2013 Annual Report About The Cover
“One’s conduct should be modelled after a tree, the trunk is rooted while its leaves ourish...” - Chinese proverb
China Bank’s identity and history are anchored on deeply-rooted and time-honored values, and a heritage of principled banking that nurtured generations of trusted and successful partnerships. These deep roots provide a firm foundation for the Bank’s growth.
Corporate Pro le
China Banking Corporation (China Bank), stock symbol CHIB, was incorporated on July 20, 1920 and commenced business on August 16, 1920 as the rst privately-owned commercial bank in the Philippines, catering initially to the needs of Chinese-Filipino businessmen. It played a key role in post-World War II reconstruction and economic recovery through its support to businesses and entrepreneurs in critical industries. China Bank was listed on the local stock exchange by 1947, and acquired its universal banking license in 1991. The Bank serves the corporate, commercial, middle, and retail markets with a wide range of domestic and international banking services. It is one of the largest universal banks in the country in terms of assets, capital base, and market value.
Contents
2 Performance Highlights 60 Financial Statements 4 Letter to Stockholders 158 Branches 9 Operating Highlights 166 Off-Branch ATM Locations 27 Corporate Social Responsibility 169 Business Centers 31 Corporate Governance 170 Subsidiaries and Af liates 48 Board of Directors 180 Products and Services 54 Management Committee 56 China Bank Senior Of cers 58 Subsidiaries Senior Of cers 59 Management Directory Vision Mission Core Values
Drawing strength from our rich history, We will be a leading provider of • Integrity we will be the best, most admired, and quality services consistently delivered • High Performance Standards innovative nancial services institution, to institutions, entrepreneurs, and • Commitment to Quality partnering with our customers, individuals, here and abroad, to meet • Customer Service Focus employees, and shareholders in wealth their nancial needs and exceed rising • Concern for People creation. expectations. • Ef ciency • Resourcefulness/Initiative We will be a primary catalyst in the creation of wealth for our customers, driven by a desire to help them succeed, through a highly motivated team of competent and empowered professionals, guided by in-depth knowledge of their needs and supported by leading-edge technology.
We will maintain the highest ethical standards, sense of responsibility and fairness with respect to our customers, employees, shareholders, and the communities we serve.
Annual Report 2013 1 PERFORMANCE HIGHLIGHTS
NET INCOME RETURN ON EQUITY TOTAL RESOURCES TOTAL DEPOSITS In Million Pesos In Million Pesos In Million Pesos
5,100 413,698 11.31% 354,268 5,003 324,160 12.22% 271,977 5,076 262,553 13.81% 216,134 5,004 257,379 15.37% 213,042 4,103 233,865 14.49% 193, 290
STOCKHOLDERS’ EQUITY TOTAL CAR CASH DIVIDENDS PAID STOCK DIVIDENDS In Million Pesos In Million Pesos In Million Pesos
45,400 1,557 15.39% 1,298 42,738 1,416 16.00% 1,180 39,622 1,287 16.34% 1,073 35,453 1,170 16.26% 975 30,198 1,064 12.80% 887
BRANCHES ATM MARKET CAPITALIZATION In Million Pesos
367 84,232 561 316 70,864 511 293 46,959 475 269 46,551 431 247 36,078 380
0 18000 36000 54000 72000 90000
LOAN PORTFOLIO BY INDUSTRY CLASSIFICATION 26.00% Real Estate, Renting & Business Services 26.46% 14.69% Wholesale & Retail Trade 15.13% 17.24% Manufacturing 14.37% 12.51% Financial Intermediaries 8.57% 7.53% Transportation, Storage & Communication 8.23% 2012 5.69% Electricity, Gas & Water 5.87% 2013 1.99% Construction 2.67% 2.51% Agriculture 1.83% 0.78% Mining & Quarrying 0.35% 11.06% Others 16.52%
2 2011 2012 2013 For the Year (In Pesos) Gross Revenues 16,868,396,443 18,944,484,432 19,241,744,999 Gross Expenses 11,792,725,622 13,941,474,733 14,141,297,499 Net Interest Income 8,551,739,056 8,062,340,832 9,935,990,627 Non-Interest Income 4,191,798,474 5,793,614,751 5,160,591,519 Provision for Impairment & Credit Losses 155,097,500 236,756,182 414,335,872 Operating Expenses 6,965,360,995 8,193,901,086 8,907,262,337 Net Income 5,075,670,821 5,003,009,699 5,100,447,500
At Year End (In Pesos) Total Resources 262,553,425,440 324,160,046,756 413,697,922,996 Loan Portfolio (Net) 145,238,662,573 190,100,306,325 220,540,902,915 Investment Securities 61,191,602,901 66,431,352,746 66,921,226,657 Total Deposits 216,133,713,301 271,977,239,870 354,268,202,680 Stockholders’ Equity 39,621,797,950 42,738,205,056 45,399,699,439 Number of Branches 293 316 367 Number of ATMs 475 511 561 Number of Employees 4,633 5,198 5,594
Key Performance Indicators (In %) Return on Average Equity 13.81 12.22 11.31 Return on Average Assets 2.06 1.71 1.45 Net Interest Margin 3.76 2.90 2.98 Cost to Income Ratio 54.66 59.14 59.00 Liquid Assets to Total Assets 38.38 36.47 42.80 Loans to Deposit Ratio 67.20 69.90 62.25 Non-Performing Loans Ratio 3.68 2.55 1.99 NPL Cover 134.74 134.88 146.62 Capital Adequacy Ratio (Tier 1) 15.48 15.15 14.50 Capital Adequacy Ratio (Total CAR) 16.34 16.00 15.39
Shareholder Information Market Capitalization (In Pesos) 46,959,091,864 70,863,932,958 84,232,037,822 Earnings Per Share (In Pesos) 3.56 3.51 3.57 Cash Dividends Paid (In Pesos) 1,287,127,404 1,415,852,016 1,557,449,076 Cash Dividends Per Share (In Pesos) 12* 12* 1.2 Cash Payout Ratio (In %) 25.73 27.89 31.04 Cash Dividend Yield (In %) 3.02% 2.20% 2.03% Stock Dividends Paid (In Pesos) 1,072,705,100 1,179,975,500 1,297,874,280 Stock Dividends Per Share (in %) 10 10 10 Market Value Per Share (In Pesos) 39.80 54.60 59.00 Book Value Per Share (In Pesos) 27.74 29.93 31.80 Price to Book Ratio (x) 1.43 1.82 1.86
*Based on authorized and outstanding shares of stock before stock split.
Annual Report 2013 3 LETTER TO STOCKHOLDERS
Hans T. Sy Gilbert U. Dee Peter S. Dee
The year was marked by capacity building, strategic acquisitions, and branch network expansion to strengthen the Bank’s positioning in all major client segments.
4 China Bank SM Aura Premier Branch. In 2013, China Bank branches located inside community malls and shopping centers nationwide reached 47, 27 of which are inside SM malls.
The Philippines was among the best performing economies as interest rates rebounded in reaction to the widening of risk in the world, riding on the crest of positive investor con dence premiums. The Philippine Stock Exchange (PSE) index fell from its backed by a ourishing nancial sector, subdued in ation, low historical high of 7,392 last May 15 back to its December 2012 costs of borrowing and demonstrated resilience in the face of level, before resuming its upward trajectory. successive natural catastrophes. The 2013 GDP growth of 7.2%, The Philippines received its rst “investment grade” credit the country’s highest in twelve years, was underpinned by the rating from Fitch Ratings and Standard & Poors last March and May, strong growth in services and manufacturing sectors that offset respectively, followed by Moody’s in October 2013. The country the slowing momentum in agricultural output. Signi cant gains in was perceived to have a sound nancial system, a stable business, the government’s tax effort combined with the clamor for tighter and scal environment that can sustain economic gains and credit controls on discretionary budget allocations further reduced growth. The Philippine banking system was also the only one in reliance on de cit spending. The uptick in OFW remittance in ows the world to receive a positive outlook from the leading credit and investment activity drove liquidity levels even higher, partly rating agencies, based on the strength of its capital position, asset fueling the steady appreciation in real estate and equity prices. quality, corporate governance, and the ef cacy of reforms pursued The gains in domestic output would have been more by the Bangko Sentral ng Pilipinas (BSP). Capital adequacy and impressive, but a series of natural calamities devastated the Central non-performing loans ratio for the industry further improved to Philippines during the last quarter. The province of Bohol was the 18.62% and 0.19%, respectively, and this showed that the industry epicenter of a 7.2 magnitude earthquake that wrought massive has prepared for Basel 3 implementation in 2014. A combination of destruction on its countryside and transport infrastructure. Relief high market liquidity, low borrowing costs and moderate headline and reconstruction efforts had barely begun when Typhoon Haiyan in ation provided the BSP with ample policy space to retain its (Yolanda), the most powerful storm in recent history, pummeled accommodative interest rate policy. Liquidity in the nancial system the Visayas region, leaving behind over 6,000 fatalities and remained at an all-time high despite the phaseout of Special Deposit P571 billion in economic losses. These twin catastrophes set GDP Accounts (SDA) through agency accounts on November 30, 2013. back by 30 basis points because of severe setbacks in agricultural The said phaseout triggered a massive migration of excess funds and commercial activities. from SDA to bank deposits, loans, and government securities. Concerns over the repercussions of winding down the US 2013 was a particularly challenging year for China Bank Federal Reserve’s liquidity infusion program set off an out ow of as we simultaneously built up asset base, capital funding, and portfolio funds from the emerging markets back to the relatively service infrastructure, while consolidating our presence in the safe US securities and stocks. This compounded the volatility in fast growing and competitive SME and consumer segments. the nancial and foreign exchange markets, particularly for the We believe that the ongoing economic rebound will accelerate emerging economies. As a result, sharp corrections in equity and household consumption, investment activity, and infrastructure bond valuations happened across developing Asia and BRICS building, so your Bank should be ready to capture opportunities
Annual Report 2013 5 LETTER TO STOCKHOLDERS from this broad-based business growth. The year was marked universal bank, China Bank, or the thrift bank, CBS, within three by capacity building, strategic acquisitions, and branch network years. The share purchase agreement for 84.77% shareholdings expansion to strengthen the Bank’s positioning within all major in Plantersbank was signed on December 18, 2013. client segments. At the same time, we also took steps to preserve • Higher quality of earning assets as non-performing loans (NPLs) our uniquely entrepreneurial approach to banking that values declined 10% to P4.52 billion, reducing NPL ratio to 1.99% and long-term business relationships and proactive client engagement improving loan loss coverage ratio to 146.62%, one of the best over short-term pro ts. Together, these bold strategies will in the industry. serve as the catalyst for transforming China Bank from a mid- • Despite the challenging backdrop in 2013, your Bank reported tier, niche player, into a top ve bank in the banking industry. a net income of P5.10 billion, up 1.95% from P5.00 billion in The following highlights our 93rd year: 2012. This income performance translates to an 11.31% return • Fitch Ratings af rmed its national rating of AA- for China Bank, on equity and 1.45% return on assets. which is one notch below the top bank rating in the country. We considerably ramped up and diversi ed China Bank’s Capital Intelligence also af rmed its credit rating for China Bank revenues from non-lending sources by focusing on recurring (Financial Strength BBB-) and recently upgraded its Foreign income from commissions, underwriting activities, wealth Currency Long-Term rating to BB+ from BB-, following the management, and new businesses, as against opportunistic upgrade in the Philippines’ sovereign rating. gains from xed income securities trading and bond sales. • The only bank among the ve recipients of the PSE Bell Awards. Consequently, the downtrend in the share of treasury-managed It is China Bank’s second consecutive year to receive the said assets to total resources continued, dropping to its 5-year low of award, in recognition of our adherence to high standards of 16.18% from 20.49% last year. Fee revenues, net of trading gains, corporate governance. grew by 13.15% over the last year, mostly from gains on sale of • Partnered with MasterCard in 2013 for the launching of core acquired assets, investment banking fees, and dividend income. China Bank credit cards, Prime, Platinum, and World in 2014. We began to realize the broad potentials of our joint venture with • Approval by the Monetary Board of the merger between China the Manufacturers Life Insurance Company (Phils.), Inc. (Manulife Bank Savings, Inc. (CBS) and Pampanga-based rural lender Unity Philippines), with bancassurance commissions up 38% in 2013. Bank, a Rural Bank Inc. (Unity Bank) with CBS as the surviving Meanwhile, trading pro t fell as we cut down the size and bank. Exactly a year ago, BSP approved China Bank’s acquisition duration of our bondholdings in anticipation of a possible uptick of 99.95% of Unity Bank’s outstanding equity. in market rates in the latter part of 2013. Trust fees also declined • The Bank inked a memorandum of agreement with Planters by 24.32% with the phase-out of SDA investments under Trust Development Bank (Plantersbank), the country’s largest privately- Fund arrangements. owned independent development bank, on September 18, 2013 Asset growth in 2013 was mainly driven by robust demand to acquire more than two thirds of Plantersbank shares. On across all major customer segments: consumer, commercial and December 13, 2013, the Monetary Board gave its approval-in- corporate borrowers that expanded the loan book by 16.01% to principle of the merger between Plantersbank with either the P220.54 billion. Corporate lending growth was driven by releases to the Top 500 corporations from the aviation, power generation, leisure, and real estate sectors. We saw much potential in the commercial/middle market sectors so we assigned more resources to acquire and build up credit and deposit relationships, speci cally at the branch and business center levels. Consumer banking volume, made up of auto nance, home mortgage, and developer loans, increased by 30% from more competitive loan pricing, faster turnaround time, tie-ups with major property developers,
Hans Sy, China Bank chairman, and Ambassador Jesus Tambunting, Plantersbank chairman and CEO, shake hands and improved branch incentive and after the MOA signing at Plantersbank’s head of ce in Makati City on September 18, 2013. With them are China referral programs. As the newest addition Bank SEVP & COO Ricardo Chua (from left) and Plantersbank’s Director Jose Tambunting and President & COO Carlos Borromeo. to the consumer product menu, the
6 Henry Sy, Sr. Honorary Chairman and Advisor to the Board
