped up its participation in corporate loan syndications. Higher consumer lending particularly on housing
loans also contributed to the increased volume. The integration of the internal credit risk rating system into our credit
evaluation process supported our drive to enhance loan quality as well as accelerate loan expansion. We provided P716
million in additional loan loss reserves bringing the total loan loss reserves to P7.41 billion; loan loss coverage even
improved to 96.92%, better than the previous year’s 94.64%. Meantime, NPL ratio fell significantly to 6.47% from 7.92% in
2005 from our more rigorous approach to credit risk and higher volume of loans.
Accrued interest receivables grew by 9.62% to P927 million from P846 million in 2005 due to higher volume in loans
especially in mortgage lending. Bank premises, furnitures and equipment increased by 8.07% to P3.30 billion from P3.05
billion as the Bank continues to invest in fixed assets to complement its business plans and strategies including seven (7)
new branches opened during the year. The increase in equity investments by 59.54% from P2.02 million in 2005 to P3.24
million in 2006 mostly represents the increase in the Bank’s equity interest in CBC Properties and Computer Center, Inc.
(CBC-PCCI) from 40% in 2005 to 100% in 2006. Investment properties fell to P4.38 billion from P4.69 billion in 2005 due to
depreciation/amortization of buildings and improvements in 2006. Deferred taxes dropped by 5% to P 554.99 million in
2006 from P584.18 million in 2005 due to higher deferred taxes liabilities on unrealized trading gains and fair value
adjustments on asset foreclosures and dacion transactions. Other assets increased by 18.88% due to increases in
accounts and sales contracts receivables.
On the liabilities side, total customer deposits grew by 18.71% from P102.46 billion in 2005 to P121.63 billion in 2006 as
both the low-cost & high yielding long term deposits expanded. Low-cost deposit base grew by a record of P 6.84 billion by
year-end. The implementation of the branch-based marketing program and sales management system continues to attract
low cost deposits and steadily grow the total funding base. Demand deposits alone grew by 28.55% or P4.45 billion 2006.
Savings deposits (including Special Savings) grew by 30.55% in 2006 from P44.81 billion in 2005. Bills payable dropped by
5.01% in 2006 due to lower need for bank borrowings. Manager’s checks rose to P246.28 million from P224.23 million in
2005 as there was increased demand for this product during the period. Accrued interest, taxes and other expenses grew
by 6.12% to P2.75 billion in 2006 from P2.59 billion in 2005 due to increase in accrued interest payable. Other liabilities
grew by 28.81% mainly from increases in accounts payable, acceptance payable, margin deposits, due to BSP and other
miscellaneous liabilities.
Total capital funds reached P24.98 billion, 13.91% higher than 2005. This was achieved despite the declaration of 25%
stock and 30% cash dividends as of August 2006.
25
Income Statement
In Million Pesos 2007 2006 2005
Interest Income 11,437 11,189 10,200
Interest Expense 4,941 5,069 4,360
Net Interest Income 6,496 6,120 5,840
Non-Interest Income 2,672 3,341 3,059
Provision for Losses 301 1,064 822
Operating Expenses 4,994 4,343 4,106
Net Income 3,681 3,539 3,185
Income Statement – For the years ended December 31, 2007 and 2006
China Bank’s net income after tax for 2007 reached P3.68 billion, the 6th consecutive year of record income levels for the
Bank.
Interest income slightly grew by 2.22% to P11.44 billion from P11.19 billion, with interest income from loans and
receivables significantly increasing by 14.08% to P6.75 billion from P5.91 billion. This is expected following the
implementation of our revenue replacement strategy whereby loans & fee-based revenues would gradually replace gains
from trading & investments. Higher volume of loans from additional credit exposure to industries such as transportation,
storage and communication and electricity, gas and water as well as contribution from higher consumer loans contributed
to this growth. Meanwhile, income from investment securities declined by 11.12% due to sell off of maturing securities and
replacement of G/S at lower yields. Due to lower overnight placements with foreign banks, interest income from deposits
with BSP and other banks fell by 10.57% from P486.21 million to P434.82 million.
Interest expense slightly dropped to P4.94 billion from P5.07 billion as interest on bills payable fell by 35.43% to P 208.33
million from P 322.63 million because of the decrease in volume of government lending programs and maturity of some
specialized loans funding. The slight drop in deposit liabilities expense despite the increase in deposit volume was mainly
due to drop of checking account (CA) rates from 1.0% to 0.5% and savings account (SA) rates from 2% to 1% during the
first quarter of 2007. Consequently, net interest income before provision grew by 6.16% from P 6.12 billion in Dec 2006 to
P 6.50 billion in Dec 2007 reflecting the result of the sharp build up in loans to offset the compression in net interest
margins by about 50 basis points.
Fee-based income dropped by 20.01% or P669 million from P3.34 billion to P2.67 billion mainly from the expected decline
in trading gains. Income from trading and securities gain dropped by 51.89% from P1.29 billion to P619 million due to low
interest rates that reduced opportunities for trading gains. Income from service charges, fees and commission’s grew by
11.92 % from P748.86 million to P838.16 million from commissions on L/C imports, deposit related transactions such as
charges on in-clearing checks without sufficient funds (NSF) and ATM fees, among others. Trust fees grew by 14.50% to
P 478.82 million from P418.18 million from higher trust fund base. Meanwhile foreign exchange gain dropped by 17.30%
to P222.27 million from P268.75 million due to the strengthening of the peso which affected currency trading margins and
forex revaluation. Gain on sale of investment properties decreased 69.48% from lower income realized on ROPA
properties sold. Gain on asset foreclosure and dacion transactions also declined by 85.36% which arose from the
difference between the fair value of properties upon foreclosure and carrying value of the related loan. Miscellaneous
income grew by P 285 million to P411.52 million due to higher dividend income and loan-related participation fees. Other
income’s share to total revenues declined to 18.9% from 23.7% in 2007 on the back of a 52% drop in trading profits.
Operating expenses (including provision for impairment and credit losses) slightly went down by 2.06% or P111.27 million
from P5.41 billion to P5.29 billion. The CBA-related salary adjustment in December, additional hiring and Manila Bank
integration-related costs pushed up compensation and fringe benefits by 28.01% or P413.24 million from P1.48 billion to
P1.89 billion. With its highly collateralized loan portfolio and more than adequate reserves for losses already in the books,
the Bank reduced its provision for probable losses to P300.58 million from P1.06 billion. There was also a 9.80% drop in
taxes & licenses from P665.07 million to P599.89 million due to lower BIR-GRT taxes. Occupancy costs grew by 11.70% to
P503.96 million from P451.19 million due to the opening of new branches & higher security services’ rates. Depreciation
and amortization were up by 24.28% to P381.59 million from P307.03 million. The construction of new branches, relocation
& renovation of some existing branches as well as various technology upgrade (IBM hardware, Dimension/Bank Way and
Browser-Based Tellering System) Teller) contributed to the higher depreciation costs. Insurance costs increased by
20.46% from P273.54 million to P329.51 million due to higher PDIC insurance brought about by higher deposit volume.
26
Stationery, supplies and postage expense grew by 21.18% to P324.52 million from P267.80 million from price increases for
these items and higher documentary stamps paid. Repairs & maintenance were up by 18.09% to P272.14 million from
P230.46 due to recurring software license fees. The increasing prices of fuel & lubricants contributed to higher
transportation & traveling expense, up by 16.27% to P166.51 million from P143.22 million. Entertainment, amusement &
recreation was down by 12.67% to P 158.19 million from P 181.15 million due to lower selling and promotional costs.
Miscellaneous expenses rose by 6.23% to P369.29 million from P347.63 million mainly from higher professional &
supervision fees (including fees paid to BSP) and advertising cost.
Income Statement – For the years ended December 31, 2006 and 2005
Net income for 2006 was registered at P3.54 billion, capping five years of record performance. The combined increase in
interest revenues from lending and investment, an outcome of the Bank’s revenue replacement strategy and its efficiency
in maintaining its overhead expenses resulted in this 11.14% profit expansion from 2005.
Gross interest income climbed by 9.69% from 2005 due to the combined increase in interest income from loans, trading &
investment securities, as well as deposits with other banks. Higher loan volume from the corporate and consumer lending
side drove the growth in interest income from loans & receivables by 15.00% from 2005. Likewise, interest income from
trading & investment securities grew from higher volume of GS holdings.
Interest expense rose by 16.26% from P4.36 billion in 2005 to P5.07 billion in 2006. Higher volume for both peso and dollar
placements pushed up total cost of funding. Consequently, net interest income grew by 4.79% from P5.84 billion in 2005 to
P6.12 billion in 2006. The Bank’s annual provision for impairment and credit losses (included in the operating expenses)
stood at P 1.063 billion for 2006 as additional buffer for losses on loans and investment properties were set up.
Other operating income increased to P 3.34 billion or by 9.18% from 2005. Lower margins from currency trading resulted in
the slight 0.64% growth in foreign exchange gain from 2005. Government securities trading gain both for position-taking
and fund deployment grew by 5.99% to P1.29 billion in 2006 from P1.21 billion in 2005 as the Bank started to sell off its
inventory. Income from service fees, charges and commission also grew by 5.18% to P748.86 million in 2006 from our
cash management services and other loan & deposit related transactions. Income from trust fees grew by 11.53% from
2005 on account of higher volume of funds handled by our Trust unit. Gains on asset foreclosure and dacion transactions,
which arose from the difference between the fair market value of properties and the carrying value of the related loan (PAS
40), slightly decreased by 5.72% to P300.56 million. Income from acquired assets stood at P 126.37 million, up by 26.68%
from 2005 through the regular selling efforts of the Bank of its foreclosed assets without resorting to SPVs. Total
miscellaneous income increased by 9.18% from 2005 mainly due to contribution from loan penalties, dividends, consumer
banking related fees.
Operating expenses (excluding provision for losses) went up by 5.76% or P236.64 million from 2005. Taxes and licenses
increased by 30.60% in 2006 from higher GRT payable brought about by higher revenues. Occupancy costs grew by
14.81% in 2006 from P392.98 million in 2005 due to annual rent increases on some lease contracts and higher cost of
security, janitorial and other services. Depreciation and amortization grew by 19.84% from 2005 as a result of new capital
expenditures and technology-related investments last year. Stationeries, supplies and postage also increased by 37.96%
from 2005 brought about by price increases for these items. Insurance costs surged by 15.89% from 2005 mainly due to
higher PDIC insurance cost brought about by higher deposits. Transportation and traveling expenses increased by 23.84%
from P115.17 million in 2005 to P143.22 million in 2006 due to increase in fuel & lubricants prices for the year. More travel-
related expenses were also charged this year. Repairs and maintenance increased by 16.45% from additional technology-
related cost. Lower provisions for tax liabilities, drop in litigation and advertising-related expenses reduced miscellaneous
expenses by 40.96% to P347.63 million.
27
Key Performance Indicators
Definition of Ratios
Return on Average Equity - Net Income After Income Tax
Average Total Capital Accounts
Return on Average Assets - Net Income after Income Tax
Average Total Assets
Cost to Income Ratio - Operating Expenses Less Provision for Impairment and Credit Losses
Net Interest Income + Other Income
Net Interest Margin - Net Interest Income
Average Interest Earning Assets
Liquid to Total Assets - Total Liquid Assets
Total Assets
Loans to Deposit Ratio - Loans (Net)
Deposit Liabilities
Non-Performing Loan (NPL Ratio) - Non-Performing Loans (net of NPLs Classified as Loss)
Gross Loans (net of NPLs Classified as Loss)
Non-Performing Loan (NPL) Cover - Allowance for Probable Losses Loans
Non-Performing Loans
Capital to risk assets ratio - BSP prescribed formula: Total Qualifying Capital
Total Risk Weighted Exposures
In Percent 2007 2006 2005
PROFITABILITY
Return on Assets 2.25 2.47 2.58
Return on Equity 15.57 15.93 15.28
Net Interest Margin 4.32 4.82 5.26
Cost to Income Ratio 54.47 45.90 46.13
LIQUIDITY
Liquid Assets to Total Assets 41.84 47.18 46.86
Loans to Deposit Ratio 62.17 58.71 59.98
ASSET QUALITY
Non-Performing Loans Ratio 5.73 6.47 7.92
Non-performing Loan (NPL) Cover 90.46 96.92 94.64
CAPITALIZATION
Capital Adequacy Ratio (Credit risk) 28.35 28.89
Capital Adequacy Ratio (Credit & market risk) 23.05 23.17
Capital Adequacy Ratio (Basel 2) 16.03
CHIB’s 2007 net income of P3.68 billion resulted in ROE of 15.57% and ROA of 2.25% that reflects industry-best
performance. Cost to income ratio stood at 54.47% vs 45.90% in 2006 and 46.13% in 2005, still industry-best in terms of
cost efficiency despite the higher cost of integration, hiring and capital investments. Net interest margin decreased to
4.32% vs. 4.82% in 2006 and 5.26% in 2005 as interest yields fell although remaining well above the industry average.
The Bank’s liquidity ratio (the ratio of liquid assets to total assets) was registered at 41.84% from 47.18% in Dec-end 2006
and 46.86% in 2005 as investment assets decreased in 2007. Loans to deposit ratio increased to 62.17% in 2007 from
58.71% in 2006 and 59.98% in 2005 due to more efficient intermediation.
NPL ratio significantly fell to 5.73% in 2007 from 6.47% in 2006 and 7.92% in 2005 with more rigorous credit approval
processes combined with higher loan volume. Loan loss coverage ratio stood at 90.46% in 2007 from 96.92% in 2006 and
94.64% in 2005.
28
CHIB’s capital adequacy ratio remained strong at 16.03% in 2007 even after the additional capital charges required by
Basel 2 covering credit, market and operational risks.
Material Event/s and Uncertainties
In the normal course of the Group’s operations, there are various outstanding commitments and contingent liabilities which
are not reflected in the accompanying financial statements. Management does not anticipate any material losses as a
result of these transactions.
The following is a summary of contingencies and commitments of the Group and of the Parent Company with their
equivalent peso contractual amounts:
2007 2006
Trust department accounts =
P 48,890,421,483 P34,901,778,446
Unused commercial letters of credit 6,609,533,56 4,043,139,555
Deficiency claims receivable 448,752,5 797,537,764
Outstanding guarantees issued 363,660,3 474,190,964
Late deposits/payments received 389,455,7 411,912,222
Inward bills for collection 188,027,5 214,439,965
Outward bills for collection 113,755,6 171,435,381
Others 1,307,750,56 1,044,908,159
4) Past Financial Conditions and Results of Operations
The global economic story for 2007 was predicated on slower GDP growth yet steady expansion in productive capacity for
most countries - punctuated by two major headlines: the surge in oil prices to US$ 100 per barrel and the fallout in the US
sub-prime mortgages. Escalating energy demand from industry-intensive countries combined with concerns over the
availability and security of oil supplies pushed oil prices to record levels. Timely intervention by the OPEC brought prices
back to the US$ 90 level, but inflationary pressures from commodity price hikes persist. The collapse of the US sub-prime
home lending sector eradicated an estimated US$ 100 BN from the balance sheets of US and European financial
institutions, and plunged the developed markets into a new chapter of uncertainty. As this crisis unfolded, the US
experienced a weakening dollar, investor flight from emerging markets to US Treasury bonds and heightened risk of
delinquencies in the commercial and consumer markets. Concerted action by the US government in the form of interest
rate cuts as well as fiscal and credit incentives replenished liquidity in the financial system. By year-end, it was clear that
the sub-prime problem had yet to affect the most dynamic economies – with both China and India forging ahead by 11.4%
and 8.4%, respectively.
For the Philippines, the focus of its policymakers shifted from mere economic recovery to establishing a model of self
sustaining growth. Their preparations paid off this year, as the country’s gross domestic production surged to a 31-year
high of 7.3 % despite a slowdown in its major export markets and record prices for oil imports. Again, the services sector
remained the principal engine of growth, powered by the expansion in finance, telecommunications and business process
outsourcing. Industrial output was up by 6.6% from the resurgence in mining and construction activities that offset a decline
in manufactured goods. Supply side expansion was matched by higher government infrastructure spending and capital
formation. Demand was driven by private consumption partly fueled by remittances from overseas workers. The
strengthening of the peso to P 41.40: US$1 mitigated the effects of higher oil and commodity imports, keeping inflation at a
moderate 2.8%. However, the strong peso affected the country’s competitiveness in the export & investment markets, as
seen in the drop of export growth to single-digit levels. Despite a wider trade deficit, the balance of payments surplus grew
to $ 8.58 billion largely from the continued growth of overseas remittances. On the fiscal side, the government reported a
budget deficit of only P 9.4 BN, 85% below their programmed spending for 2007.
It was a tough year for CHIB in 2007 and the greatest challenge faced by the Bank was sustaining its superior performance
despite interest rate margin compression and the expected sharp drop in trading gains, as well as more intense
competition. Some highlights of CHIB performance include: net income of P3.68 billion was our biggest profit ever,
marking the 6th consecutive year of record income for the bank. Double digit ROE means CHIB was still among the most
profitable banks in the industry. CHIB remains to be among the best capitalized, most productive and most cost-effective
bank in the industry. As a result of these strong financials, CHIB’s credit rating on Financial Strength was upgraded by
Capital Intelligence from “BB+” to “BBB-“. At the same time Fitch Ratings affirmed our “AA-“National rating, one of the
highest credit ratings in the country. The Bank has delivered strong value to its shareholders with the tripling of its market
capitalization since 2002. This performance is recognized not only by peers and competitors but also institutional investors
abroad.
29
The sustained performance was supported by the Bank’s record growth in low-cost deposits CASA in 2007 which further
improved the Bank’s low-cost funding base in the industry. This low-cost funding base and structure is one of the Bank’s
hidden strengths that allowed us to maintain our net interest margin at over 4%. Loans growth was also faster than the
industry’s, boosted by growth in consumer lending such as housing loans, contract to sell financing (CTF) and corporate
loans to telecommunication and manufacturing sectors, among others. Lending growth reflected the implementation of the
revenue replacement strategy, where revenues from loans and fee-based businesses would gradually replace gains from
trading & investments. The lending growth was achieved even as the bank strengthened its loan evaluation process
through the establishment of the Credit Committee, Credit Review Unit and internal credit risk rating system.
CHIB broke new ground in 2007 with two important historical milestones – the acquisition of Manila Bank and the
bancassurance joint venture with Manufacturers Life Assurance Company (Manulife Philippines) that will play pivotal roles
in its competitive strategy for the coming years. First, CHIB undertook to purchase 87.51% of Manila Bank’s subscribed
shares for P1.65 BN, acquiring in the process MBC’s 75 branch franchise, of which 27 were open for business. Last
December 13, CHIB also announced a tender offer to purchase the remaining 12.48% minority ownership. This acquisition
brought CHIB’s ongoing branch expansion program closer to its objective of 300 branches. Our exclusive alliance with
Manulife through MCB Life Assurance was the gateway to a mutually rewarding bancassurance business that would
augment revenue streams and client base. Through this tie-up, CHIB’s clients would have easy access to trained financial
advisors and an array of life and investment products.
The Manila Bank acquisition, coupled with the existing 60-branch expansion plan, led to our fastest branch expansion in
the 87-year history of the Bank, with a total of 39 branches (including 27 absorbed from Manila Bank) opened during the
year. CHIB also peacefully concluded last December 2007 its new three-year collective bargaining agreement with the
CBC Employees Association, effective from 01 August 2007 to 01 August 2010.
CHIB also received numerous awards in 2007 which includes “Outstanding Commercial Bank” by the Consumers Union
Bank of the Philippines; “Best Bank Sub-Agent Partner” by Western Union/e-Business Providers. China Bank Online is
the “People Choice” for the Best Corporate Website and its 2006 Annual Report was “Best Annual Report Award” finalist
by the Mgt. Association of the Philippines (MAP) for five (5) straight years. CHIB has consistently delivered superior
shareholder value with market capitalization tripling since 2002. CHIB also hit the US$ 1 BN “BIG CAP” threshold in 2007
and became the 4th largest bank in terms of market capitalization.
4) Future Prospects
The key challenges in 2008 will be a possible global economic slowdown, continued volatility in oil prices, uptrend in non-oil
commodity prices, continued global financial turbulence and high domestic liquidity. For the Philippines, the peso has been
rising steadily because of the weakening US dollar and strong OFW remittances. Monetary policy will remain focused on
maintaining a low and stable rate of inflation conducive to a balanced and sustainable economic growth. Financial and
banking sector reforms will continue to raise savings and boost lending.
With this environment, the Bank continues to aim in the next 3 years to become No. 1 among the Tier-2 banks in terms of
profitability, competitiveness, being the “bank of choice” in our market segments, most admired by competitors and
consistently delivering shareholder value. The Bank believes this can be achieved by a major transformation in its
systems, processes, structure, support and most especially the development and empowerment of its people.
The Bank will pursue its four basic strategies: 1) expand and diversify revenue sources; 2)broader distribution channels;
3); market focus and total customer relationship and; 4) organize to grow & to compete with emphasis on stronger focus
on market segmentation; stronger accountabilities; product management focus and superior customer service
CHIB will continue to expand and diversify revenue sources through building up of loan portfolio while maintaining credit
quality. Assets will be deployed in a broader choice of wealth management products, investment assets and consumer
loans. Fee-based revenues will be built up through bancassurance, private banking, remittance business and cash
management services. Broader distribution channels means branch network expansion; maximize selling potential of
branch network; strengthened Sales Mgt System (SMS) and Branch Based Marketing (BBM) framework. CHIB will
refocus towards total customer relationship from wealth management to total customer/business relationship by increasing
its share of customers’ wallet. The Bank will organize for growth & productivity through key hirings to drive business;
develop a dynamic team, reorganize, streamline responsive organization, strengthen core competence in credit process,
upgrade technology platform and processes and simplify/automate processes using workflow technology.
30
The 26 operating Manila Bank branches were fully integrated into the China Bank network by Feb 2008. Some Manila
Bank branches will be closed and merged with existing branches to make them stronger and more competitive in their
respective areas. The integration process includes standardization of the transaction platform, product lines, policies &
procedures as well as branch signage and merchandise. On the other hand, Manila Bank’s head office at Ayala Avenue
will be relaunched as China Bank Savings, Inc. This will allow the Bank to more closely focus on the needs of the
consumer and retail markets. Total branch network by 2010 is expected to reach 270 for China Bank proper, and to almost
300 branches including the savings bank network.
Major investments for sustainable growth are needed for the Bank to achieve its goals in 2008. These include investing in
robust technology platforms such as a new core banking system, new ATM switch system, phone banking, Treasury
System, and Remittance System. The Loans Originations System (LOS) will be fully rolled out, while the Customer
Information project will enable total relationship management. A key part of the initiatives is the streamlining of transaction
processes to improve efficiency and productivity.
6) Material Changes
(a) Any known trends, events or uncertainties (material impact on liquidity)
(b) Internal and external sources of liquidity
There were no key variable and other qualitative and quantitative factors which affected the Bank’s financial condition that
did not arise from the Bank’s normal course of operations. Also, changes in the bank’s financial condition or operations
are due more to external factors such as interest rate movements and cost of borrowings rather than cyclical aspects.
Changes in market rates and borrowing costs, volatility of peso/dollar exchange rates, volatility of oil prices and other
external factors are the potential issues/concerns that could have impact on the financial statements of the Bank.
(c) Any Material Commitments for Capital Expenditure and Expected Funds
Branch expansion plan and technology-related capital investments will account for the bulk of the Bank’s capital
expenditures for 2008. Capital expenditures will be sourced from the Bank’s working capital.
UNDERTAKING
The Bank undertakes to furnish a copy of its Annual Report (SEC Form 17-A) exclusive of attachments, free of charge,
upon the written request of the stockholder addressed to the Office of the Corporate Secretary, 11th Floor China Bank
Building, 8745 Paseo de Roxas cor. Villar St., Makati City.
31
Annex “E”
32
Annex “F”
COVER SHEET
4 4 3
SEC Registration Number
C H I N A B A N K I N G C O R P O R A T I O N A N D S U B
S I D I A R I E S
(Company’s Full Name)
8 7 4 5 P a s e o d e R o x a s c o r n e r V i l l a r
S t r e e t s , M a k a t i C i t y
(Business Address: No. Street City/Town/Province)
Paul D. Causon 885-5555
(Contact Person) (Company Telephone Number)
1 2 3 1 A A F S
Month Day (Form Type) Month Day
(Fiscal Year) (Annual Meeting)
(Secondary License Type, If Applicable)
Total Amount of Borrowings
Total No. of Stockholders Domestic Foreign
To be accomplished by SEC Personnel concerned
File Number LCU
Document ID Cashier
STAMPS
Remarks: Please use BLACK ink for scanning purposes.
CHINA BANKING CORPORATION
AND SUBSIDIARIES
Financial Statements
December 31, 2007 and 2006
and for the Years Ended December 31, 2007, 2006 and 2005
and
Independent Auditors’ Report
SGV & CO SyCip Gorres Velayo & Co.
6760 Ayala Avenue
Phone: (632) 891-0307
Fax: (632) 819-0872
1226 Makati City www.sgv.com.ph
Philippines
BOA/PRC Reg. No. 0001
SEC Accreditation No. 0012-FR-1
INDEPENDENT AUDITORS’ REPORT
The Stockholders and the Board of Directors
China Banking Corporation
8745 Paseo de Roxas corner Villar Streets
Makati City
We have audited the accompanying financial statements of China Banking Corporation and
Subsidiaries (the Group) and of China Banking Corporation (the Parent Company) which comprise the
balance sheets as at December 31, 2007 and 2006, and the statements of income, statements of
changes in equity and statements of cash flows for each of the three years in the period ended
December 31, 2007, and a summary of significant accounting policies and other explanatory notes.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in
accordance with Philippine Financial Reporting Standards. This responsibility includes: designing,
implementing and maintaining internal control relevant to the preparation and fair presentation of
financial statements that are free from material misstatement, whether due to fraud or error; selecting
and applying appropriate accounting policies; and making accounting estimates that are reasonable in
the circumstances.
Auditors’ Responsibility
Our responsibility is to express an opinion on these financial statements based on our audits. We
conducted our audits in accordance with Philippine Standards on Auditing. Those standards require
that we comply with ethical requirements and plan and perform the audit to obtain reasonable
assurance whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures
in the financial statements. The procedures selected depend on the auditor’s judgment, including the
assessment of the risks of material misstatement of the financial statements, whether due to fraud or
error. In making those risk assessments, the auditor considers internal control relevant to the entity’s
preparation and fair presentation of the financial statements in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness
of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting
policies used and the reasonableness of accounting estimates made by management, as well as
evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our audit opinion.
SGV & Co is a member practice of Ernst & Young Global
-2-
Opinion
In our opinion, the financial statements present fairly, in all material respects, the financial position of
the Group and of the Parent Company as of December 31, 2007 and 2006, and their financial
performance and their cash flows for each of the three years in the period ended December 31, 2007 in
accordance with Philippine Financial Reporting Standards.
SYCIP GORRES VELAYO & CO.
Josephine Adrienne A. Abarca
Partner
CPA Certificate No. 92126
SEC Accreditation No. 0466-A
Tax Identification No. 163-257-145
PTR No. 0014603, January 3, 2008, Makati City
March 5, 2008
CHINA BANKING CORPORATION AND SUBSIDIARIES
BALANCE SHEETS
Consolidated Parent Company
December 31
2007 2006 2007 2006
ASSETS
Cash and Other Cash Items (Notes 5, 6, 7, 15 and 20) =
P3,077,335,121 P2,599,467,319
= =
P3,064,553,081 P2,601,337,948
=
Due from Bangko Sentral ng Pilipinas (Notes 5, 6, 7,
15 and 20) 12,427,182,517 9,268,764,084 12,328,161,848 9,268,764,084
Due from Other Banks (Notes 5, 6, 7 and 20) 4,649,838,136 2,436,097,931 4,534,415,329 2,436,097,931
Interbank Loans Receivable and Securities Purchased
Under Resale Agreements (Notes 5, 6, 7 and 20) 11,821,000,000 9,545,150,000 11,581,000,000 9,545,150,000
Financial Assets at Fair Value through Profit or Loss
(Notes 5, 6, 7, 8, 20 and 23) 4,789,690,188 13,673,876,993 4,789,690,188 13,673,876,993
Available-for-Sale Financial Assets (Notes 3, 5, 6, 7,
8 and 20) 24,256,795,572 20,094,400,972 23,910,602,048 19,921,537,336
Held-to-Maturity Financial Assets (Notes 3, 5, 6,
7, 8 and 20) 12,478,950,535 15,811,146,700 12,478,950,535 15,811,146,700
Loans and Receivables - net (Notes 3, 5, 6, 7, 9, 14, 15,
20 and 27) 87,328,696,116 71,403,556,897 86,067,347,474 71,403,556,897
Accrued Interest Receivable (Notes 5, 6, 7, 20 and 27) 1,472,659,796 927,535,027 1,455,738,680 924,096,223
Equity Investments (Notes 3, 4, 10 and 20) 11,980,869 3,235,031 1,136,284,552 85,189,000
Bank Premises, Furniture, Fixtures and Equipment - net
(Notes 3, 11 and 20) 4,252,747,800 3,298,474,499 3,627,181,567 3,295,891,093
Investment Properties - net (Notes 3, 12 and 20) 4,347,061,469 4,382,514,268 4,271,769,470 4,382,514,268
Deferred Tax Assets - net (Notes 3, 20 and 25) 815,295,758 554,992,134 813,109,936 552,840,120
Other Assets - net (Notes 3, 5, 6, 13, 20 and 22) 3,957,936,598 1,647,397,574 3,660,995,518 1,587,190,244
= =
P175,687,170,475 P155,646,609,429 P173,719,800,226 P155,489,188,837
= =
LIABILITIES AND EQUITY
Liabilities
Deposit Liabilities (Notes 5, 6, 7, 15 and 20)
Demand =
P26,958,505,784 P20,058,765,175
= =
P26,683,080,462 P20,058,765,175
=
Savings 74,556,886,558 58,505,161,132 73,642,360,557 58,539,334,024
Time 38,940,932,962 43,064,609,071 38,652,865,101 43,064,609,071
140,456,325,304 121,628,535,378 138,978,306,120 121,662,708,270
Bills Payable (Notes 5, 6, 7, 16 and 20) 2,661,307,167 3,828,657,496 2,578,774,767 3,828,657,496
Manager’s Checks (Notes 5, 6 and 20) 292,673,476 246,277,757 292,673,476 246,277,757
Accrued Interest, Taxes and Other Expenses
(Notes 5, 6, 7, 17 and 20) 3,191,491,387 2,746,075,622 3,177,783,541 2,742,437,908
Other Liabilities (Notes 5, 6, 7, 18 and 20) 2,350,331,899 2,214,769,258 2,221,629,585 2,139,803,154
148,952,129,233 130,664,315,511 147,249,167,489 130,619,884,585
Equity
Equity Attributable to Equity Holders of the
Parent Company
Capital stock (Note 21) 7,708,042,600 6,166,376,500 7,708,042,600 6,166,376,500
Capital paid in excess of par value 671,504,726 671,504,726 671,504,726 671,504,726
Surplus reserves (Notes 21 and 26) 487,298,048 442,623,071 487,298,048 442,623,071
Surplus (Notes 21 and 26) 15,406,929,820 14,852,221,118 15,291,723,861 14,752,369,111
Net unrealized gains on available-for-sale financial assets
(Note 8) 1,050,485,665 1,572,291,068 1,034,786,067 1,559,153,409
Revaluation increment on land (Note 11) 1,277,277,435 1,277,277,435 1,277,277,435 1,277,277,435
26,601,538,294 24,982,293,918 26,470,632,737 24,869,304,252
Minority Interest 133,502,948 – – –
26,735,041,242 24,982,293,918 26,470,632,737 24,869,304,252
= =
P175,687,170,475 P155,646,609,429 P173,719,800,226 P155,489,188,837
= =
See accompanying Notes to Financial Statements.
CHINA BANKING CORPORATION AND SUBSIDIARIES
STATEMENTS OF INCOME
Consolidated Parent Company
Years Ended December 31
2007 2006 2005 2007 2006 2005
INTEREST INCOME
Loans and receivables (Note 9) =
P6,746,085,117 P5,913,558,591
= P
=5,142,189,902 =
P6,556,151,321 =
P5,913,558,591 =5,142,189,902
P
Trading and investments (Note 8) 4,256,419,755 4,788,818,635 4,663,554,315 4,240,246,971 4,779,743,392 4,651,479,237
Deposits with BSP and other banks 434,815,447 486,208,326 394,549,962 425,869,463 479,700,098 393,891,073
11,437,320,319 11,188,585,552 10,200,294,179 11,222,267,755 11,173,002,081 10,187,560,212
INTEREST EXPENSE
Deposit liabilities (Note 15) 4,732,569,654 4,746,378,307 4,030,453,485 4,634,729,571 4,746,378,307 4,030,453,485
Bills payable and other borrowings
(Note 16) 208,329,194 322,628,829 329,793,712 189,516,524 322,628,829 329,793,712
4,940,898,848 5,069,007,136 4,360,247,197 4,824,246,095 5,069,007,136 4,360,247,197
NET INTEREST INCOME 6,496,421,471 6,119,578,416 5,840,046,982 6,398,021,660 6,103,994,945 5,827,313,015
Service charges, fees and
commissions 838,156,542 748,859,462 711,997,043 741,922,640 681,466,233 689,887,310
Trading and securities gain - net
(Notes 6, 8 and 19) 618,927,037 1,286,585,751 1,213,844,235 618,084,842 1,276,944,620 1,213,781,712
Trust fee income (Note 26) 478,824,847 418,175,176 374,931,031 478,084,152 418,175,176 374,931,031
Foreign exchange gain - net 222,270,038 268,753,263 267,051,949 222,704,822 268,933,113 267,055,673
Gain on sale of investment properties 58,417,105 191,426,211 75,015,428 58,417,105 191,426,211 75,015,428
Gain on asset foreclosure and
dacion transactions (Note 12) 44,013,840 300,555,325 318,776,649 44,013,840 300,555,325 318,776,649
Miscellaneous 411,524,080 126,370,212 98,332,738 381,692,197 124,627,139 99,614,220
TOTAL OPERATING INCOME 9,168,554,960 9,460,303,816 8,899,996,055 8,942,941,258 9,366,122,762 8,866,375,038
Compensation and fringe benefits
(Notes 22 and 27) 1,888,696,923 1,475,460,265 1,441,523,176 1,789,624,879 1,432,436,640 1,433,671,301
Taxes and licenses 599,887,338 665,068,897 509,252,953 580,462,173 664,155,582 509,073,179
Occupancy (Note 24) 503,958,628 451,185,402 392,979,886 502,223,782 449,341,850 390,772,744
Depreciation and amortization
(Notes 11 and 12) 381,589,101 307,027,647 256,198,198 365,423,133 305,456,169 255,468,992
Insurance 329,506,720 273,538,864 236,040,520 325,210,317 273,398,425 236,040,520
Stationery, supplies and postage 324,520,304 267,799,227 194,107,672 319,155,128 263,235,742 193,860,954
Provision for impairment and credit
losses (Notes 9, 13 and 14) 300,578,001 1,063,593,899 822,000,000 300,516,878 1,063,593,899 822,000,000
Repairs and maintenance 272,141,327 230,460,766 197,901,752 271,508,216 230,138,463 197,543,841
Transportation and traveling 166,510,229 143,215,979 115,648,835 164,832,100 142,112,240 115,165,001
Entertainment, amusement and
recreation 158,187,697 181,145,724 173,453,569 156,740,528 180,322,707 172,640,927
Miscellaneous 369,288,866 347,633,792 588,790,921 311,021,761 342,018,517 582,957,063
TOTAL OPERATING EXPENSES 5,294,865,134 5,406,130,462 4,927,897,482 5,086,718,895 5,346,210,234 4,909,194,522
INCOME BEFORE INCOME TAX 3,873,689,826 4,054,173,354 3,972,098,573 3,856,222,363 4,019,912,528 3,957,180,516
PROVISION FOR INCOME TAX
(Note 25) 192,254,802 514,955,312 787,532,529 188,932,411 511,790,015 785,449,565
NET INCOME (Note 30) =
P3,681,435,024 =
P3,539,218,042 P
=3,184,566,044 =
P3,667,289,952 =
P3,508,122,513 =3,171,730,951
P
Attributable to:
Equity holders of the parent =
P3,682,643,904 P3,539,218,042
= P
=3,184,566,044 =
P3,667,289,952 =
P3,508,122,513 =3,171,730,951
P
Minority interest (1,208,880) – – – – –
=
P3,681,435,024 P3,539,218,042
= P
=3,184,566,044 =
P3,667,289,952 =
P3,508,122,513 =3,171,730,951
P
Basic Earnings Per Share (Note 30) =
P47.76 P45.92
= P
=41.31
See accompanying Notes to Financial Statements.
CHINA BANKING CORPORATION AND SUBSIDIARIES
STATEMENTS OF CHANGES IN EQUITY
Consolidated
Equity Attributable to Equity Holders of the Parent Company
Net Unrealized
Gains On
Surplus Available-for- Revaluation
Capital Capital Paid in Reserves Surplus Sale Financial Increment
Stock Excess of Par (Notes 21 (Notes 21 Assets on Land Minority Total
(Note 21) Value and 26) and 26) (Note 8) (Note 11) Total Interest Equity
Balance at December 31, 2006 P6,166,376,500
= P671,504,726
= P442,623,071 P14,852,221,118 P1,572,291,068 P1,277,277,435 P24,982,293,918
= = = = = P– P24,982,293,918
= =
Unrealized losses on available-for-sale (AFS)
financial assets for the year (Note 8) – – – (808,997,078) – (808,997,078) – (808,997,078)
Unrealized losses on AFS financial assets
taken to profit and loss (Note 8) – – – – 287,191,675 – 287,191,675 – 287,191,675
Net income for the year 3,682,643,904 3,682,643,904 (1,208,880) 3,681,435,024
Total income and expense recognized during
the year – – – 3,682,643,904 (521,805,403) – 3,160,838,501 (1,208,880) 3,159,629,621
Share of minority interest in TMBC’s net assets – – – – – – – 134,711,828 134,711,828
Transfer from surplus to surplus reserves – – 44,674,977 (44,674,977) – – – – –
Stock dividends - 25% (Note 21) 1,541,666,100 – – (1,541,666,100) – – – –
P
Cash dividends - =25 per share (Note 21) – – – (1,541,594,125) – (1,541,594,125) – (1,541,594,125)
Balance at December 31, 2007 =
P7,708,042,600 =
P671,504,726 =
P487,298,048 P15,406,929,820 P1,050,485,665 P1,277,277,435 P26,601,538,294
= = = = = =
P133,502,948 P26,735,041,242
Balance at December 31, 2005 =
P4,933,155,000 =
P671,504,726 =
P400,805,553 P14,067,988,594
= = =
P581,494,654 P1,277,277,435 21,932,225,962 = P
P– =21,932,225,962
Unrealized gains on AFS financial assets
for the year (Note 8) – – – – 1,006,443,789 – 1,006,443,789 – 1,006,443,789
Unrealized gains on AFS financial assets
taken to profit and loss (Note 8) – – – – (15,647,375) – (15,647,375) – (15,647,375)
Net income for the year – – – 3,539,218,042 – – 3,539,218,042 – 3,539,218,042
Total income and expense recognized during
the year – – – 3,539,218,042 990,796,414 – 4,530,014,456 – 4,530,014,456
Transfer from surplus to surplus reserves – – 41,817,518 (41,817,518) – – – – –
Stock dividends - 25% (Note 21) 1,233,221,500 – – (1,233,221,500) – – – – –
P
Cash dividends - =30 per share (Note 21) – – – (1,479,946,500) – – (1,479,946,500) – (1,479,946,500)
Balance at December 31, 2006 =
P6,166,376,500 =
P671,504,726 =
P442,623,071 P14,852,221,118 P1,572,291,068
= = = =
P1,277,277,435 P24,982,293,918 = P
P– =24,982,293,918
Balance at January 1, 2005 P
=3,654,251,200 =
P671,504,726 =
P363,312,450 P13,478,807,373
= =
P59,656,521 = =
P1,240,783,794 P19,468,316,064 = =
P– P19,468,316,064
Unrealized gains on AFS financial assets
for the year (Note 8) – – – – 658,880,127 – 658,880,127 – 658,880,127
Unrealized gains on AFS financial assets
taken to profit and loss (Note 8) – – – – (137,041,994) – (137,041,994) – (137,041,994)
Effect of change in tax rates – – – – – 36,493,641 36,493,641 – 36,493,641
Net income for the year – – – 3,184,566,044 – – 3,184,566,044 – 3,184,566,044
Total income and expense recognized during
the year – – – 3,184,566,044 521,838,133 36,493,641 3,742,897,818 – 3,742,897,818
Transfer from surplus to surplus reserves – – 37,493,103 (37,493,103) – – – – –
Stock dividends -35% (Note 21) 1,278,903,800 – – (1,278,903,800) – – – – –
P
Cash dividends - =35 per share (Note 21) – – – (1,278,987,920) – – (1,278,987,920) – (1,278,987,920)
Balance at December 31, 2005 =
P4,933,155,000 =
P671,504,726 =
P400,805,553 P14,067,988,594
= =
P581,494,654 = =
P1,277,277,435 P21,932,225,962 = P
P– =21,932,225,962
See accompanying Notes to Financial Statements.
CHINA BANKING CORPORATION AND SUBSIDIARIES
STATEMENTS OF CHANGES IN EQUITY
Parent Company
Net Unrealized
Gains on
Surplus Available-for- Revaluation
Capital Capital Paid in Reserves Surplus Sale Financial Increment
Stock Excess of Par (Notes 21 (Notes 21 Assets on Land Total
(Note 21) Value and 26) and 26) (Note 8) (Note 11) Equity
Balance at December 31, 2006 =
P6,166,376,500 =
P671,504,726 =
P442,623,071 P14,752,369,111
= =
P1,559,153,409 =
P1,277,277,435 =
P24,869,304,252
Unrealized losses on available-for-sale (AFS)
financial assets for the year (Note 8) – – – – (820,443,224) – (820,443,224)
Unrealized losses on AFS financial assets taken to
profit and loss (Note 8) – – – – 296,075,882 – 296,075,882
Net income for the year – – – 3,667,289,952 – – 3,667,289,952
Total income and expense recognized during the year – – – 3,667,289,952 (524,367,342) – 3,142,922,610
Transfer from surplus to surplus reserves – – 44,674,977 (44,674,977) – – –
Stock dividends - 25% (Note 21) 1,541,666,100 – – (1,541,666,100) – – –
P
Cash dividends - =25 per share (Note 21) – – – (1,541,594,125) – – (1,541,594,125)
Balance at December 31, 2007 =
P7,708,042,600 =
P671,504,726 =
P487,298,048 P15,291,723,861
= =
P1,034,786,067 =
P1,277,277,435 =
P26,470,632,737
Balance at December 31, 2005 =
P4,933,155,000 P
=671,504,726 P
=400,805,553 =13,999,232,116
P P
=574,948,810 P
=1,277,277,435 P
=21,856,923,640
Unrealized gains on AFS financial assets for the year (Note 8) – – – – 994,141,034 – 994,141,034
Unrealized gains on AFS financial assets taken to
profit and loss (Note 8) – – – – (9,936,435) – (9,936,435)
Net income for the year – – – 3,508,122,513 – – 3,508,122,513
Total income and expense recognized during the year – – – 3,508,122,513 984,204,599 – 4,492,327,112
Transfer from surplus to surplus reserves – – 41,817,518 (41,817,518) – – –
Stock dividends - 25% (Note 21) 1,233,221,500 – – (1,233,221,500) – – –
P
Cash dividends - =30 per share (Note 21) – – – (1,479,946,500) – – (1,479,946,500)
Balance at December 31, 2006 =
P6,166,376,500 P
=671,504,726 P
=442,623,071 =14,752,369,111
P P
=1,559,153,409 P
=1,277,277,435 P
=24,869,304,252
Balance at January 1, 2005 P
=3,654,251,200 P
=671,504,726 P
=363,312,450 =13,422,885,988
P P
=63,854,301 P
=1,240,783,794 P
=19,416,592,459
Unrealized gains on AFS financial assets for the year (Note 8) – – – – 648,136,503 – 648,136,503
Unrealized gains on AFS financial assets taken to
profit and loss (Note 8) – – – – (137,041,994) – (137,041,99)
Effect of change in tax rates – – – – – 36,493,641 36,493,641
Net income for the year – – – 3,171,730,951 – – 3,171,730,951
Total income and expense recognized during the year – – – 3,171,730,951 511,094,509 36,493,641 3,719,319,101
Transfer from surplus to surplus reserves – – 37,493,103 (37,493,103) – – –
Stock dividends - 35% (Note 21) 1,278,903,800 – – (1,278,903,800) – – –
P
Cash dividends - =35 per share (Note 21) – – – (1,278,987,920) – – (1,278,987,920)
Balance at December 31, 2005 =
P4,933,155,000 P
=671,504,726 P
=400,805,553 =13,999,232,116
P P
=574,948,810 P
=1,277,277,435 P
=21,856,923,640
See accompanying Notes to Financial Statements.
CHINA BANKING CORPORATION AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
Consolidated Parent Company
December 31
2007 2006 2005 2007 2006 2005
CASH FLOWS FROM
OPERATING ACTIVITIES
Income before income tax =
P3,873,689,826 =
P4,054,173,354 P
=3,972,098,573 =
P3,856,222,363 P4,019,912,528
= =3,957,180,516
P
Adjustments for:
Provision for impairment and
credit losses (Notes 9 and 14) 300,578,001 1,063,593,899 822,000,000 300,516,878 1,063,593,899 822,000,000
Net unrealized gains on financial
assets at FVPL (Note 8) (190,600,852) (439,531,361) (234,158,808) (190,600,852) (439,531,361) (234,158,808)
Depreciation and amortization
(Notes 11 and 12) 381,589,101 307,027,647 256,198,198 365,423,133 305,456,169 255,468,992
Gains on asset foreclosures
and dacion transactions (44,013,840) (300,555,325) (318,776,649) (44,013,840) (300,555,325) (318,776,649)
Gain from sale of investment
properties (58,417,105) (191,426,211) (75,015,428) (58,417,105) (191,426,211) (75,015,428)
Equity in net losses of
an associate – – 1,426,223 – – –
Changes in operating assets and
liabilities:
Decrease (increase) in the
amounts of:
Financial assets at FVPL 9,074,787,657 4,110,000,241 (7,557,974,458) 9,074,787,657 4,110,000,241 (7,557,974,458)
Loans and receivables (17,567,039,570) (10,398,727,655) (13,493,088,487) (16,230,398,929) (10,398,727,655) (13,493,088,487)
Other assets (1,960,653,087) (379,053,204) 742,124,865 (2,098,318,241) (369,568,746) 739,907,007
Increase (decrease) in the
amounts of:
Deposit liabilities 18,827,789,926 19,171,153,868 16,655,924,272 17,315,597,850 19,199,114,600 16,657,520,973
Manager’s checks 46,395,719 22,045,619 (5,243,930) 46,395,719 22,045,619 (5,243,930)
Accrued taxes, interest and
other expenses 407,100,363 171,941,632 386,315,944 397,053,838 171,221,121 385,252,248
Other liabilities (424,449,805) 495,409,747 229,500,414 (478,186,015) 449,086,569 238,262,598
Net cash provided by operations 12,666,756,334 17,686,052,251 1,381,330,729 12,256,062,456 17,640,621,448 1,371,334,574
Income taxes paid (262,215,185) (459,113,047) (499,994,915) (258,916,401) (455,951,879) (497,912,025)
Net cash provided by operating
activities 12,404,541,149 17,226,939,204 881,335,814 11,997,146,055 17,184,669,569 873,422,549
CASH FLOWS FROM INVESTING
ACTIVITIES
Additions to bank premises, furniture,
fixtures and equipment (Note 11) (1,337,216,539) (455,535,179) (259,311,578) (645,264,693) (449,165,736) (258,692,023)
Proceeds from disposal of bank
premises, furniture, fixtures and
equipment (Note 11) 113,214,581 5,740,772 71,977,072 60,411,530 2,170,114 72,358,892
Additions to equity investments (8,745,838) (1,207,278) – (8,745,838) (2,159,000) –
Proceeds from sale of investment
properties 748,928,073 712,565,418 730,113,645 748,928,073 712,565,418 730,113,644
Proceeds from sale of equity investment 33,500,000 – – 33,500,000 – –
Acquisition through business
combination - net of cash
acquired (Note 4) (251,102,443) – – (1,174,960,789) – –
Acquisition of minority interest (134,711,828) – – – – –
Purchases of:
Held-to-maturity financial assets (23,025,000) (3,912,468,952) (5,941,916,982) (23,025,000) (3,912,468,952) (5,941,916,982)
Available-for-sale financial assets (59,754,009,280) (35,606,919,615) (17,322,870,533) (57,736,767,228) (35,472,794,566) (17,321,631,695)
Proceeds from sale/Maturity of:
Held-to-maturity financial assets 3,355,221,165 4,697,097,594 23,732,526,781 3,355,221,165 4,697,097,594 23,738,515,051
Available-for-sale financial assets 55,688,226,854 26,089,611,143 7,816,928,819 53,841,813,874 26,029,695,955 7,816,928,819
Net cash provided by (used in)
investing activities (1,569,720,255) (8,471,116,097) 8,827,447,224 (1,548,888,906) (8,395,059,173) 8,835,675,706
(Forward)
-2-
Consolidated Parent Company
December 31
2007 2006 2005 2007 2006 2005
CASH FLOWS FROM FINANCING
ACTIVITIES
Payments of bills payable =
(P1,874,604,097) =
(P984,896,678) =
(P1,072,057,000) =
(P1,874,604,097) (P984,896,673)
= (P1,376,578,105)
=
Availments of bills payable 707,253,768 783,132,370 1,376,578,105 624,721,368 783,132,370 1,072,057,000
Payments of cash dividends
(Note 21) (1,541,594,125) (1,479,946,500) (1,278,987,920) (1,541,594,125) (1,479,946,500) (1,278,987,920)
Cash used in financing activities (2,708,944,454) (1,681,710,803) (1,583,509,025) (2,791,476,854) (1,681,710,803) (1,583,509,025)
NET INCREASE
IN CASH AND CASH
EQUIVALENTS 8,125,876,440 7,074,112,304 8,125,294,012 7,656,780,295 7,107,899,593 8,125,609,230
CASH AND CASH
EQUIVALENTS AT
BEGINNING OF YEAR
Cash and other cash items 2,599,467,319 2,405,605,764 2,597,900,274 2,601,337,948 2,373,689,104 2,565,668,396
Due from Bangko Sentral ng Pilipinas 9,268,764,084 4,567,587,253 2,346,840,957 9,268,764,084 4,567,587,253 2,346,840,957
Due from other banks 2,436,097,931 3,586,826,013 1,281,921,787 2,436,097,931 3,586,826,013 1,281,921,787
Interbank loans receivable and
securities purchased under resale
agreements 9,545,150,000 6,215,348,000 2,423,410,000 9,545,150,000 6,215,348,000 2,423,410,000
23,849,479,334 16,775,367,030 8,650,073,018 23,851,349,963 16,743,450,370 8,617,841,140
CASH AND CASH EQUIVALENTS
AT END OF YEAR
Cash and other cash items 3,077,335,121 2,599,467,319 2,405,605,764 3,064,553,081 2,601,337,948 2,373,689,104
Due from Bangko Sentral ng Pilipinas 12,427,182,517 9,268,764,084 4,567,587,253 12,328,161,848 9,268,764,084 4,567,587,253
Due from other banks 4,649,838,136 2,436,097,931 3,586,826,013 4,534,415,329 2,436,097,931 3,586,826,013
Interbank loans receivable and
securities purchased under resale
agreements 11,821,000,000 9,545,150,000 6,215,348,000 11,581,000,000 9,545,150,000 6,215,348,000
=
P31,975,355,774 P23,849,479,334
= P
=16,775,367,030 =
P31,508,130,258 P23,851,349,963
= =16,743,450,370
P
OPERATIONAL CASH FLOWS FROM INTEREST
Consolidated Parent Company
December 31
2007 2006 2005 2007 2006 2005
Interest paid P4,506,588,024
= =
P4,852,171,747 =4,374,510,312
P P4,393,614,881
= =
P4,852,171,747 =4,374,510,312
P
Interest received 10,892,195,550 11,107,207,041 10,883,581,370 10,690,625,298 11,091,615,364 10,874,294,413
CHINA BANKING CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. Corporate Information
China Banking Corporation (the Parent Company) is a publicly listed commercial bank
incorporated in the Philippines. The Parent Company acquired its universal banking license in
1991. It provides expanded commercial banking products and services such as deposit products,
loans and trade finance, domestic and foreign fund transfers, treasury products, trust products,
foreign exchange, corporate finance and other investment banking services through a network of
189 local branches.
The Parent Company has the following majority-owned subsidiaries:
Effective Percentages of
Ownership Country of
Subsidiary 2007 2006 Incorporation Principal Activities
Chinabank Insurance Brokers, Inc. 100.00% 100.00% Philippines Insurance brokerage
CBC Properties and Computer Center, 100.00% 100.00% Philippines Computer services
Inc. *
CBC Forex Corporation 100.00% 100.00% Philippines Foreign exchange
CBC First Sovereign Asset – 100.00% Philippines Special Asset
Management ** Management
The Manila Banking Corporation *** 91.82% – Philippines Financial markets
* CBC Properties and Computer Center, Inc. became a subsidiary in 2006. It was accounted for as an associate in 2005.
** Special purpose entity created to avail of the benefits under the Special Purpose Vehicle Act of 2002. It was sold in
2007 (see Note 10).
*** The Manila Banking Corporation (TMBC) was acquired in 2007 (See Note 4).
On August 2, 2006, the Board of Directors (BOD) approved the joint project proposal of the
Parent Company with Manufacturers Life Insurance Company (Manulife). Under the proposal, the
Parent Company will invest in a life insurance company owned by Manulife, and such company
will be offering innovative insurance and financial products for health, wealth and education
through the Parent Company’s branches nationwide. The life insurance company was
incorporated as The Pramerica Life Insurance Company Inc. in 1998 but the name was changed to
Manulife China Bank Life Assurance Corporation (MCB Life) on March 23, 2007. The Parent
Company acquired 5% interest of MCB Life on August 8, 2007. This investment is accounted for
as an investment in associate as the Parent Company is represented in MCB Life’s BOD and
exercises significant influence over the latter.
The Parent Company’s principal place of business is at 8745 Paseo de Roxas corner Villar Streets,
Makati City.
The accompanying consolidated and parent company financial statements were authorized for
issue by the Parent Company’s BOD on March 5, 2008.
-2-
2. Summary of Significant Accounting Policies
Basis of Preparation
The accompanying consolidated financial statements include the financial statements of the Parent
Company and its subsidiaries (collectively referred to as “the Group”).
The accompanying financial statements have been prepared on a historical cost basis except for
financial assets at fair value through profit or loss (FVPL), available-for-sale (AFS) financial
assets, and derivative financial instruments that have been measured at fair value. The financial
statements are presented in Philippine pesos, and all values are rounded to the nearest peso except
when otherwise indicated.
The financial statements of the Parent Company reflect the accounts maintained in the Regular
Banking Unit (RBU) and Foreign Currency Deposit Unit (FCDU). The financial statements of
these units are combined after eliminating inter-unit accounts.
Statement of Compliance
The financial statements of the Group and the Parent Company have been prepared in compliance
with Philippine Financial Reporting Standards (PFRS).
Basis of Consolidation and Investments in Subsidiaries
The consolidated financial statements of the Group, which include the financial statements of the
Parent Company and its subsidiaries are prepared for the same reporting year as the Parent
Company, using consistent accounting policies.
Subsidiaries are all entities over which the Parent Company has the power to govern the financial
and operating policies generally accompanying a shareholding of more than one half of the voting
rights. The existence and effect of potential voting rights that are currently exercisable or
convertible are considered when assessing whether the Parent Company controls another entity.
All significant intra-group balances, transactions, income and expenses and profits and losses
resulting from intra-group transactions are eliminated in full or to the extent of the Parent
Company’s equity interest in the consolidation.
Subsidiaries are fully consolidated from the date on which control is transferred to the Parent
Company. Control is achieved where the Parent Company has the power to govern the financial
and operating policies of an entity so as to obtain benefits from its activities. Consolidation of
subsidiaries ceases when control is transferred out of the Group or Parent Company.
In the separate or parent company financial statements, investments in subsidiaries are carried at
cost, less accumulated impairment in value. Dividends earned on these investments are
recognized in the statement of income as declared by the respective BOD of the investees.
-3-
Minority Interest
Minority interest represents the portion of profit or loss and net assets not owned, directly or
indirectly, by the Parent Company and are presented separately in the consolidated statement of
income and within equity in the consolidated balance sheet, separately from parent shareholders'
equity. Acquisitions of minority interests are accounted for using the parent entity extension
method, whereby, the difference between the consideration and the fair value of the share of the
net assets acquired is recognized as goodwill. Any deficiency of the cost of acquisition below the
fair values of the identifiable net assets acquired (i.e. a discount on acquisition) is recognized
directly in the statement of income in the year of acquisition.
Changes in Accounting Policies
The accounting policies adopted are consistent with those of the previous financial year except
that the Group has made changes in accounting policies resulting from adoption of the following
new standard, amendment to an existing standard, and Philippine Interpretations effective
beginning January 1, 2007:
• PFRS 7, Financial Instruments: Disclosures, introduces new disclosures to improve the
information about financial instruments. It requires the disclosure of qualitative and
quantitative information about exposure to risks arising from financial instruments, including
specified minimum disclosures about credit risk, liquidity risk and market risk, as well as
sensitivity analysis to market risk. It replaces PAS 30, Disclosures in the Financial
Statements of Banks and Similar Financial Institutions, and the disclosure requirements in
PAS 32, Financial Instruments: Disclosure and Presentation. It is applicable to all entities
that report under PFRS.
The Group adopted the amendment to the transition provisions of PFRS 7, as approved by the
Financial Reporting Standards Council, which gives transitory relief with respect to the
presentation of comparative information for the new risk disclosures about the nature and
extent of risks arising from financial instruments. Accordingly, the Group did not present
comparative information for the disclosures required by paragraphs 31-42 of PFRS 7, unless
the disclosure was previously required under either PAS 30 or PAS 32.
Adoption of this standard resulted in the inclusion of additional disclosures such as market risk
sensitivity analysis, contractual maturity analysis of financial liabilities based on undiscounted
cash flows, credit quality of financial asset that are neither past due nor impaired, and aging
analysis on financial assets that are past due but not impaired (see Note 7).
• Amendment to PAS 1, Presentation of Financial Statements: Capital Disclosures, requires the
following additional disclosures: (a) an entity’s objectives, policies and processes for
managing capital; (b) quantitative data about what the entity regards as capital; (c) whether the
entity has complied with any capital requirements; and (d) if it has not complied, the
consequences of such noncompliance. Adoption of this amendment resulted to additional
disclosures on the Group’s capital management (see Note 21).
-4-
• Philippine Interpretation IFRIC 10, Interim Financial Reporting and Impairment, prohibits the
reversal of impairment losses on goodwill and AFS equity investments recognized in the
interim financial reports even if impairment is no longer present at the annual statement of
condition date. This Interpretation has no significant impact to the financial statements of the
Group.