upcoming launch of China Bank credit cards should add value management area, particularly for risk-based pricing, design, and to existing client relationships by offering bills consolidation, validation of risk models, stress-testing and liquidity measurement. exible payment options, and eventually cash advances using As business expansion becomes an even more capital intensive secure EMV technology. The thrust for lending was matched by exercise, Management devoted more time and resources to the marketing efforts on the funds acquisition, nancial supply chain capital planning and conservation effort to ensure that ef cient management, trade nance and insurance side to capture more capital deployment becomes an integral part of strategy setting value from the account relationships. We applied more stringent and day-to-day decision-making. Despite the spate of acquisitions lending and credit evaluation standards to preserve the quality of and loans, your Bank reported a Tier 1 capital adequacy ratio (CAR) loans as seen in the lower NPL ratio of 1.99% and higher loan loss of 14.50% and a total CAR of 15.39% — substantially higher coverage ratio of 146.62%. than the 10% regulatory minimum requirement. We also declared The sheer volume of liquidity in the market combined with cash dividends of P1.2 per share equivalent to total dividends the keen competition for loans pushed benchmark yields to their of P1.56 billion, for a 31% payout ratio, which when combined all-time lows, aggravating the compression in interest margins. To with the appreciation in share price and stock dividends gave our protect our net interest income, our Treasury Group calibrated its stockholders one of the best total returns in the banking industry. cost of funding against prevailing money market rates, while closely We again reviewed and reworked our enterprise structure, monitoring asset pricing vis-à-vis the risk and maturity pro les of given the brisk pace of business expansion on all fronts: China underlying securities or counterparties/borrowers concerned. The Bank Savings, the Plantersbank and Unity Bank acquisitions, nal tranche of China Bank’s ve-year Long-Term Certi cates of investment banking deals, bancassurance commissions, Time Deposit (LTNCD) matured in the third quarter, further adding branch openings and wealth management. To sustain our to the pool of investible funds that were largely deployed as competitiveness and pro tability, Management saw the need to customer loans. Our wealth and fund management units worked cluster functionally-related businesses into relationship banking, hand-in-hand to quickly deploy SDA maturities into alternative nancial capital markets and investment, and the savings bank placements, thereby reducing the risk from client turnover. We subsidiary. Meanwhile, the operations and support units were also worked with the SM Group to meet the banking requirements grouped into the corporate support segment (technical, general of their numerous merchants, suppliers, and contractors. Overall, a and administrative services) and business operations segment combination of higher loans volume and improved matching and (lending, remittance, international, and treasury operations). The pricing of deposits led to a 23% increase in net interest income to refocusing of our business lines will promote greater interaction P9.94 billion. Net interest margin improved to 2.98%. and teamwork among the marketing and support units in the Capital funds reached P45.40 billion, 6.23% higher than client acquisition and account servicing process, as well as develop 2012, from the retention of net pro ts. China Bank remains the only their banking expertise across multiple product lines and markets. bank in the industry that has not resorted to issuing Tier 2 equity. Our Branch Banking Group (BBG) led the most ambitious In anticipation of the forthcoming Basel 3 capital requirements, we expansion program in China Bank’s 93-year history, with one endeavored to build greater capacity and competency in the risk branch opening almost every week. At the same time, our thrift
Annual Report 2013 7 LETTER TO STOCKHOLDERS banking subsidiary CBS continued to beef up its own branch China Bank one step closer to our goal of becoming a Top 5 bank. network, opening new branches and integrating and renaming the In fact, the combined China Bank and Plantersbank resources hit branches of Unity Bank. With an even wider reach, our deposits the P460 billion mark (as of December 31, 2013), which ranks fth rose 30% to P354 billion – 42% of which is low-cost checking and among the largest domestic and private commercial banks. We savings account. The branches are not the only point of interaction ended the year with 367 branches — 295 for China Bank and 72 with our existing and potential customers. Our robust alternative for CBS. With the addition of Plantersbank, the combined branch channels – ATM, internet, mobile, and phone banking – provide network reached 445, well over our target of 400 branches by convenient and secure 24/7 banking service. 2014. We also increased our area of ces, branch clusters, and credit We put together an integration task force to identify and processing centers to widen product reach, improve response time, leverage the signi cant opportunities arising from the combined and expand the lending and referral business to acquire a larger strengths of China Bank, CBS, and Plantersbank. There would be customer network and strengthen our relationship with existing immediate peso bene ts accruing from a larger earning asset base clients. together with the economies of scale arising from a lower cost CBS made signi cant progress in 2013 by more than of funds, upgrade in credit ratings and rationalization of shared doubling the size of its loan portfolio to P9.7 billion and growing support services. Additionally, this task force would handle the deposits by 68%, while reporting pro table operating results for alignment of banking processes and systems, job evaluation and the period. CBS pursued its strategy of expanding its share of the placement and streamlining of the network, including branch consumer, SME and middle market segments – both organically relocation. A major concern is the integration of our newest and through acquisitions – and of tapping the rich potential of this employees with the existing complement of 5,594 people, but fast growing market. CBS also partnered with Savemore Market given the mandate to continually grow the business, there is room to open 10 mini-branches within their stores, marking the savings for anyone who is willing to work and grow with the China Bank bank’s entry into community banking. CBS itself originated from group. the Manila Bank acquisition in 2007 and rapidly grew with the We thank and acknowledge the support of our Board network expansion and merger of Unity Bank’s operations. Unity of Directors and Senior Management as we boldly pushed our Bank’s 15 branches are located in the fast developing Central banking frontiers into new businesses and acquisitions to enrich Luzon area, which is home to a large number of OFWs and mid- our 93-year old franchise and secure our future market position. sized businesses. The signing of the share purchase agreement We are also grateful to you, our valued clients and stockholders, for to acquire 84.77% of Plantersbank during the last quarter of your continued trust and con dence in us. The path to becoming 2013 was the start of our strategic partnership with the country’s a top tier player in the industry would be full of challenges and largest private development bank and leading bank for SMEs, risks, given the competitive domestic environment and the creating opportunities for broadening China Bank’s geographic forthcoming ASEAN regional integration, but the opportunities to coverage and presence in the high potential middle/SME markets. deliver superior value to our shareholders and customers would far Plantersbank’s network of 78 branches with two unused licenses, outweigh any risk. client base of 70,000, and resources of P50 billion should bring
HANS T. SY GILBERT U. DEE PETER S. DEE Chairman Vice Chairman President and Chairman of the Executive Committee and Chief Executive Officer
8 OPERATING HIGHLIGHTS A Year of Growth and Expansion
Our customer-oriented and sustainable growth strategy resulted in another successful year. China Bank continued to be a part of the lives of millions of people, providing innovative and responsive banking products and services when, where, and how our customers want them; extending loans and credit facilities, a wide range of nancial solutions, and expert advice to drive business growth; and offering our nancial know-how and portfolio management capability to facilitate wealth creation. With our strong foundation, professional touch, and personalized approach to service, we are building deeper relationships, creating value, and making a difference.
Annual Report 2013 9 ANYTIME, ANYWHERE BANKING
ur expanding distribution channels BRANCH NETWORK enable us to reach more customers As of December 31 and grow our deposit base and overall O 2012 2013 consumer business. Last year, we opened 12 China Bank and 39 China Bank Savings China Bank - Metro Manila 148 149 branches and mini branches for a total of 51 China Bank - Provinces 135 146 new branches, bringing the combined network Luzon 66 71 to 367 branches nationwide at end-2013. We Visayas 41 45 also renovated six branches and refurbished Mindanao 28 30 and relocated another ve branches to bigger China Bank Savings 33 72 and better locations. This broader presence TOTAL BRANCH NETWORK 316 367 translated into a signi cant increase in new customers, deposits, consumer loans, and fee-based income. The branches were chie y for a total of 561 ATMs nationwide. In 2013, responsible for the growth of our checking and we acquired a new ATM/payment switch, savings accounts (CASA), effectively lowering Authentic, an electronic funds transfer our funding costs. authorization and routing system. Designed Outside of branch banking, our customers to be future-proof and service oriented can count on a consistently positive experience architecture-ready, Authentic will boost China and convenient access to their China Bank Bank’s switching system capability for real-time accounts anytime and anywhere they live, transmission of ATM, point-of-sale, mobile, work, and travel. We closed 2013 with 505 and internet transactions in between issuing China Bank and 56 China Bank Savings ATMs and acquiring banks; as well as enable faster
10 OPERATING HIGHLIGHTS
15% 50% 10% 8% of the branches are increase in CASA increase in increase in loans located in community deposit accounts originated by branches malls and shopping centers deployment of value-added services across all channels. In recent tests, Authentic handled over 10,000 transactions per second.
ATM NETWORK As of December 31 2012 2013 China Bank - Metro Manila 230 235 China Bank - Provinces 248 270 Luzon 131 144 Visayas 64 68 Mindanao 53 58 China Bank Savings 33 56 TOTAL ATM NETWORK 511 561
We also provide convenient and secure to nd China Bank branches and ATMs. The internet and mobile banking service through China Bank Mobile App for Android devices China Bank Online. In 2010, we launched China will soon be available on Google Play. We also Bank Online for Mobile, a mobile-optimized redesigned the China Bank corporate website to version of China Bank Online to make it faster feature a more streamlined navigation, sleeker and easier for China Bank customers to check visual design, and better tools like a branch/ 38% their account balance, transfer funds, and pay ATM locator and a user-friendly UITF calculator of the ATMs are in off-branch bills using wi- or 3G-enabled cellular phones which is very useful for anyone interested to locations like shopping and tablets. invest in any of our Unit Investment Trust Fund centers, transport terminals We followed this up in 2013 with the (UITF) products. The new website features the and commercial districts release of our mobile banking application for full e-book of A Matter of Trust: The China Bank Apple mobile devices (iPhone, iPad, iPod, and Story, which can be downloaded for free, and a iTouch), available for free download on the new login page for retail customers enrolled in Apple App Store. The China Bank App enables China Bank Online. The new site has also been China Bank customers to perform the same optimized for improved speed and connectivity, transactions as China Bank Online on their featuring social media integration with direct % Apple mobile devices, it also features product links to the Bank’s Facebook, Twitter, Google+, 13 Increase in ATM updates to keep clients posted on new offers YouTube and LinkedIn. cardholders and a geo-positioning locator to make it easy
Annual Report 2013 11 China Bank TellerPhone, which was CUSTOMER-CENTRIC PRODUCTS launched in 1988 as the rst landline phone AND SERVICES banking service in the country, was upgraded We develop banking products and in 2013 to make it relevant in this era of smart services with our customers’ needs in mind. phones. It now runs on the more powerful We understand that our customers are busy Altitude system, making China Bank TellerPhone and they value simplicity and excellent service, a practical alternative banking channel for that they want the cost of banking to be customers who don’t have a computer or transparent and easy to understand, and % smartphone, or who remain wary about using that they appreciate having the right banking 20 increase in China Bank such devices for nancial transactions. Aside products that t their speci c needs. In 2013 Online enrollments from account balance inquiry, checkbook we enhanced our product offerings to deepen request, fund transfer and bills payment, the and broaden our customer relationships. new and improved China Bank TellerPhone now We launched China Bank Overseas has options for inquiry on China Bank products Kababayan Services in 2013 to provide overseas and services and request for transaction history Filipino workers (OFWs) with accessible nancial and statement of account, allows customization solutions to help them make the most of their of transactions, and enables more bills payment hard-earned money. China Bank Overseas transactions with an expanded basket of billers. Kababayan Services is an array of competitive 22% The option to speak to a live phone banker products and services for the remittance, increase in active users is also available, transforming China Bank savings, and consumer loan needs of migrant (more than 90 days log-in) Tellerphone from a transaction-driven channel and working Filipinos abroad and their to a cross-selling and up-selling channel. To maximize the overall ef ciency of our branch network and electronic banking channels, we increased our sales force, made CBS: MINI BUT FULL SERVICE improvements in processes and turn around times, strengthened the collaboration between the branches and the business units, maintained our high customer service standards, and Our thrift bank arm China Bank Savings (CBS) continued to engage, interact, and connect introduced the mini branch concept in 2013 to increase 8,480 market coverage more ef ciently and cost effectively. downloads of China Bank with our customers in any platform convenient Online App (as of March 2014) By branching out to “in-store” locations like Savemore, to them—branch, e-channel, contact center, CBS uses less resources opening and running them and even social media. than conventional branches, and at the same time, Moving forward, we are aligning our makes banking more accessible and inclusive. Mini branches occupy an average of 25 sq.m. with only three businesses to best serve customers, taking personnel, and although they are open seven days a full advantage of the synergies and cross- week and for longer hours, the mini branches are 80% selling opportunities across the China Bank cheaper to operate than traditional branches. What’s Group to deliver consumer banking solutions more, the mini branches’ approachable vibe and simple account opening and loan procedures encourage the more effectively and ef ciently, and give our un-banked segment to open accounts for the rst time. customers a seamless and positive experience with every interaction. We will continue to CBS’ mini branches offer the best of both worlds— face to face interaction with friendly tellers and fast implement our branch expansion program and and convenient service through e-banking channels. enhance our e-banking services in line with Each mini branch is a full service branch offering all the advancing technology and changing customer products and services of CBS, and is equipped with an habits. ATM, a night depository, and Online Banking Kiosk.