Foreign Currency Translation
The consolidated financial statements are presented in Philippine pesos, which is the Parent
Company’s functional currency. Each entity in the Group determines its own functional currency
and items included in the financial statements of each entity are measured using that functional
currency.
Transactions and balances
The books of accounts of the RBU are maintained in Philippine pesos, while those of the FCDU
are maintained in United States (US) dollars. For financial reporting purposes, the monetary
assets and liabilities of the FCDU and the foreign currency-denominated monetary assets and
liabilities in the RBU are translated in Philippine pesos based on the Philippine Dealing System
(PDS) closing rate prevailing at end of the year, and foreign currency-denominated income and
expenses, at the PDS weighted average rate for the year. Foreign exchange differences arising
from restatements of foreign currency denominated assets and liabilities are credited to or charged
against operations in the period in which the rates change.
Non-monetary items that are measured in terms of historical cost in a foreign currency are
translated using the exchange rates as at the dates of the initial transactions. Non-monetary items
measured at fair value in a foreign currency are translated using the exchange rates at the date
when the fair value was determined.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include cash and other cash items,
due from BSP and other banks, and interbank loans receivable and securities purchased under
resale agreements with original maturities of three months or less from dates of placements and
that are subject to insignificant risk of changes in value.
Financial Instruments - Initial Recognition and Subsequent Measurement
Date of recognition
Purchases or sales of financial assets that require delivery of assets within the time frame
established by regulation or convention in the marketplace are recognized on the trade date (i.e.,
the date that the Group commits to purchase or sell the asset). Derivatives are also recognized on
trade date basis. Deposits, amounts due to banks and customers and loans are recognized when
cash is received by the Group or advanced to the borrowers. Securities transactions and related
commission income and expense are recorded on a trade date basis.
-5-
Initial recognition of financial instruments
All financial assets, including trading and investment securities and loans and receivables, are
initially recognized at fair value. Except for financial assets at FVPL, the initial measurement of
financial assets includes transaction costs. The Group classifies its financial assets in the
following categories: financial assets at FVPL, held-to-maturity (HTM) financial assets, AFS
financial assets, and loans and receivables. The classification depends on the purpose for which
the investments were acquired and whether they are quoted in an active market. Management
determines the classification of its investments at initial recognition and, where allowed and
appropriate, re-evaluates such designation at every reporting date.
Determination of Fair Value
The fair value for financial instruments traded in active markets at the balance sheet date is based
on their quoted market price or dealer price quotations (bid price for long positions and ask price
for short positions), without any deduction for transaction costs. When current bid and asking
prices are not available, the price of the most recent transaction provides evidence of the current
fair value as long as there has not been a significant change in economic circumstances since the
time of the transaction.
For all other financial instruments not listed in an active market, the fair value is determined by
using appropriate valuation techniques. Valuation techniques include net present value
techniques, comparison to similar instruments for which market observable prices exist, options
pricing models, and other relevant valuation models.
Day 1 profit
Where the transaction price in a non-active market is different to the fair value from other
observable current market transactions in the same instrument or based on a valuation technique
whose variables include only data from observable market, the Group recognizes the difference
between the transaction price and fair value (a Day 1 profit) in the statement of income unless it
qualifies for recognition as some other type of asset. In cases where use is made of data which is
not observable, the difference between the transaction price and model value is only recognized in
the statement of income when the inputs become observable or when the instrument is
derecognized. For each transaction, the Group determines the appropriate method of recognizing
the ‘Day 1’ profit amount.
Financial assets and financial liabilities at fair value through profit or loss
Financial assets and financial liabilities at FVPL include financial assets and liabilities held for
trading purposes, financial assets and financial liabilities designated upon initial recognition as at
FVPL, and derivative instruments.
Financial assets and financial liabilities are classified as held for trading if they are acquired for
the purpose of selling and repurchasing in the near term. Included in this classification are debt
and equity securities which have been acquired principally for trading purposes.
-6-
Financial assets and financial liabilities are designated as at FVPL by management on initial
recognition when the following criteria are met:
• The designation eliminates or significantly reduces the inconsistent treatment that would
otherwise arise from measuring the assets or liabilities or recognizing gains or losses on them
on a different basis; or
• The assets and liabilities are part of a group of financial assets, financial liabilities or both
which are managed and their performance evaluated on a fair value basis, in accordance with a
documented risk management or investment strategy; or
• The financial instrument contains an embedded derivative, unless the embedded derivative
does not significantly modify the cash flows or it is clear, with little or no analysis, that it
would not be separately recorded.
The Parent Company designated its investments in ROP-Linked Structured Products (ROPSP) and
Dual Curve Notes (DCN) as financial assets at FVPL so as not to bifurcate the derivatives
embedded in these instruments.
Financial assets and financial liabilities at FVPL are recorded in the balance sheet at fair value.
Changes in fair value are recognized in Trading and securities gain. Interest earned or incurred is
recorded in interest income or expense, respectively, while dividend income is recorded in other
operating income when the right to receive payment has been established.
Derivatives recorded at fair value through profit or loss
The Parent Company is a party to derivative instruments, particularly, forward exchange contracts.
These contracts are entered into as a service to customers and as a means of reducing and
managing the Parent Company’s foreign exchange risk, as well as for trading purposes, but are not
designated as hedges. Such derivative financial instruments are stated at fair value through profit
or loss.
The fair value of forward exchange contracts is calculated by reference to current forward
exchange rates for contracts with similar maturity profiles. The resulting profit or loss is included
in the statements of income.
Embedded derivatives that are bifurcated from the host financial and non-financial contracts are
also accounted for at FVPL.
An embedded derivative is separated from the host contract and accounted for as a derivative
if all of the following conditions are met: a) the economic characteristics and risks of the
embedded derivative are not closely related to the economic characteristic of the host contract; b) a
separate instrument with the same terms as the embedded derivative would meet the definition of a
derivative; and c) the hybrid or combined instrument is not recognized at fair value through profit
or loss. The Group assesses whether embedded derivatives are required to be separated from the
host contracts when the Group first becomes party to the contract. Reassessment of embedded
derivatives is only done when there are changes in the contract that significantly modifies the
contractual cash flows.
-7-
Held-to-maturity financial assets
HTM financial assets are quoted non-derivative financial assets with fixed or determinable
payments and fixed maturities for which the Group’s management has the positive intention and
ability to hold to maturity. Where the Group would sell other than an insignificant amount of
HTM financial assets, the entire category would be tainted and reclassified as AFS financial
assets. After initial measurement, these investments are subsequently measured at amortized cost
using the effective interest rate method, less any impairment in value. Amortized cost is
calculated by taking into account any discount or premium on acquisition and fees that are an
integral part of the effective interest rate. The amortization is included in Interest income in the
statement of income. Gains and losses are recognized in income when the HTM financial assets
are derecognized and impaired, as well as through the amortization process. The losses arising
from impairment of such investments are recognized in the statement of income under Provision
for impairment and credit losses. The effects of restatement on foreign currency-denominated
HTM financial assets are recognized in the statement of income.
Loans and receivables
These are financial assets with fixed or determinable payments and fixed maturities that are not
quoted in an active market. They are not entered into with the intention of immediate or short-
term resale and are not classified as FVPL or as AFS financial assets.
After initial measurement, these are subsequently measured at amortized cost using the effective
interest rate method, less allowance for impairment. Amortized cost is calculated by taking into
account any discount or premium on acquisition and fees and costs that are an integral part of the
effective interest rate. The amortization is included in the Interest income in the statement of
income. The losses arising from impairment are recognized under Provision for impairment and
credit losses in the statement of income.
Available-for-sale financial assets
AFS financial assets are those which are designated as such or do not qualify to be classified as
financial assets at FVPL, HTM financial assets, or loans and receivables. They are purchased and
held indefinitely, and may be sold in response to liquidity requirements or changes in market
conditions. They include equity investments, money market papers and other debt instruments.
After initial measurement, AFS financial assets are subsequently measured at fair value. The
effective yield component of AFS debt securities, as well as the impact of restatement on foreign
currency-denominated AFS debt securities, is reported in the statement of income. The unrealized
gains and losses arising from the fair valuation of AFS financial assets are excluded, net of tax,
from reported earnings and are reported as Net unrealized gains on AFS financial assets in the
equity section of the balance sheet.
When the security is disposed of, the cumulative gain or loss previously recognized in equity is
recognized as Trading and securities gain in the statement of income. Where the Group holds
more than one investment in the same security, these are deemed to be disposed of on a first-in
first-out basis. Interest earned on holding AFS debt securities are reported as Interest income
using the effective interest rate. Dividends earned on holding AFS equity instruments are
recognized in the statement of income as Miscellaneous income when the right of the payment has
been established.
-8-
The losses arising from impairment of such investments are recognized as Provision for
impairment and credit losses in the statement of income.
Bills payable and other borrowed funds
Issued financial instruments or their components, which are not designated as at FVPL, are
classified as liabilities under bills payable or other appropriate financial liability accounts, where
the substance of the contractual arrangement results in the Group having an obligation either to
deliver cash or another financial asset to the holder, or to satisfy the obligation other than by the
exchange of a fixed amount of cash or another financial asset for a fixed number of its own equity
shares. The components of issued financial instruments that contain both liability and equity
elements are accounted for separately, with the equity component being assigned the residual
amount after deducting from the instrument as a whole the amount separately determined as the
fair value of the liability component on the date of issue.
After initial measurement, bills payable and similar financial liabilities not qualified and not
designated as FVPL, are subsequently measured at amortized cost using the effective interest rate
method. Amortized cost is calculated by taking into account any discount or premium on the issue
and fees that are an integral part of the effective interest rate.
Derecognition of Financial Assets and Liabilities
Financial assets
A financial asset (or, where applicable a part of a financial asset or part of a group of financial
assets) is derecognized when:
• the rights to receive cash flows from the asset have expired; or
• the Group retains the right to receive cash flows from the asset, but has assumed an obligation
to pay them in full without material delay to a third party under a “pass-through” arrangement;
or
• the Group has transferred its rights to receive cash flows from the asset and either (a) has
transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor
retained the risk and rewards of the asset but has transferred the control of the asset.
Where the Group has transferred its rights to receive cash flows from an asset or has entered into a
pass-through arrangement, and has neither transferred nor retained substantially all the risks and
rewards of the asset nor transferred control of the asset, the asset is recognized to the extent of the
Group’s continuing involvement in the asset. Continuing involvement that takes the form of a
guarantee over the transferred asset is measured at the lower of the original carrying amount of the
asset and the maximum amount of consideration that the Group could be required to repay.
Financial liabilities
A financial liability is derecognized when the obligation under the liability is discharged,
cancelled or has expired. Where an existing financial liability is replaced by another from the
same lender on substantially different terms, or the terms of an existing liability are substantially
modified, such an exchange or modification is treated as a derecognition of the original liability
and the recognition of a new liability, and the difference in the respective carrying amounts is
recognized in profit or loss.
-9-
Repurchase and Reverse Repurchase Agreements
Securities sold under agreements to repurchase at a specified future date (‘repos’) are not
derecognized from the balance sheet. The corresponding cash received, including accrued interest,
is recognized in the balance sheets as a loan to the Group, reflecting the economic substance of
such transaction. The Group has no repurchase agreements as of December 31, 2007 and 2006.
Conversely, securities purchased under agreements to resell at a specified future date (‘reverse
repos’) are not recognized in the balance sheet. The corresponding cash paid, including accrued
interest, is recognized in the balance sheet as securities purchased under resale agreements
(SPURA), and is considered a loan to the counterparty. The difference between the purchase price
and resale price is treated as interest income and is accrued over the life of the agreement using the
effective interest rate method.
Impairment of Financial Assets
The Group assesses at each balance sheet date whether there is objective evidence that a financial
asset or group of financial assets is impaired. A financial asset or a group of financial assets is
deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one
or more events that has occurred after the initial recognition of the asset (an incurred ‘loss event’)
and that loss event (or events) has an impact on the estimated future cash flows of the financial
asset or the group of financial assets that can be reliably estimated. Evidence of impairment may
include indications that the borrower or a group of borrowers is experiencing significant financial
difficulty, default or delinquency in interest or principal payments, the probability that they will
enter bankruptcy or other financial reorganization and where observable data indicate that there is
measurable decrease in the estimated future cash flows, such as changes in arrears or economic
conditions that correlate with defaults.
Assets carried at amortized cost
For financial assets carried at amortized cost, the Group first assesses whether objective evidence
of impairment exists individually for financial assets that are individually significant, or
collectively for financial assets that are not individually significant. If the Group determines that
no objective evidence of impairment exists for individually assessed financial asset, whether
significant or not, it includes the asset in a group of financial assets with similar credit risk
characteristics and collectively assesses for impairment. Those characteristics are relevant to the
estimation of future cash flows for groups of such assets by being indicative of the debtors’ ability
to pay all amounts due according to the contractual terms of the assets being evaluated. Assets
that are individually assessed for impairment and for which an impairment loss is, or continues to
be, recognized are not included in a collective assessment for impairment.
If there is objective evidence that an impairment loss has been incurred, the amount of the loss is
measured as the difference between the asset’s carrying amount and the present value of the
estimated future cash flows (excluding future credit losses that have not been incurred). The
carrying amount of the asset is reduced through use of an allowance account and the amount of
loss is charged to the statement of income. Interest income continues to be recognized based on
the original effective interest rate of the asset. The financial assets, together with the associated
allowance accounts, are written off when there is no realistic prospect of future recovery and all
collateral has been realized.
- 10 -
If, in a subsequent year, the amount of the estimated impairment loss decreases because of an
event occurring after the impairment was recognized, the previously recognized impairment loss is
reduced by adjusting the allowance account. If a future write-off is later recovered, any amounts
formerly charged are credited to the Provision for impairment and credit losses.
The present value of the estimated future cash flows is discounted at the financial asset’s original
effective interest rate. If a loan has a variable interest rate, the discount rate for measuring any
impairment loss is the current effective interest rate, adjusted for the original credit risk premium.
The calculation of the present value of the estimated future cash flows of a collateralized financial
asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling
the collateral, whether or not foreclosure is probable.
For the purpose of a collective evaluation of impairment, financial assets are grouped on the basis
of such credit risk characteristics as industry, collateral type and past due status.
Future cash flows in a group of financial assets that are collectively evaluated for impairment are
estimated on the basis of historical loss experience for assets with credit risk characteristics similar
to those in the Group. Historical loss experience is adjusted on the basis of current observable
data to reflect the effects of current conditions that did not affect the period on which the historical
loss experience is based and to remove the effects of conditions in the historical period that do not
exist currently. Estimates of changes in future cash flows reflect, and are directionally consistent
with changes in related observable data from period to period (such as changes in unemployment
rates, property prices, commodity prices, payment status, or other factors that are indicative of
incurred losses in the Group and their magnitude). The methodology and assumptions used for
estimating future cash flows are reviewed regularly by the Group to reduce any differences
between loss estimates and actual loss experience.
Assets carried at cost
If there is objective evidence that an impairment loss on an unquoted equity instrument that is not
carried at fair value because its fair value cannot be reliably measured, or on a derivative asset that
is linked to and must be settled by delivery of such an unquoted equity instrument has been
incurred, the amount of the loss is measured as the difference between the asset’s carrying amount
and the present value of estimated future cash flows discounted at the current market rate of return
for a similar financial asset.
Available-for-sale financial assets
For AFS financial assets, the Group assesses at each statement of condition date whether there is
objective evidence that a financial asset or group of financial assets is impaired.
In case of equity investments classified as AFS financial assets, this would include a significant or
prolonged decline in the fair value of the investments below its cost. Where there is evidence of
impairment, the cumulative loss - measured as the difference between the acquisition cost and the
current fair value, less any impairment loss on that financial asset previously recognized in the
statement of income - is removed from equity and recognized in the statement of income.
Impairment losses on equity investments are not reversed through the statement of income.
Increases in fair value after impairment are recognized directly in equity.
- 11 -
In the case of debt instruments classified as AFS financial assets, impairment is assessed based on
the same criteria as financial assets carried at amortized cost. Interest continues to be accrued at
the original effective interest rate on the reduced carrying amount of the asset and is recorded as
part of interest income in the statement of income. If, in subsequent year, the fair value of a debt
instrument increased and the increase can be objectively related to an event occurring after the
impairment loss was recognized in the statement of income, the impairment loss is reversed
through the statement of income.
Restructured loans
Where possible, the Group seeks to restructure loans rather than to take possession of collateral.
This may involve extending the payment arrangements and the agreement of new loan conditions.
Once the terms have been renegotiated, the loan is no longer considered past due. Management
continuously reviews restructured loans to ensure that all criteria are met and that future payments
are likely to occur. The loans continue to be subject to an individual or collective impairment
assessment, calculated using the loan’s original effective interest rate. The difference between the
recorded value of the original loan and the present value of the restructured cash flows, discounted
at the original effective interest rate, is recognized in Provision for impairment and credit losses in
the statement of income.
Offsetting Financial Instruments
Financial assets and financial liabilities are offset and the net amount reported in the statement of
condition if, and only if, there is a currently enforceable legal right to offset the recognized
amounts and there is an intention to settle on a net basis, or to realize the asset and settle the
liability simultaneously. This is not generally the case with master netting agreements, and the
related assets and liabilities are presented gross in the balance sheet.
Investments in Associates
Associates pertain to all entities over which the Group has significant influence but not control,
generally accompanying a shareholding of between 20.00% and 50.00% of the voting rights. In
the consolidated financial statements, investments in associates are accounted for under the equity
method of accounting.
Under the equity method, an investment in an associate is carried in the balance sheet at cost plus
post-acquisition changes in the Group’s share of the net assets of the associate. Goodwill relating
to an associate is included in the carrying value of the investments and is not amortized. The
statement of income reflects the share of the results of operations of the associate. Where there
has been a change recognized directly in the equity of the associate, the Group recognizes its share
of any changes and discloses this, when applicable, in the statement of changes in equity.
When the Group’s share of losses in an associate equals or exceeds its interest in the associate,
including any other unsecured receivables, the Group does not recognize further losses, unless it
has incurred obligations or made payments on behalf of the associate. Profits or losses resulting
from transactions between the Group and an associate are eliminated to the extent of the interest in
the associate.
The financial statements of the associate are prepared for the same reporting period as the Parent
Company. Where necessary, adjustments are made to bring the accounting policies in line with
those of the Group.
- 12 -
Revenue Recognition
Revenue is recognized to the extent that it is probable that economic benefits will flow to the
Group and the revenue can be reliably measured. The following specific recognition criteria must
also be met before revenue is recognized:
Interest income
For all financial instruments measured at amortized cost and interest bearing financial instruments
classified as AFS financial assets, interest income is recorded at the effective interest rate, which is
the rate that exactly discounts estimated future cash payments or receipts through the expected life
of the financial instrument or a shorter period, where appropriate, to the net carrying amount of the
financial asset or financial liability. The calculation takes into account all contractual terms of the
financial instrument (for example, prepayment options), includes any fees or incremental costs that
are directly attributable to the instrument and are an integral part of the effective interest rate, but
not future credit losses. The adjusted carrying amount is calculated based on the original effective
interest rate. The change in carrying amount is recorded as interest income.
Once the recorded value of a financial asset or group of similar financial assets has been reduced
due to an impairment loss, interest income continues to be recognized using the original effective
interest rate applied to the new carrying amount.
Loan fees and service charges
Loan commitment fees are recognized as earned over the terms of the credit lines granted to each
borrower. Loan syndication fees are recognized upon completion of all syndication activities and
where the Group does not have further obligations to perform under the syndication agreement.
Service charges and penalties are recognized only upon collection or accrued where there is a
reasonable degree of certainty as to their collectibility.
Dividend income
Dividend income is recognized when the Group’s right to receive payment is established.
Trading and securities gains
Results arising from trading activities include all gains and losses from changes in fair value of
financial assets held for trading and designated at FVPL. It also includes gains and losses realized
from sale of AFS financial assets.
Rental income
Rental income arising on leased properties is accounted for on a straight-line basis over the lease
terms on ongoing leases and is recorded in the statement of income under Miscellaneous income.
- 13 -
Bank Premises, Furniture, Fixtures and Equipment
Depreciable properties including buildings, leasehold improvements, and furniture, fixture and
equipment are stated at cost less accumulated depreciation and amortization, and any impairment
in value. Such cost includes the cost of replacing part of the bank premises, furniture, fixtures and
equipment when that cost is incurred if the recognition criteria are met, but excludes repairs and
maintenance costs.
Depreciation and amortization is calculated on the straight-line method over the estimated useful
life (EUL) of the depreciable assets as follows:
EUL
Buildings 50 years
Furniture, fixtures and equipment 3 to 5 years
Leasehold improvements Shorter of 6 years or the
related lease terms
The depreciation and amortization method and useful life are reviewed periodically to ensure that
the method and period of depreciation and amortization are consistent with the expected pattern of
economic benefits from items of bank premises, furniture, fixtures and equipment.
An item of bank premises, furniture, fixtures and equipment is derecognized upon disposal or
when no future economic benefits are expected from its use or disposal. Any gain or loss arising
on derecognition of the asset (calculated as the difference between the net disposal proceeds and
the carrying amount of the asset) is included in the statement of income in the year the asset is
derecognized.
Investment Properties
Initially, investment properties are measured at cost including certain transaction costs. Investment
properties acquired through a nonmonetary asset exchange is measured initially at fair value
unless (a) the exchange lacks commercial substance or (b) the fair value of neither the asset
received nor the asset given up is reliably measurable. Subsequent to initial recognition,
investment properties are stated at cost less accumulated depreciation and any accumulated
impairment in value.
Investment properties are derecognized when they have either been disposed of or when the
investment properties are permanently withdrawn from use and no future benefit is expected from
their disposal. Any gain or loss on the derecognition of an investment property is recognized as
Gain on sale of investment properties in the statement of income in the year of derecognition.
- 14 -
Expenditures incurred after the investment properties have been put into operation, such as repairs
and maintenance costs, are normally charged to income in the period in which the costs are
incurred.
Depreciation is calculated on a straight-line basis using the following useful lives from the time of
acquisition of the investment properties:
Estimated
Useful Life
Buildings and improvements 10 to 20 years
Transfers are made to investment properties when, and only when, there is a change in use
evidenced by ending of owner occupation, commencement of an operating lease to another party
or ending of construction or development. Transfers are made from investment properties when,
and only when, there is a change in use evidenced by commencement of owner occupation or
commencement of development with a view to sale.
Business Combinations and Goodwill
Business combinations are accounted for using the purchase method of accounting. Goodwill
acquired in a business combination is initially measured at cost, being the excess of the cost of the
business combination over the Group’s interest in the net fair value of the identifiable assets,
liabilities and contingent liabilities acquired. If the cost of acquisition is less than the fair values
of the identifiable net assets acquired, the discount on acquisition is recognized directly in the
statement of income in the year of acquisition.
Following initial recognition, goodwill is measured at cost less any accumulated impairment
losses. Goodwill is reviewed for impairment, annually or more frequently if events or changes in
circumstances indicate that the carrying value may be impaired.
Impairment of Goodwill
For the purpose of impairment testing, goodwill acquired in a business combination is, from the
date of acquisition, allocated to each of the Group’s cash-generating units, or groups of
cash-generating units, that are expected to benefit from the synergies of the combination,
irrespective of whether other assets or liabilities of the acquiree are assigned to those units or
group of units. Each unit or group of units to which the goodwill is allocated:
• represents the lowest level within the Group at which the goodwill is monitored for internal
management purposes; and
• is not larger than a segment based on either the Parent Company’s primary or the Parent
Company’s secondary reporting format determined in accordance with PAS 14, Segment
Reporting.
- 15 -
Where goodwill forms part of a cash-generating unit (or group of cash-generating units) and part
of the operation within that unit is disposed of, the goodwill associated with the operation
disposed of is included in the carrying amount of the operation when determining the gain or loss
on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the
relative values of the operation disposed of and the portion of the cash-generating unit retained.
When subsidiaries are sold, the difference between the selling price and the net assets plus
cumulative translation differences and unamortized goodwill is recognized in the statement of
income.
Intangible assets
Intangible assets include branch licenses (presented under Other assets) resulting from the Parent
Company’s acquisition of TMBC (see Note 4).
The branch licenses are initially measured at fair value as of the date of acquisition and are
deemed to have an indefinite useful life as there is no foreseeable limit to the period over which
they are expected to generate net cash inflows for the Group.
Intangible assets with indefinite uselife life are tested for impairment annually either individually
or at the cash generating unit level. Such intangibles are not amortized. Gains and losses arising
from derecognition of an intangible asset are measured as the difference between the net disposal
proceeds and the carrying amount of the asset and are recognized in earnings when the asset is
derecognized.
Impairment of Nonfinancial Assets
At each reporting date, the Group assesses whether there is any indication that its nonfinancial
assets (e.g. investment properties and bank premises, furniture, fixtures and equipment, intangible
assets) may be impaired. When an indicator of impairment exists or when an annual impairment
testing for an asset is required, the Group makes a formal estimate of recoverable amount.
Recoverable amount is the higher of an asset’s (or cash-generating unit’s) fair value less costs to
sell and its value in use and is determined for an individual asset, unless the asset does not
generate cash inflows that are largely independent of those from other assets or groups of assets, in
which case the recoverable amount is assessed as part of the cash generating unit to which it
belongs. Where the carrying amount of an asset (or cash generating unit) exceeds its recoverable
amount, the asset (or cash generating unit) is considered impaired and is written down to its
recoverable amount. In assessing value in use, the estimated future cash flows are discounted to
their present value using a pre-tax discount rate that reflects current market assessments of the
time value of money and the risks specific to the asset (or cash generating unit).
An impairment loss is charged to operations in the year in which it arises, unless the asset is
carried at a revalued amount, in which case the impairment loss is charged to the revaluation
increment of the said asset.
- 16 -
For nonfinancial assets, excluding goodwill, an assessment is made at each reporting date as to
whether there is any indication that previously recognized impairment losses may no longer exist
or may have decreased. If such indication exists, the recoverable amount is estimated. A
previously recognized impairment loss is reversed only if there has been a change in the estimates
used to determine the asset’s recoverable amount since the last impairment loss was recognized. If
that is the case, the carrying amount of the asset is increased to its recoverable amount. That
increased amount cannot exceed the carrying amount that would have been determined, net of
depreciation, had no impairment loss been recognized for the asset in prior years. Such reversal is
recognized in the statement of income unless the asset is carried at a revalued amount, in which
case the reversal is treated as a revaluation increase. After such a reversal, the depreciation
expense is adjusted in future years to allocate the asset’s revised carrying amount, less any residual
value, on a systematic basis over its remaining life.
Leases
The determination of whether an arrangement is, or contains a lease is based on the substance of
the arrangement and requires an assessment of whether the fulfillment of the arrangement is
dependent on the use of a specific asset or assets and the arrangement conveys a right to use the
asset. A reassessment is made after inception of the lease only if one of the following applies:
(a) There is a change in contractual terms, other than a renewal or extension of the arrangement;
(b) A renewal option is exercised or extension granted, unless that term of the renewal or
extension was initially included in the lease term;
(c) There is a change in the determination of whether fulfillment is dependent on a specified asset;
or
(d) There is a substantial change to the asset.
Where a reassessment is made, lease accounting shall commence or cease from the date when the
change in circumstances gave rise to the reassessment for scenarios (a), (c) or (d) above, and at the
date of renewal or extension period for scenario (b).
For arrangements entered into prior to January, 1, 2005, the date of inception is deemed to be
January 1, 2005 in accordance with the transitional requirements of Philippine Interpretation
IFRIC-4.
Group as lessee
Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are
classified as operating leases. Operating lease payments are recognized as an expense in the
statement of income on a straight-line basis over the lease term.
Group as lessor
Leases where the Group does not transfer substantially all the risk and benefits of ownership of the
assets are classified as operating leases. Initial direct costs incurred in negotiating operating leases
are added to the carrying amount of the leased asset and recognized over the lease term on the
same basis as the rental income. Contingent rents are recognized as revenue in the period in which
they are earned.
- 17 -
Pension Benefits
The Group has a noncontributory defined benefit retirement plan.
The retirement cost of the Parent Company and its subsidiaries is determined using the projected
unit credit method. Under this method, the current service cost is the present value of retirement
benefits payable in the future with respect to services rendered in the current period.
The asset recognized in the balance sheet in respect of defined benefit pension plans is the fair
value of plan assets at the statement of condition date less present value of the defined benefit
obligation, together with adjustments for unrecognized actuarial gains or losses and past service
costs. The defined benefit obligation is calculated annually by an independent actuary using the
projected unit credit method. The present value of the defined benefit obligation is determined by
discounting the estimated future cash outflows using interest rate on government bonds that have
terms to maturity approximating the terms of the related retirement liability.
Actuarial gains and losses arising from experience adjustments and changes in actuarial
assumptions are credited to or charged against income when the net cumulative unrecognized
actuarial gains and losses at the end of the previous period exceeded 10% of the higher of the
defined benefit obligation or the fair value of plan assets at that date. These excess gains or losses
are recognized over the expected average remaining working lives of the employees participating
in the plan.
Past-service costs, if any, are recognized immediately in income, unless the changes to the pension
plan are conditional on the employees remaining in service for a specified period of time (the
vesting period). In this case, the past-service costs are amortized on a straight-line basis over the
vesting period.
The defined benefit asset or liability comprises the present value of the defined benefit obligation
less past service costs not yet recognized and less the fair value of plan assets out of which the
obligations are to be settled directly. The value of any asset is restricted to the sum of any past
service cost not yet recognized and the present value of any economic benefits available in the
form of refunds from the plan or reductions in the future contributions to the plan.
Provisions and Contingencies
Provisions are recognized when the Group has a present obligation (legal or constructive) as a
result of a past event and it is probable that an outflow of resources embodying economic benefits
will be required to settle the obligation and a reliable estimate can be made of the amount of the
obligation. Where the Group expects some or all of a provision to be reimbursed, for example,
under an insurance contract, the reimbursement is recognized as a separate asset but only when the
reimbursement is virtually certain. The expense relating to any provision is presented in the
statement of income, net of any reimbursement. If the effect of the time value of money is
material, provisions are determined by discounting the expected future cash flows at a pre-tax rate
that reflects current market assessments of the time value of money and, where appropriate, the
risks specific to the liability. Where discounting is used, the increase in the provision due to the
passage of time is recognized as an interest expense.