12 OPERATING HIGHLIGHTS
bene ciaries. China Bank On-Time Remittance, Bank Cards will be equipped with two of the Overseas Kababayan Savings (OKS) Account, world’s most advanced security technology, OKS HomePlus, and OKS AutoPlus, make up EMV & 3D Secure. The cards will also come the menu of Overseas Kababayan Services. We with the MasterCard Paypass contactless complemented this with more overseas and payment technology that will allow tap & go domestic remittance tie-ups to make sending transactions, and a budgeting and security 39 and receiving remittances more convenient tool to make it easy for cardholders to manage 39 tie-up arrangements with banks, money transfer through China Bank. their spending and prevent the fraudulent use organizations, and exchange Also last year, we teamed up with global of their cards. houses in the Middle East, nancial services giant MasterCard, marking We are also coming out with our Asia, Europe and United States our entry into the credit card business; and proprietary cash cards for customers looking this year, we are launching three credit card for a basic and convenient re-loadable types: China Bank Prime, China Bank Platinum, card product. The retail business will cover and China Bank World MasterCard. The China consumer e-loading, person-to-person fund Bank Cards will be bundled with features transfers, family and household transmission such as cash advance, funds transfer, balance of funds such as children’s allowances, money transfer, balance conversion, convenient bills for grocery or gas and other payments, and payment facility, year-round 0% installment local remittances; while the corporate side programs, and exible payment options, as of the business will cover payroll, corporate Over 4,000 well as exclusive deals/discounts/promos from allowances, loan disbursements, dividend cash pay-out outlets nationwide major establishments, rewards, cash rebates, payments, and the like. and exchange points for miles. The China Over 1,200 remittance partner locations worldwide 35% increase in the amount of Of the stores under the SM Food remittances Retail Group, CBS decided to open the mini branches in Savemore because it is more “grassroots” and accessible. The mini branches complete CBS’ ‘”hub and spoke” business model. The idea is to serve a big area with a traditional branch complemented by mini branches that also offer a full range of services.
CBS closed 2013 with 72 branches, 27 of which are in Metro Manila, including 10 mini branches in Savemore. This year, 15 mini branches in Savemore and Hypermart outlets are in the pipeline, plus 25 traditional branches.
Annual Report 2013 13 CONSUMER LOANS THAT MAKE DREAMS COME TRUE For China Bank, consumer nancing is vital to relationship- building. In 2013, we continued to make it easy and affordable for our customers to own a home or a vehicle. We offered one of the lowest consumer loan rates in the market, with options for rate xing to protect borrowers from % 16 future rate increases. increase in Consumer Banking A number of strategic initiatives were implemented to Group’s outstanding loan corner a bigger share of the consumer loan market. For housing portfolio loans, we focused on developing new and strengthening existing % sales channels. Dedicated account of cers consistently visited 18 major accredited developers for greater access to buyer-loan increase in new consumer loans booked applications. We also expanded the sales team and beefed up the manpower requirements to complete the branch-referred loans and developer channels, established new tie-ups with pocket developers, and adjusted the loan packages (terms and rates) to be more competitive. For auto loans, the fast turnaround time for approvals was maintained at one day or less. A special 74% reduced interest rate was offered during the holidays. We also of new auto loans were sustained our internal sales blitz, holding test-drive events at branch-referred selected branches in partnership with auto dealers. Our consumer loans China Bank HomePlus and China Bank AutoPlus are available at all China Bank branches and nine consumer banking centers nationwide.
45% of new housing loans were branch-referred CBIBI: ASSURED FUTURE
Our insurance brokerage subsidiary, China Bank Insurance Brokers, Inc. (CBIBI), marked its 15th anniversary in 2013. The year also saw the appointment of a new president, Ms. Julieta P. Guanlao, following the retirement of Mr. Gerard E. Reonisto who had been with the company since its inception, building it from a P1.5 million company in 1998, into one of the best-performing insurance brokerage rms in the country with P369 million in assets as of end-2013. Ms. Guanlao has over two decades of experience in insurance sales, marketing, and business development. Prior to China Bank, she held key positions in several companies like Philam Insurance (now AIG Phils), YGC, and Ibero Asistencia (Mapfre), responsible for both top line and bottom line growth.
With a solid track record of working with A-rated insurers of excellent security and expertise in their eld, a comprehensive range of affordable and customizable insurance solutions for China Bank and non-China Bank customers, an ef cient broking and claims infrastructure, and excellent customer service, CBIBI continued to post strong growth in 2013 amidst stiff competition. Net income after tax grew 41% and commission income increased 15%, for a pro t margin of 41%. Under new leadership, the company is gearing up to reach the next benchmark of P500 million in assets in the next ve years.
14 THE BUSINESSMAN’S BANK
hina Bank, built by entrepreneurs, is the We also focused on expanding the local businessmen’s bank. We are unique breadth of our customer relationships to Cin our in-depth understanding of the include a comprehensive range of nancial way Chinese-Filipino businessmen do business, solutions. Private Banking Group, Trust Group, and our personal, very attentive approach to and Treasury Group worked closely with our % customer service. In 2013, we continued to do commercial and corporate clients in designing 15 increase in IBG’s outstanding what we do best: helping businesses grow and securities portfolios that complemented loan portfolio; 56% of the achieve their goals. their speci c investment objectives. Guided portfolio is long-term We provide the right nancing products to by market-intelligence and state-of-the-art % meet individual company requirements through nancial systems, we expertly managed our 62 our Institutional Banking Group (IBG)—from customers’ portfolios, carefully allocating assets increase in foreign currency revolving credits, term credits, foreign currency to quality money market funds and investment loans loans, trade nance facilities, purchase of quality xed income obligations. receivables or factoring, to project nance, loan We also offer a full range of international syndication, and long-term specialized program banking products and services, the complete lending. variations in inward and outward remittance The demand for funding for working capital, modes, with global connections and relationships construction, investment in equipment, and trade with practically all the biggest European, Asian nance remained strong last year, with a steady and U.S. banks and leading international 27% 15% increase in new loans booked. The active remittance institutions. We continued to explore increase in commercial loans management of customer relationships, market- new products, systems and methods, even co- focused segmentation, comprehensive credit usage of the proprietary systems of our global % risk assessment system, and streamlined credit banking partners and remittance institutions, to 183 processes, led to an expansion of quality lending give our customers what they want and need for increase in factoring volume across a broad cross-section of industries. their businesses to ourish.
Annual Report 2013 15 CREDIT MANAGEMENT GROUP (CMG): CENTRALIZED OPERATIONS GROUP (COG): SUPPORTING THE LOANS GROWTH FACILITATING ACCURATE GLOBAL TRANSACTIONS
Key changes were made in China Bank’s approval authorities and COG, which manages the transaction banking related credit policies in 2013, streamlining the credit approval services for our customers, continued to process and helping us achieve the increased growth targets improve our service delivery capabilities and amidst stiff competition and the low interest rate environment. optimize the speed at which transactions First off, the property appraisal process was automated through are processed. Despite the rise in transaction the Credit Documentation Management System (CDMS). For the volumes and the increased number of pilot stage, the property appraisal reports of selected lending counterparties and clients with and for whom teams were processed, transmitted, and tracked electronically, business was done in 2013, COG maintained creating greater ef ciency and minimizing errors. IBG’s credit our operational ef ciency and high straight- les were digitized and can now be accessed quickly and securely through processing (STP) rate, facilitating by authorized personnel through CDMS. CMG also conducted a accurate cross-border transactions and minimizing operational risks full review of the performance of the Bank’s loan portfolio vis-à- and operating costs for everyone involved. In 2013, the Bank of vis industry prospects. The report provided Management with a New York Mellon Corporation recognized China Bank’s outstanding de nitive view of the quality of our loan portfolio and served as payment formatting and high STP rate. Bank of America Merrill a guide for the review of China Bank’s lending efforts in terms of Lynch also recognized our high STP rate, naming China Bank as the exposure by industry and other measures of concentration. “Leading Commercial Payment Partner Bank in the Philippines” for two consecutive years, 2011 and 2012.
DRIVING BUSINESS EFFICIENCY Companies need to be more ef cient to boost productivity, pro tability, and competitiveness. Through our Cash Management Services Division, we help businesses of all sizes ef ciently manage their company’s liquidity, collections, and disbursements with our suite of cash management solutions. In 2013, new initiatives and enhancements were implemented to build up our cash management business, making it one of the drivers of both oat and fee income for the Bank, and creating business ef ciencies for our customers to reduce administrative cost and time through the streamlining of their day-to-day operations, effectively allowing them to focus on revenue- generating activities and other matters that require greater attention in managing and growing their businesses.
sales deals MANAGING GOVERNMENT’S CASH RESOURCES 2,709 closed in 2013, up 52% China Bank Online Corporate has been extended to China Bank Savings through a China Bank signed agreements with the Bureau of Treasury (BTr), Bureau of Internal partnership agreement. Revenue (BIR) and Bureau of Customs (BOC), laying down the framework for the The cut-off time for automatic debit implementation of the treasury single account (TSA) beginning January 2014. The and credit was extended to 9:00 p.m., TSA is a uni ed structure of government bank accounts that aims to consolidate and including weekends and holidays optimize the use of government cash resources. Establishing a uni ed structure of government bank accounts with TSA will solve the fragmented system for handling 82 corporate customers were converted government receipts and payments. The government expects savings of a minimum from manual to electronic payroll P1.5 billion from an integrated nancial management system. As an authorized crediting in 2013 on top of the rst 66 agent bank, we accept tax payments and customs duties. Payments can be made converted in 2012, through our nationwide branch network or electronically via BIR EFPS. totaling 148 corporate clients converted.
16 OPERATING HIGHLIGHTS
MOMENTUM FOR INDUSTRY MOVERS INVESTMENT BANKING We offer a wide array of advisory DEALS IN 2013 and capital-raising services to corporate clients through our Investment Banking Group. Our dedicated team of seasoned investment bankers develops tailor- made funding and liability management solutions for all types of corporations, and structures and carries out placements for the entire range of capital markets products. Last year, China Bank was very active in the debt capital markets, having been involved in over P140 billion and US$390 million worth of transactions and becoming one of the top choices of issuers.
FLYING HIGH IN AIRCRAFT FINANCING
China Bank was the sole arranger of the two biggest aircraft financing transactions in the local aviation industry in 2013—the US$140 million ten-year term loan to partially finance the acquisition of Cebu Pacific’s four new Sharklet-equipped Airbus A320, with Cebu Pacific as the financial lessee, marking the first aircraft financing to be arranged by a local bank; and the US$141 million financing for three Airbus A321-200 with flag carrier Philippine
From left: China Bank’s FVP Victor Martinez, EVP William Whang, and FVP Virgilio Chua, with Cebu Pacific President & CEO Lance Gokongwei.
Airlines as operating lessee, putting in motion its comprehensive fleet renewal program.
In a launch event on January 21, 2013, Cebu Pacific officials unveiled their first sharklet-equipped Airbus A320, becoming the first airline company in the Philippines and the second in the world with the new fuel-saving large wing tip devices. Meanwhile, the first of Philippine Airlines new state-of-the-art jets, said to be one of From left: China Bank FVP & Investment Banking Group Head Virgilio Chua, the most modern and safest airplanes to soar the Philippine skies, PAL VP for Treasury Stewart Lim, and China Bank’s Account Officer Dianne Camille Concepcion and FVP Victor Martinez . arrived in Manila from Hamburg, Germany on August 7, 2013.
Annual Report 2013 17 A PARTNER IN WEALTH CREATION
or over nine decades, we have built institutions; and our relationship managers a reputation of being a reliable and constantly monitor the market and apply the Ftrusted banking partner, with the latest ndings to client portfolios. resources and expertise to manage our A key initiative in 2013 was the acquisition customers’ personal and business nances, of a new wealth management system, Sopra % 17 and the capabilities and connections to link Banking for Wealth Management, to automate increase in assets under clients with opportunities that will help them a large number of processes and calculations, management achieve their investment goals. Guided by our and more importantly, give us a full 360-degree mission to be a catalyst of wealth creation, insight into our private banking customers, we set out to shape our customers’ nancial including the capability to simulate actions or future in 2013, understanding what’s really model future behavior. important to them and delivering personalized We also developed an estate/legacy solutions that combine the highest standards of planning program with our bancassurance professionalism with genuine warmth. af liate MCBLife. Dubbed GIFT (Growing Our Private Banking Group (PBG) is Investments and Family Treasures), the program is 37% committed to providing top-notch solutions, a holistic approach to estate planning, providing increase in income in-depth specialist knowledge, and rst-rate legal, tax, and trust solutions. service to our high net-worth clients. The solutions we develop are calibrated to cover all SOUND INVESTMENT ALTERNATIVES investment conditions, including the amount of 2013 was tough and challenging for the assets invested, risk tolerance, and investment local trust industry in general. After years of horizon; Our dynamic open architecture double-digit growth rates, the acceleration approach gives our private banking clients was suddenly arrested by BSP’s memorandum access to the best-in-class products of other limiting access to its Special Deposit Account
18 OPERATING HIGHLIGHTS
(SDA) facility to managed trust accounts New UITF products are underway which and pooled funds, and excluding investment will cater to clients with short- to intermediate- management and other agency accounts. term investment horizon and who would like to Agency accounts invested in SDAs were generate potentially higher returns than deposit mandated to be fully phased out in 2 stages: 30% products. Aside from UITFs, our Trust Group will by July 31 and the remaining 70% by November also be focusing this year on strengthening our 30, 2013. Expectedly, the implementation of fund management services, notably retirement the memorandum dramatically reduced the funds, directed investments, and fully discretionary industry’s AUM (or Assets Under Management) managed funds, and will be looking into growth given the sizeable share of agency and other opportunities from recently-passed regulations on duciary accounts invested directly in SDAs. other types of UITFs such as feeder funds and fund- With massive amounts of money freed of-funds. Also in the pipeline are regional trust desks from SDAs, the challenge was recapturing these in key locations in Luzon and Mindanao (to add to funds through our other products and services. the existing Cebu Trust desk established in late Our Trust Group responded aptly by expanding 2012) to support the frontline units and enhance and vigorously marketing our Unit Investment awareness for trust products and services in these Trust Fund (UITF) offerings. areas. With the public’s growing sophistication and We now have ve UITF products: China awareness on investment products and the Bank’s Bank GS Fund, Dollar Fund, Balanced Fund, rapidly expanding branch network, the Trust Group Money Market Fund, and our newest UITF, China is expected to ride on these synergies and register Bank Equity Fund, which provides investors positive asset and revenue growth in the coming with an excellent opportunity to participate in years. the bullish Philippine equities market and earn potentially higher returns. UITFs can serve as perfect alternatives to SDAs as these funds are managed by professional fund managers and invested THE CHINA BANK EQUITY FUND: in a wide array of nancial instruments CAPITALIZING ON THE BULLISH EQUITIES MARKET such as money market instruments, xed income securities like bonds/notes issued by government and corporate issuers, as well as The China Bank Equity Fund was launched in June 2013 as part of the Bank’s continued efforts to provide a comprehensive range of investment solutions to listed equities which are usually accessible clients. Classi ed as an “equity fund,” up to 90% of funds held may be invested only to big investors. China Bank UITFs have in select equities listed at the local bourse. The remaining balance will be invested been performing well, providing moderate to in short-term tradable xed-income securities and bank deposits mainly to support liquidity and redemption requirements. The China Bank Equity Fund is professionally aggressive investors with competitive returns. managed by China Bank Trust Group and is available at all China Bank branches Meanwhile, to further enhance yield on the nationwide. China Bank Money Market Fund, the Trust Group sought and gained approval by the BSP The China Bank Equity Fund is for clients with an “aggressive” investor risk pro le who are willing to accept a greater level for the reduction of the fee in managing the of risk involving volatility of returns and possible said Fund. erosion of principal. By assuming a longer To rally the branches and other frontline investment horizon of, at least, one year, the investor will be in a better position to weather units to actively offer UITFs to clients, Trust Group short-term volatilities that maybe encountered launched the “U Book, U Win, UITF SurePrize by the Fund due to changes in prevailing market Promo” that rewards quali ed branches that conditions and, thus, enjoy the potential bene ts of capital appreciation and favorable long-term meet the required minimum increase in UITF returns. The minimum investment is P50,000.00 levels within the promo period: September 16, for a minimum investment holding period of 2013 to January 15, 2014. The promo was a 30 calendar days. Additional contributions can be made anytime in minimum amounts of P10,000.00. success, with UITF ADBs increasing by P4 billion during the four-month promo period.
Annual Report 2013 19 Our Treasury Group managed to ride out capacity to provide more sophisticated product the markets’ volatility, taking advantage of the alternatives to clients. swings to take in some gains for the trading The Asset and Liability Management desks. The Fixed Income desk, in particular, was (ALM) Desk signed off the Fund Transfer Pricing recognized by The Asset Magazine as one of (FTP) module of the ALM System, marking the the Best Traders in Philippine Peso Bonds for the completion of the ALM project in 2013. The second year in a row. The retail business saw ALM system includes Static, Dynamic and increased volumes as we actively participated in Advance Liquidity modules. These modules are the local government securities and corporate currently used by our Risk Management Group, bond offerings, both as a selling agent and as Corporate Planning Division, and Treasury underwriter. Group to quantify portfolio gains or losses, Our Financial Engineering Desk applied measure and forecast product pro tability for a Type II Derivatives License with the BSP across the balance sheet while managing bank in 2013, approved in the rst quarter of 2014. wide liquidity and earnings volatility. The FTP Having this license enables us to capitalize module will further enhance interest income on hedging and income opportunities, and allocation among business units and is expected more importantly, provide additional hedging to be an integral part of the budgeting process instruments for our customers. Treasury Group starting 2014. is looking at acquiring more derivative licenses Scheduled for an upgrade in 2014 is the in the next two years to expand China Bank’s Kondor Plus, the treasury system currently in place.
MCBLIFE: BANCASSURANCE SUCCESS
According to a report released in June 2013 by the Insurance Commission, Manulife China Bank Life Assurance Corporation (MCBLife) ranked ninth among the top life insurance companies in the country, with P4.51 billion in total premium income as of December 31, 2012. MCBLife had only been in operation for ve years in 2012, and it already ranked higher than the other bancassurance companies that have been around longer and even bested other more established insurance companies operating in the country. In just a few years, MCBLife has cornered 12% share of business amongst bancassurance players. Its insurance sales reached P286 million in 2013, representing a hundred fold growth since its inception in 2007.
From the onset, our bancassurance af liate MCBLife was expected to generate signi cant bene ts for both China Bank and Manulife Philippines— we can broaden our fee-based income and Manulife can serve more customers across the country through our fast-growing branch network. MCBLife hit its full stride and became a major recurring business contributor to China Bank as early as 2010, its third full year. In 2013, MCBLife posted a 49% increase in sales. Remarkably, 44% of Manulife’s total wealth sales came from MCBLife, contributing to an increase of 86% in total bancassurance sales in 2013 over 2012.
MCBLife offers a full range of innovative insurance and nancial products for health, wealth, and education, making China Bank a one-stop shop for banking and insurance. MCBLife, in collaboration with our Private Banking Group and Institutional Banking Group, recently introduced new services to address the nancial and protection needs of our high net worth and institutional clients, further strengthening the Bank’s value proposition to these market segments. On top of the 226 nancial sales associates (FSA) deployed at China Bank branches nationwide, MCBLife is assigning highly- skilled nancial consultants (FCs) at strategic China Bank branches to service the sophisticated estate planning and wealth management needs of private banking clients. MCBLife is also providing tailor- t solutions to the Bank’s commercial and corporate clients.
MCBLife will soon launch an innovative sales tool to support the bancassurance team of FSAs and FCs, along with several new products: Flexisure, Horizons, and Af uence Income.
20 OPERATING HIGHLIGHTS
PLANTERSBANK: UNITING FOR OPTIMUM PERFORMANCE
Our recent acquisition of Planters Development Bank (Plantersbank), the largest privately-owned independent development bank with a 40-year history of serving small-and medium-scale enterprises (SMEs), supports our strong commitment to SME nance. This deal bolsters China Bank’s current strategy in two areas—growing our middle market/SME portfolio and accelerating our network expansion program. With this acquisition, we combine the strong legacy of both institutions to strengthen China Bank’s presence in the SME and middle market, and ensure the continued development of broad-based access to nancial products and solutions for SMEs.
Plantersbank is the fourth largest thrift bank in the Philippines in terms of assets and loans, which stood at P50.2 billion and P34.5 billion, respectively, as of December 31, 2013. Of Plantersbank’s total loan portfolio, over 60% is lent to SME-focused loan categories. It has a network of 78 branches as of end-2013—24 in Metro Manila, 44 in Luzon, and ve each in Visayas and Mindanao—and 64 ATMs nationwide. Its success in SME banking has been recognized through numerous citations and awards, reinforcing its position as the country’s leading bank for SMEs.
With Plantersbank now part of the China Bank Group, China Bank is the fth largest private China Bank’s acquisition of Plantersbank was universal bank in the country with P464 billion in assets as of December 31, 2013. The addition of featured as a “Deal of the Month” in the March Plantersbank’s 78 branches to our 367 China Bank and CBS branches as of end-2013, brings the 2014 issue of Acquisition International, a leading combined branch network to 445 branches—well over the 400 branch network we targeted for monthly corporate nance publication with a 2014. global readership. Plantersbank will continue to operate as a separate entity under the China Bank Group for about a year. We are working very hard and very thoroughly for a seamless and successful merger, ensuring that we will be stronger in the SME and middle markets. The Integration Committee is leading the integration and transition activities, enjoining all China Bank, CBS, and Plantersbank personnel to work together in harmony to attain established targets for 2014, and at the same time, ensure that business goes on and our customers are not affected by the transition. The eventual merger will make China Bank a more formidable competitor. We will have a wider, more strategic geographic footprint as CBS will absorb the 78 branches and the two unopened branch licenses of Plantersbank. The combined expertise of the China Bank and Plantersbank team in SME nance will bring about an effective platform for the pro-active and consistent support for entrepreneurs to start and grow their businesses with us.
Annual Report 2013 21 OUR PEOPLE, OUR STRENGTH
n 2013, we continued to develop and enhance COMPENSATION AND BENEFITS our human capital as well as focused on China Bank’s compensation policy is Iboosting employee morale and productivity anchored on our objective of attracting, and improving our recruitment, training, retaining, and motivating competent and and performance management processes to dedicated employees to support our vision of 5,594 effectively support our expanding operations. becoming the best, most admired nancial China Bank and subsidiary services institution. Our Human Resources employees HUMAN CAPITAL Division (HRD), with the approval of our Board We closed 2013 with 5,594 China Bank and of Directors, has established a comprehensive subsidiary employees. Regular China Bank rank bene ts and competitive compensation package 6,906 and le employees are members of the China that mirrors the Bank’s long-term approach to Including Plantersbank Banking Corporation Employees Association working relationships, commitment to equal employees (CBCEA) and are covered by a collective employment opportunity and the best labor bargaining agreement. practices, and adherence to meritocracy. Combined with Plantersbank’s 1,290 We believe that it is in the best interest employees as of December 31, 2013, our of both the Bank and our employees to fairly manpower is 6,906-strong. compensate our workforce according to the Individually, our dedicated and hard nature of the job, quali cations and experience, working employees have diverse talents and and individual performance. Our salary structure perspectives that lead to more innovative ideas consists of grades, with each position assigned and solutions, and collectively, we are one solid a speci c job title and grade based on the team who share the same values and a strong evaluation of job content and the compensable sense of extended family that compel us to factors. Upon initial hire, placement within a salary move in one direction. range is according to the level of quali cations and experience of the individual relative to the CHINA BANK AND SUBSIDIARY position’s requirements. Our employees’ salaries EMPLOYEES are within the prescribed bank salary ranges 2012 2013 for their respective corporate ranks/pay class. Senior Of cers 143 149 HRD conducts periodic reviews of our salary administration programs and recommends to Junior Of cers 1,291 1,522 the Board salary range adjustments that re ect Rank & File 3,764 3,923 current competitive practices. TOTAL 5,198 5,594 Opportunities for pay increases are linked to of cers’ performance during the year. Including Plantersbank Promotions and merit increases are given in 2013 accordance with the approved Compensation Senior Of cers 244 Policies. The pro t sharing/performance bonus is based on the of cer’s performance and Junior Of cers 2,133 also in accordance with the Bank’s By-Laws Rank & File 4,529 that a percentage of the Bank’s net earnings TOTAL 6,906 is allocated/distributed on the basis of the Chief Executive Of cer’s recommendation as approved by the Board of Directors.