- 18 -
Contingent liabilities are not recognized in the financial statements but are disclosed unless the
possibility of an outflow of resources embodying economic benefits is remote. Contingent assets
are not recognized but are disclosed in the financial statements when an inflow of economic
benefits is probable.
Income Taxes
Current Tax
Current tax assets and liabilities for the current and prior periods are measured at the amount
expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used
to compute the amount are those that are enacted or substantively enacted as of the balance sheet
date.
Deferred Tax
Deferred tax is provided, using the balance sheet liability method, on all temporary differences at
the statement of condition date between the tax bases of assets and liabilities and their carrying
amounts for financial reporting purposes.
Deferred tax liabilities are recognized for all taxable temporary differences, including asset
revaluations. Deferred tax assets are recognized for all deductible temporary differences, carry
forward of unused tax credits from the excess of minimum corporate income tax (MCIT) over the
regular corporate income tax (RCIT), and unused net operating loss carryover (NOLCO), to the
extent that it is probable that sufficient taxable profit will be available against which the deductible
temporary differences and carry forward of unused tax credits from MCIT and unused NOLCO
can be utilized. Deferred tax, however, is not recognized on temporary differences that arise from
the initial recognition of an asset or liability in a transaction that is not a business combination
and, at the time of the transaction, affects neither the accounting income nor taxable income.
Deferred tax liabilities are not provided on non-taxable temporary differences associated with
investments in domestic subsidiaries and associates.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to
the extent that it is no longer probable that sufficient taxable profit will be available to allow all or
part of the deferred tax asset to be utilized. Unrecognized deferred tax assets are reassessed at
each balance sheet date and are recognized to the extent that it has become probable that future
taxable profit will allow the deferred tax asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are applicable to the period
when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been
enacted or substantively enacted at the balance sheet date.
Current tax and deferred tax relating to items recognized directly in equity is also recognized in
equity and not in the statement of income.
Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set
off current tax assets against current tax liabilities and deferred taxes related to the same taxable
entity and the same taxation authority.
- 19 -
Earnings per Share
Basic earnings per share (EPS) is computed by dividing net income for the year by the weighted
average number of common shares outstanding during the year after giving retroactive effect to
stock dividends declared and stock rights exercised during the year, if any.
The Parent Company has no outstanding dilutive potential common shares.
Dividends on Common Shares
Dividends on common shares are recognized as a liability and deducted from equity when
approved by the respective shareholders of the Parent Company and its subsidiaries. Dividends
for the year that are approved after the balance sheet date are dealt with as an event after the
balance sheet date.
Subsequent Events
Any post-year-end event that provides additional information about the Group’s position at the
balance sheet date (adjusting event) is reflected in the financial statements. Post-year-end events
that are not adjusting events, if any, are disclosed when material to the financial statements.
Segment Reporting
The Group’s operating businesses are organized and managed separately according to the nature
of the products and services provided, with each segment representing a strategic business unit
that offers different products and serves different markets. Financial information on business
segments is presented in Note 29. The Group’s revenue producing assets are located in the
Philippines (i.e., one geographical location). Therefore, geographical segment information is no
longer presented.
Fiduciary Activities
Assets and income arising from fiduciary activities together with related undertakings to return
such assets to customers are excluded from the financial statements where the Parent Company
acts in a fiduciary capacity such as nominee, trustee or agent.
Future Changes in Accounting Policies
The Group has not applied the following PFRS and Philippine Interpretations which are not yet
effective for the year ended December 31, 2007:
PFRS 8, Operating Segments (effective for annual periods beginning on or after January 1, 2009)
This standard adopts a management approach to reporting segment information. The information
reported would be what management uses internally for evaluating the performance of operating
segments and allocating resources to those segments. Such information may be different from that
reported in the statement of condition and statement of income and companies will need to provide
explanations and reconciliations of the differences. PFRS 8 will replace PAS 14, Segment
Reporting. The Group will assess the impact of the standard on its current manner of reporting
segment information.
- 20 -
Amendment to PAS 1, Amendment on Statement of Comprehensive Income, effective January 1,
2009. In accordance with the amendment to PAS 1, the statement of changes in equity shall
include only transactions with owners, while all non-owners changes will be presented in equity as
a single line with details included in a separate statement. In addition, the amendment to PAS 1
provides for the introduction of a new statement of comprehensive income that combines all items
of income and expense recognized in the statement of income together with “other comprehensive
income”.
Amendment to PAS 23, Borrowing Costs, effective January 1, 2009. It requires the capitalization
of borrowing costs when such costs related to qualifying asset.
Philippine Interpretation IFRIC-11, PFRS 2-Group and Treasury Share Transactions (effective for
annual periods beginning on or after March 1, 2007)
This interpretation requires arrangements whereby an employee is granted rights to an entity’s
equity instruments to be accounted for as an equity-settled scheme by the entity even if (a) the
entity chooses or is required to buy those equity instruments (e.g., treasury shares) from another
party, or (b) the shareholders of the entity provide the equity instruments needed. It also provides
guidance on how subsidiaries, in their separate financial statements, account for such schemes
when their employees receive rights to the equity instruments of the parent. The Group currently
does not have any stock option plan and therefore, does not expect this interpretation to have
significant impact on its financial statements.
Philippine Interpretation IFRIC-12, Service Concession Arrangements, (effective for annual
periods beginning on or after January 1, 2008)
This interpretation covers contractual arrangements arising from private entities providing public
services and is not relevant to the Group’s current operations.
Philippine Interpretation IFRIC 13, Customer Loyalty Programmes, (effective for annual periods
beginning on or after July 1, 2008), requires loyalty credits to be accounted for as a separate
component of the sales transaction in which they are granted. The Group currently does not have
such programs and expects that the adoption of this interpretation will not have a significant
impact on the consolidated financial statements.
Philippine Interpretation IFRIC 14, The Limit on a Defined Benefit Asset, Minimum Funding
Requirement and their Interaction, (effective for annual periods beginning on or after January 1,
2008), provides guidance on how to assess the limit on the amount of surplus in a defined benefit
scheme that can be recognized as an asset under PAS 19, Employee Benefits. The Group expects
that the adoption of this interpretation will not have a significant impact on the consolidated
financial statements.
- 21 -
3. Significant Accounting Judgments and Estimates
The preparation of the financial statements in accordance with PFRS requires the Group to make
judgments and estimates that affect the reported amounts of assets, liabilities, income and
expenses and disclosure of contingent assets and contingent liabilities. Future events may occur
which will cause the judgments and assumptions used in arriving at the estimates to change. The
effects of any change in judgments and estimates are reflected in the financial statements as they
become reasonably determinable.
Judgments and estimates are continually evaluated and are based on historical experience and
other factors, including expectations of future events that are believed to be reasonable under the
circumstances.
Judgments
Operating leases
The Group has entered into commercial property leases on its investment property portfolio. The
Group has determined that it retains all the significant risks and rewards of ownership of these
properties which are leased out as operating leases.
Fair value of financial instruments
Where the fair values of financial assets and financial liabilities recorded on the balance sheet
cannot be derived from active markets, they are determined using a variety of valuation techniques
acceptable to the market as alternative valuation approaches that include the use of mathematical
models. The inputs to these models are taken from observable markets where possible, but where
this is not feasible, a degree of judgment is required in establishing fair values. The judgments
include considerations of liquidity and model inputs such as correlation and volatility for longer
dated derivatives.
HTM financial assets
The classification to HTM financial assets requires significant judgment. In making this
judgment, the Group evaluates its intention and ability to hold such investments to maturity. If the
Group fails to keep these investments to maturity other than in certain specific circumstances - for
example, selling an insignificant amount close to maturity - it will be required to reclassify the
entire portfolio as part of AFS financial assets. The investments would therefore be measured at
fair value and not at amortized cost.
Financial assets not quoted in an active market
The Group classifies financial assets by evaluating, among others, whether the asset is quoted or
not in an active market. Included in the evaluation on whether a financial asset is quoted in an
active market is the determination of whether quoted prices are readily and regularly available, and
whether those prices represent actual and regularly occurring market transactions conducted on an
arm’s length basis.
- 22 -
Estimates
Impairment losses on loans and receivables
The Group reviews its loans and receivables at each reporting date to assess whether an allowance
for impairment should be recorded in the balance sheet and any changes thereto in the statement of
income. In particular, judgment by management is required in the estimation of the amount and
timing of future cash flows when determining the level of allowance required. Such estimates are
based on assumptions about a number of factors. Actual results may also differ, resulting in future
changes to the allowance.
In addition to specific allowance against individually significant loans and receivables, the Group
also makes a collective impairment assessment on exposures which, although not specifically
identified as requiring a specific allowance, have a greater risk of default than when originally
granted. The resulting collective allowance is based on any deterioration in the internal rating of
the loan or investment since it was granted or acquired. These internal ratings take into
consideration factors such as any deterioration in country risk, industry, and technological
obsolescence, as well as identified structural weaknesses or deterioration in cash flows.
As of December 31, 2007 and 2006, the allowance for impairment and credit losses on loans and
= P
receivables of the Group amounted to P6.85 billion and =7.41 billion, respectively (see Notes 9
P
and 14). Loans and receivables of the Group are carried at P87.33 billion and =71.40 billion as of
December 31, 2007 and 2006, respectively (see Note 9). As of December 31, 2007 and 2006, the
allowance for impairment and credit losses on loans and receivables of the Parent Company
= P
amounted to P6.84 billion and =7.41 billion, respectively (see Notes 9 and 14). Loans and
P P
receivables of the Parent Company are carried at =86.07 billion and =71.40 billion as of
December 31, 2007 and 2006, respectively (see Note 9).
Fair value of financial instruments
The fair values of financial instruments that are not quoted in active markets are determined by
using valuation techniques. Where valuation techniques (e.g., financial models) are used to
determine fair values, they are validated and periodically reviewed by qualified personnel
independent of the area that created them. All financial models are certified before they are used
and are calibrated to ensure that outputs reflect actual data and comparative market prices. To the
extent practical, the financial models use only observable data, however, areas such as credit risk
(both own and counterparty), volatilities and correlations require management to make estimates.
Changes in assumptions about these factors could affect reported fair value of financial
instruments (see Note 6).
Impairment of AFS equity investments
The Group treats AFS equity investments as impaired when there has been a significant or
prolonged decline in their fair values below their costs or where other objective evidence of
impairment exists. The determination of what is ‘significant’ or ‘prolonged’ requires judgment.
The Group treats ‘significant’ generally as 20% or more of the original cost of investment, and
‘prolonged’ as being greater than six months. In addition, the Group evaluates other factors,
including normal volatility in share price for quoted equities and the future cash flows and the
discount factors for unquoted equities.
- 23 -
In 2006, the provision for impairment losses for the Parent Company’s AFS equity investments
=
amounted P15.92 million (see Note 8). In 2007, no additional impairment losses have been
recognized based on the Parent Company’s impairment assessment (see Note 8). The Group’s
= P
AFS equity investments are carried at P422.33 million and =390.00 million as of December 31,
2007 and 2006, respectively (see Note 8). The Parent Company’s AFS equity investments are
P P
carried at =402.81 million and =371.83 million as of December 31, 2007 and 2006, respectively
(see Note 8).
Recognition of deferred income taxes
Deferred tax assets are recognized for all unused tax losses to the extent that it is probable that
taxable profit will be available against which the losses can be utilized. Management discretion is
required to determine the amount of deferred tax assets that can be recognized, based on the
forecasted level of future taxable profits and the related future tax planning strategies.
As discussed in Note 25, the Group recognized net deferred tax assets as of December 31, 2007
P P
and 2006 amounting to =815.30 million and =554.99 million, respectively. The Parent
Company’s net deferred tax assets as of December 31, 2007 and 2006 amounted to =813.11 P
P
million and =552.84 million, respectively. No deferred tax assets have been set up on deductible
P P
temporary differences amounting to =4.02 billion and =4.60 billion as of December 31, 2007 and
2006, respectively.
Net plan assets and retirement expense
The determination of the Group’s net plan assets and annual retirement expense is dependent on
the selection of certain assumptions used in calculating such amounts. Those assumptions include,
among others, discount rates, expected returns on plan assets, salary increase rates and price and
projected plan asset yields (see Note 22).
In accordance with PFRS, actual results that differ from the Group’s assumptions, subject to the
10% corridor test, are accumulated and amortized over future periods and therefore, generally
affect the recognized expense and recorded net plan assets in such future periods. While the
Group believes that the assumptions are reasonable and appropriate, significant differences
between actual experiences and assumptions may materially affect the Group’s net plan assets and
annual retirement expense.
As of December 31, 2007 and 2006, the Parent Company has net plan assets amounting to
= P
P234.82 million and =328.39 million, respectively (see Notes 13 and 22).
- 24 -
Impairment on investment in subsidiaries and associates and other non-financial assets
The Parent Company assesses impairment on its investments in subsidiaries and associate and
other nonfinancial assets (e.g., investment properties and bank premises, furniture, fixtures and
equipment, intangible assets) whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Among others, the factors that the Parent
Company considers important which could trigger an impairment review on its investments in
subsidiaries and associate include the following:
• Deteriorating or poor financial condition;
• Recurring net losses; and
• Significant changes with an adverse effect on the subsidiary or associate have taken place
during the period, or will take place in the near future, the technological, market, economic, or
legal environment in which the subsidiary operates.
On its other non-financial assets, the Parent Company considers the following impairment
indicators:
• Significant underperformance relative to expected historical or projected future operating
results;
• Significant changes in the manner of use of the acquired assets or the strategy for overall
business; and
• Significant negative industry or economic trends.
An impairment loss is recognized whenever the carrying amount of an asset exceeds its
recoverable amount. The recoverable amount is determined based on the asset’s value in use
computation which considers the present value of estimated future cash flows expected to be
generated from the continued use of the asset. The Parent Company is required to make estimates
and assumptions that can materially affect the carrying amount of the asset being assessed.
As of December 31, the carrying values of the Parent Company’s investment in subsidiaries and
associate and other nonfinancial assets follow:
2007 2006
Investments in subsidiaries and associate (Note 10) P1,136,284,552
= P85,189,000
=
Bank premises, furniture, fixtures and equipment
(Note 11) 3,627,181,567 3,295,891,093
Investment properties (Note 12) 4,271,769,470 4,382,514,268
Branch licenses (Note 13) 438,532,320 –
- 25 -
Estimated useful lives of bank premises, furniture, fixture and equipment and investment
properties
The Group reviews on an annual basis the estimated useful lives of bank premises, furniture,
fixtures and equipment and depreciable investment properties based on expected asset utilization
as anchored on business plans and strategies that also consider expected future technological
developments and market behavior. It is possible that future results of operations could be
materially affected by changes in these estimates brought about by changes in the factors
mentioned. A reduction in the estimated useful lives of bank premises, furniture, fixtures and
equipment and depreciable investment properties would decrease their respective balances and
increase the recorded depreciation and amortization expense.
As of December 31, the carrying values of bank premises, furniture, fixtures and equipment and
investment properties follow:
Consolidated Parent Company
2007 2006 2007 2006
Bank premises, furniture, fixtures =
P4,252,747,800 =3,298,474,499
P P
=3,627,181,567 P
=3,295,891,093
and equipment (Note 11)
Investment properties (Note 12) 4,347,061,469 4,382,514,268 4,271,769,470 4,382,514,268
Contingencies
The Group is currently involved in various legal proceedings. The estimate of the probable costs
for the resolution of these claims has been developed in consultation with outside legal counsels
handling the underlying legal cases and is based on thorough analyses of the potential results by
the business units involved and top management. The Group currently does not believe that these
proceedings will have a material adverse effect on its financial position. It is possible, however,
that future results of operations could be materially affected by changes in the estimates or in the
effectiveness of the strategies relating to these proceedings.
4. Business Combination
Merger Information
On June 21, 2007, the Parent Company and the majority shareholders of The Manila Banking
Corporation (TMBC) entered into a Memorandum of Agreement (MOA) whereby the
former agreed to buy and the latter agreed to sell 87.52% of their equity interest in TMBC for
=
P1.65 billion.
Under the MOA, the parties agree to place in escrow with the Parent Company the entire amount
of the purchase price and all the original certificates of 7,688,252 shares immediately upon the
execution of the MOA. TMBC shall be allowed to draw from the escrow account the sum
equivalent to 20% of the purchase price upon execution of the Deed of Assignment of shares. The
balance of the purchase price shall be released from escrow in favor of the selling parties upon
completion of the due diligence and reconciliation of adjustments except for provisioned amounts.
On the other hand, the corresponding TMBC shares shall be released from escrow in favor of the
Parent Company.
- 26 -
The Parent Company shall be given two years from the execution of the Deed of Assignment of
shares to restore any provisioned amounts to current status or to collect any outstanding loans and
other receivables. After such period, any agreed provisioning on accounts not restored nor
collected shall be deducted from the purchase price and shall be released from escrow in favor of
the Parent Company.
On September 3, 2007, the Parent Company's officers were appointed as members of TMBC's
BOD. As of this date, the Parent Company effectively obtained control of TMBC. Subsequent
=
thereto, a tender offer was made to all remaining shareholders of TMBC at the price of P214.65
per share. A total of 4.30% of TMBC's common shares were subsequently acquired through a
tender offer, which expired on January 15, 2008 and separate acquisitions, increasing the Parent
Company's equity interest in TMBC as defined under PFRS 3 to 91.82%.
As of December 31, 2007, the Parent Company has already paid an aggregate amount of
=
P1.18 billion for the TMBC shares. The Parent Company expects to settle the remaining balance
in 2008 (see Note 18).
On October 3, 2007, the BOD of the Parent Company granted approval for TMBC to use,
appropriate and register the name China Bank Savings, Inc. as its corporate name and China Bank
Savings as the business name/trade name. The move is subject to the retention of ownership by
the Parent Company of the majority equity of TMBC or its successor-in-interest and to the
approval of the regulators. As of December 31, 2007, the Securities and Exchange Commission
(SEC) has not yet approved TMBC’s application on the change in names.
The fair values of the identifiable assets and liabilities acquired and goodwill arising as at the date
of acquisition are as follows:
Fair Value
Recognized
on Acquisition Carrying Value
2007 2007
ASSETS
Cash =
P108,339,740 P
=108,339,740
Due from Bangko Sentral ng Pilipinas 346,698,023 346,698,023
Due from other banks 468,820,583 468,820,583
AFS financial assets 679,061,087 679,061,087
Loans and receivables - net 5,294,659,309 5,294,659,309
Accrued interest receivable 44,332,545 44,332,545
Bank premises, furniture, fixture and
equipment - net 702,685,480 628,980,357
Investment properties 65,359,528 42,116,045
Sales contracts receivable 605,851,168 605,851,168
Branch licenses 477,600,000 477,600,000
Other assets - net 220,427,179 220,427,179
Total 9,013,834,642 8,916,886,036
(Forward)
- 27 -
Fair Value
Recognized
on Acquisition Carrying Value
2007 2007
LIABILITIES
Deposit liabilities P5,948,201,976
= P
=5,948,201,976
Bills payable 1,172,089,147 1,172,089,147
Manager's checks 8,323,206 8,323,206
Accrued taxes and other expenses 53,737,492 53,737,492
Deferred credits and other liabilities 184,638,959 184,638,959
Total 7,366,990,780 7,366,990,780
NET ASSETS =
P1,646,843,862 P
=1,549,895,256
Share in the fair value of net assets
acquired (91.82%) P1,512,132,034
=
The acquisition resulted in recognition of goodwill determined as follows:
Total cost of acquisition:
Cost to acquire 87.52% of TMBC P
=1,650,283,292
Cost to acquire 4.30% of TMBC 84,689,943
1,734,973,235
Less: Fair value of net assets acquired 1,512,132,034
Goodwill =
P222,841,201
The purchase price allocation has been prepared on a preliminary basis due to unavailability of
certain information to facilitate fair value computation, and reasonable changes are expected as
additional information becomes available. The accounts that are subject to provisional accounting
are loans and receivables, accrued interest receivable, sales contracts receivables, branch licenses,
bills payable, contingent liabilities and goodwill. The goodwill recognized by the Parent
Company can be attributed to factors such as increase in geographical presence and customer base
due to branches acquired.
Accounting for the Business Combination
PFRS 3 provides that if the initial accounting for a business combination can be determined only
provisionally by the end of the period in which the combination is effected because either the fair
values to be assigned to the acquiree’s identifiable assets, liabilities or contingent liabilities or the
cost of the combination can be determined only provisionally, the acquirer shall account for the
combination using those provisional values. The acquirer shall recognize any adjustments to those
provisional values as a result of completing the initial accounting within twelve months of the
acquisition date as follows: (i) the carrying amount of the identifiable asset, liability or contingent
- 28 -
liability that is recognized or adjusted as a result of completing the initial accounting shall be
calculated as if its fair value at the acquisition date had been recognized from that date; (ii)
goodwill or any gain recognized shall be adjusted by an amount equal to the adjustment to the fair
value at the acquisition date of the identifiable asset, liability or contingent liability being
recognized or adjusted; and (iii) comparative information presented for the periods before the
initial accounting for the combination is complete shall be presented as if the initial accounting
had been completed from the acquisition date.
Cash flow on acquisition follows:
Cash and cash equivalents acquired from TMBC P
=923,858,346
Cash paid (1,174,960,789)
Net cash outflow =
(P251,102,443)
From the date of acquisition, the Parent Company’s share in TMBC’s net loss amounted to
=
P14.66 million. If the combination had taken place at the beginning of the year, the Group’s total
P
operating income would have increased by =268.75 million while the Group’s net income before
P
tax would have increased by =1.71 million.
Other costs incurred from the acquisition such as legal, audit and other professional fees are not
material.
5. Financial Instrument Categories
The following table presents the total carrying amount of the Group and Parent Company’s
financial instruments per category:
Consolidated Parent Company
2007 2006 2007 2006
Financial assets
Financial assets at FVPL =
P4,789,690,188 =
P13,673,876,993 =
P4,789,690,188 P13,673,876,993
=
AFS financial assets 24,256,795,572 20,094,400,972 23,910,602,048 19,921,537,336
HTM financial assets 12,478,950,535 15,811,146,700 12,478,950,535 15,811,146,700
Loans and receivables:
Cash and other cash items 3,077,335,121 2,599,467,319 3,064,553,081 2,601,337,948
Due from BSP 12,427,182,517 9,268,764,084 12,328,161,848 9,268,764,084
Due from other banks 4,649,838,136 2,436,097,931 4,534,415,329 2,436,097,931
Interbank loans receivable and
securities purchased under
agreement to resell 11,821,000,000 9,545,150,000 11,581,000,000 9,545,150,000
Loans and receivables - net 87,328,696,116 71,403,556,897 86,067,347,474 71,403,556,897
Accrued interest receivable 1,472,659,796 927,535,027 1,455,738,680 924,096,223
Other assets 3,022,674,919 1,319,006,222 2,764,801,519 1,258,798,892
123,799,386,605 97,499,577,480 121,796,017,931 97,437,801,975
Total financial assets =
P165,324,822,900 =
P147,079,002,145 =
P162,975,260,702 =
P146,844,363,004
(Forward)
- 29 -
Consolidated Parent Company
2007 2006 2007 2006
Financial liabilities
Other financial liabilities:
Deposit liabilities =
P140,456,325,304 =
P121,628,535,378 =
P138,978,306,120 P121,662,708,270
=
Bills payable 2,661,307,167 3,828,657,496 2,578,774,767 3,828,657,496
Manager’s checks 292,673,476 246,277,757 292,673,476 246,277,757
Accrued interest expense and
other expenses 3,139,188,281 2,732,087,918 3,125,508,171 2,728,454,333
Other liabilities 2,345,824,235 2,214,769,258 2,217,121,921 2,139,803,154
148,895,318,463 130,650,327,807 147,192,384,455 130,605,901,010
Financial liabilities at FVPL (Note 18) 4,507,664 – 4,507,664 –
Total financial liabilities =
P148,899,826,127 P130,650,327,807
= =
P147,196,892,119 P130,605,901,010
=
6. Fair Value Measurement
The table below presents a comparison of carrying amounts and estimated fair values of all of the
Group’s financial instruments as of December 31:
Consolidated
2007 2006
Carrying Value Fair Value Carrying Value Fair Value
Financial Assets
Cash and other cash items =
P3,077,335,121 P3,077,335,121
= P2,599,467,319
= P
=2,599,467,319
Due from BSP 12,427,182,517 12,427,182,517 9,268,764,084 9,268,764,084
Due from other banks 4,649,838,136 4,649,838,136 2,436,097,931 2,436,097,931
Interbank loans receivable and
securities purchased under
agreement to resell 11,821,000,000 11,821,000,000 9,545,150,000 9,545,150,000
Financial assets at FVPL
Held-for-trading 3,869,254,828 3,869,254,828 11,208,598,853 11,208,598,853
Derivative assets 322,205,600 322,205,600 367,161,865 367,161,865
Designated at FVPL 598,229,760 598,229,760 2,098,116,275 2,098,116,275
AFS financial assets
Quoted:
Bonds and commercial papers 23,471,983,466 23,471,983,466 19,380,145,012 19,380,145,012
Equities 338,941,641 338,941,641 333,497,536 333,497,536
Unquoted:
Bonds and commercial papers 362,485,201 362,485,201 324,260,288 324,260,288
Equities 83,385,264 83,385,264 56,498,136 56,498,136
HTM financial assets 12,478,950,535 13,369,325,359 15,811,146,700 17,782,064,388
Loans and receivables
Loans and discounts
Corporate lending - net 67,061,908,362 60,491,864,974 54,399,968,971 54,393,352,886
Consumer lending - net 12,140,017,265 11,000,736,456 8,260,752,652 8,259,817,468
Others - net 652,107,582 552,060,294 660,985,992 660,865,786
Customers’ liabilities under
letters of credit or trust
receipt 6,073,797,098 6,073,797,098 6,626,515,167 6,626,515,167
Bills purchased 1,400,865,809 1,400,865,809 1,455,334,115 1,455,334,115
Accrued interest receivable 1,472,659,796 1,457,244,975 927,535,027 927,535,027
Other assets 3,022,674,919 3,140,411,916 1,319,006,222 1,393,015,070
Total financial assets =
P165,324,822,900 P158,508,148,415
= P147,079,002,145
= P
=149,116,257,206
(Forward)
- 30 -
Consolidated
2007 2006
Carrying Value Fair Value Carrying Value Fair Value
Financial Liabilities
Deposit liabilities =
P140,456,325,304 P140,456,325,304
= =
P121,628,535,378 P
=121,628,535,378
Bills payable 2,661,307,167 2,584,722,887 3,828,657,496 3,730,455,041
Manager’s checks 292,673,476 292,673,476 246,277,757 246,277,757
Accrued interest expense and
other expenses 3,139,188,281 3,139,188,281 2,732,087,918 2,732,087,918
Other liabilities 2,350,331,899 2,350,331,891 2,214,769,258 2,214,769,258
Total financial liabilities =
P148,899,826,127 P148,823,241,839
= =
P130,650,327,807 P
=130,552,125,352
Parent Company
2007 2006
Carrying Value Fair Value Carrying Value Fair Value
Financial Assets
Cash and other cash items =
P3,064,553,081 P3,064,553,081
= P2,601,337,948
= P
=2,601,337,948
Due from BSP 12,328,161,848 12,328,161,848 9,268,764,084 9,268,764,084
Due from other banks 4,534,415,329 4,534,415,329 2,436,097,931 2,436,097,931
Interbank loans receivable and
securities purchased under
agreement to resell 11,581,000,000 11,581,000,000 9,545,150,000 9,545,150,000
Financial assets at FVPL
Held-for-trading 3,869,254,828 3,869,254,828 11,208,598,853 11,208,598,853
Derivative assets 322,205,600 322,205,600 367,161,865 367,161,865
Designated at FVPL 598,229,760 598,229,760 2,098,116,275 2,098,116,275
AFS financial assets
Quoted:
Bonds and commercial papers 23,152,346,204 23,152,346,204 19,225,443,245 19,225,443,245
Equities 338,941,641 338,941,641 315,334,867 315,334,867
Unquoted:
Bonds and commercial papers 355,444,357 355,444,357 324,260,288 324,260,288
Equities 63,869,846 63,869,846 56,498,936 56,498,936
HTM financial assets 12,478,950,535 13,369,325,359 15,811,146,700 17,782,064,388
Loans and receivables
Loans and discounts
Corporate Lending - net 65,815,446,979 59,245,403,591 54,399,968,971 54,343,352,866
Consumer Lending - net 12,137,428,584 10,998,147,775 8,260,752,652 8,259,817,468
Others - net 652,733,385 552,686,097 660,985,992 660,865,786
Customers’ liabilities under
letters of credit or trust
receipt 6,073,797,098 6,073,797,098 6,626,515,167 6,626,515,167
Bills purchased 1,387,941,428 1,387,941,428 1,455,334,115 1,455,334,115
Accrued interest receivable 1,455,738,680 1,455,738,680 924,096,223 924,096,223
Other assets 2,764,801,519 2,764,801,519 1,258,798,892 1,332,807,740
Total financial assets 162,975,260,702 156,056,264,041 146,844,363,004 148,831,618,045
Financial Liabilities
Deposit liabilities 138,978,306,120 138,978,306,120 121,662,708,270 121,662,708,270
Bills payable 2,578,774,767 2,505,284,582 3,828,657,496 3,730,455,041
Manager’s checks 292,673,476 292,673,476 246,277,757 246,277,757
Accrued interest expense and
other expenses 3,125,508,171 3,125,508,171 2,728,454,333 2,728,454,333
Other liabilities 2,221,629,585 2,221,629,585 2,139,803,154 2,139,803,154
Total financial liabilities =
P147,196,892,119 P147,123,401,934
= =
P130,605,901,010 P
=130,507,698,555
- 31 -
The methods and assumptions used by the Group and Parent Company in estimating the fair
values of the financial instruments are:
Cash and other cash items, due from BSP and other banks, interbank loans receivable and
securities purchased under agreements to resell and accrued interest receivable - The carrying
amounts approximate their fair values considering that these accounts consist mostly of overnight
deposits and floating rate placements.