22 MANPOWER
In 2013, HRD strengthened our Performance result in a loss of trust. In line with this, we have Management System, aligning the employees’ a succession plan that brings a sense of purpose Performance Key Result Areas to the Balance and sustainability to employees. HRD conducts Score Card of the respective units which support periodic reviews of the talent pipeline and the Bank’s over-all business objectives. implements individual career development plans In addition to a competitive compensation to ensure that intellectual capital is not lost, but package, we also provide a comprehensive transitioned from one employee to another. bene ts package for our regular employees. Below is a table showing the number of This includes medical, hospitalization, and China Bank and subsidiary employees hired check-up programs; car plan (for of cers); and promoted in 2012 and 2013 (excluding nancial assistance programs (e.g. housing, Plantersbank employees): car, appliance, and personal loans); employee retirement plan; leave privileges (vacation leave, Year Hired Promoted sick leave, maternity/paternity leave, study leave, 2012 1149 612 and other leaves as mandated by law); group life 2013 1145 716 and accident insurance coverage; rice subsidy; meal and transportation allowances; and bank We also endeavor to maintain a good uniforms. relationship with our retired employees. For the last ten years, we hold a gathering for COMPANY CULTURE retired China Bank employees every 3rd week Beyond the bene ts and perks we give of January. This is a special occasion that is employees, what makes China Bank a desirable anticipated yearly by the members of the CBC place to work for is our culture. China Bank’s Retirees’ Association as this is where they culture, de ned by our mission and vision, is reconnect with former China Bank colleagues characterized by openness, loyalty, and more and friends. importantly, a trust in each other that regardless of how much the Bank has grown over the PROFESSIONAL DEVELOPMENT years, the small-company, close-knit family feel We place great importance on the remains. Our employees conduct themselves continuing skills development of our manpower and perform their duties consistent with our to maintain our high standards of service core values—integrity, high performance across the entire network and to adapt to the standards, commitment to quality, customer changing business conditions and regulatory service focus, concern for people, ef ciency, environment. We have a comprehensive in- and resourcefulness / initiative—and together, house training program developed with industry we embrace and drive change and innovation, experts to build our employees’ operational, with everyone in the team contributing, making technical, marketing, service, communication, a difference, having fun, and feeling rewarded and leadership skills, as well as update their for their hard work. knowledge of our Bank policies and all relevant Trust is at the heart of the China Bank laws and regulations. In addition to the in-house culture and we demonstrate this by having training program, our employees have access clearly de ned roles and expectations, and to external training programs. We sponsor or providing employees with the requisite tools, reimburse the training/tuition fees of employees training, and authority to succeed in their who take courses aligned with a professional careers and contribute to the Bank’s success. designation in their current role. We also We believe that employees who feel trusted have a comprehensive development plan for and respected will strive harder to maintain that our Management Trainees, which includes trust and are less likely to do something that will a mentoring program with members of our
Annual Report 2013 23 ORGANIZATIONAL CHART
Board of Directors
Board Committees
Corporate Compliance Audit Corporate Executive Compensation Retirement Trust Risk Governance Committee Investment Management Secretary
Risk Trust Compliance Audit Division Management Of ce Of ce of the Vice Chairman Group Group
President and CEO
Credit Committee Management Committee
Information Security Of ce Security Of ce
Chief Operating Of cer
Corporate Planning & Investor Relations Chief Finance Of cer
Relationship Business Financial Capital Markets Corporate Banking Operations & Investment Support
Retail Banking Lending Business Business
Management Committee as mentors. The China REWARDS AND RECOGNITION Bank Training Academy and our Intranet portal We recognize the importance of connecting for e-training are vital to meeting our objective performance to rewards. Promotions are of empowering our manpower. bestowed on deserving employees who work Below is a table showing the number of hard and perform well; in addition, we have a trainings conducted in 2012 and 2013 with the Rewards and Recognition program to foster a the corresponding number of participants. positive and productive working environment and to motivate employees to always aim for 2013 excellence. Speci cally for the branch personnel, Programs Participants we have the Annual Branch Banking Group Conducted Of cer Training 112 3,381 National Convention where the top performing Staff Training 184 5,598 branches and branch managers are recognized External 189 414 for their exemplary performance in different Executive 40 75 Total 525 9,468 categories.
2012 Programs Participants Conducted Of cer Training 97 2,591 Staff Training 233 6,042 External 166 256 Executive 23 26 Total 519 9,030 * One employee may have attended several training programs. 24 MANPOWER
EMPLOYEE WELFARE Rewards & Recognition Program Awards Model Employee Award We take genuine interest in our people’s Quick Win Award welfare. We advocate a good work-life balance Breakthrough Idea Award to keep our team motivated, healthy, and Top Sales and Marketing Award energized. Our employees enjoy adequate Product of the Year personal and family time-off, and are allowed Deal of the Year Project of the Year to have exible work schedules, as warranted. Special Citation Award In place are various sports, recreational, Critical Project Completion Award and health and wellness programs to provide Special Meritorious Circumstances Award our employees with activities outside of the workplace, strengthen camaraderie, and BBG National Convention Awards promote community participation and personal Branch of the Year Top CASA (Checking & Savings Account) Contributors growth. We have a year-round schedule of Top Sales Associates sports activities like bowling, basketball, and Top Performers / Referrors badminton, as well as health and wellness (for Bancassurance, Consumer Banking Group, programs in the form of group exercises (e.g. Cash Management, Insurance, Private Banking Group, Zumba and Aerobics) as a way to improve one’s Treasury Group, and Trust Group physical condition and not only to release stress after a hard day’s work. This is in addition to the series of activities (i.e. check-up, immunization) EMPLOYEE RELATIONS and articles on health and wellness which we We maintain our good relationship with our publish monthly. employees to keep them contributing and fully We also continually review our HR policies, involved in their work. Aside from providing a developing new ones not only in compliance rewarding and enriching work experience, we with laws and regulations, but also in keeping offer our employees a safe and nurturing work with our commitment to protect our greatest environment where everyone is treated fairly asset—our people. All HR policies are available in and respectfully. China Bank’s intranet system for easy reference The HRD-Employee Relations Department of employees. (ERD) provides consultative services for all our employees, in line with its mandate to contribute Policy on Battered Women Leave to high productivity, motivation, and morale, The policy provides for the general guidelines and conditions for the grant of this bene t for covered China and to cultivate an environment where our Bank employees in line with the State’s policy embodied in people work collaboratively and communicate Republic Act No. 9262. The Battered Woman Leave Bene t comprises openly with one another. HRD-ERD is a ten working days with pay consisting of basic salary, all con dential resource for employees with a allowances and other monetary bene ts, extendible when the necessity arises as speci ed in the protection order. problem, complaint, question, or who simply Employee shall submit protection order prior to extension. need a sounding board. It advises employees Policy on Hepatitis B Prevention and Control in the on applicable regulations, legislation, bargaining Workplace The policy provides for the general guidelines as to agreements, as well as grievance and appeal the welfare of the employees affected with Hepatitis B; rights and discrimination and whistleblower i.e., to guarantee full respect for human rights and uphold the dignity of the concerned employee in line with the protections. It manages con icts and corrects State’s effort for prevention and control of Hepatitis B poor performance and employee misconduct, in the workplace, pursuant to Department of Labour & Employment (DOLE) Department Advisory No. 05, Series applying the Bank’s policies and regulations fairly of 2010. and equitably to resolve employee grievances The policy calls for preventive strategies, such as providing adequate hygiene facilities and ensuring the and appeals and promote a better understanding proper disposal of infectious and potentially contaminated of China Bank’s goals and policies.
Annual Report 2013 25 materials, and screening, diagnosis, treatment, and with TB which may include exible leave arrangements, referral of affected employees to the Bank’s health rescheduling of working times and arrangements for provider for appropriate medical evaluation/monitoring return to work. Moreover, a TB awareness program shall and management. be undertaken through information dissemination, and An employee who contracts Hepatitis B infection that workplaces will be provided with adequate and in the performance of his/her duty is entitled to sickness appropriate ventilation in compliance with Rule 1076.01 bene ts under the Social Security System and employees’ of the DOLE-Occupational Safety and Health Standards compensation bene ts under Presidential Decree No. 626. to ensure that contamination from TB airborne particles is controlled. Policy on Drug-free Workplace The policy provides for the general guidelines Policy on HIV and AIDS Prevention and Control in to protect and safeguard the health and well-being of the Workplace employees from the harmful effects of dangerous drugs, The policy provides for the general guidelines on and in the process ensure safe and ef cient business the uniform and fair approach to the effective prevention operation pursuant to DOLE Department Order No. 53- of HIV/AIDS amongst employees and the comprehensive 03, Series of 2003 in accordance with Article V of Republic management of HIV-positive employees and employees Act No. 9165, otherwise known as the “Comprehensive living with AIDS pursuant to DOLE Department Order No. Dangerous Drug Act of 2002.” 102-10, Series of 2010 in compliance with Republic Act The policy enhances the Bank’s existing drug No. 8504. awareness education and information program and The policy states that employees shall not be expands the workplace drug-testing program to discriminated against, from pre- to post-employment, include not only pre-employment drug-testing but also including hiring, promotion or assignment, because of their unannounced random drug testing and reasonable HIV/AIDS status, be it actual, perceived or suspected with suspicion-testing. The Bank undertakes to protect HIV infection; that compulsory HIV testing shall not be a and uphold the right to privacy of an individual who pre-condition to employment; that employees shall not be undergoes drug testing and/or is con rmed to be a terminated from work if the basis is the actual, perceived drug user except in cases when it is required by law or or suspected HIV status; and that employees shall practice in cases of overriding public health and safety concerns, non-discriminatory acts against co-employees. Access to and where such disclosure has been authorized in writing personal data relating to an employee’s HIV status shall by the person concerned. Any employee who (a) tested be bound by the rules of con dentiality consistent with positive for the use of Dangerous Drugs; (b) is found guilty the provisions of R.A. No. 8504 and the ILO Code of of the prohibited activities mentioned in Section III hereof; Practice. HIV/AIDS-related information of employees shall or (c) refuses to submit to testing under this Policy shall be kept strictly con dential and kept only on medical les, be subject to appropriate disciplinary action, which shall whereby access to information shall be strictly limited to include termination, subject to the provisions of Article medical personnel or if legally required in accordance 282 of the Labor Code. with the provision of R.A. No. 8504 and its Implementing Rules and Regulations. The Bank shall take measures Policy on Solo Parent Leave to reasonably accommodate employees AIDS-related The policy provide for the general guidelines and illnesses and institute workplace program for HIV/AIDS conditions for the grant of this bene t for covered China education, prevention, and control. Bank employees in line with the State’s policy embodied in Republic Act No. 8972. Policy on Breastfeeding in the Workplace The Solo Parent Leave Bene t applies to all China The policy provides for the general guidelines and Bank employees, regardless of employment status, conditions for the grant of this bene t for covered China considered a “Solo Parent” as categorized in Section Bank employees pursuant to the Expanded Breastfeeding III (b) and has complied with the conditions provided in Promotion Act (RA 10028). Section VI of the policy. China Bank employees who are The Bank shall implement a breastfeeding program solo parents are entitled to seven working days of paid as part of its human resource development, which shall Solo Parent Leave for every calendar year, in addition to include, among others, (a) information dissemination other leave privileges under existing laws and company on the bene ts of breastfeeding; (b) conduct adequate policies, to enable them to perform parental duties and orientation on lactation management; and (c) implement responsibilities where their physical presence is required. a support system for nursing employees. The policy states that nursing employees are entitled Policy on Tuberculosis Prevention and Control in the to break intervals of not less than a total of 40 minutes for Workplace every eight-hour working period to breastfeed or express The policy provides for the general guidelines as to milk, in addition to the regular time-off for meals. These the welfare of the employees affected with Tuberculosis; break intervals, which shall include the time it takes an i.e., to guarantee full respect for human rights and uphold employee to get to and from the workplace lactation, the dignity of the concerned employee in line with the shall be counted as compensable work time, provided that State’s effort for prevention and control of the nursing employee noti es her immediate Supervisor, prior to the use of the break interval, that she will make Tuberculosis (TB) in the workplace pursuant to DOLE use of the Bank’s lactation stations and provided, further, Department Order No. 73-05 Series of 2005. that the nursing employees signs in the corresponding The policy states that employees who have or had Logbook maintained in the Bank’s designated Lactation TB shall not be discriminated against. Instead, they shall Stations for every use thereof. For Branches, it is be supported with adequate diagnosis and treatment, and suf cient for a nursing employee to inform her immediate shall be entitled to work for as long as they are certi ed by Supervisor, prior to the use of the break interval, that she the Bank’s accredited health provider as medically t and will be breastfeeding or expressing milk. shall be immediately restored to work as soon as their illness is controlled. There will also be work accommodation measures to accommodate and support employees
26 CORPORATE SOCIAL RESPONSIBILITY Responsible Operations
Annual Report 2013 27 Corporate Social Responsibility (CSR) is a vital part of China Bank’s long-term success. We integrate social, environmental, and governance practices into our day-to- day business activities to maintain a balance between our business interests and our stakeholders’ welfare, and create a positive impact on our people, customers, investors, the environment, the economy, and the communities we
In 2013, we continued to focus on customer pro le belongs to the D & E socio- promoting nancial inclusion, sustainable economic class. nance, environmental protection, and social 15 more CBS mini branches in Savemore development. We engaged our employees as well as SM Hypermart outlets will be opened and partnered with our customers, various within the year. community groups, and charitable organizations We also continue to support small- and to support causes that serve the interests and medium-scale enterprises (SMEs), increasing the needs of society as a whole, and help provide our lending to the sector by 10% in 2013. To solutions to economic, social, and environmental accelerate our SME strategy, we acquired two challenges. banks under the Bangko Sentral ng Pilipinas’ (BSP) Strengthening Program for Rural Banks FINANCIAL INCLUSION (SPRB) Plus: Pampanga-based rural bank Unity We are expanding our nationwide footprint Bank in November 2012, merged with CBS on and improving our service delivery channels to January 20, 2014, and Planters Development provide nancial access to more people, with the Bank (Plantersbank), MOA in September aim of bringing into the mainstream economy 2013, with the Share Purchase Agreement those who are not in the realm of nancial executed on January 15, 2014. The acquisition services. Through our savings bank subsidiary of Plantersbank, the country’s largest private China Bank Savings (CBS), we continue to explore new ways of increasing nancial inclusion. In July 2013, CBS began opening mini branches in Savemore outlets in Metro Manila, tapping the un-banked and underserved sectors and making it easy for them to start banking relationships with low—even zero—initial deposit accounts and micro nancing. Open daily and designed in look and in processes to be very accommodating to rst time bank customers, CBS mini branches serve a wide range of clients: from maids, cigarette vendors, tricycle drivers— people who would otherwise be intimidated transacting in a traditional bank branch—to students, housewives, and professionals. CBS mini branches, now numbering ten, have close to 5,000 accounts. 30% of the mini branches’ CBS mini branches attract people from all walks of life to bank as they go about their grocery shopping.