Debt securities - Fair values are generally based upon quoted market prices. If the market prices
are not readily available, fair values are estimated using either values obtained from independent
parties offering pricing services or adjusted quoted market prices of comparable investments or
using the discounted cash flow methodology.
Equity securities - For publicly traded equity securities, fair values are based on quoted prices
published in the Philippine equity markets. For unquoted equity securities for which no reliable
basis for fair value measurement is available, these are carried at cost net of impairment, if any.
Loans and receivables - Fair values of loans and receivables are estimated using the discounted
cash flow methodology, using the Group’s current incremental lending rates for similar types of
loans and receivables.
Accounts receivable and RCOCI included in other assets - Quoted market prices are not readily
available for these assets. They are not reported at fair value and are not significant in relation to
the Group’s total portfolio of securities.
Sales contracts receivable included in other assets - Fair values of sales contracts receivables are
estimated using the discounted cash flow methodology, using the Group’s current incremental
lending rates for similar types of receivables.
Derivative instruments (included under FVPL) - Fair values are estimated based on quoted market
prices, prices provided by independent parties or accepted valuation models (either based on
discounted cash flow techniques or option pricing models, as applicable).
Deposit liabilities (demand and savings deposits) - Carrying amounts approximate fair values
considering that these are currently due and demandable.
Bills payable - Fair values are estimated using the discounted cash flow methodology using the
current incremental borrowing rates for similar borrowings with maturities consistent with those
remaining for the liability being valued.
Other liabilities - Carrying amounts approximate fair values due to the short-term nature of the
accounts.
- 32 -
7. Financial Risk Management Objectives and Policies
The Group’s activities are principally related to the profitable use of financial instruments. Risks
are inherent in these activities but are managed by the Group through a rigorous, comprehensive
and continuous process of identification, measurement , monitoring and mitigation of these risks,
partly through the effective use of risk and authority limits, process controls and monitoring, and
independent controls. As reflected in its corporate actions and organizational improvements, the
Group has placed due importance to expanding and strengthening its risk management process and
considers it as a vital component to the Group’s continuing profitability and financial stability.
Central to the Group’s risk management process is its adoption of a risk management program
intended to avoid unnecessary risks, manage and mitigate unavoidable risks and maximize returns
from taking acceptable risks necessary to sustain its business viability and good financial position
in the market.
The key financial risks that the Group faces are: credit risk, market risk (i.e. interest rate risk,
foreign currency risk and equity price risk) and liquidity risk. The Group’s risk management
objective is primarily focused on controlling and mitigating these risks. The Parent Company and
its subsidiaries manage their respective financial risks separately. The subsidiaries, particularly
TMBC, have their own risk management processes but are structured similar to that of the Parent
Company. To a certain extent, the respective risk management programs and objectives are the
same across the Group. The gravity of the risks, the magnitude of the financial instruments
involved, and regulatory requirements are primary considerations to the scope and extent of the
risk management processes put in place for the subsidiaries.
Risk Management Structure
The BOD of the Parent Company is ultimately responsible for the oversight of the Parent
Company’s risk management process. On the other hand, the risk management processes of the
subsidiaries are the separate responsibilities of their respective BOD. The BOD created a separate
board-level independent committee with explicit authority and responsibility for managing and
monitoring risks.
The BOD has delegated to the Risk Management Committee (RMC) the implementation of the
risk management process which includes, among others, the development of various risk strategies
and principles, control guidelines policies and procedures, implementation of risk measurement
tools, monitoring of key risk indicators, and the imposition and monitoring of risk limits. The
RMC is composed of five members of the BOD.
The Risk Management Unit (RMU) is the direct support of the RMC in the day-to-day risk
management and the implementation of the risk management strategies approved by the RMC.
The implementation cuts across all departments of the Parent Company and involves all of the
Parent Company’s financial instruments, whether “on-books” or “off books.” The RMU is
likewise responsible for monitoring the implementation of specific risk control procedures and
enforcing compliance thereto. The RMU is also directly involved in day-to-day risk measurement
and monitoring to make sure that the Parent Company, in its transactions and dealings, engages
only in acceptable and manageable financial risks. The RMU also ensures that risk measurements
are accurately and completely captured on a timely basis in the management reporting system of
the Parent Company. The RMU regularly reports the results of the risk measurements to the
RMC. The RMU is headed by the Chief Risk Officer (CRO).
- 33 -
Apart from RMU, each business unit has created and put in place various process controls which
ensure that all the external and internal transactions and dealings of the unit are in compliance with
the unit’s risk management objectives.
The Internal Audit Department also plays a crucial role in risk management primarily because it is
independent of the business units and reports exclusively to the Audit Committee which in turn is
comprised of independent directors. The Internal Audit Department focuses not on the
implementation of controls but on ensuring that adequate controls are in place and on monitoring
compliance to controls. The regular audit covers all processes and controls, including those under
the risk management framework handled by the RMU. The audit of these processes and controls
is undertaken at least annually. The audit results and exceptions, including recommendations for
their resolution or improvement, are discussed initially with the business units concerned before
these are presented to the Audit Committee.
Risk Management Reporting
The CRO and other members of the RMU report to the RMC and to the Management Committee
(ManCom) on a monthly and a weekly basis, respectively . The CRO reports on key risk
indicators and specific risk management issues that would need resolution from top management.
This is undertaken after the risk issues and key risk indicators have been discussed with the
business units concerned.
The key risk indicators were formulated on the basis of the financial risks faced by the Parent
Company. The key risk indicators contain information from all business units that provide
measurements on the level of the risks taken by the Parent Company with its transactions, products
and financial structure. Among others, the report on key risk indicators includes information on
the Parent Company’s aggregate credit exposure, credit metric forecasts, hold limit exceptions,
VaR analysis, utilization of market and credit limits, liquidity ratios, overall loan loss provisioning
and risk profile changes. Loan loss provisioning and credit limit utilization are however discussed
in more detail in the Credit Committee. On a monthly basis, detailed reporting of industry,
customer and geographic risks is included in the discussion with the RMC and ManCom. A
comprehensive risk report is submitted to the BOD every quarter for an overall assessment of the
level risks taken by the Parent Company.
The Parent Company recently acquired a new treasury operations system which will greatly
improve its risk measurement and reporting particularly those related to treasury products. To
date, the Parent Company is still in the process of conversion to the new treasury system.
On the other hand, the Chief Internal Auditor reports to the Audit Committee on a monthly basis
on the results of branch or business unit audits and for the resolution of pending but important
internal audit issues.
Risk Mitigation
The Parent Company uses derivatives, structured products and other financial instruments to
manage exposures resulting from changes in interest rates, foreign currencies, equity risks, credit
risks, and exposures arising from forecast transactions. However, the nature and extent of use of
these financial instruments to mitigate risks are limited to those allowed by the BSP for the Parent
Company and its subsidiaries.
- 34 -
To further mitigate risks throughout its different business units, the Parent Company created new
risk management policies and made vast improvements to existing policies (e.g., .The Risk
Management Manual, Operational Risk Management Policy Manual, Product Approval Process
Manual). These policies further serve as the framework and set of guidelines in the creation or
revisions of operating policies and manuals for each business unit. In the process design and
implementation, process controls are preferred over detection controls. Clear delineation of
responsibilities and separation of incompatible duties among officers and staff as well as among
business units are reiterated in these policies. To the extent possible, reporting and accounting
responsibilities are segregated from units directly involved in operations and front line activities
(i.e., players must not be scorers). This is to improve the credibility and accuracy of management
information. Any inconsistencies in the operating policies and manuals with the risk framework
established by risk management policies created by the RMU are taken up and resolved in the
RMC and ManCom.
The RMU is also in the process of creating a Self-Assessment Questionnaire for the business units.
This is to measure the operational risks and determine whether additional or compensating
controls are necessary to mitigate the risks identified to acceptable levels. The Self-Assessment
Questionnaire would also eventually be used to determine the operational risk capital charge for
Basel II purposes.
Monitoring and controlling risks are primarily performed based on various limits established by
the top management covering the Group’s transactions and dealings. These limits reflect the
Group’s business strategies and market environment as well as the levels of risks that the Group is
willing to tolerate, with additional emphasis on selected industries. In addition, the Parent
Company monitors and measures the overall risk bearing capacity in relation to the aggregate risk
exposure across all risk types and activities.
Excessive Risk Concentration
Concentrations arise when a number of counterparties are engaged in similar business activities, or
activities in the same geographic region, or have similar economic features that would cause their
ability to meet contractual obligations to be similarly affected by changes in economic, political or
other conditions. Concentrations indicate the relative sensitivity of the Parent Company's
performance to developments affecting a particular industry or geographical location.
In order to avoid excessive concentrations of risk, the Parent Company's policies and procedures
include specific guidelines focusing on maintaining a diversified portfolio. Identified
concentrations of credit risks are controlled and managed accordingly. Selective hedging is used
within the Parent Company to manage risk concentrations at both the relationship and industry
levels.
Credit Risk
Credit Risk and Concentration of Assets and Liabilities and Off Balance Sheet Items
Credit risk is the risk of financial loss due to one party to a financial product failing to discharge
an obligation. The Group faces potential credit risks every time it extends funds to borrowers,
commits funds to counterparties, guarantees the paying performance of its clients, invests funds to
issuers (e.g. investment securities issued by either sovereign or corporate entities) or enters into
either market-traded or over-the-counter derivatives, through implied or actual contractual
agreements (i.e., on or off-balance sheet exposures). The Group manages its credit risk at various
levels (i.e., strategic level, portfolio level down to individual credit or transaction).
- 35 -
The Parent Company has risk limits setting for purposes of monitoring and managing credit risk
from individual counterparties and groups of counterparties. They also conduct periodical
assessing of the creditworthiness of its counterparties. In addition, the Parent Company obtains
collateral where appropriate, enters into master netting agreements and collateral arrangements
with counterparties, and limits the duration of exposures.
In compliance with BSP requirements, the Parent Company established in March 2005 an internal
Credit Risk Rating System (CRRS) for the purpose of measuring credit risk for corporate
borrowers in a consistent manner, as accurately as possible, and thereafter uses the risk
information for business and financial decision making. The CRRS covers corporate borrowers
=
with asset size of above P15 million, requiring financial statements from 2005 onwards to be
audited by SEC-accredited auditing firms.
The CRRS was designed within the technical requirements defined under BSP Circular No. 439.
The System has two components, namely: a) Borrower Risk Rating (BRR) which provides an
assessment of the credit worthiness of the borrower, without considering the proposed facility and
security arrangements, and b) Loan Exposure Rating (LER) which provides an assessment of the
proposed facilities as mitigated or enhanced by security arrangements. The CRRS rating scale
consists of ten grades, six of which fall under unclassified accounts, with the remaining four
falling under classified accounts in accordance with regulatory provisioning guidelines. To date,
the Parent Company is in the process of developing an internal credit system in preparation for the
Advanced Measurement Approach for credit risk under Basel II.
For details of the composition of the loans and receivable portfolio, refer to Note 9 to the financial
statements.
Credit risk in respect of derivative financial products is limited to those with positive fair values,
which are included under Financial Assets at FVPL (see Note 8). As a result, the maximum credit
risk, without taking into account the fair value of any collateral and netting agreements, is limited
to the amounts on the balance sheet plus commitments to customers disclosed in Note 28 to the
financial statements.
The distribution of assets, liabilities, and credit commitment items (see Note 28) by geographic
region of the Group and Parent Company as of December 31 2007 and 2006 (in millions) follows:
Consolidated
2007 2006
Credit Credit
Assets Liabilities Commitments Assets Liabilities Commitments
Geographic Region:
Philippines =
P173,772 P148,219
= P4,270
= =
P149,635 =130,015
P P
=1,349
Asia 78 238 1,660 516 490 134
Europe 163 235 441 1,751 6 2,276
United States 1,674 260 238 3,745 153 284
=
P175,687 P148,952
= P6,609
= P155,647
= =130,664
P =4,043
P
- 36 -
Parent
2007 2006
Credit Credit
Assets Liabilities Commitments Assets Liabilities Commitments
Geographic Region:
Philippines =
P171,924 P146,632
= P4,270
= =
P149,477 =129,971
P P
=1,349
Asia 78 238 1,660 516 490 134
Europe 163 235 441 1,751 6 2,276
United States 1,555 144 238 3,745 153 284
=
P173,720 P147,249
= P6,609
= =
P155,489 =130,620
P =4,043
P
Information on the credit concentration as to industry of the Parent Company is presented in
Note 9 to the financial statements.
Maximum exposure to credit risk without taking account of any collateral and other credit
enhancements
The table below shows the gross maximum exposure to on- and off-balance sheet credit risk
exposures (including derivatives) of the Group, without considering the effects of collateral, credit
enhancements and other credit risk mitigation techniques:
Consolidated Parent Company
2007 2006 2007 2006
Financial Assets
Cash and other cash items =
P3,077,335,121 P2,599,467,319
= =
P3,064,553,081 =
P2,601,337,948
Due from BSP 12,427,182,517 9,268,764,084 12,328,161,848 9,268,764,084
Due from other banks 4,649,838,136 2,436,097,931 4,534,415,329 2,436,097,931
Interbank loans receivable and
securities purchased under
agreement to resell 11,821,000,000 9,545,150,000 11,581,000,000 9,545,150,000
Financial assets at FVPL
Held-for-trading 3,869,254,828 11,208,598,853 3,869,254,828 11,208,598,853
Derivative assets 322,205,600 367,161,865 322,205,600 367,161,865
Designated at FVPL 598,229,760 2,098,116,275 598,229,760 2,098,116,275
AFS financial assets
Quoted:
Bonds and commercial
papers 23,471,983,466 19,380,145,012 23,152,346,204 19,225,443,245
Equities 338,941,641 333,497,536 338,941,641 315,334,867
Unquoted:
Bonds and commercial
papers 362,485,201 324,260,288 355,444,357 324,260,288
Equities 83,385,264 56,498,136 63,869,846 56,498,936
HTM financial assets 12,478,950,535 15,811,146,700 12,478,950,535 15,811,146,700
Loans and receivables
Loans and discounts
Corporate Lending - net 67,061,908,362 54,399,968,971 65,815,446,979 54,399,968,971
Consumer Lending - net 12,140,017,265 8,260,752,652 12,137,428,584 8,260,752,652
Others - net 652,107,582 660,985,992 652,733,385 660,985,992
Customers’ liabilities under
letters of credit or trust
receipt 6,073,797,098 6,626,515,167 6,073,797,098 6,626,515,167
Bills purchased 1,400,865,809 1,455,334,115 1,387,941,428 1,455,334,115
Accrued interest receivable 1,472,659,796 927,535,027 1,455,738,680 924,096,223
Other assets 3,022,674,919 1,319,006,222 2,764,801,519 1,258,798,892
165,324,822,900 147,079,002,145 162,975,260,702 146,844,363,004
Commitments and contingent assets
(Note 28) 8,280,944,475 5,562,238,678 8,280,941,260 5,562,238,678
Total =
P173,605,767,375 P152,641,240,823
= =
P171,256,201,962 =
P152,406,601,682
- 37 -
Where financial instruments are recorded at fair value, the amounts shown above represent the
current credit risk exposure.
Collateral and other credit enhancements
The amount and type of collateral required depends on an assessment of the credit risk of the
counterparty. Guidelines are implemented regarding the acceptability of types of collateral and
valuation parameters.
The main types of collateral obtained are as follows:
• For consumer lending - real estate and chattel over vehicle
• For corporate lending - real estate, chattel over properties, assignment of deposits, shares of
stocks, bonds, and guarantees
Management monitors the market value of collateral, requests additional collateral in accordance
with the underlying agreement, and monitors the market value of collateral obtained during its
review of the adequacy of the allowance for impairment losses.
It is the Parent Company's policy to dispose of repossessed properties in an orderly fashion. The
proceeds are used to reduce or repay the outstanding claim. In most cases, the Parent Company
does not occupy repossessed properties for business use.
Credit quality per class of financial assets
The credit quality of financial assets is managed by the Parent Company using an internal credit
rating system. In view of the changes introduced by Basel II on credit risk assessment, the Parent
Company is currently in the process of improving its credit risk rating to conform to the
requirements of the Advanced Measurement Approach under Basel II. This new rating system
would properly reflect the credit risk present in its asset portfolio and reduce the capital charge
accordingly as against using a standardized approach which is primarily based on external credit
ratings. During the transition, the credit rating system of the Parent Company is primarily based
on the BSP’s credit risk rating system.
- 38 -
The table below shows the credit quality by class of financial assets as of December 31, 2007,
excluding other receivables (gross of allowance for credit losses).
Consolidated
Neither past due nor impaired Past due or
Standard Sub-Standard individually
High grade grade grade impaired Total
Due from BSP =
P12,427,182,517 P
=– =–
P =
P– P
=12,427,182,517
Due from other banks 4,649,838,136 – – – 4,649,838,136
Interbank loans receivable and
securities purchased under
agreement to resell 11,821,000,000 – – – 11,821,000,000
Financial assets at FVPL
Held-for-trading 3,869,254,828 – – – 3,869,254,828
Derivative assets 322,205,600 – – – 322,205,600
Designated at FVPL 598,229,760 – – – 598,229,760
AFS financial assets
Quoted:
Bonds and commercial papers 23,471,983,466 – – – 23,471,983,466
Equities 338,941,641 – – – 338,941,641
Unquoted:
Bonds and commercial papers – 362,546,324 – 394,668,098 757,214,422
Equities – 83,385,264 – – 83,385,264
HTM financial assets 12,478,950,535 – – – 12,478,950,535
Loans and receivables
Loans and discounts
Corporate lending 64,243,067,463 377,547,240 1,917,089,281 5,792,420,552 72,330,124,536
Consumer lending 7,588,625,123 5,315,258,464 3,805,603 1,018,030,271 13,925,719,461
Others 122,647,871 197,334,047 – 131,556,031 451,537,949
Customers’ liabilities under
letters of credit or trust receipt 5,391,750,725 – – 682,046,373 6,073,797,098
Bills purchased 1,400,865,809 – – – 1,400,865,809
Accrued interest receivable 1,368,156,973 37,297,709 12,741,630 54,463,484 1,472,659,796
Total P
=150,092,700,447 P
=6,373,369,048 =1,933,636,514
P P P
=8,073,184,809 =166,472,890,818
Parent Company
Neither past due nor impaired Past due or
Standard Sub-Standard individually
High grade grade grade impaired Total
Due from BSP =
P12,328,161,848 P
=– =–
P =
P– P
=12,328,161,848
Due from other banks 4,534,415,329 – – – 4,534,415,329
Interbank loans receivable and
securities purchased under
agreement to resell 11,581,000,000 – – – 11,581,000,000
Financial assets at FVPL
Held-for-trading 3,869,254,828 – – – 3,869,254,828
Derivative assets 322,205,600 – – – 322,205,600
Designated at FVPL 598,229,760 – – – 598,229,760
AFS financial assets
Quoted:
Bonds and commercial papers 23,152,346,204 – – – 23,152,346,204
Equities 338,941,641 – – – 338,941,641
Unquoted:
Bonds and commercial papers – 355,444,357 – 394,668,098 750,112,455
Equities – 63,869,846 – – 63,869,846
HTM financial assets 12,478,950,535 – – – 12,478,950,535
Loans and receivables
Loans and discounts
Corporate lending 63,602,046,116 317,558,822 1,914,802,580 5,791,865,118 71,626,272,636
Consumer lending 7,377,125,408 5,294,879,960 2,516,770 1,018,030,271 13,692,552,409
Others 122,647,872 – – – 122,647,872
Customers’ liabilities under
letters of credit or trust receipt 5,391,750,725 – – 682,046,373 6,073,797,098
Bills purchased 1,387,941,428 – – – 1,387,941,428
Accrued interest receivable 1,351,236,037 37,297,709 12,741,630 54,463,304 1,455,738,680
Total P
=148,436,253,331 P
=6,069,050,694 =1,930,060,980
P P P
=7,941,073,164 =164,376,438,169
- 39 -
It is the Parent Company's policy to maintain accurate and consistent risk ratings across the credit
portfolio. This facilitates focused management of the applicable risks and the comparison of credit
exposures across all lines of business, geographic regions and products. The rating system is
supported by a variety of financial analytics, combined with processed market information to
provide the main inputs for the measurement of counterparty risk. All internal risk ratings are
tailored to the various categories and are derived in accordance with the Parent Company's rating
policy. The attributable risk ratings are assessed and updated regularly. The standard credit rating
equivalent grades are relevant only for certain of the exposures in each risk rating class.
The following table shows the description of the internal CRRS grade:
CRRS Grade Description
1 Excellent
2 Strong
3 Good
4 Satisfactory
5 Acceptable
6 Watchlist
7 Special Mention
8 Substandard
9 Doubtful
10 Loss
The credit grades are defined as follows:
Excellent and Strong - This category applies to a borrower with a very low probability of going
into default in the coming year. The borrower has a high degree of stability, substance and
diversity. It has access to raise substantial amounts of funds through the public markets at any
time. The borrower has a strong market and financial position with a history of successful
performance. The critical balance sheet ratios are conservative. The borrower has a very strong
debt service capacity and a conservative use of balance sheet leverage. The track record in profit
terms is very good. The borrower is of highest quality under virtually all economic conditions.
This is considered a high grade rating.
Good - This category covers the smaller corporations with limited access to public capital markets
or access to alternative financial markets. This access is however limited to favorable economic
and/or market conditions. Typical for this type of borrower is the combination of comfortable
asset protection and acceptable balance sheet structure. The debt service capacity as measured
based on cash flows is strong. This is also considered as a high grade rating.
Satisfactory - This category represents those borrowers where clear risk elements exist and the
probability of default is somewhat greater. This probability is reflected in volatility of earnings
and overall performance. Borrowers in this category normally have limited access to public
financial markets. Borrowers should be able to withstand normal business cycles, but any
prolonged unfavorable economic period would create deterioration beyond acceptable levels.
Typical for this kind of borrower is the combination of reasonably sound asset and cash flow
protection. The debt service capacity as measured by cash flow is deemed adequate. The borrower
has reported profits for the past fiscal year and is expected to report a profit in the current year.
This is considered a standard grade rating.
- 40 -
Acceptable - The risk elements for the Parent Company are sufficiently pronounced, although
borrowers should still be able to withstand normal business cycles. Any prolonged unfavorable
economic and/or market period would create an immediate deterioration beyond acceptable levels.
This is considered a standard grade rating. However, in the next assessment period, closer
attention is warranted as a downgrade may be possible.
Watchlist - This represents borrowers for which unfavorable industry or company-specific risk
factors represent a concern. Operating performance and financial strength may be marginal and it
is uncertain whether the borrower can attract alternative sources of financing. The borrower will
find it very hard to cope with any significant economic downturn and a default in such a case is
more than a possibility. This category includes those borrowers where the credit exposure is not a
risk of loss at the moment, but the performance of the borrower has weakened, and unless present
trends are reversed, could lead to losses. Depending on the nature of the account weakness and
whether the adverse condition is merely temporary or prolonged, this is normally considered as a
substandard grade rating.
Special Mention - In this category, the borrowers are characterized by a reasonable probability of
default, manifested by some or all the following: (a) evidence of weakness in the borrower’s
financial condition or creditworthiness; (b) the borrower has reached a point where there is a real
risk that the borrower’s ability to pay the interest and repay the principal timely could be
jeopardized; (c) the borrower is expected to have financial difficulties and exposure may be at risk.
Closer account management attention is warranted. Concerted efforts should be made to improve
lender’s position (e.g., demanding additional collateral or reduction of account exposure). These
potential weaknesses, if left uncorrected or unmitigated, would affect the repayment of the loan
and thus increase credit risk to the Parent Company. Depending on the reason for the
classification, this grade is considered as a substandard grade rating or an impaired account.
Substandard - Under this category, the collection of principal or interest becomes questionable
regardless of scheduled payment date, by reason of adverse developments on the account of a
financial, managerial, economic, or political nature, or by important weaknesses in cover. The
probability of default is assessed at up to 50%. Substandard loans are loans or portions thereof that
appear to involve a substantial and unreasonable degree of risk to the Parent Company because of
unfavorable record or unsatisfactory characteristics. There exists in such loans the possibility of
future loss to the Parent Company unless given closer supervision. Depending on the reason for
the classification, this grade is considered as a substandard grade rating or an impaired account.
Doubtful - This category includes all borrowers with “non-performing loan” status or an account
with any portion of interest and/or principal payment that has become in arrears for more than
ninety (90) days. The borrower is unable or unwilling to service debt over an extended period of
time. Future prospects of orderly debt service is considered doubtful. Existing facts or conditions
make collection or liquidation in full highly improbable and thus substantial loss is probable.
Loss - This category represents borrowers whose prospect for re-establishment of creditworthiness
and debt service is remote. This category also applies where the Parent Company will take or has
taken title to the assets of the borrower and is preparing a foreclosure and/or liquidation of the
borrower’s business. The loans are considered uncollectible or worthless and of such little value.
- 41 -
The table below shows the aging analysis of gross past due but not impaired loans and receivables
that the Parent Company held as of December 31, 2007. Under PFRS 7, a financial asset is past
due when a counterparty has failed to make a payment when contractually due.
Less than 31 to 60 61 to 90 More than
30 days Days days 91 days Total
(In Millions)
Loans and advances to customers
Corporate lending P
=7,082,167 P
=44,500,000 =26,036,667
P P
=133,599,261 P
=211,218,095
Consumer lending 11,563,394 6,612,610 173,211,059 669,891,552 861,278,615
Others – 38,230 53,178 122,126 213,534
Total P
=18,645,561 P
=51,150,840 =199,300,904
P P
=803,612,939 P
=1,072,710,244
The aggregate fair value of collaterals held by the Parent Company pertaining to the aggregate
amount of gross past due but not impaired loans and receivables as of December 31, 2007
=
amounted to P1.56 billion. See discussions under the 'Collateral and other credit enhancements'
section for the details of types of collateral held.
See Note 14 for more detailed information with respect to the allowance for impairment and credit
losses on loans and receivables.
The following table presents the carrying amount of financial assets of the Parent Company as of
December 31, 2007 that would have been considered past due or impaired if not renegotiated:
Loans and advances to customers:
Corporate lending P
=1,430,859,833
Consumer lending 21,355,906
Total renegotiated financial assets P
=1,452,215,739
Impairment assessment
The main considerations for the loan impairment assessment include whether any payments of
principal or interest are overdue by more than 90 days or there are any known difficulties in the
cash flows of counterparties, credit rating downgrades, or infringement of the original terms of the
contract. The Group addresses impairment assessment in two areas: individually assessed
allowances and collectively assessed allowances.
Individually assessed allowances
The Group determines the allowances appropriate for each individually significant loan or advance
on an individual basis. Items considered when determining allowance amounts include the
sustainability of the counterparty's business plan, its ability to improve performance once a
financial difficulty has arisen, projected receipts and the expected dividend payout should
bankruptcy ensue, the availability of other financial support and the realisable value of collateral,
and the timing of the expected cash flows. The impairment losses are evaluated at each reporting
date, unless unforeseen circumstances require more careful attention.
- 42 -
Collectively assessed allowances
Allowances are assessed collectively for losses on loans and advances that are not individually
significant (including residential mortgages and unsecured consumer lending) and for individually
significant loans and advances where there is not yet objective evidence of individual impairment.
Allowances are evaluated on each reporting date with each portfolio receiving a separate review.
The collective assessment takes account of impairment that is likely to be present in the portfolio
even though there is not yet objective evidence of the impairment in an individual assessment.
Impairment losses are estimated by taking into consideration of the following information:
historical losses on the portfolio, current economic conditions, the approximate delay between the
time a loss is likely to have been incurred and the time it will be identified as requiring an
individually assessed impairment allowance, and expected receipts and recoveries once impaired.
Management is responsible for deciding the length of this period which can extend for as long as
one year. The impairment allowance is then reviewed by credit management to ensure alignment
with the Group’s overall policy.
Financial guarantees and letters of credit are assessed and provision made in a similar manner as
for loans.
Market Risk
Market risk is the risk of loss that may result from changes in the price of a financial product. The
value of a financial product may change as a result of changes in interest rates, foreign exchanges
rates, commodity prices, equity prices and other market changes. The Parent Company’s market
risk originates from its holdings in its foreign exchange instruments and debt securities.
The RMU of the Parent Company is responsible for assisting the RMC with its responsibility for
identifying, measuring, managing and controlling market risk. Market risk management is
implemented under the Value-at-Risk (VaR) method, a procedure for estimating the probability of
portfolio losses exceeding some specified proportion based on a statistical analysis of historical
market price trends, correlations and volatilities. VaR estimates the potential decline in the value
of a portfolio, under normal market conditions, for a given “confidence level” over a specified
holding period.
Objectives and limitations of the VaR Methodology
The Parent Company uses simulation models to assess possible changes in the market value of the
trading portfolio based on historical data from the past five years. The VaR models are designed
to measure market risk in a normal market environment. The models assume that any changes
occurring in the risk factors affecting the normal market environment will follow a normal
distribution. The distribution is calculated by using exponentially weighted historical data. The
use of VaR has limitations because it is based on historical correlations and volatilities in market
prices and assumes that future price movements will follow a statistical distribution. Due to the
fact that VaR relies heavily on historical data to provide information and may not clearly predict
the future changes and modifications of the risk factors, the probability of large market moves
may be underestimated if changes in risk factors fail to align with the normal distribution
assumption. VaR may also be under- or over-estimated due to the assumptions placed on risk
factors and the relationship between such factors for specific instruments. Even though positions
may change throughout the day, the VaR only represents the risk of the portfolios at the close of
each business day, and it does not account for any losses that may occur beyond the 99%
confidence level.