28 CORPORATE SOCIAL RESPONSIBILITY
development bank and leading bank for SMEs, ENVIRONMENTAL PROTECTION bolsters our current strategy in two areas— Our people are our partners in protecting growing our middle market/SME portfolio the environment. As with all of China Bank’s and our network expansion program. We CSR activities, we encourage staff involvement, are moving forward, making full use of our working hand in hand with them to raise common strengths and harnessing the synergies awareness of environmental issues and promote to achieve cost ef ciencies and ensure the reducing, reusing, and recycling. continued development of broad-based access For over ten years now, China Bank has to nancial products and solutions for SMEs. a solid waste management program, which we continuously implement and improve SUSTAINABLE ENERGY FINANCE on. Garbage is properly segregated and the Society’s expectations and the interests of recyclable materials are turned over to our future generations are crucial to China Bank’s recycling partners at regular intervals. nancing decisions. Beyond the numbers, we China Bank is actively involved in the take into consideration the environmental, program “Promoting Energy Ef ciency in social, and governance risks involved in the Makati Central Business District” which supporting certain businesses and industries. primarily aims to promote energy ef ciency Our partnership with IFC, a member of the and help alleviate climate change. And in World Bank Group, for technical assistance the last six years, we have implemented and advisory services under IFC’s Sustainable projects to progressively reduce our Energy Finance (SEF) Program, enables us to operation’s impact on the environment, like identify potential renewable energy and clean switching to energy-ef cient lighting and air development projects, analyze the project conditioning systems, acquiring technologies risks, and package viable nancial structures to automate processes, including installing to promote sustainability and improve business video conferencing facilities at our head bottom lines. of ce and business centers in Luzon, Visayas, In 2013, China Bank helped nance a and Mindanao to reduce the need for travel number of energy projects that have adopted and thereby contribute to a reduction in land “clean coal technology” to produce power in and air travel emissions. We also developed an economical and environmentally responsible policies on conserving energy, water, and manner. These include the 300-megawatt paper supplies bank wide and have begun capacity expansion of the coal- red power plants using recycled paper on our annual reports, of Semirara Mining Corp. subsidiary Southwest and eventually other publications and printed Luzon Power Generation Corp.in Calaca, marketing materials. Batangas; the construction of Global Business We continued to implement in 2013 our Power Corp. subsidiary Toledo Power Corp.’s internal “Going Green” campaign launched 82-megawatt coal- red power plant in Toledo in 2012, encouraging our employees to adopt City, Cebu; the construction and operation of as well as promote sustainable working Aboitiz Power Corp. subsidiary Therma South, and living practices to others. The heads of Inc.’s two 150-megawatt circulating uidized- the different branches, departments, and bed (CFB) electric power generation facility subsidiaries are the environment ambassadors in Davao City and Davao del Sur, which once tasked to remind the staff to support the operational by 2015 will be the largest coal-fed campaign at every possible opportunity, as power plant in Mindanao; and the construction well as to monitor and police their own areas and operation of one of the most advanced of responsibility. As a result, we generated and most fuel-ef cient plants in the Visayas, electricity, paper, and ink savings in 2013 a 135-megawatt CFB power plant project in despite the continued branch and manpower Concepcion, Iloilo, expected to be operational expansion. by mid-2016. Annual Report 2013 29 16-year old Mark Joseph B. Millagrosa is one of the 16 CFC-ANCOP scholars sponsored by China Bank. He completed his high school education at the San Isidro National High School through the scholarship program. He graduated on March 27, 2014 and intends to pursue an engineering degree.
SOCIAL DEVELOPMENT China Bank is committed to help in times Community involvement is a cornerstone of great need. We conducted donation of China Bank’s CSR program. We support drives for the victims of the three major various noteworthy projects for the disasters in 2013: Typhoon Maring, Bohol underprivileged sector, provide educational Earthquake, and Typhoon Yolanda. Over assistance to promising children, undertake P3 million in employee and client donations charitable fundraising, and encourage employee were raised and turned over to the Philippine volunteerism in our efforts to give back to society. Red Cross and CFC-ANCOP for their relief and At the same time, our branches nationwide rehabilitation efforts. actively participate in a number of local events As always, our mandate is to secure our such as sports tournaments, cultural fairs, people rst. Our priority in any calamity is the and anniversary celebrations and conventions safety and welfare of our personnel. Using all of different associations, organizations, and means and resources available, we conducted universities to uphold community values a search and rescue and several waves of and traditions and foster camaraderie in the relief operations for employees and their communities where we operate. families affected by the recent super typhoon. In 2013, we continued to contribute to Demonstrating our company spirit, China Bank social development. We again supported the employees volunteered to help in these efforts. Child Sponsorship Program of CFC-ANCOP Aside from making monetary and in-kind (Answering the Cry of the Poor, a ministry of donations, they donated their time, helping Couples for Christ), sponsoring 16 ANCOP locate missing colleagues, and repacking and scholars for the school year 2013-2014. At distributing relief goods. the same time, deserving children of China We also had a separate internal donation Bank employees continue to bene t from our drive and provided a calamity assistance scholarship programs for high school and college package to affected employees which include education—the G.U.D Scholarship Fund, named cash assistance, calamity loan equivalent to a after Board Vice Chairman Gilbert U. Dee, and maximum of four months’ salary at a reduced the D.C.C. Scholarship Fund, named after one of interest and exible payment terms, and special our founding fathers, Dee C. Chuan. leaves that are not chargeable against vacation leave credits.
30 CORPORATE GOVERNANCE Responsibility to Stakeholders
Annual Report 2013 31 China Bank’s awards in good governance clearly indicate the seriousness of our advocacy and our track record in living up to continuously improving benchmarks. We are committed to building and maintaining relationships based on trust and fairness with all our stakeholders, and conducting our business ethically and in accordance with internationally-recognized best practices.
In 2013, we continued to practice the principles of good governance and made strategic and operational improvements to achieve greater transparency and create long-term value. We have submitted our Annual Corporate Governance Survey Disclosure Form to the Philippine Stock Exchange (PSE), as required, which is the basis of the Annual PSE Bell Awards. Our adherence to the high standards of corporate governance was again recognized by the PSE. At the 2013 Bell Awards, China Bank was again named as one of the best-governed companies in the Philippines—the only bank among the top ve awardees in the publicly- listed companies category and one of China Bank Chairman Hans T. Sy accepting the award from SEC Chairperson Teresita J. Herbosa, head of the 2013 only two other awardees to have been in Bell Awards panel of judges. Looking on are (from left) Deloitte Philippines Managing Partner and CEO Gregorio S. Navarro, PSE Bell Awards judge; and PSE Chairman Jose T. Pardo. the top ve twice in a row. China Bank was also the recipient of the Gold Award for Corporate Governance by the Institute of Corporate Directors CORPORATE OBJECTIVE (ICD) in 2011 and 2012. Our goal is to be among the top ve banks in the country in As we expand our operations through organic growth and terms of resources and size of the branch network. The Bank’s ve strategic alliances, we will continue to strengthen our corporate year plan articulates our strategies to generate greater value from governance practices to ensure that we are not just consistent with the network expansion, new businesses, and stronger presence the rule of law, but that China Bank is run soundly and prudently, in the MME and SME markets. In the process, we will build a in a manner that ts the best interests of our stakeholders. more responsive, cost ef cient, and market focused organization that is primed to meet the challenges of a fast changing nancial CORPORATE GOVERNANCE POLICY environment. The Board of Directors, Management, employees, and shareholders believe that good corporate governance is a BOARD OF DIRECTORS necessary component of what constitutes sound strategic The Board of Directors is the highest governing authority at business management and will therefore undertake greater effort China Bank. The Board, responsible for the governance of the Bank necessary to create more and continuing awareness within the and accountable to our shareholders, guides our overall philosophy organization. and direction and sets the pace for our current operations and future developments. Governance by the Board also includes monitoring Management’s performance, establishing standards of accountability, and setting our corporate values.
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China Bank has a high-performance Board whose members have diverse and relevant skills and work well together as a team.
Our 2013 Board is composed of eleven directors and one CHAIRMAN adviser, Honorary Chairman Henry Sy, Sr. Of the eleven, three The roles of the chairman and president/chief executive are executive directors: Vice Chairman Gilbert U. Dee, President of cer (CEO) are segregated but complementary to ensure an and CEO Peter S. Dee, and Senior Executive Vice President and appropriate balance of power and greater accountability. The Chief Operating Of cer Ricardo R. Chua. The rest are non- chairman of the board is Hans T. Sy. He was our vice chairman executive directors. China Bank has no executive director who from 1989 until 2001, when he became chairman. He has never serves on more than two boards of listed companies outside of been a CEO of China Bank or held any executive positions in the group. The Board composition complied with the regulatory the Bank. As chairman, he is responsible for the leadership and requirements. effective running of the Board. His duties also include maintaining a relationship of trust with board members; ensuring that the INDEPENDENT DIRECTORS Board takes an informed decision, and that board meetings are To create a strong element of independence in the China held in accordance with our by-laws, taking into consideration Bank Board, we have three independent, non-executive directors: the suggestions of the CEO, management, and the directors; Dy Tiong, Alberto S. Yao, and Roberto F. Kuan. We exceeded the and maintaining quality and timely lines of communication and legal requirement of no less than two independent directors, and information between the Board and management. fully complied with all the applicable rules on the nomination and election of our independent directors. PRESIDENT AND CEO We de ne an independent director as holding no interests Peter S. Dee is our incumbent president and CEO, elected in or relationships with China Bank, the controlling shareholders, or 1985. Subject to the control of the Board which has direct charge the management that would in uence their decisions or interfere of the business of the Bank and general supervision of the business with their exercise of independent judgment. As stated in our affairs and property of the Bank, he is primarily responsible for Corporate Governance Manual, our independent directors have the achievement of agreed objectives and execution of strategy a term of ve years, with a two-year cooling off period before as established by the Board, and for leading the senior executive they can serve for another ve years; and while they are in our team in the day-to-day running of the business. In the absence Board, they are not allowed to hold interlocking directorships in or inability of the chairman and the vice-chairman of the Board, more than ve listed companies.
Annual Report 2013 33 he is authorized to preside over the board meetings and the The directors are expected to prepare for, attend, and stockholders’ meeting. participate in these meetings, and to act judiciously, in good faith, and in the best interest of China Bank and our shareholders. ELECTION OF THE BOARD The Board is informed on an ongoing basis of the Bank’s The position of a China Bank director is a position of trust; performance, major business issues, new developments, and the thus, the directors are selected for their integrity, leadership, impact of the economic environment. The Board also has full experience at policy-making levels, and their ability to render and unrestricted access to management and employees of the independent judgment. The shareholders nominate candidates Bank and af liated companies, external consultants and advisors, by submitting the nomination to any of the members of the and the corporate secretary, Vice President Corazon I. Morando, Nomination Committee, the Corporate Governance Committee, in the execution of their duties. The meetings of the Board and or the corporate secretary on or before the prescribed date. The its committees are recorded in minutes, and all resolutions are Corporate Governance Committee reviews and evaluates the documented. quali cations of the candidates, the full Board con rms these In 2013, the China Bank Board had 15 meetings, including candidates’ nomination, and the shareholders elect the directors the organizational meeting. during the Annual Stockholders’ Meeting. Upon their election, the members of the Board are issued a No. of copy of their general and speci c duties and responsibilities as Board Name meetings % prescribed by the Manual of Regulations for Banks (MORB), which attended they acknowledged to have received and certi ed that they read Chairman Hans T. Sy 14 93 and fully understood the same. Copies of the acknowledgement Vice Chairman Gilbert U. Dee 13 87 receipt and certi cation are submitted to the Bangko Sentral Member Peter S. Dee 14 93 ng Pilipinas (BSP) within the prescribed period. Moreover, the Member Joaquin T. Dee 15 100 directors also individually submit a Sworn Certi cation that they Member Herbert T. Sy 15 100 posses all the quali cations as enumerated in the MORB. These Member Harley T. Sy 13 87 certi cations are submitted to BSP after their election. Additional Member Jose T. Sio 14 93 certi cations are executed by independent directors to comply Member Ricardo R. Chua 14 93 with the Securities Regulation Code and BSP rules which are then Independent Dy Tiong 13 87 submitted to the SEC. Independent Alberto S. Yao 14 93 Independent Roberto F. Kuan 14 93 SUCCESSION Succession, replacement or vacancy in the Board is addressed BOARD COMMITTEES in the Bank’s By-Laws, stating that vacancies in the Board may China Bank has eight board-level committees and three be lled by appointment or election of the remaining directors, management-level committees. Members of the different if still constituting a quorum; otherwise, the stockholders shall committees are appointed by the Board at the annual ll such vacancy in a regular or special meeting called for this organizational meeting, taking into account the optimal mix of purpose. Ultimately, it is the Board’s discretion whether to ll up skills and experience of the members. such vacancy or not. The composition and duties of these committees are set forth in their respective committee charters in compliance with BOARD MEETINGS legal requirements. The charters are posted in our website The organizational meeting of the Board is held after the www.chinabank.ph. Annual Stockholders’ Meeting. Regular Board meetings are held at least once a month; however, special board meetings may be Executive Committee (ExCom) has the powers of the Board called by either the chairman or CEO, or upon the request of in the management of the business and affairs of China Bank three directors. between meetings of the Board of Directors, to the fullest extent permitted under Philippine law.
34 CORPORATE GOVERNANCE
The ExCom convened 36 times in 2013. Corporate Governance Committee (CorpGov) is responsible for ensuring the Board’s effectiveness and due observance of Name of Director Attendance % Corporate Governance principles and guidelines, and oversees Hans T. Sy 32 89 the periodic evaluation of the Board and its Committees, as well Gilbert U. Dee 32 89 as of Management. Peter S. Dee 32 89 The CorpGov Committee had 12 joint meetings with the Joaquin T. Dee 36 100 Audit and Compliance Committees and seven joint meetings Ricardo R. Chua 35 97 with the Nominations Committee.
Risk Management Committee (RMC) is responsible for the Name of Director Attendance % oversight and development of all the Bank’s risk management Hans T. Sy 7 100 functions, including the evaluation of the risk management Joaquin T. Dee 7 100 plan to ensure its continued relevance, comprehensiveness, and Dy Tiong 6 86 effectiveness. Alberto S. Yao 7 100 The RMC convened 13 times in 2013. Roberto F. Kuan 7 100
Name of Director Attendance % Nominations Committee is tasked to review and evaluate the Alberto S. Yao 12 92 quali cations of all persons nominated to the Board, as well as Hans T. Sy 11 85 appointments requiring Board approval and promotions favorably Gilbert U. Dee 13 100 endorsed by the Promotions Review Committee. Joaquin T. Dee 13 100 Compensation or Remuneration Committee provides Audit Committee primarily oversees all matters pertaining to oversight over the remuneration of senior management and audit, including the evaluation of the adequacy and effectiveness other key personnel, ensuring that compensation is consistent of the Bank’s internal control system. It is the view of the Audit with the Bank’s culture, strategy and control environment. Committee that the Bank’s internal control system is adequate The Committee convened four times in 2013. and appropriate. It likewise provides oversight on the activities of Management Name of Director Attendance % and the internal and external auditors. Hans T. Sy 4 100 The Audit Committee had 12 joint meetings with Compliance Gilbert U. Dee 4 100 and Corporate Governance Committees in 2013. Peter S. Dee 3 75 Joaquin T. Dee 4 100 Name of Director Attendance % Dy Tiong 3 75 Hans T. Sy 12 100 Herbert T. Sy 4 100 Joaquin T. Dee 12 100 Dy Tiong 9 75 Trust Investment Committee (TIC) is responsible for the Alberto S. Yao 11 92 investment supervision over all the portfolios or funds under the Roberto F. Kuan 9 75 management of the Trust Group. It acts upon all trust business for acceptance as well as approval of all investments for trust and Compliance Committee is tasked to ensure that Management agency accounts, unless this function is speci cally delegated by is doing things in accordance with the prescribed rules, policies, the Board to the head of the Trust Group or other senior of cers procedures, guidelines and the like, and that appropriate of the Bank, consistent with existing regulations. corrective actions are being taken when necessary or required.
Annual Report 2013 35 The TIC convened 12 times in 2013. Board of Management Trustees of CBC Credit Committee Committee Employees’ Name of Director Attendance % Retirement Fund Ricardo R. Chua Gilbert U. Dee Gilbert U. Dee Roberto F. Kuan 11 92 Chairman Harley T. Sy 11 92 Peter S. Dee Vice Ricardo R. Chua Peter S. Dee 11 92 Chairman Jose T. Sio 11 92 Members Gilbert U. Dee Nancy D. Yang Peter S. Dee Rene J. Sarmiento 11 92 Peter S. Dee Samuel L. Chiong* Ricardo R. Chua Nancy D. Yang Ramon R. Zamora Management Committee (ManCom) formulates the Bank’s Samuel L. Chiong* William C. Whang business plans and budget as directed by the Board and reports Rene J. Sarmiento Ananias S. Cornelio III ** to the Board on the implementation of corporate strategies Ramon R. Zamora Melissa F. Corpus ** Rhodora Z. Canto designed to ful ll the Bank’s corporate mission and business Antonio S. goals. At the operating level, it covers top management Espedido, Jr. Alberto Emilio V. matters such as, but not limited to, environmental assessment, Ramos** objectives setting, performance and budget review, asset/liability William C. Whang management, organizational and human resource development, Alexander C. product development, and major operating policies. Escucha Virgilio O. Chua*** Rosemarie C. Credit Committee (CreCom) reviews and approves all credit Gan**** applications within its credit approval authority. It also reviews all No. of credit applications exceeding its credit approval authority, and if Meetings 49 50 found acceptable, endorses such to the Executive Committee or in 2013 the Board of Directors. * Retired January 31, 2014 ** Non-voting member *** Effective January 8, 2014 **** Effective February 13, 2014 Board of Trustees of CBC Employees’ Retirement Plan is responsible for the investment and disbursement of the assets of CBC Employees’ Retirement Plan in accordance with SEC BOARD ORIENTATION AND TRAINING PROGRAM regulations and the best interests of the plan holders. In place is a full orientation and continuing education process for the Board. In accordance with the MORB, all our directors have attended the required Corporate Governance Seminar. On January 8, 2014, the Board, together with members of the ManCom attended a Corporate Governance Workshop conducted by the Bank in collaboration with ICD. The workshop was a good learning opportunity for the board and the rest of the attendees, including of cers of the Compliance Of ce, Human Resources Division, Internal Audit, Risk Management Group, and Of ce of the Corporate Secretary, as it provided useful insights on current governance issues, including the impact of the ASEAN economic integration by 2015, the ASEAN Corporate Governance Scorecard (ACGS), and the performance governance system of ICD.
36 CORPORATE GOVERNANCE
BOARD AND CEO EVALUATION We also adopted the SEC-prescribed performance In compliance with the existing rules and on international best assessment for the Audit Committee in 2012. In accordance with practices, an annual self-assessment is conducted by the Board— SEC Memorandum Circular No. 4, Series of 2012, the results are the individual members, the committees, and the collective since validated by the Corporate Governance Compliance Of cer and 2005. A speci c CEO self-assessment was introduced in 2010 forms part of the record of the Bank which may be examined by in compliance with the best practices on corporate governance. the Commission from time to time. The results are summarized The formal self-rating system focuses on the level of compliance and reported also to the Board. Based on the results of the annual with leading practices and principles on good governance and evaluation, there are no signi cant deviations and in general, the identi es areas for improvement. Bank has fully complied with the provisions and requirements of Below is the rating system used: the Corporate Governance Manual.