- 43 -
In practice the actual trading results will differ from the VaR calculation and, in particular, the
calculation does not provide a meaningful indication of profits and losses in stressed market
conditions. To determine the reliability of the VaR models, actual outcomes are monitored
regularly to test the validity of the assumptions and the parameters used in the VaR calculation.
Market risk positions are also subject to regular stress tests to ensure that the Bank would
withstand an extreme market event.
VaR assumptions
The VaR that the Parent Company measures is an estimate, using a confidence level of 99%, of
the potential loss that is not expected to be exceeded if the current market risk positions were to
be held unchanged for one day. The use of a 99% confidence level means that, within a one day
horizon, losses exceeding the VaR figure should occur, on average, not more than once every
hundred days.
Since VaR is an integral part of the Parent Company's market risk management, VaR limits have
been established for all trading operations and exposures are reviewed daily against the limits by
management.
Foreign
Interest Rate Exchange Equity Total
(In Millions)
2007 - 31 December P
=20.41 =14.37
P P
=3.48 P
=38.26
2007 - Average daily 61.39 4.69 2.58 68.66
2007 - Highest 170.50 15.07 3.51 189.08
2007 - Lowest 18.53 1.80 1.73 22.06
2006 - 31 December 73.48 3.93 1.76 79.17
2006 - Average daily 87.88 3.09 1.60 92.57
2006 - Highest 194.99 6.62 1.91 203.52
2006 - Lowest 30.86 1.68 0.71 33.25
Only five times in the year were daily losses greater than the VaR (average loss of those instances
= P
was P196.25 million, with an average VaR of =134.6 million).
In July 2005, the Parent Company commenced the bankwide computation of its VaR in certain
trading activities, using a 99% confidence level and a 10-day holding period for interest rate risk
and a 99% confidence level and 1-day holding period for foreign exchange risk and equity risk.
This means that, statistically, the Parent Company’s losses on interest rate risks arising from
trading operations will exceed the VaR figure on 1 fortnightly period (with no change in the
portfolio during the holding period) out of 100 fortnightly periods. The validity of the VaR model
is verified through back testing, which examines how frequently actual daily losses exceeds daily
VaR. The Parent Company measures and monitors the VaR and profit and loss on a daily basis.
a. Interest Rate Risk
The Parent Company’s interest rate risk originates from its holdings of interest rate sensitive
assets and interest rate sensitive liabilities. The Parent Company follows prudent policies in
managing its exposures to interest rate fluctuations, and constantly monitors its assets and
liabilities.
As of December 31, 2007 and 2006, 91.41% and 89.23% of the Parent Company’s total loan
portfolio, respectively, comprised of floating rate loans which are repriced periodically by
reference to the transfer pool rate which reflects the Parent Company’s internal cost of funds.
- 44 -
In keeping with banking industry practice, the Parent Company aims to achieve stability and
lengthen the term structure of its deposit base, while providing adequate liquidity to cover
transactional banking requirements of customers.
Interest is paid on demand accounts, which constituted 19.20% and 16.49% of total deposits
as of December 31, 2007 and 2006, respectively.
Interest is paid on savings accounts and time deposits accounts which constitute 52.99% and
27.81%, respectively, of total deposits as of December 31, 2007, and 48.12% and 35.40%,
respectively, as of December 31, 2006.
Savings account interest rates are set by reference to prevailing market rates, while interest
rates on time deposits and special savings accounts are usually priced by reference to
prevailing rates of short-term government bonds and other money market instruments or, in
the case of foreign currency deposits, inter-bank deposit rates and other benchmark deposit
rates in international money markets with similar maturities.
The Parent Company is likewise exposed to fair value interest rate due to its holdings of fixed
rate government bonds as part of its AFS and FVPL portfolio. Market values of these
investments are sensitive to fluctuations in interest rates.
The following table provides for the average effective interest rates by period of repricing (or
by period of maturity if there is no repricing) of the Parent Company as of December 31, 2007
and 2006:
2007 2006
Less than 3 months Greater Less than 3 3 months Greater
3 months to 1 year than 1 year months to 1 year than 1 year
Peso
Assets
Due from BSP 2.38% – – 1 – –
Due from banks 5.16% – – 6 – –
Investment securities* 5.25% 5.47% 6 6 6 8
Loans and receivables 7.90% 8.55% 6 9 9 10
Liabilities
Deposit liabilities 3.98% 7.23% 8 2 4 8
Bills payable 4.09% 7.83% 7 5 6 8
USD
Assets
Investment securities* 5.29% 7.56% 8.21% 5.81% 6.18% 6.63%
Loans and receivables 6.01% 5.35% 7.48% 3.06% 6.29% 6.70%
Liabilities
Deposit liabilities 4.25% 4.37% 5.25% 3.44% 4.22% 2.88%
Bills payable – – – 5.55% – –
* Consisting of financial assets at FVPL, AFS financial assets and HTM financial assets.
- 45 -
The method by which the Parent Company measures the sensitivity of its assets and liabilities
to interest rate fluctuations is by way of asset-liability gap analysis. This analysis provides the
Parent Company with a measure of the Parent Company’s susceptibility to changes in interest
rates. The repricing gap is calculated by first distributing the assets and liabilities contained in
the Parent Company’s balance sheet into tenor buckets according to the time remaining to the
next repricing date (or the time remaining to maturity if there is no repricing), and then
obtaining the difference between the total of the repricing (interest rate sensitive) assets and
repricing (interest rate sensitive) liabilities.
A gap is considered negative when the amount of interest rate sensitive liabilities exceeds the
amount of interest rate sensitive assets. A gap is considered positive when the amount of
interest rate sensitive assets exceeds the amount of interest rate sensitive liabilities.
Accordingly, during a period of rising interest rates, a bank with a positive gap would be in a
position to invest in higher yielding assets earlier than it would need to refinance its interest
rate sensitive liabilities. During a period of falling interest rates, a bank with a positive gap
would tend to see its interest rate sensitive assets repricing earlier its interest rate sensitive
liabilities, which may restrain the growth of its net income or result in a decline in net interest
income.
The following table sets forth the asset-liability gap position of the Parent Company as of
December 31, 2007 and 2006 (in millions):
2007
Up to >1 to 3 >3 to 6 >6 to 12 >12
Mon Months Months Months Months Total
Financial Assets
Total loans and receivables P
=51,036 P
=15,281 =5,931
P P
=1,800 P
=20,418 P
=94,466
Total investments 8,679 469 428 1,281 30,717 41,574
Placements with other banks 28,444 – – – – 28,444
Sales contract receivables 15 5 1 6 276 303
Total financial assets 88,174 15,755 6,360 3,087 51,411 164,787
Financial Liabilities
Deposit liabilities 103,553 26,166 4,425 3,143 1,692 138,978
Bills payable – 442 36 142 1,959 2,579
Total financial liabilities 103,553 26,608 4,461 3,285 3,650 141,557
Asset-liability gap =
(P15,379) =
(P10,853) P1,899
= =
(P198) =
P47,761 =
P23,230
2006
Up to >1 to 3 >3 to 6 >6 to 12 >12
Mon Months Months Months Months Total
Financial Assets
Total loans and receivables P
=39,113 P
=13,861 =4,642
P P
=311 P
=22,018 P
=79,945
Total investments 11,576 320 14 2,178 34,947 49,035
Placements with other banks 21,204 – – – – 21,204
Sales contract receivables 6 – 2 3 304 315
Total financial assets 71,899 14,181 4,658 2,492 57,269 150,499
Financial Liabilities
Deposit liabilities 88,353 23,094 4,658 1,495 4,063 121,663
Bills payable 520 257 200 244 2,608 3,829
Total financial liabilities 88,873 23,351 4,858 1,739 6,671 125,492
Asset-liability gap =
(P16,974) =
(P9,170) (P200)
= P
=753 P
=50,598 P
=25,007
- 46 -
The Parent Company also monitors its exposure to fluctuations in interest rates by using
scenario analysis to estimate the impact of interest rate movements on its interest income.
This is done by modeling the impact to the Parent Company’s interest income and interest
expenses of different parallel changes in the interest rate curve, assuming the parallel change
only occurs once and the interest rate curve after the parallel change does not change again for
the next twelve months.
The following table sets forth the estimated change in the Parent Company’s annualized net
interest income due to a parallel change in the interest rate curve as of December 31, 2007 and
2006:
2007
Change in interest rates (in basis points)
100bp rise 50bp rise 50bp fall 100bp fall
Change in annualized net interest
income =
(P235,409,752) (P117,704,876)
= P
=117,704,876 P
=235,409,752
As a percentage of the Group’s net
income for the year
ended December 31, 2007 (3.68%) (1.84%) 3.68% 1.84%
As a percentage of the Group’s
equity for the year ended
December 31, 2007 (3.68%) (1.84%) 3.68% 1.84%
2006
Change in interest rates (in basis points)
100bp rise 50bp rise 50bp fall 100bp fall
Change in annualized net interest
income =
(P238,436,017) (P119,218,009)
= P
=119,218,009 P
=238,436,017
As a percentage of the Group’s net
income for the year
ended December 31, 2006 (3.91%) (1.95%) 1.95% 3.91%
As a percentage of the Group’s
equity for the year ended
December 31, 2006 (3.91%) (1.95%) 1.95% 3.91%
The following table sets forth the estimated change in the Parent Company’s income before
tax and equity due to a reasonably possible change in the market prices brought about by
movement in the interest rate curve as of December 31, 2007 and 2006:
2007
Change in interest rates (in basis points)
25bp rise 10bp rise 10bp fall 25bp fall
Change in income before tax =
(P35,325,247) (P14,204,024)
= P
=14,303,749 P
=35,948,565
Change in equity (320,289,277) (128,882,508) 129,918,649 326,765,629
2006
Change in interest rates (in basis points)
25bp rise 10bp rise 10bp fall 25bp fall
Change in income before tax =
(P77,310,066) (P31,030,541)
= P
=31,173,782 P
=78,205,356
Change in equity (380,624,158) (153,367,031) 154,881,908 390,093,186
- 47 -
After modeling the impact to the Group’s interest income and interest expenses of different
parallel changes in the interest rate curve, based on the mix of assets and liabilities of the
Group as of December 31, 2007 and 2006, if interest rates decreased by 100 basis points, the
P
Group would expect annualized net interest income to increase by =235.41 million and
P238.44 million, respectively, and correspondingly decrease by the same amount if interest
=
rates increased by 100 basis points. This scenario analysis is performed for risk management
purposes and depends on numerous assumptions. Actual changes in net interest income are
almost certain to vary from the estimates above.
b. Foreign Currency Risk
The Parent Company’s foreign exchange risk originates from its holdings of foreign currency-
denominated assets (foreign exchange assets) and foreign currency-denominated liabilities
(foreign exchange liabilities).
Foreign exchange liabilities generally consist of foreign currency-denominated deposits in the
Parent Company’s FCDU account made in the Philippines or generated from remittances to
the Philippines by persons overseas who retain for their own benefit or for the benefit of a
third party, foreign currency deposit accounts with the Parent Company.
Foreign currency liabilities are generally used to fund the Parent Company’s foreign exchange
assets which generally consist of foreign currency-denominated loans and investments in the
FCDU. Banks are required by the BSP to match the foreign currency-denominated assets with
liabilities held in the FCDU that are denominated in the same foreign currency as the assets. In
addition, the BSP requires a 30% liquidity reserve on all foreign currency-denominated
liabilities held in the FCDU.
The Parent Company’s policy is to maintain foreign currency exposure within existing
regulations, and within acceptable risk limits. The Parent Company believes in ensuring its
foreign currency is at all times within limits prescribed for financial institutions who are
engaged in the same types of businesses in which the Parent Company and its subsidiaries are
engaged.
The table below summarizes the Parent Company’s exposure to foreign exchange risk.
Included in the table are the Parent Company’s assets and liabilities at carrying amounts
(stated in US Dollars), categorized by currency (in thousands):
2007 2006
Other Other
USD Currencies Total PHP USD Currencies Total PHP
Assets
Due from other banks $97,881 $6,041 $103,922 =
P4,289,921 $44,311 $2,711 $47,022 =
P1,941,077
Interbank loans receivable – – – – 5,000 – 5,000 206,400
Financial assets at FVPL 56,695 – 56,695 2,340,383 81,068 – 81,068 3,346,477
AFS financial assets 326,902 4,345 331,247 13,673,879 361,421 – 361,421 14,919,441
HTM financial assets 286,644 – 286,644 11,832,646 304,752 – 304,752 12,580,155
Loans and receivables 290,970 591 291,561 12,035,618 171,350 630 171,980 7,099,319
Accrued interest receivable 16,579, 222 16,801 693,555 16,477 – 16,477 680,187
Other assets 14,159 593 14,752 608,954 14,630 9 14,639 604,278
$1,089,830 $11,792 $1,101,622 45,474,956 $999,009 $3,350 $1,002,359 $41,377,334
(Forward)
- 48 -
2007 2006
Other Other
USD Currencies Total PHP USD Currencies Total PHP
Liabilities
Deposit liabilities $742,206 $1,736 $743,943 =
P30,709,854 $715,100 $– $715,100 =
P29,519,322
Bills payable – – – – 5,000 – 5,000 206,400
Accrued taxes, interest
and other expenses 4,828 1 4,830 199,375 4,308 – 4,308 177,824
Other liabilities 8,845 446 9,291 383,532 33,992 558 34,550 1,426,224
755,879 2,184 758,064 31,292,761 758,400 558 758,958 31,329,770
Currency spot (1,000) – (1,000) – 500 – 500 20,640
Currency forwards (343,502) – (343,502) – 243,500 – 243,500 10,051,680
Net Exposure ($10,550) $9,608 ($942) =
(P38,888) ($3,302) $2,792 ($599,751) (P24,758)
=
The following table sets forth, for the period indicated, the impact of the range of reasonably
possible changes in the US$ exchange rate and other currencies per Philippine peso on the pre-
tax income and equity (in millions).
Consolidated
Change in
foreign Sensitivity of Sensitivity of
exchange rate pretax income equity
2007
USD 2% =
P40 =
P282
Other 1% – 4
USD (2%) (40) (282)
Other (1%) – (4)
Change in
foreign Sensitivity of Sensitivity of
exchange rate pretax income equity
2006
USD 2% =
P32 =
P308
Others 1% – –
USD (2%) (32) (308)
Others (1%) – –
Parent Company
Change in
foreign Sensitivity of Sensitivity of
exchange rate pretax income equity
2007
USD 2% =
P36 =
P278
Other 1% – 4
USD (2%) (36) (278)
Other (1%) – (4)
Change in
foreign Sensitivity of Sensitivity of
exchange rate pretax income equity
2006
USD 2% =
P32 P308
=
Others 1% – –
USD (2%) (32) (308)
Others (1%) – –
- 49 -
c. Equity Price Risk
Equity price risk is the risk that the fair values of equities decrease as the result of changes in
the level of equity indices and the value of individual stocks. The non-trading equity price risk
exposure arises from the Group’s investment portfolio.
The effect on the Group’s equity (as a result of a change in the fair value of equity instruments
held as available-for-sale at December 31, 2007) due to a reasonably possible change in equity
indices, with all other variables held constant, is as follows (in millions):
Change in Effect on
equity price equity
2007 +10% =
P13
-10% (13)
2006 +10% 25
-10% (25)
Liquidity Risk and Funding Management
Liquidity risk is generally defined as the current and prospective risk to earnings or capital arising
from the Parent Company’s inability to meet its obligations when they come due without incurring
unacceptable losses or costs.
The Parent Company’s liquidity management involves maintaining funding capacity to
accommodate fluctuations in asset and liability levels due to changes in the Parent Company’s
business operations or unanticipated events created by customer behavior or capital market
conditions. The Parent Company seeks to ensure liquidity through a combination of active
management of liabilities, a liquid asset portfolio composed substantially of deposits in primary
and secondary reserves, and the securing of money market lines and the maintenance of
repurchase facilities to address any unexpected liquidity situations.
Liquidity risk is monitored and controlled primarily by a gap analysis of maturities of relevant
assets and liabilities reflected in the maximum cumulative outflow (MCO) report, as well as an
analysis of available liquid assets. Furthermore, an internal liquidity ratio has been set to
determine sufficiency of liquid assets over deposit liabilities.
Liquidity is monitored by the Parent Company on a daily basis and under stressed situations. The
table below shows the maturity profile of the Parent Company’s liabilities, based on its internal
methodology that manages liquidity based on expected undiscounted cash flows, rather than
contractual undiscounted cash flows:
December 31, 2007
Less than
On demand 1 year 1 to 2 years 2 to 3 years 3 to 5 years Total
(In Millions)
Deposit liabilities
Demand =
P26,683 =
P– P–
= =
P– =
P10,477 =
P37,160
Savings 73,843 2,255 107,251 183,349
Time 7,751 3,931 9,589 26,601 47,872
Bills payable
BSP rediscounting 444
Government lending program 2,941 185 798 587 1,371
Total liabilities =
P103,911 =
P7,936 P4,729
= =
P12,431 =
P145,700 ==
PP268,381
- 50 -
8. Debt and Equity Securities Classified as Financial Assets
Financial assets at FVPL consist of:
Consolidated Parent Company
2007 2006 2007 2006
(In Thousands)
Held-for-trading:
Government bonds =
P3,526,088 P
=11,007,824 =
P3,526,088 P
=11,007,824
BSP Treasury bills 185,851 176,155 185,851 176,155
Treasury notes 143,171 21,968 143,171 21,968
Private bonds and commercial
papers 14,144 2,652 14,144 2,652
3,869,254 11,208,599 3,869,254 11,208,599
Derivative assets (Note 23) 322,206 367,162 322,206 367,162
Designated at FVPL 598,230 2,098,116 598,230 2,098,116
=
P4,789,690 P
=13,673,877 P4,789,690
= P
=13,673,877
As of December 31, 2007 and 2006, held-for-trading securities include net unrealized loss of
P238.00 million and gain of =220.83 million, respectively. These unrealized losses and gains are
= P
included under Trading and securities gain in the statements of income.
The Parent Company’s financial assets designated at FVPL include unrealized trading and
= P
securities gain of P80.25 million and loss of =148.47 million as of December 31, 2007 and 2006,
respectively.
AFS financial assets consist of:
Consolidated Parent Company
2007 2006 2007 2006
(In Thousands)
Quoted
Government bonds =
P23,014,121 P18,686,544
= =
P22,817,152 P18,558,901
=
Private bonds and commercial papers 457,863 693,601 335,194 666,542
Equities 338,942 333,498 338,942 315,335
23,810,926 19,713,643 23,491,288 19,540,778
Unquoted:
Private bonds and commercial papers - net 362,485 324,260 355,444 324,260
Equities - net 83,385 56,499 63,870 56,499
445,870 380,759 419,314 380,759
Total =
P24,256,796 =
P20,094,402 =
P23,910,602 =
P19,921,537
P
As of December 31, 2007 and 2006, AFS financial assets include unrealized gain of =1.05 billion
P P P
and =1.57 billion, respectively, for the Group and =1.03 billion and =1.56 billion, respectively, for
the Parent Company recognized as part of equity. Impairment loss recognized in the statements of
=
income for unquoted AFS equity investments amounted to P15.92 million in 2006. No additional
impairment loss was recognized in 2007 based on the Parent Company’s impairment assessment.
- 51 -
The movements in net unrealized gains on AFS financial assets follow:
Consolidated Parent Company
2007 2006 2007 2006
Balance at beginning of year =
P1,572,291,068 P581,494,654
= =
P1,559,153,409 P574,948,810
=
Unrealized gains (losses) for the year (808,997,078) 1,006,443,789 (820,443,224) 994,141,034
Unrealized losses (gains) taken to profit
and loss 287,191,675 (15,647,375) 296,075,882 (9,936,435)
(521,805,403) 990,796,414 (524,367,342) 984,204,599
Balance at end of year =
P1,050,485,665 P1,572,291,068
= =
P1,034,786,067 P1,559,153,409
=
Unquoted equity securities of the Group pertain to stocks of private corporations. These are
classified as AFS and are carried at cost since fair value cannot be reliably estimated. There is
currently no market for these investments and the Group intends to hold them for the long term.
HTM financial assets consist of the following:
Consolidated Parent Company
2007 2006 2007 2006
(In Thousands)
Government bonds =
P12,580,136 P15,668,904
= =
P12,580,136 =
P15,668,904
BSP treasury bills – 207,615 – 207,615
=
P12,580,136 =
P15,876,519 P12,580,136
= =
P15,876,519
Unearned discount (101,185) (65,372) (101,185) (65,372)
=
P12,478,951 =
P15,811,147 P12,478,951
= =
P15,811,147
=
The aggregate market value of the Group’s HTM financial assets amounted to P13.37 billion and
P17.78 billion as of December 31, 2007 and 2006, respectively (see Note 6).
=
9. Loans and Receivables
This account consists of:
Consolidated Parent Company
2007 2006 2007 2006
Loans and discounts
Corporate lending P P
P74,461,752,720 =62,062,201,065 P73,195,843,690 =62,062,201,065
= =
Consumer lending 12,692,552,408 8,685,078,127 12,692,552,409 8,685,078,127
Others 1,114,611,460 1,116,358,498 1,114,611,460 1,116,358,498
88,268,916,588 71,863,637,690 87,003,007,559 71,863,637,690
Unearned discounts (1,561,534,642) (1,136,606,277) (1,561,534,642) (1,136,606,277)
86,707,381,946 70,727,031,413 85,441,472,917 70,727,031,413
Customers’ liabilities under
letters of credit or trust
receipts 6,073,797,098 6,626,515,167 6,073,797,098 6,626,515,167
Bills purchased 1,400,865,809 1,455,334,115 1,387,941,428 1,455,334,115
94,182,044,853 78,808,880,695 92,903,211,443 78,808,880,695
Allowance for impairment and
credit losses (Note 14) (6,853,348,737) (7,405,323,798) (6,835,863,969) (7,405,323,798)
P P
P87,328,696,116 =71,403,556,897 P86,067,347,474 =71,403,556,897
= =
Loans and discounts under corporate lending include unquoted debt securities amounting to
= P
P8.01 billion and =9.16 billion as of December 31, 2007 and 2006, respectively.
- 52 -
Information on the amounts of secured and unsecured loans and receivables of the Group and
Parent Company are as follows:
Consolidated Parent Company
2007 2006 2007 2006
Amounts % Amounts % Amounts % Amounts %
Loans secured by:
Real estate P28,859,158,129
= 30.14 =
P21,571,145,231 26.98 P28,150,994,838
= 29.80 =
P21,571,145,231 26.98
Chattel mortgage 1,693,664,129 1.77 1,674,118,572 2.09 1,573,700,080 1.67 1,674,118,572 2.09
Deposit hold out 1,548,058,971 1.62 1,306,382,565 1.64 1,493,853,740 1.58 1,306,382,565 1.64
Shares of stock of
other banks 1,161,936,530 1.21 1,152,965,000 1.44 1,161,936,530 1.23 1,152,965,000 1.44
Others 16,845,013,656 17.60 18,040,987,508 22.57 16,797,483,656 17.78 18,040,987,508 22.57
50,107,831,415 52.34 43,745,598,876 54.72 49,177,968,844 52.06 43,745,598,876 54.72
Unsecured loans 45,635,748,080 47.66 36,199,888,096 45.28 45,286,777,241 47.94 36,199,888,096 45.28
=
P95,743,579,495 100.00 P79,945,486,972
= 100.00 P94,464,746,085
= 100.00 =
P79,945,486,972 100.00
= P
Loans and receivables of the Group amounting to P395.29 million and =295.23 million as of
December 31, 2007 and 2006, respectively, are pledged to secure certain bills payable to the BSP
under the Bank’s rediscounting privileges (see Note 16).
Information on the concentration of credit as to industry of the Group and Parent Company
follows:
Consolidated
2007 2006
Amounts % Amounts %
Manufacturing =
P20,577,479,238 21.49 P
=20,682,740,892 25.87
Real estate, renting and business services 18,889,141,879 19.73 14,067,776,388 17.60
Financial intermediaries 17,384,555,372 18.16 13,749,632,552 17.20
Wholesale and retail trade 14,530,218,704 15.18 13,321,017,499 16.66
Electricity, gas and water 8,641,374,423 9.03 6,507,575,600 8.14
Transportation, storage and communication 4,477,944,758 4.68 2,769,221,516 3.46
Public administration and defense 2,753,016,667 2.87 2,131,932,500 2.67
Construction 2,188,248,895 2.28 1,520,943,860 1.90
Agriculture 2,039,590,448 2.13 1,372,613,127 1.72
Mining and quarrying 281,409,690 0.29 70,390,751 0.09
Others 3,980,599,421 4.16 3,751,642,287 4.69
=
P95,743,579,495 100.00 P
=79,945,486,972 100.00
Parent Company
2007 2006
Amounts % Amounts %
Manufacturing =
P20,065,945,874 21.24 P
=20,682,740,892 25.87
Real estate, renting and business services 18,505,491,856 19.59 14,067,776,388 17.60
Financial intermediaries 17,128,788,690 18.13 13,749,632,552 17.20
Wholesale and retail trade 14,402,335,363 15.25 13,321,017,499 16.66
Electricity, gas and water 8,641,374,423 9.15 6,507,575,600 8.14
Transportation, storage and communication 4,477,944,758 4.74 2,769,221,516 3.46
Public administration and defense 2,753,016,667 2.91 2,131,932,500 2.67
Construction 2,188,248,895 2.32 1,520,943,860 1.90
Agriculture 2,039,590,448 2.16 1,372,613,127 1.72
Mining and quarrying 281,409,690 0.30 70,390,751 0.09
Others 3,980,599,421 4.21 3,751,642,287 4.69
=
P94,464,746,085 100.00 P
=79,945,486,972 100.00
- 53 -
The BSP considers that loan concentration exists when total loan exposure to a particular industry
or economic sector exceeds 30% of total loan portfolio. As of December 31, 2007 and 2006, the
Group does not have credit concentration in any particular industry.
BSP Circular No. 351 allows banks to exclude from nonperforming classification receivables
classified as “Loss” in the latest examination of the BSP which are fully covered by allowance for
impairment and credit losses, provided that interest on said receivables shall not be accrued and
that such receivables shall be deducted from the total receivable portfolio for purposes of
computing non-performing loans. As of December 31, 2007 and 2006, nonperforming loans
(NPLs) of the Group and Parent Company not fully covered by allowance for impairment and
credit losses follow:
Consolidated Parent Company
2007 2006 2007 2006
Total NPLs =
P7,576,439,651 P
=7,640,456,091 P
P7,491,941,762 =7,640,456,091
=
Less: NPLs fully covered by allowance
for impairment and credit losses 1,504,173,413 1,982,582,197 1,503,617,979 1,982,582,197
=
P6,072,266,238 P
=5,657,873,894 P5,988,323,783
= P
=5,657,873,894
As of December 31, 2007 and 2006, secured and unsecured NPLs of the Group and Parent
Company follow:
Consolidated Parent Company
2007 2006 2007 2006
Secured =
P5,126,596,029 P
=5,222,395,644 P
P5,044,029,140 =5,222,395,644
=
Unsecured 2,449,843,622 2,418,060,447 2,447,912,622 2,418,060,447
=
P7,576,439,651 P
=7,640,456,091 P
P7,491,941,762 =7,640,456,091
=
The estimated aggregate fair value of collaterals held by the Parent Company pertaining to the
P
NPLs as of December 31, 2007 amounted to =8.41 billion.
10. Equity Investments
The Parent Company’s investments consist of:
Effective Percentages of
Ownership
2007 2006 2007 2006
Subsidiaries:
The Manila Banking Corporation 91.82% – P1,073,599,714
= =
P–
CBC Forex Corporation 100.00% 100.00% 50,000,000 50,000,000
CBC Properties and Computer Center, Inc.
(CBC-PCCI) 100.00% 100.00% 2,439,000 2,439,000
Chinabank Insurance Brokers, Inc. 100.00% 100.00% 1,500,000 1,500,000
First Sovereign Asset Management, Inc. – 100.00% – 31,250,000
Associate:
MCB Life 5.00% – 8,745,838 –
P1,136,284,552
= P85,189,000
=
The foregoing balances represent the acquisition cost of the Parent Company’s subsidiaries and
associate.
- 54 -
On May 2, 2007, the BOD of Parent Company approved the sale of First Sovereign Asset
P
Management (SPV-AMC), Inc. The sale resulted in a gain of =1.27 million in 2007 and is
included under Miscellaneous income in the statement of income.
As discussed in Note 4, the Parent Company acquired 91.82% of TMBC’s equity interest for
P1.7 billion. Subsequently, on November 21, 2007, the BOD approved the transfer of certain
=
assets and liabilities (including the branches) of TMBC to the Parent Company. As the economic
value of goodwill and branch licenses arising from the TMBC acquisition can be attributed to the
branches transferred, the carrying values of the goodwill and a significant portion of the branch
licenses were also transferred to the books of the Parent Company. The transfers resulted to a
P
reduction of the investment account of the Parent Company by =0.66 billion as of December 31,
2007.
The equity investments in the consolidated financial statements pertain to the Parent Company’s
investment in MCB Life and CBC-PCCI’s investment in Urban Shelters (accounted for by CBC-
PCCI as an investment in associate).
11. Bank Premises, Furniture, Fixtures and Equipment
The composition of and movements in this account follow:
Consolidated
Furniture,
Fixtures
and Leasehold Building Under 2007
Land Equipment Buildings Improvements Construction Total
Cost
Balance at beginning
of year =
P2,239,564,520 =
P2,230,466,579 P674,460,247
= =
P185,601,925 =
P764,000 =
P5,330,857,271
Additions 490,527,814 529,023,622 229,621,921 86,837,582 1,205,600 1,337,216,539
Disposals/reclassifications – (68,853,700) (142,235) – (764,000) (69,759,935)
Balance at end of year 2,730,092,334 2,690,636,501 903,939,933 272,439,507 1,205,600 6,598,313,875
Accumulated
Depreciation
and Amortization
Balance at beginning
of year – 1,715,001,487 217,506,204 99,875,081 – 2,032,382,772
Depreciation and
amortization – 218,642,459 27,340,362 23,745,836 – 269,728,657
Disposals/reclassifications – (12,544,912) 55,208,537 791,021 – 43,454,646
Balance at end of year – 1,921,099,034 300,055,103 124,411,938 – 2,345,566,075
Net Book Value
at End of Year =
P2,730,092,334 =
P769,537,467 P603,884,830
= =
P148,027,569 =
P1,205,600 =
P4,252,747,800
- 55 -
Consolidated
Furniture,
Fixtures
and Leasehold Building Under 2006
Land Equipment Buildings Improvements Construction Total
Cost
Balance at beginning
of year =
P2,191,754,112 P
=1,994,430,915 =609,401,897
P P
=140,578,933 P
=1,293,600 P
=4,937,459,457
Additions 47,810,408 289,577,423 72,671,555 45,475,793 – 455,535,179
Disposals/reclassifications – (53,541,759) (7,613,205) (452,801) (529,600) (62,137,365)
Balance at end of year 2,239,564,520 2,230,466,579 674,460,247 185,601,925 764,000 5,330,857,271
Accumulated
Depreciation
and Amortization
Balance at beginning
of year – 1,637,671,314 179,139,821 68,593,241 – 1,885,404,376
Depreciation and
amortization – 165,431,805 20,082,483 17,860,701 – 203,374,989
Disposals/reclassifications – (88,101,632) 18,283,900 13,421,139 – (56,396,593)
Balance at end of year – 1,715,001,487 217,506,204 99,875,081 – 2,032,382,772
Net Book Value
at End of Year P2,239,564,520
= =515,465,092
P P
=456,954,043 P
=85,726,844 =764,000
P P
=3,298,474,499
Parent Company
Furniture,
Fixtures
and Leasehold Building Under 2007
Land Equipment Buildings Improvements Construction Total
Cost
Balance at beginning
of year =
P2,239,564,520 =
P2,220,903,481 P674,460,247
= =
P185,601,925 =
P764,000 =
P5,321,294,173
Additions – 518,811,162 38,410,349 86,837,582 1,205,600 645,264,693
Disposals/reclassifications – (68,853,700) (142,235) – (764,000) (69,759,935)
Balance at end of year 2,239,564,520 2,670,860,943 712,728,361 272,439,507 1,205,600 5,896,798,931
Accumulated
Depreciation
and Amortization
Balance at beginning
of year – 1,708,021,795 217,506,204 99,875,081 – 2,025,403,080
Depreciation and
amortization – 207,538,820 22,278,033 23,745,836 – 253,562,689
Disposals/reclassifications – (11,605,577) 1,466,152 791,021 – (9,348,405)
Balance at end of year – 1,903,955,038 241,250,389 124,411,938 – 2,269,617,364
Net Book Value
At End of Year =
P2,239,564,520 =
P766,905,906 P471,477,972
= =
P148,027,569 =
P1,205,600 =
P3,627,181,567
Parent Company
Furniture,
Fixtures
and Leasehold Building Under 2006
Land Equipment Buildings Improvements Construction Total
Cost
Balance at beginning
of year =
P2,191,754,112 P
=1,991,237,260 =609,401,897
P P
=140,578,933 P
=1,293,600 P
=4,934,265,802
Additions 47,810,408 283,207,980 72,671,555 45,475,793 – 449,165,736
Disposals/reclassifications – (53,541,759) (7,613,205) (452,801) (529,600) (62,137,365)
Balance at end of year 2,239,564,520 2,220,903,481 674,460,247 185,601,925 764,000 5,321,294,173
Accumulated
Depreciation
and Amortization
Balance at beginning
of year – 1,635,833,758 179,139,821 68,593,241 – 1,883,566,820
Depreciation and
amortization – 163,860,327 20,082,483 17,860,701 – 201,803,511
Disposals/reclassifications – (91,672,290) 18,283,900 13,421,139 – (59,967,251)
Balance at end of year – 1,708,021,795 217,506,204 99,875,081 – 2,025,403,080
Net Book Value
At End of Year =
P2,239,564,520 =512,881,686
P P
=456,954,043 P
=85,726,844 =764,000
P P
=3,295,891,093
- 56 -
The Group adopted the deemed cost model as of January 1, 2004 and considered the carrying
value of the land determined under its previous accounting method (revaluation method) as the
deemed cost of the asset as of January 1, 2005. Accordingly, the carrying value of the land
revaluation increment on the land as of January 1, 2004 is retained in the statement of condition
and will be reversed to surplus upon the disposal of the asset. The land shall be carried at its
deemed cost less accumulated impairment loss, if any.
P
As of December 31, 2007 and 2006, depreciation and amortization amounting to =269.73 million
P P P
and =203.38 million, respectively, for the Group and =253.56 million and =201.80 million,
respectively, for the Parent Company are included in the statements of income.
12. Investment Properties
The composition of and movements in the Group and the Parent Company’s investment properties
follow:
Consolidated
Buildings and 2007
Land Improvements Total
Cost
Balance at beginning of year =
P4,732,341,352 =
P1,027,490,757 =
P5,759,832,109
Additions 515,056,864 251,861,749 766,918,613
Disposals/reclassifications (601,219,132) (208,331,186) (809,550,318)
Balance at end of year 4,646,179,084 1,071,021,320 5,717,200,404
Accumulated Depreciation and
Amortization
Balance at beginning of year – 410,859,394 410,859,394
Depreciation and amortization – 111,860,444 111,860,444
Disposals/reclassifications – (119,039,350) (119,039,350)
Balance at end of year – 403,680,488 403,680,488
Accumulated Impairment Loss (Note 14) 794,052,880 172,405,567 966,458,447
Net Book Value at End of Year =
P3,852,126,204 =
P494,935,265 =
P4,347,061,469
Parent Company
Buildings and 2007
Land Improvements Total
Cost
Balance at beginning of year =
P4,732,341,352 =
P1,027,490,757 =
P5,759,832,109
Additions 491,512,218 200,114,396 691,626,614
Disposals/reclassifications (601,219,132) (208,331,186) (809,550,318)
Balance at end of year 4,622,634,438 1,019,273,967 5,641,908,405
Accumulated Depreciation and
Amortization
Balance at beginning of year – 410,859,394 410,859,394
Depreciation and amortization – 111,860,444 111,860,444
Disposals/reclassifications – (119,039,350) (119,039,350)
Balance at end of year – 403,680,488 403,680,488
Accumulated Impairment Loss (Note 14) 794,052,880 172,405,567 966,458,447
Net Book Value at End of Year =
P3,828,581,558 =
P443,187,912 =
P4,271,769,470
- 57 -
Consolidated and Parent Company
Buildings and 2006
Land Improvements Total
Cost
Balance at beginning of year P
=4,662,082,280 P
=1,070,611,908 P
=5,732,694,188
Additions 518,211,058 128,415,847 646,626,905
Disposals/reclassifications (447,951,986) (171,536,998) (619,488,984)
Balance at end of year 4,732,341,352 1,027,490,757 5,759,832,109
Accumulated Depreciation and
Amortization
Balance at beginning of year – 333,288,558 333,288,558
Depreciation and amortization – 103,652,658 103,652,658
Disposals/reclassifications – (26,081,822) (26,081,822)
Balance at end of year – 410,859,394 410,859,394
Accumulated Impairment Loss (Note 14) 794,052,880 172,405,567 966,458,447
Net Book Value at End of Year P
=3,938,288,472 P
=444,225,796 P
=4,382,514,268
The Group’s investment properties consist entirely of real estate properties acquired in settlement
of loans and receivables (previously classified as ROPA). The difference between the fair value of
the asset upon foreclosure and the carrying value of the loan is recognized under Gain on asset
foreclosure and dacion transactions in the statements of income.
=
The aggregate fair value of the investment properties of the Group amounted to P7.28 billion and
=
P6.91 billion as of December 31, 2007 and 2006, respectively. The fair values of the Group’s
investment properties have been determined by the appraisal method on the basis of recent sales of
similar properties in the same areas as the investment properties and taking into account the
economic conditions prevailing at the time the valuations were made.
Details of the rental income and direct operating expenses on the investment properties of the
Group follow:
2007 2006
Rent income on investment properties P16,315,045
= =
P14,020,292
Direct operating expenses from investment
properties not generating rent income 36,972,747 32,486,631
- 58 -
13. Other Assets
This account consists of:
Consolidated Parent Company
2007 2006 2007 2006
Accounts receivable =
P944,274,987 P
=767,170,205 =
P828,624,857 P
=709,259,246
Sales contracts receivable 877,924,262 314,641,249 301,997,685 314,641,249
Escrow deposits 735,348,260 – 735,348,260 –
Branch licenses (Notes 4 and 10) 477,600,000 – 438,532,320 –
Net plan assets (Note 22) 234,820,478 328,391,352 234,820,478 328,391,352
Returned checks and other cash items
in process of collection (RCOCI) 232,913,392 219,931,294 232,913,392 219,931,294
Goodwill (Notes 4 and 10) 222,841,201 – 222,841,201 –
Due from affiliate (Note 27) – – 437,116,393 –
Miscellaneous 524,384,135 325,169,845 519,691,812 321,623,871
4,250,106,715 1,955,303,945 3,951,886,398 1,893,847,012
Allowance for impairment and credit
losses (Note 14) (292,170,117) (307,906,371) (290,890,880) (306,656,768)
=
P3,957,936,598 P
=1,647,397,574 P3,660,995,518
= P
=1,587,190,244
The following tables present the reconciliation of the movement of the allowance for impairment
and credit losses for Other assets.
Consolidated
Accounts Sales contract
receivable receivable Miscellaneous Total
At January 1, 2007 =
P86,689,465 P18,122,681
= =
P203,094,225 =
P307,906,371
Accounts charged off – – (25,152,062) (25,152,062)
Transfers/others 47,362,160 7,454,205 (45,400,557) 9,415,808
At December 31, 2007 =
P134,051,625 P25,576,886
= =
P132,541,606 =
P292,170,117
At January 1, 2006 P
=89,598,921 =20,289,860
P P
=205,980,975 P
=315,869,756
Provisions during the year (2,536,244) (2,167,179) 74,688,822 69,985,399
Accounts charged off – – – –
Transfers/others (373,212) – (77,575,572) (77,948,784)
At December 31, 2006 =
P86,689,465 =18,122,681
P P
=203,094,225 P
=307,906,371
Parent Company
Accounts Sales contract
receivable receivable Miscellaneous Total
At January 1, 2007 =
P86,689,465 P18,122,681
= =
P201,844,622 =
P306,656,768
Accounts charged off – – (25,152,062) (25,152,062)
Transfers/others 47,362,160 7,454,205 (45,430,191) 9,386,174
At December 31, 2007 =
P134,051,625 P25,576,886
= =
P131,262,369 =
P290,890,880
At January 1, 2006 P
=89,598,921 =20,289,860
P P
=203,960,827 P
=313,849,608
Provisions during the year (2,536,244) (2,167,179) 74,688,822 69,985,399
Transfers/others (373,212) – (76,805,027) (77,178,239)
At December 31, 2006 =
P86,689,465 =18,122,681
P P
=201,844,622 P
=306,656,768
- 59 -
14. Allowance for Impairment and Credit Losses
Changes in the allowance for impairment and credit losses are as follows:
Consolidated Parent Company
2007 2006 2007 2006
Balances at beginning of year:
Loans and receivables =
P7,405,323,798 =6,686,863,994
P =
P7,405,323,798 P
=6,686,863,994
Investment properties 966,458,447 707,227,547 966,458,447 707,227,547
Other assets 307,906,371 315,869,756 306,656,768 313,849,608
8,679,688,616 7,709,961,297 8,678,439,013 7,707,941,149
Provisions charged to operations 300,578,001 1,047,676,103 300,516,878 1,047,676,103
Accounts charged off and others (473,560,095) (77,948,784) (491,074,497) (77,178,239)
(172,982,094) 969,727,319 (190,557,619) 970,497,864
Balances at end of year:
Loans and receivables 6,853,348,737 7,405,323,798 6,835,863,969 7,405,323,798
Investment properties 966,458,447 966,458,447 966,458,447 966,458,447
AFS financial assets 394,729,221 – 394,668,098 –
Other assets 292,170,117 307,906,371 290,890,880 306,656,768
=
P8,506,706,522 P
=8,679,688,616 =
P8,487,881,394 P
=8,678,439,013
At the current level of allowance impairment and credit losses, management believes that the
Group has sufficient allowance to cover any losses that may be incurred from the non-collection or
non-realization of its loans and receivables and other risk assets.
A reconciliation of the allowance for credit losses for receivables from customers and AFS
financial assets is as follows:
Consolidated
2007
AFS Financial
Loans and Receivables Assets
Corporate Consumer Unquoted
Lending Lending Others Total Securities
At January 1, 2007 =
P6,681,992,534 =
P285,768,491 P437,562,773 P7,405,323,798
= = =
P–
Provisions during the year 195,027,094 72,457,922 33,031,862 300,516,878 61,123
Accounts charged off (464,653,067) (32,977,010) (30,655,737) (528,285,814) –
Transfers/others (329,799,121) 2,746,220 2,846,776 (324,206,125) 394,668,098
At December 31, 2007 =
P6,082,567,440 =
P327,995,623 P442,785,674 P6,853,348,737
= = =
P394,729,221
Individual impairment =
P4,671,248,085 P–
= = =
P– P4,671,248,085 =
P394,729,221
Collective impairment 1,411,319,355 327,995,623 442,785,674 2,182,100,652 –
=
P6,082,567,440 =
P327,995,623 P442,785,674 P6,853,348,737
= = =
P394,729,221
- 60 -
Parent Company
2007
AFS Financial
Loans and Receivables Assets
Corporate Consumer Unquoted
Lending Lending Others Total Securities
At January 1, 2007 =
P6,681,992,534 =
P285,768,491 P437,562,773 P7,405,323,798
= = =
P–
Provisions during the year 195,027,094 72,457,922 33,031,862 300,516,878 –
Accounts charged off (464,653,067) (32,977,010) (30,655,736) (528,285,813) –
Transfers/others (345,682,775) 2,067,810 1,924,071 (341,690,894) 394,668,098
At December 31, 2007 =
P6,066,683,786 =
P327,317,213 P441,862,970 P6,835,863,969
= = =
P394,668,098
Individual impairment =
P4,655,364,431 P–
= = =
P– P4,655,364,431 =
P394,668,098
Collective impairment 1,411,319,355 327,317,213 441,862,970 2,180,499,538 –
=
P6,066,683,786 =
P327,317,213 P441,862,970 P6,835,863,969
= = =
P394,668,098
Consolidated and Parent Company
2006
AFS Financial
Loans and Receivables Assets
Corporate Consumer Unquoted
Lending Lending Others Total Securities
At January 1, 2006 P
=6,255,826,094 P
=145,833,147 =285,204,753 =6,686,863,994
P P P
=–
Provisions during the year 426,166,440 139,935,344 152,358,020 718,459,804 15,917,796
Accounts charged off – – – – 15,917,796
At December 31, 2006 =
P6,681,992,534 P
=285,768,491 =437,562,773 =7,405,323,798
P P P
=–
Individual impairment =
P4,977,804,315 =–
P P P
=– =4,977,804,315 P
=15,917,796
Collective impairment 1,704,188,219 285,768,491 437,562,773 2,427,519,483 –
P6,681,992,534
= P
=285,768,491 =437,562,773 =7,405,323,798
P P P
=15,917,796
The gross amount of the Parent Company’s loans and receivables that were individually
P
determined to be impaired as of December 31, 2007 amounted to =6.36 billion.
Accretion of individually impaired loans and receivables of the Parent Company included as part
= P
of interest income amounted to P199.06 million and =146.36 million for the years ended
December 31, 2007 and 2006, respectively.
15. Deposit Liabilities
Of the total deposit liabilities of the Group as of December 31, 2007 and 2006, 55.34% and
66.12%, respectively, are subject to periodic interest repricing. The remaining deposit liabilities
earn annual fixed interest rates ranging from 0.50% to 6.75% in 2007 and from 1.00% to 7.13% in
2006.
Under existing BSP regulations, non-FCDU deposit liabilities of the Group are subject to liquidity
reserve equivalent to 11% and statutory reserve equivalent to 10%. As of December 31, 2007 and
2006, the Group is in compliance with such regulations.
- 61 -
Available reserves of the Parent Company per latest report submitted to the BSP are as follows:
2007 2006
Cash and other cash items P3,295,831,242
= P2,842,950,797
=
Due from BSP 7,609,936,396 6,242,853,692
Loans and receivables 11,671,477,289 9,527,976,079
P22,577,244,927
= =
P18,613,780,568
16. Bills Payable
The Group and the Parent Company’s bills payable consist of:
Consolidated Parent Company
2 2 2
BSP - rediscounting (Note 9) =
P395,292, P295,229,
= =
P312,760, P295,229
=
Interbank loans 131,000, 245,150, 131,000, 245,150
Government lending programs 2,135,014, 3,288,278, 2,135,014, 3,288,278
=
P2,661,307, =
P3,828,657, P2,578,774,
= =
P3,828,657
Details of government lending programs of the Group and Parent Company follow:
Average
Counterparty term Rates 2007 2006
Development Bank of the Philippines 7 years 5.50% to 9.70% P2,132,295,288
= P
=2,891,872,001
Land Bank of the Philippines 7 years 8% to 9% – 343,831,423
Others 15 years 12% 2,719,224 52,575,072
P2,135,014,512
= P
=3,288,278,496
17. Accrued Interest, Taxes and Other Expenses
This account consists of:
Consolidated Parent
2007 2006 2007 2006
Accrued interest payable =
P2,110,881,961 P
=1,676,571,137 P
P2,107,202,351 =1,676,571,137
=
Accrued other expenses
payable 1,028,306,320 1,055,516,781 1,018,305,820 1,051,883,196
Income tax payable 52,303,106 13,987,704 52,275,370 13,983,575
=
P3,191,491,387 P
=2,746,075,622 P3,177,783,541
= P
=2,742,437,908
The accrued other expenses payable as of December 31, 2007 and 2006 includes the Group’s
accrual for various operating expenses.
- 62 -
18. Other Liabilities
This account consists of:
Consolidated Parent
2007 2006 2007 2006
Accounts payable =
P935,694,972 P
=891,176,098 =
P830,333,905 P
=891,176,098
Other payables 560,012,446 – 560,012,446 –
Acceptances payable 229,651,254 345,307,384 229,651,254 345,307,384
Due to BSP 46,992,526 45,933,576 46,992,526 45,933,576
Margin deposits 15,246,403 50,325,541 15,246,403 50,325,541
Miscellaneous 562,734,298 882,026,659 539,393,051 807,060,555
=
P2,350,331,899 P
=2,214,769,258 P2,221,629,585
= P
=2,139,803,154
Other payables pertain to the Parent Company’s payable to former shareholders of TMBC in
relation to the acquisition of TMBC in September 2007 (see Note 4). The Parent Company
expects to pay the balance in 2008.
Miscellaneous liabilities include the Parent Company’s derivative liability amounting to
=
P4.51 million (see Note 23).
19. Net Trading Income
This account consists of:
Consolidated Parent Company
2007 2006 2005 2007 2006 2005
Financial assets at fair value
through profit or loss:
Held-for-trading (P41,657,418)
= =
P659,204,223 =
P955,924,387 (P41,657,418)
= =
P659,204,223 =955,924,387
P
Designated at FVPL 80,251,316 (148,465,467) – 80,251,316 (148,465,467) –
AFS financial assets 580,333,139 775,846,995 257,919,848 579,490,944 766,205,864 257,857,325
=
P618,927,037 =
P1,286,585,751 P1,213,844,235
= =
P618,084,842 =
P1,276,944,620 =1,213,781,712
P
20. Maturity Analysis of Assets and Liabilities
The following tables present both the Group’s and Parent Company’s assets and liabilities as of
December 31, 2007 and 2006 analyzed according to when they are expected to be recovered or
settled within one year and beyond one year from the balance sheets date:
Consolidated
2007 2006
Less than Over Less than Over
twelve months twelve months Total twelve months twelve months Total
Financial assets
Cash and other cash items =
P3,077,335,121 P–
= P3,077,335,121
= =
P2,599,467,319 P
=– =
P2,599,467,319
Due from BSP 12,427,182,517 – 12,427,182,517 9,268,764,084 – 9,268,764,084
Due from other banks 4,649,838,136 – 4,649,838,136 2,436,097,931 – 2,436,097,931
Interbank loans receivable
and securities purchased
under resale agreements 11,821,000,000 – 11,821,000,000 9,545,150,000 – 9,545,150,000
(Forward)
- 63 -
Consolidated
2007 2006
Less than Over Less than Over
twelve months twelve months Total twelve months twelve months Total
Financial assets at FVPL =
P3,643,661,668 P1,146,028,520
= P4,789,690,188
= P24,066,879
= =13,649,810,114
P P
=13,673,876,993
AFS financial assets - gross 1,296,206,696 23,355,318,097 24,651,524,793 122,463,026 19,971,937,946 20,094,400,972
HTM financial assets 1,262,943,910 11,216,006,625 12,478,950,535 2,229,376,942 13,581,769,758 15,811,146,700
Loans and receivables -
gross 45,255,475,478 50,488,104,017 95,743,579,495 39,236,551,932 40,708,935,040 79,945,486,972
Accrued interest receivable 1,472,659,796 – 1,472,659,796 927,535,027 – 927,535,027
Equity investments – 11,980,869 11,980,869 – 3,235,031 3,235,031
Other assets - gross:
Accounts receivable 944,274,987 – 944,274,987 767,170,205 – 767,170,205
Sales contracts receivable 877,924,262 – 877,924,262 28,081,401 286,559,848 314,641,249
RCOCI 232,913,392 – 232,913,392 219,931,294 – 219,931,294
Miscellaneous 747,818,152 747,818,152 8,237,400 – 8,237,400
87,709,234,115 86,217,438,128 173,926,672,243 67,412,893,440 88,202,247,737 155,615,141,177
Nonfinancial assets
Bank premises, furniture,
fixtures and equipment – 4,252,747,800 4,252,747,800 – 3,298,474,499 3,298,474,499
Investment properties - gross – 5,313,519,916 5,313,519,916 – 5,348,972,715 5,348,972,715
Deferred tax assets 789,621,662 25,674,096 815,295,758 532,881,592 22,110,542 554,992,134
Other assets - gross
Net plan assets – 234,820,478 234,820,478 – 328,391,352 328,391,352
Miscellaneous 473,549,110 738,806,334 1,212,355,444 297,386,756 19,545,689 316,932,445
1,263,170,772 10,565,568,624 11,828,739,396 830,268,348 9,017,494,797 9,847,763,145
Less allowances for
impairment and credit
losses (Note 14) – 8,506,706,522 8,506,706,522 – 8,679,688,616 8,679,688,616
Unearned interest and
discounts – 1,561,534,642 1,561,534,642 – 1,136,606,277 1,136,606,277
– 10,068,241,164 10,068,241,164 – 9,816,294,893 9,816,294,893
=
P88,972,404,887 P86,714,765,588
= P175,687,170,475
= =
P68,243,161,788 =87,403,447,641
P =155,646,609,429
P
2007 2006
Less than Over Less than Over
twelve months twelve months Total twelve months twelve months Total
Financial liabilities
Deposit Liabilities =
P127,945,357,928 P12,510,967,376 P140,456,325,304 P108,849,182,527
= = = =
P12,779,352,851 P121,628,535,378
=
Bills payable 1,395,314,846 1,265,992,321 2,661,307,167 597,754,000 3,230,903,496 3,828,657,496
Manager’s checks 292,673,476 – 292,673,476 246,277,757 – 246,277,757
Accrued interest
and other expenses 3,139,188,281 – 3,139,188,281 2,732,087,918 – 2,732,087,918
Other liabilities
Accounts payable 935,694,972 – 935,694,972 891,176,098 – 891,176,098
Other payables 560,012,446 – 560,012,446 – – –
Acceptances payable 229,651,254 – 229,651,254 345,307,384 – 345,307,384
Due to BSP 46,992,526 – 46,992,526 45,933,576 – 45,933,576
Margin deposits 15,246,403 – 15,246,403 50,325,541 – 50,325,541
Miscellaneous 562,734,298 – 562,734,298 882,026,659 – 882,026,659
135,122,866,430 13,776,959,697 148,899,826,127 114,640,071,460 16,010,256,347 130,650,327,807
Nonfinancial liabilities
Accrued income tax payable 52,303,106 – 52,303,106 13,987,704 – 13,987,704
P135,175,169,536
= P13,776,959,697 P148,952,129,233 P114,654,059,164
= = = =16,010,256,347
P P
=130,664,315,511
- 64 -
Parent Company
2007 2006
Less than Over Less than Over
twelve months twelve months Total twelve months twelve months Total
Financial assets
Cash and other cash items P
=3,064,553,081 P–
= P3,064,553,081
= P2,601,337,948
= P
=– P
=2,601,337,948
Due from BSP 12,328,161,848 – 12,328,161,848 9,268,764,084 – 9,268,764,084
Due from other banks 4,534,415,329 – 4,534,415,329 2,436,097,931 – 2,436,097,931
Interbank loans receivable
and securities purchased
under resale agreements 11,581,000,000 – 11,581,000,000 9,545,150,000 – 9,545,150,000
Financial assets at FVPL 3,643,661,668 1,146,028,520 4,789,690,188 24,066,879 13,649,810,114 13,673,876,993
AFS financial assets - gross 1,296,206,696 22,009,063,450 24,305,270,146 122,463,026 19,799,074,310 19,921,537,336
HTM financial assets 1,262,943,910 11,216,006,625 12,478,950,535 2,229,376,943 13,581,769,757 15,811,146,700
Loans and receivables -
gross 45,255,475,478 49,209,270,607 94,464,746,085 39,236,551,932 40,708,935,040 79,945,486,972
Accrued interest receivable 1,455,738,680 – 1,455,738,680 924,096,223 – 924,096,223
Equity investments – 1,136,284,552 1,136,284,552 – 85,189,000 85,189,000
Other assets - gross:
Accounts receivable 828,624,857 – 828,624,857 709,259,246 – 709,259,246
Sales contracts receivable 301,997,685 – 301,997,685 28,081,401 286,559,848 314,641,249
RCOCI 232,913,392 – 232,913,392 219,931,294 – 219,931,294
Miscellaneous 747,818,152 – 747,818,152 8,237,400 – 8,237,400
86,533,510,776 85,716,653,754 172,250,164,530 67,353,414,307 88,111,338,069 155,464,752,376
Nonfinancial assets
Bank premises, furniture,
fixtures and equipment – 3,627,181,567 3,627,181,567 – 3,295,891,093 3,295,891,093
Investment properties - gross – 5,238,227,917 5,238,227,917 – 5,348,972,715 5,348,972,715
Deferred tax assets 787,435,840 25,674,096 813,109,936 532,881,592 19,958,528 552,840,120
Other assets - gross
Net plan assets – 234,820,478 234,820,478 – 328,391,352 328,391,352
Miscellaneous 905,968,078 699,743,756 1,605,711,834 297,386,757 15,999,714 313,386,471
1,693,403,918 9,825,647,814 11,519,051,732 830,268,349 9,009,213,402 9,839,481,751
Less allowances for
impairment and credit losses
(Note 14) – 8,487,881,394 8,487,881,394 – 8,678,439,013 8,678,439,013
Unearned interest and
discounts – 1,561,534,642 1,561,534,642 – 1,136,606,277 1,136,606,277
– 10,049,416,036 10,049,416,036 – 9,815,045,290 9,815,045,290
=
P88,226,914,694 P85,492,885,532
= P173,719,800,226
= P68,183,682,656 =87,305,506,181
= P =155,489,188,837
P
Parent Company
2007 2006
Less than Over Less than Over
twelve months twelve months Total twelve months twelve months Total
Financial liabilities
Deposit liabilities P126,755,406,605
= P12,222,899,515 P138,978,306,120 P108,849,182,527
= = = =12,813,525,743
P =121,662,708,270
P
Bills payable 1,312,782,446 1,265,992,321 2,578,774,767 597,754,000 3,230,903,496 3,828,657,496
Manager’s checks 292,673,476 – 292,673,476 246,277,757 – 246,277,757
Accrued interest
and other expenses 3,125,508,171 – 3,125,508,171 2,728,454,333 – 2,728,454,333
Other liabilities
Accounts payable 830,333,905 – 830,333,905 891,176,098 – 891,176,098
Other payable 560,012,446 – 560,012,446 – – –
Acceptances payable 229,651,254 – 229,651,254 345,307,384 – 345,307,384
Due to BSP 46,992,526 – 46,992,526 45,933,576 – 45,933,576
Margin deposits 15,246,403 – 15,246,403 50,325,541 – 50,325,541
Miscellaneous 539,393,051 – 539,393,051 807,060,555 – 807,060,555
133,708,000,283 13,488,891,836 147,196,892,119 114,561,471,771 16,044,429,239 130,605,901,010
Nonfinancial liabilities
Accrued income tax payable 52,275,370 – 52,275,370 13,983,575 – 13,983,575
P133,760,275,653
= P13,488,891,836 P147,249,167,489 P114,575,455,346
= = = =16,044,429,239
P P
=130,619,884,585
- 65 -
21. Equity
The Parent Company’s capital stock consists of:
2007 2006
Shares Amount Shares Amount
P
Common stock - =100 par value
Authorized - shares 160,000,000 P–
= 100,000,000 P
=–
Issued and outstanding
Balance at beginning of year 61,663,765 6,166,376,500 49,331,550 4,933,155,000
Stock dividends* 15,416,661 1,541,666,100 12,332,215 1,233,221,500
77,080,426 P7,708,042,600
= 61,663,765 P
=6,166,376,500
*The stock dividend declared in 2007 includes fractional shares equivalent to 720 shares.
The Parent Company shares are listed in the Philippine Stock Exchange.
On May 2, 2007, the BOD approved the increase in the Parent Company’s authorized capital from
= P
P10 billion to =16 billion. The BSP and SEC approved the increase on August 7, 2007 and
September 14, 2007, respectively.
P
On May 3, 2007, the BOD approved the declaration of 25% stock and =25 per share cash
dividends to stockholders of record as of October 4, 2007. The BSP approved the dividend
declaration on August 7, 2007.
P
On May 3, 2006, the BOD approved the declaration of 25% stock and =30 per share cash
dividends to stockholders of record as of August 10, 2006. The BSP approved the dividend
declaration on July 17, 2006.
P
On May 4, 2005, the BOD approved the declaration of 35% stock and =35 per share cash
dividends to stockholders of record as of September 23, 2005. The BSP approved the dividend
declaration on June 15, 2005.
In compliance with BSP regulations, 10% of the Parent Company’s profit from trust business is
appropriated to surplus reserve. This annual appropriation is required until the surplus reserves for
trust business equals 20% of the Parent Company’s authorized capital stock.
In the consolidated financial statements, a portion of the Group’s surplus corresponding to the net
earnings of the subsidiaries and accumulated equity in net earnings of an associate amounting to
P710.92 million and =90.21 million as of December 31, 2007 and 2006, respectively, is not
= P
available for dividend declaration. The accumulated equity in net earnings becomes available for
dividends upon receipt of cash dividends from the investees.
Capital Management
The primary objectives of the Group’s capital management are to ensure that it complies with
externally imposed capital requirements and that it maintains strong credit ratings and healthy
capital ratios in order to support its business and to maximize shareholders’ value.
- 66 -
The Group manages its capital structure and makes adjustments to it in light of changes in
economic conditions and the risk characteristics of its activities. In order to maintain or adjust the
capital structure, the Group may adjust the amount of dividend payment to shareholders, return
capital to shareholders or issue capital securities. No changes were made in the objectives,
policies and processes in 2007 and 2006.
Regulatory Qualifying Capital
Under existing BSP regulations, the determination of the Parent Company’s compliance with
regulatory requirements and ratios is based on the amount of the Parent Company’s unimpaired
capital (regulatory capital) as reported to the BSP. This is determined on the basis of regulatory
accounting policies which differ from PFRS in some respects.
In addition, the risk-based capital ratio of a bank, expressed as a percentage of qualifying capital to
risk-weighted assets, should not be less than 10.00% for both solo basis (head office and branches)
and consolidated basis (Parent Company and subsidiaries engaged in financial allied undertakings
but excluding insurance companies). Qualifying capital and risk-weighted assets are computed
based on BSP regulations. Risk-weighted assets consist of total assets less cash on hand, due from
BSP, loans covered by hold-out on or assignment of deposits, loans or acceptances under letters of
credit to the extent covered by margin deposits and other non-risk items determined by the
Monetary Board (MB) of the BSP.
Under BSP Circular No. 360, the capital-to-risk assets ratio (CAR) is to be inclusive of a market
risk charge. Using this formula, the Group’s CAR as of December 31, 2006 was 23.05%. Under
the previous computation provided under BSP Circular No. 280, which BSP Circular No. 360
above amended, the CAR of the Group was 28.55% as of December 31, 2006. However, on
August 4, 2006, the BSP, under BSP Circular No. 538, issued the prescribed guidelines
implementing the revised risk-based capital adequacy framework for the Philippine banking
system to conform to Basel II capital adequacy framework. The new BSP guidelines took effect
on July 1, 2007. Thereafter, banks were required to compute their CAR using these guidelines.
As of December 31, 2007, the Group’s CAR under BSP Circular No. 538 is 16.03%.
The CAR of the Group as reported to the BSP as of December 31, 2007 and December 31, 2006
are shown in the table below.
Consolidated Parent Company
2007 2006 2007 2006
(Amounts in Million Pesos)
Tier 1 capital =
P21,031.6 P
=20,266.4 =
P20,217.2 P
=20,266.4
Tier 2 capital 1,296.1 933.8 1,285.6 933.8
Gross qualifying capital 22,327.7 21,200.2 21,502.8 21,200.2
Less required deductions 38.2 39.3 954.1 174.1
Total qualifying capital =
P22,289.5 P
=21,160.9 P20,548.7
= =21,026.1
P
Risk weighted assets =
P139,087.3 91,812.8 P136,913.5
= 91,811.4
Tier 1 capital ratio 15.12% 22.07% 14.77% 22.07%
Total capital ratio 16.03% 23.05% 15.01% 22.90%
- 67 -
The regulatory qualifying capital of the Parent Company consists of Tier 1 (core) capital, which
comprises paid-up common stock, hybrid tier 1 capital securities, surplus including current year
profit, surplus reserves and minority interest less required deductions such as unsecured credit
accommodations to DOSRI, deferred income tax, and goodwill. Certain adjustments were made to
the accounts and reserves of the Parent Company which were determined based on PFRS in order
to conform to BSP’s requirements and guidelines in computing capital adequacy. The other
component of regulatory capital is Tier 2 (supplementary) capital, which includes unsecured
subordinated debt and general loan loss provision.
The Group and its individually regulated operations have complied with all externally imposed
capital requirements throughout the period.
22. Retirement Plan
The Group has separate funded noncontributory defined benefit retirement plans covering
substantially all its officers and regular employees. Under these retirement plans, all covered
officers and employees are entitled to cash benefits after satisfying certain age and service
requirements. The latest actuarial valuation studies of the retirement plans were made on
December 31, 2007.
The Group’s annual contribution to the retirement plan consists of a payment covering the current
service cost, amortization of the unfunded actuarial accrued liability and interest on such unfunded
actuarial liability.
As of January 1, 2007 and 2006, the principal actuarial assumptions used in determining the
retirement liability for the Parent Company’s retirement plan are shown below:
2007 2006
Discount rate 8% 12%
Expected rate of return on assets 7% 8%
Future salary increases 10% 8% to 9%
The discount rates used as of December 31, 2007 and 2006 are 10% and 8%, respectively.
- 68 -
The movements in the present value of defined benefit obligation of the Parent Company follow:
2007 2006
Balance at beginning of year =
P2,095,462,346 P1,161,978,800
=
Current service cost 157,515,784 75,090,595
Interest cost 170,989,700 139,437,456
Benefits paid (103,098,000) (55,151,424)
Actuarial losses (gains) on obligation (597,291,900) 774,106,919
Balance at end of year =
P1,723,577,930 P2,095,462,346
=
The movements in the fair value of plan assets of the Parent Company follow:
2007 2006
Balance at beginning of year =
P2,150,180,042 P1,772,447,400
=
Expected return 150,512,600 141,795,792
Contribution paid by employer 83,023,600 76,101
Benefits paid (103,098,000) (55,151,424)
Actuarial gains on plan assets 310,093,858 291,012,173
Balance at end of year =
P2,590,712,100 P2,150,180,042
=
The amounts recognized in the balance sheet of the Parent Company (included under Other assets)
follow:
2007 2006
Present value of defined benefit obligation =
P1,723,577,930 P2,095,462,346
=
Fair value of plan assets 2,590,712,100 2,150,180,042
867,134,170 54,717,696
Unrecognized actuarial losses (gains) (632,313,692) 277,801,766
Unrecognized asset due to asset ceiling – (4,128,110)
Net plan assets P234,820,478
= P328,391,352
=
Movements in accumulated unrecognized actuarial losses (gains) of the Parent Company follow:
2007 2006
Balance at beginning of year P277,801,766
= =
(P206,567,900)
Actuarial losses (gains) on the present value of the
defined benefit obligation (597,291,900) 774,106,919
Actuarial gains on plan assets (310,093,858) (291,012,173)
Actuarial gains (losses) recognized during the year (2,729,700) 1,274,920
Balance at end of year (P632,313,692)
= P277,801,766
=
- 69 -
The overall expected rate of return on plan assets is determined based on the market prices
prevailing on that date applicable to the period over which the obligation is to be settled. The
amounts included in Compensation and fringe benefits of the Parent Company in the statements of
income follow:
2007 2006
Current service cost P157,515,784
= P75,090,595
=
Interest cost 170,989,700 139,437,456
Expected return on plan assets (150,512,600) (141,795,792)
Net actuarial gains recognized during the year 2,729,700 (1,274,920)
Effect of asset limit (4,128,110) 4,128,110
Net pension expense P176,594,474
= P75,585,449
=
P P
Actual return amounted to =460.61 million in 2007 and =432.81 million in 2006.
=
The Parent Company expects to contribute P6.19 million to its defined benefit pension plan in
2008.
In 2007 and 2006, the major categories of plan assets as a percentage of the fair value of total plan
assets are as follows:
2007 2006
Equity instruments 48% 44%
Debt instruments 30% 29%
Other assets 22% 27%
100% 100%
In 2007, experience adjustments on plan assets and liabilities amounted to a gain of
= P
P310.09 million and a loss of =35.01 million, respectively.
=
In 2006, experience adjustments on plan assets and liabilities amounted to a gain of P291.01
P
million and a loss of =19.06 million, respectively.
23. Derivative Financial Instruments
Occasionally, the Parent Company enters into forward exchange contracts as an accommodation to
its clients and which are not designated as accounting hedges. The aggregate notional amount of
outstanding currency forwards as of December 31, 2007 and 2006 amounted to US$365.07 million
and US$243.50 million, respectively. As of December 31, 2007 and 2006, the mark-to-market
gain or loss on the outstanding currency forwards follows:
2007 2006
Derivative Derivative Derivative Derivative
Asset Liability Asset Liability
Currency forwards =
P322,205,600 =
P4,507,664 P
=367,161,865 –
- 70 -
Fair Value Changes on Derivatives
The net movements in fair value changes of derivative instruments are as follows:
2007 2006
Balance at beginning of year P367,161,865
= P158,585,685
=
Fair value changes during the year 495,343,059 408,507,814
Settled transactions (544,806,988) (199,931,634)
Balance at end of year P317,697,936
= P367,161,865
=
The fair value changes during the year are included under Trading and securities gains - net in the
statement of income.
24. Lease Contracts
The lease contracts are for periods ranging from 1 to 25 years from the dates of contracts and are
renewable under certain terms and conditions. Various leases contracts include escalation clauses,
most of which bear an annual rent increase of 10%.
Annual rentals on these lease contracts included in Miscellaneous income in the statement of
= P
income amounted to P196.6 million in 2007 and =158.8 million in 2006.
Future minimum rentals payable of the Group under non-cancelable operating leases follow:
2007 2006
Within one year P111,451,816
= =
P78,692,013
After one year but not more than five years 288,258,818 177,994,867
After more than five years 67,416,398 31,430,866
P467,127,032
= =
P288,117,746
25. Income and Other Taxes
Under Philippine tax laws, the Parent Company is subject to percentage and other taxes (presented
as Taxes and Licenses in the statements of income) as well as income taxes. Percentage and other
taxes paid consist principally of gross receipt tax (GRT) and documentary stamp taxes (DST).
Income taxes include the corporate income tax, as discussed below, and final tax paid at the rate of
20% on gross interest income from government securities and other deposit substitutes. These
income taxes, as well as the deferred tax benefits and provisions, are presented as Provision for
income tax in the statements of income.
Republic Act (RA) No. 9337, An Act Amending National Internal Revenue Code, provides that the
RCIT rate shall be 35% until January 1, 2009. Starting January 1, 2009 the RCIT rate shall be
30%. It also provides for the change in GRT rate from 7% to 5%. However, such amendments
have been subject to temporary restraining order by the Supreme Court. On October 8, 2005, the
Supreme Court has ruled that RA No. 9337 is constitutional and took effect on November 1, 2005.
- 71 -
Prior to November 1, 2005, interest allowed as a deductible expense is reduced by an amount
equivalent to 38% of interest income subjected to final tax. Starting November 1, 2005, interest
allowed as a deductible expense is reduced by an amount equivalent to 42% of interest income
subjected to final tax. A MCIT of 2% on modified gross income is computed and compared with
the RCIT. Any excess of the MCIT over the RCIT is deferred and can be used as a tax credit
against future income tax liability for the next three years from the year of inception. In addition,
the NOLCO is allowed as a deduction from taxable income in the next three years from the year of
inception.
Current tax regulations also provide for the ceiling on the amount of entertainment, amusement
and recreation (EAR) expense that can be claimed as a deduction against taxable income. Under
the regulations, EAR expense allowed as a deductible expense is limited to the actual EAR paid or
incurred but not to exceed 1% of the Parent Company’s net revenue.
Effective in May 2004, Republic Act No. 9294 restores the tax exemption of FCDUs and offshore
banking units (OBUs). Under such law, the income derived by the FCDU from foreign currency
transactions with nonresidents, OBUs, local commercial banks including branches of foreign
banks is tax-exempt while interest income on foreign currency loans from residents other than
OBUs or other depository banks under the expanded system is subject to 10% gross income tax.
The provision for income tax consists of:
Consolidated Parent Company
2007 2006 2005 2007 2006 2005
Current:
Final tax =
P244,733,531 P357,176,470
= =
P453,974,125 =
P243,991,463 P355,776,238
= P451,891,235
=
MCIT 55,797,056 – 27,455,316 53,216,733 – 27,455,316
RCIT – 88,468,965 – – 86,703,900 –
300,530,587 445,645,435 481,429,441 297,208,196 442,480,138 479,346,551
Deferred (108,275,785) 69,309,877 306,103,088 (108,275,785) 69,309,877 306,103,014
=
P192,254,802 =
P514,955,312 =
P787,532,529 =
P188,932,411 P511,790,015
= P785,449,565
=
As of December 31, 2007, details of the excess MCIT over RCIT of the Parent Company follow:
Original Expired Applied Remaining
Inception Year Amount Amount Amount Balance Expiry Year
2005 P
=27,455,316 P
=– (P27,455,316)
= P
=– 2008
2007 10,599,685 – – 10,599,685 2010
P
=38,055,001 P
=– =
(P27,455,316) P
=10,599,685
As of December 31, 2006, the Parent Company has fully utilized its NOLCO.
- 72 -
The details of the net deferred tax assets follow:
Consolidated Parent Company
2007 2006 2007 2006
Deferred tax assets (liabilities)
on:
Allowance for impairment
and credit losses =
P1,603,247,363 P
=1,465,768,970 =
P1,602,422,985 P
=1,465,785,025
Unamortized past service cost 18,634,812 26,330,642 18,634,812 25,674,095
Revaluation increment on land (547,404,615) (547,404,615) (547,404,615) (547,404,615)
Unrealized trading gains (141,764,429) (231,298,756) (141,764,429) (231,298,756)
Fair value adjustment on
asset foreclosures and
dacion transactions -
net of depreciated portion (115,536,228) (105,938,757) (114,524,475) (105,938,757)
Recognition of net plan assets (25,894,396) (50,801,467) (25,894,394) (50,801,467)
Accrued rent 21,640,053 (3,175,405) 21,640,052 (3,175,405)
Others 2,373,198 1,511,522 – –
=
P815,295,758 P
=554,992,134 P813,109,936
= P
=552,840,120
The Parent Company did not set up deferred tax assets on the following temporary differences as it
believes that it is highly probable that these temporary differences will not be realized in the near
foreseeable future:
2007 2006
Allowance for impairment and credit losses P3,925,132,413
= P4,490,481,799
=
Accrued compensated absences 82,636,735 86,358,920
Excess MCIT over RCIT 10,599,685 27,455,316
P4,018,368,833
= P4,604,296,035
=
The reconciliation of the statutory income tax to the provision for income tax of the Parent
Company follows:
2007 2006 2005
Statutory income tax =
P1,349,677,827 P
=1,406,969,385 P
=1,286,083,668
Tax effects of:
FCDU income (516,591,637) (512,553,359) (453,925,776)
Interest income subjected to final tax (195,596,222) (490,298,527) (560,402,495)
Non-taxable income (536,521,962) (401,792,811) (274,482,802)
Nondeductible expenses 415,398,112 293,644,191 317,555,706
Others (327,433,704) 215,821,136 470,621,264
Provision for income tax =
P188,932,414 P
=511,790,015 P
=785,449,565
- 73 -
26. Trust Operations
Securities and other properties (other than deposits) held by the Parent Company in fiduciary or
agency capacities for clients and beneficiaries are not included in the accompanying balance
sheets since these are not assets of the Parent Company (see Note 28).
In compliance with the requirements of current banking regulations relative to the Parent
Company’s trust functions: (a) government securities included under AFS financial asset in the
= P
balance sheet with a total face value of P468.91 million million and =420.54 million as of
December 31, 2007 and 2006, respectively, are deposited with the BSP as security for the Parent
Company’s faithful compliance with its fiduciary obligations; and (b) a certain percentage of the
Parent Company’s trust fee income is transferred to surplus reserve. This yearly transfer is
required until the surplus reserve for trust function equals 20% of the Parent Company’s
authorized capital stock.
27. Related Party Transactions
Parties are considered to be related if one party has the ability, directly or indirectly, to control the
other party or exercise significant influence over the other party in making financial and operating
decisions. Parties are also considered to be related if they are subject to common control or
common significant influence. Related parties may be individuals or corporate entities.
In the ordinary course of business, the Group has loans and other transactions with its directors,
officers, stockholders and related interests (DOSRI). Under the Group’s policy, these loans and
other transactions are made substantially on the same terms as with other individuals and
businesses of comparable risks. The amount of individual loans to DOSRI, of which 70% must be
secured, should not exceed the amount of their respective deposits and book value of their
respective investments in the Group. In the aggregate, loans to DOSRI generally should not
exceed the Group’s total capital funds or 15% of the Group’s total loan portfolio, whichever is
lower. As of December 31, 2007 and 2006, the Group has complied with all these regulatory
requirements.
On January 31, 2007, BSP Circular No. 560 was issued providing the rules and regulations that
govern loans, other credit accommodations and guarantees granted to subsidiaries and affiliates of
banks and quasi-banks. Under the said circular, the total outstanding exposures to each of the
bank's subsidiaries and affiliates shall not exceed 10% of bank's net worth, the unsecured portion
of which shall not exceed 5% of such net worth. Further, the total outstanding exposures to
subsidiaries and affiliates shall not exceed 20% of the net worth of the lending bank. BSP
Circular No. 560 is effective February 15, 2007.
BSP Circular No. 423 dated March 15, 2004 amended the definition of DOSRI accounts.
- 74 -
The following table shows information relating to the loans, other credit accommodations and
guarantees classified as DOSRI accounts under regulations existing prior to said circular and new
DOSRI loans, other credit accommodations granted under said circular:
Consolidated Parent Company
2007 2006 2007 2006
Total outstanding DOSRI loans =
P1,110,782,783 P
=778,860,933 =
P1,109,081,483 P
=778,860,933
Percent of DOSRI accounts granted
under regulations existing prior
to BSP Circular No. 423 1.1 0.9 1.1 0.9
Percent of DOSRI accounts granted
under BSP Circular No. 423 0.0 0.0 0.0 0.0
Percent of DOSRI loans to total loans 1.1 0.9 1.1 0.9
Percent of unsecured DOSRI loans to
total DOSRI loans 10.8 1.7 1.1 1.7
Percent of past due DOSRI loans to
total DOSRI loans – – – –
Percent of non-performing DOSRI
loans to total DOSRI loans – – – –
The following table shows information relating to the loans, other credit accommodations and
guarantees, as well as availments of previously approved loans and committed credit lines not
considered DOSRI accounts prior to the issuance of said circular but are allowed a transition
period of two years from the effectivity of said circular or until said loan, other credit
accommodations and guarantees become past due, or are extended, renewed or restructured,
whichever comes later, as of December 31, 2007 and 2006:
Consolidated Parent Company
2007 2006 2007 2006
Total outstanding non-DOSRI accounts prior to
BSP Circular No. 423 =
P85,000 P
=145,000 =
P85,000 P
=145,000
Percent of unsecured non-DOSRI accounts prior to
BSP Circular No. 423 to total loans – 0.0 – 0.0
Percent of past due non-DOSRI accounts prior to
BSP Circular No. 423 to total loans – – – –
Percent of non-performing non-DOSRI accounts
prior to BSP Circular No. 423 to total loans – – – –
Other related party transactions conducted in the normal course of business include the availment
of computer and general banking services of an affiliate to meet the Parent Company’s reporting
requirements.
- 75 -
The following table shows the related party transactions included in the Parent Company financial
statements:
Elements of Transactions
Balance Sheet Amounts Income Statement Amounts
Related party Nature of Transaction 2007 2006 2007 2006
Chinabank Insurance Deposit liabilities P66,419,944
= P5,812,707
= =
P– P–
=
Brokers, Inc. Accounts payable – 1,089,651 – –
Accrued interest
payable 1,045,041 1,975,466 – –
Interest expense – – 2,809,048 4,776,803
CBC Forex Corporation Deposit liabilities 124,039,644 114,557,063 – –
Accrued interest
payable 1,224,834 1,144,800 – –
Service fees – – 1,125,475 1,544,746
Interest expense – – 8,807,881 9,732,512
CBC Properties and Deposit liabilities 6,167,289 6,717,204 – –
Computer Center, Inc. Accounts payable 1,534,407 352,281 – –
Service fees – – 45,689,450 41,330,415
Interest expense – – 239,725 310,497
CBC First Sovereign Deposit liabilities – 31,865,695 – –
Asset Management, Inc. Interest expense – – – 1,413,645
(Note 10)
The Manila Banking Deposit liabilities 8,528,448 – – –
Corporation Interest expense – – 1,060,352 –
Due from affiliate 437,116,393 – – –
The remuneration of directors and key management personnel (included under Compensation and
fringe benefits in the statement of income) of the Group and Parent Company are as follows:
Consolidated Parent Company
2007 2006 2007 2006
Short-term benefits =
P219,465,663 P
=196,914,182 =
P211,296,791 P
=189,758,656
Post-employment benefits 70,636,166 55,138,822 54,227,881 42,814,294
=
P290,101,829 P
=252,053,004 P265,524,672
= P
=232,572,950
28. Commitments and Contingent Assets and Liabilities
In the normal course of the Group’s operations, there are various outstanding commitments and
contingent liabilities which are not reflected in the accompanying financial statements.
Management does not anticipate any material losses as a result of these transactions.
- 76 -
The following is a summary of contingencies and commitments of the the Parent Company with
their equivalent peso contractual amounts:
Consolidated Parent Company
2007 2006 2007 2006
Trust department accounts (Note 26) =
P48,890,421,483 =
P34,901,778,446 =
P47,081,685,446 =
P34,901,778,446
Unused commercial letters of credit 6,609,533,563 4,043,139,555 6,609,533,563 4,043,139,555
Deficiency claims receivable 448,752,513 797,537,764 448,752,513 797,537,764
Late deposits/payments received 389,455,711 411,912,222 389,436,059 411,912,222
Outstanding guarantees issued 363,660,346 474,190,964 363,660,346 474,190,964
Inward bills for collection 188,027,546 214,439,965 188,027,546 214,439,965
Outward bills for collection 113,755,644 171,435,381 107,163,150 171,435,381
Others 1,307,750,566 1,044,908,159 1,307,747,351 1,044,908,159
29. Segment Information
The Group’s operating businesses are recognized and managed separately according to the nature
of services provided and the markets served, with each segment representing a strategic business
unit. The Group’s business segments are as follows:
a. Consumer Banking Group (CBG), which principally handles housing and auto loans for
individual and corporate customers;
b. Account Management Group (AMG), which principally administers all the lending, trade
finance and corollary banking products and services extended to corporate and institutional
customers;
c. Branch Banking Group (BBG), which principally handles retail and commercial loans,
individual and corporate deposits, overdrafts and fund transfer facilities, trade facilities and all
other bank services for retail customers;
d. Treasury Group, which principally provides money market, trading and treasury services, as
well as the management of the Bank’s funding operations by the use of government securities,
placements and acceptances with other banks;
e. Operating Support Units, comprised of Centralized Operations Group, Customer Service
Support Group, Controllership, Corporate Services.
- 77 -
The following tables present relevant information regarding business segments as of and for the
years ended December 31, 2007, 2006 and 2005 (in thousands):
Consumer Banking Account Management
2007 2006 2005 2007 2006 2005
Results of Operations
Net interest income =
P522,375 =
P403,760 =
P292,662 =
P1,571,328 =
P1,040,717 P851,276
=
Other operating income 40,857 31,888 34,966 210,730 131,197 128,796
Total revenue 563,232 435,648 327,628 1,782,058 1,171,914 980,072
Other operating expense (132,757) (100,709) (89,993) (238,773) (206,003) (166,974)
Income before income tax 430,475 334,939 237,635 1,543,285 965,911 813,098
Income tax provision – – – – – –
Net income =
P430,475 =
P334,939 =
P237,635 =
P1,543,285 P965,911
= P813,098
=
Total assets =
P13,450,822 =
P9,722,642 =
P7,295,905 =
P46,209,330 P40,477,972
= P31,929,637
=
Total liabilities =
P463,695 =
P435,333 =
P545,874 =
P2,660,824 P3,618,970
= P3,751,032
=
Depreciation and amortization =
P4,176 =
P2,263 =
P1,833 =
P3,303 P2,907
= P2,422
=
Provision for impairment and credit
losses =
P– =
P– P73,098
= =
P– =
P– P
=–
Capital expenditures =
P8,632 =
P3,986 =
P603 =
P5,014 P3,366
= P1,003
=
Branch Banking Treasury
2007 2006 2005 2007 2006 2005
Results of Operations
Net interest income =
P2,599,112 =
P2,428,254 =
P2,158,949 =
P 1,633,302 P1,425,002
= P1,709,876
=
Other operating income 712,482 661,096 767,242 814,513 1,455,555 1,393,018
Total revenue 3,311,594 3,089,350 2,926,191 2,447,815 2,880,557 3,102,894
Other operating expense (2,287,003) (1,871,432) (1,712,085) (371,476) (454,068) (106,461)
Income before income tax 1,024,591 1,217,918 1,214,106 2,076,339 2,426,489 2,996,433
Income tax provision (283) – – (240,025) (355,776) (451,891)
Net income =
P1,024,308 P1,217,918
= =
P1,214,106 =
P1,836,314 P2,070,713
= P2,544,542
=
Total assets =
P78,491,298 =
P67,727,504 =
P51,337,523 =
P59,878,308 =
P62,732,953 P53,292,554
=
Total liabilities =
P111,682,968 P100,677,638
= =
P82,322,188 =
P19,712,068 P13,388,614
= P12,717,573
=
Depreciation and amortization =
P123,276 =
P89,930 =
P75,712 =
P1,864 =
P2,496 P2,980
=
Provision for impairment and credit
losses P7,540
= =
P26,683 =
P97,423 P–
= P–
= P–
=
Capital expenditures =
P1,022,176 =
P77,792 =
P32,681 =
P4,307 =
P426 P1,164
=
- 78 -
Others Total
2007 2006 2005 2007 2006 2005
Results of Operations
Net interest income =
P170,304 =
P821,845 =
P827,284 =
P6,496,421 =
P6,119,578 P5,840,047
=
Other operating income 893,551 1,060,990 735,927 2,672,133 3,340,726 3,059,949
Total revenue 1,063,855 1,882,835 1,563,211 9,168,554 9,460,304 8,899,996
Other operating expense (2,264,855) (2,773,919) (2,852,384) (5,294,864) (5,406,131) (4,927,897)
Income before income tax (1,201,000) (891,084) (1,289,173) 3,873,690 4,054,173 3,972,099
Income tax provision 48,053 (159,179) (335,642) (192,255) (514,955) (787,533)
Net income =
(P1,152,947) =
(P1,050,263) =
(P1,624,815) =
P3,681,435 P3,539,218
= P3,184,566
=
Total assets (P21,854,988)
= =
(P25,014,462) =
(P10,904,396) P175,687,170
= =
P155,646,609 P132,951,223
=
Total liabilities =
P14,432,574 =
P12,543,761 =
P11,682,330 =
P148,952,129 P130,664,316
= P111,018,997
=
Depreciation and amortization =
P248,970 P209,432
= =
P173,251 =
P381,589 P307,028
= P256,198
=
Provision for impairment and credit
losses =
P293,038 =
P1,036,911 =
P651,479 =
P300,578 P1,063,594
= P822,000
=
Capital expenditures =
P297,088 P146,246
= =
P45,884 =
P1,337,217 P231,816
= P81,335
=
30. Earnings Per Share (EPS)
Basic earnings per share amounts are calculated by dividing the net income for the year by the
weighted average number of common shares outstanding during the year (adjusted for stock
dividends).
The following reflects the income and share data used in the basic earnings per share
computations:
2007 2006 2005
a. Net income =
P3,681,435,024 =
P3,539,218,042 P
=3,184,566,044
b. Weighted average number of
common shares outstanding 77,080,426 77,080,426 77,080,426
c. Earnings per share (a/b) =
P47.76 =
P45.92 P
=41.31
Weighted average number of outstanding common shares in 2006 and 2005 was recomputed after giving retroactive effects
to stock dividends declared on May 3, 2006 and May 3, 2007 (see Note 18).
Before consideration of the 25% and 35% stock dividend declared in 2007 and 2006, the EPS for
P P
2006 and 2005 were =57.40 and =64.55, respectively (see Note 20).
- 79 -
31. Financial Performance
The following basic ratios measure the financial performance of the Group and the Parent
Company:
Consolidated Parent Company
2007 2006 2007 2006
Return on average equity 15.57% 15.93% 15.57% 15.93%
Return on average assets 2.25 2.47 2.25 2.47
Net interest margin 4.32 4.82 4.32 4.81