Rating Description EXECUTIVE OFFICERS OF THE BANK Our executive of cers, subject to control and supervision of Poor - Leading practice or principle is not 0 adopted in the company’s Manual of Corporate the Board, collectively have direct charge of all business activities Governance of the Bank, and are responsible for the implementation of the Needs Improvement - Leading practice or principle policies set by the Board. 1 is adopted in the Manual but compliance has not China Bank has a long history of highly quali ed and yet been made experienced management teams with track records of delivering Fair - Leading practice or principle is adopted in on business plans and achieving results in the nancial services 2-3 the Manual and compliance has been made but industry. The members of our current senior management with major deviation(s) or incompleteness team have a mix of business, legal, and nancial expertise, with Good - Leading practice or principle is adopted in an average of over 20 years’ experience in the banking and 4 the Manual and compliance has been made but nancial services sectors and has demonstrated leadership not with minor deviation(s) or incompleteness only at China Bank, but also with other leading Philippine and Excellent - Leading practice or principle is adopted 5 in the Manual and full compliance with the same international nancial institutions. has been made
Position Name Age Citizenship Vice Chairman of the Board of Directors Gilbert U. Dee 78 Filipino President and Chief Executive Of cer Peter S. Dee 72 Filipino Senior Executive Vice President Ricardo R. Chua 61 Filipino and Chief Operating Of cer Executive Vice President Antonio S. Espedido, Jr. 58 Filipino Executive Vice President William C. Whang 55 Filipino Senior Vice President Nancy D. Yang 74 Filipino Senior Vice President Samuel L. Chiong* 64 Filipino Senior Vice President Ramon R. Zamora 65 Filipino Senior Vice President Rene J. Sarmiento 60 Filipino Senior Vice President Alexander C. Escucha 57 Filipino Senior Vice President Alberto Emilio V. Ramos 54 Filipino Senior Vice President Rosemarie C. Gan 56 Filipino First Vice President II Virgilio O. Chua 47 Filipino
Annual Report 2013 37 Position Name Age Citizenship First Vice President II Victor O. Martinez 48 Filipino First Vice President I Philip S.L. Tsai 63 Filipino First Vice President I Gerard T. Dee 50 Filipino First Vice President I and Chief Risk Of cer Ananias S. Cornelio III 38 Filipino Vice President and Corporate Secretary Corazon I. Morando 72 Filipino
* Retired January 31, 2014
COMPENSATION OF DIRECTORS To continually develop the internal audit team’s skills and AND EXECUTIVE OFFICERS capabilities vis-à-vis the changing banking landscape and new In accordance with the Bank’s amended By-Laws, regulations, the audit personnel attended various internal and members of the Board of Directors are entitled to a per diem external trainings, some of which focused on specialized areas, of P500.00 for attendance at each meeting of the Board or of like ICAAP, Risk Models Validation, Treasury, Trust, Anti-fraud, etc. any committees and to 4% of the Bank’s net earnings. The The division is also acquiring an audit tool for data analytics that directors’ remuneration covers all China Bank Board activities will expedite the gathering and processing of audit information, and membership of committees. Non-executive directors do as well as to broaden audit coverage and enhance ef ciency in not receive any performance related compensation. On the performing audit procedures. other hand, our executive of cers receive compensation based Overall, the Audit Division works continually to improve on their performance, banking experience, employment status, existing process and methodology to provide quality services and position, and rank in the Bank. The compensation policy for to add value to the Bank and other stakeholders. employees is on page 22. EXTERNAL AUDIT INTERNAL AUDIT The Audit Committee is responsible for the appointment of The Internal Audit function covers the independent and an external auditor to ensure its independence from the internal objective evaluation of the Bank’s risk management, control, auditors. SyCip Gorres Velayo & Co. (SGV), a member rm of and governance processes. This is handled by the Audit Division, Ernst & Young, has been China Bank’s external auditor for over headed by the chief audit executive (CAE), Vice President Marilyn 20 years, with the partners rotated every ve years, as required by G. Yuchenkang. The CAE has dual reporting lines in order to law. Ms. Vicky Lee Salas was assigned in 2011 as SGV’s partner- maintain organizational independence—functionally to the Audit in-charge for China Bank. No member of the Board or senior Committee and administratively to the president and CEO. The Management (FVP-up) was a former employee or partner of SGV Audit Division performs its mandated tasks based on the Board- in the last two years. approved Internal Audit Charter. Its authority cuts across all SGV plays a crucial role in ensuring that our nancial functions, units, processes, records, and personnel in relation to statements factually represent our accounting records and are the conduct of its role. A risk-based audit approach is used for treated and presented in accordance with Philippine Financial the preparation of the Annual Audit Plan. Reporting Standards (PFRS). Throughout the years that SGV Based on the results of the division-wide annual risk has been auditing the Bank, it has not found any signi cant assessment, the primary focus of assurance services in 2013 was exceptions, such as cases of fraud or dishonesty, and any other operational risk. Majority of the audit engagements last year were matters which could potentially result in material losses to the conducted to determine the effectiveness of control processes Bank and our stakeholders. SGV representatives are present at in place to mitigate this prioritized risk. The Audit Division also the Bank’s annual stockholders meeting to respond to matters conducted an Internal Quality Assessment to determine the concerning their audit of the Bank. degree of Internal Audit Activity’s conformance with the Institute of Internal Auditors’ (IIAs’) De nition of Internal Auditing, Code Fiscal Year Audit Fees of Ethics and Standards, and to prepare Audit Division in the 2013 P1,860,000.00 upcoming External Quality Assessment Review. 2012 P1,780,000.00
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The audit fees are inclusive of other assurance and related MARKET AND LIQUIDITY RISK services by the external auditor that are reasonably related to The objective of our market risk policies is to obtain the the performance of the audit or review of the Bank’s nancial best balance of risk and return while meeting our stakeholders’ statements. The matter of the 2013 audit fees was taken up requirements. Meanwhile, our liquidity risk policies center on and approved by the Audit Committee at its regular meeting on maintaining adequate liquidity at all times to be in a position February 19, 2014. to meet all obligations as they fall due. RMG continued to SGV is again recommended for appointment at the implement its roadmap in 2013 including enhancements and scheduled 2013 annual stockholders meeting. projects in support of these objectives. Budget and capital considerations (Pillar II guidelines) are RISK MANAGEMENT now effectively embedded into risk taking activities via the Value- We recognize that the business of banking necessarily at-Risk (VaR) limits. The annual VaR Limits review incorporates the entails risk, and that proper risk mitigation, not outright risk impact of the 1-day and 10-day VaR on Capital Adequacy Ratio avoidance, is the key to long-term success. Our risk management (CAR) as a basis for establishing limits, in addition to the annual principle centers on determining how much risk we are willing trading budget and the Bank’s risk tolerance. to bear for a given return, deciding if the risks represent viable China Bank’s application for Type 2 Derivatives license opportunities, and nding intelligent approaches to managing was completed by the end of 2013, nal approval from the risks. Our corporate governance structure keeps pace with the BSP is expected in early 2014. The guidelines for trading changing risks that China Bank faces and will be facing in the nancial derivatives, Product Programs for dealing in derivative coming years with a dynamic risk management program that instruments, and models for measuring and monitoring market calls for the continuing reassessment of risks and controls and risk exposures on derivative products are all in place. Historical the timely reporting of these risks to the Board. Simulation VaR has also been applied for nancial derivatives As mandated under existing regulations, the Board is instruments, including Interest Rate Swaps and Foreign Exchange responsible for the approval and overseeing the implementation Swaps and Forwards. Only the standard products such as bonds of risk management policies. The Board has delegated this remain under Parametric VaR. function to the Risk Management Committee (RMC) which For interest rate risk, the monitoring of actual interest rate includes among others, the development of various risk strategies volatilities is now included in the regular reporting to the RMC to and principles, control guidelines policies and procedures, apprise the members when actual volatilities exceed the 1% shift implementation of risk measurement tools, monitoring of key used for monitoring Earnings-at-Risk (EaR). RMG is looking to risk indicators, and the imposition and monitoring of risk limits. improve interest rate risk measurement with a sensitivity analysis The RMC regularly reviews China Bank’s risk pro le and the of the Bank’s accrual portfolio that will be in line with the Funds effectiveness of risk management systems. Moreover, internal Transfer Pricing (FTP) plans of the business. A Balance Sheet auditors test and evaluate our risk management program to Value at Risk (BSVAR) is also another tool RMG is considering, determine whether it is effective and communicate the results to depending on the robustness of the existing system. the Board and the Audit Committee. Independent validation of our internal risk measurement The Risk Management Group (RMG), headed by our chief risk models – VaR, EaR, and MCO, was concluded in 2013 and the of cer, First Vice President Ananias S. Cornelio III, is responsible ndings were presented by the external consultant to the RMC. for executing the risk management function and the guidelines On stress testing, RMG developed an Integrated Stress set by the RMC, including the identi cation and evaluation on Testing framework (IST) for the January 2014 ICAAP submission, a continuous basis of all considerable risks to the business, and in addition to the various stress tests already in place. Instead of challenging business lines regarding all aspects of risks arising the previous Internal Models Approach that only determines the from the Bank’s activities. capital charge of individual risks on a silo basis, the IST framework In 2013, RMG continued to strengthen China Bank’s risk allows us to evaluate China Bank’s overall vulnerabilities on management framework to effectively assess, manage, and speci c events or crisis and gauge the Bank’s ability to withstand monitor China Bank’s risks across a broad range of activities. stress events. The IST market risk capital requirements are based on the impact of adverse changes in market risk factors that could potentially affect the Bank’s trading and investment portfolios.
Annual Report 2013 39 Moving forward, RMG plans to further enhance scenario analysis to perform a comprehensive quantitative validation of the ICRRS and and stress testing. if necessary, based on the output from the initial phase, proceed to On Liquidity Stress Testing, another stress scenario was the next phase, which is the recalibration of the ICRRS. added to assess vulnerabilities on the Large Funds Provider The use of a Risk-Matrix Grid was introduced in determining (LFP). The Sensitivity Analysis on Liquidity Stress Testing was also the lending units to be prioritized for review based on certain introduced to determine the level of deposit run-off that the variables which include number of past dues and past due levels, Bank can withstand during stress events. portfolio growth, and regularization of previous de ciencies. Meanwhile, our Contingency Funding Plan (CFP) policies and RMG also reviewed the existing credit risk limits/thresholds guidelines were enhanced to de ne the roles and responsibilities (e.g. internal SBL, industry division limit) and recommended of key personnel in the event of a liquidity crisis and activation changes to ensure that the limits/thresholds do not curtail business of the CFP. operations and yet stays within the risk appetite of the Board. The static module of the ALM system was implemented in RMG likewise quanti ed the impact to the capital ratios of the 2013, enabling a more ef cient reporting of the Bank’s exposures Bank based on the guidelines provided in the BSP exposure draft on liquidity and interest rate risk in the balance sheet. This important on Credit Value Adjustment and Asset Value Correlation. information on the Bank’s exposures generates insights that lead The scenarios and assumptions used in the stress testing to the formulation of timely and effective interest rate strategies exercise for quarterly reporting to the RMC and for the Internal and funding plans. In the pipeline is the implementation of the Capital Adequacy Assessment Process (ICAAP) was also enhanced Advanced Liquidity Module to automate liquidity stress testing. to include the possibility of downgrade of accounts whose risk In line with the Operational Risk Division’s Business Continuity ratings were more than a year ago and the risk that unrated Plan (BCP) level 1 testing, the access to the ALM and Treasury system accounts (but subject to Internal Credit Risk Rating System or and the resumption of RMG’s normal activities was successfully ICRRS) will turn out to be substandard. tested in a drill held at the Bank’s Binondo Recovery Center. In addition, the Credit Review and Control Department Towards the end of the year, RMG provided Management (CRCD) completed the credit review of all consumer lending units with an estimate of the Bank’s Liquidity Coverage Ratio (LCR) and in 2013 where the quality of the loan portfolio and compliance to Net Stable Funding Ratio (NSFR) based on its interpretation of the regulatory and internal credit policies were assessed. The review guidelines set under the Basel III framework and available data. covered roughly 62% of the consumer loan portfolio, representing Moving forward, RMG formed a team in 2014, which includes over 1,400 auto and housing loan borrowers. representatives from Treasury and Accounting, units responsible for The review included the establishment of trends and common managing the Bank’s liquidity and nancial regulatory reporting, to factors affecting the quality of the portfolio, as well as the pro ling spearhead the Bank’s adoption of Basel III International Framework of borrowers by market segments and demographics, with the end for Liquidity Risk Measurement, Standards and Monitoring. RMG objective of identifying risk areas in order to manage and minimize will also be evaluating the adoption of other Basel III recommended past due incidence. monitoring tools, if applicable. For 2014, focus shall be on further enhancing the credit risk models of the Bank. Priority shall be the ICRRS qualitative and CREDIT RISK quantitative validation engagement with a third-party reviewer, Our policies for managing credit risk are determined at which is expected to be started and completed within the year. the business level with speci c procedures for different risk Aside from the ICRRS, RMG also intends to further enhance the environments and business goals. Borrower Credit Score (BCS) and do a second round of surface- For 2013, RMG focused on improving China Bank’s ability level review using the results of the rst review performed in 2013 to properly price credit risk. This includes periodic monitoring and as the base line. The BCS is a credit scoring model intended for evaluation of the existing linkage between loan pricing and credit SME accounts and covers borrowers who do not qualify to be risk rating. In line with this, a surface-level validation of the Internal subjected to the ICRRS. Credit Risk Rating System (ICRRS) was done to have a broad assessment of the performance of the ICRRS in terms of predicting OPERATIONAL AND IT RISK credit-worthiness and probability of default of borrowers. This is in We have a framework of policies, procedures, and tools to addition to the process validation done by SGV in 2012. Based on the ensure that China Bank’s operational and IT risks are managed in a conclusions drawn upon the results of the surface-level validation, timely and ef cient manner. RMG continued to effectively assess, Management approved the engagement of a third-party consultant monitor, control, and report such risks, implementing new projects
40 CORPORATE GOVERNANCE
and improvements in 2013, and further strengthened the Bank’s Trust Entity.” In line with this, RMG continued to strengthen disaster preparedness. China Bank’s risk management practices on Trust by enhancing In line with our Business Continuity Plan (BCP), China Bank’s the policies, processes, and procedures for market risk, liquidity rst fully equipped Business Recovery Center (BRC) was opened risk, credit risk, operational risk and compliance risks speci c to on July 26, 2013 at the China Bank Building in Binondo. The the Trust Group in 2013. In addition to the various risk parameters BRC addresses the business component of the BCP. A separate established to manage the exposure under Trust, a stress testing facility, the Disaster Recovery Center (DRC) in Alabang, part framework was also developed speci cally for Unit Investment of the Disaster Recovery Plan (DRP), addresses the technology Trust Fund (UITF) portfolio. component. Both facilities ensure that China Bank is adequately prepared for disaster recovery and business resumption. The BRC CAPITAL MANAGEMENT can accommodate critical units of the Bank to recover from an At the core of our overall performance landscape is a sound unexpected business interruption. Equipped with workspaces, capital management framework to ensure that China Bank delivers computer and communication systems, the facility can support shareholder value. Our capital management approach is focused parallel operations 24x7. The site has already been utilized by the on maintaining a strong capital base to support the development critical units that already concluded their BCP testing recently. For of our business and to meet the regulatory capital requirements at 2014, RMG intends to align the business impact assessment’s all times. Recovery Time Objective (RTO) with the DRP to further improve Senior Management is primarily responsible for prudent the recovery of critical systems in case of business disruption. capital management, ensuring that China Bank meets the BSP’s RMG also completed the IT Risk Assessment Exercise and the minimum capital requirement and any future increase in capital Risk and Control Self-Assessment (RCSA) 2012-2013 Exercise. The requirement. former was conducted to improve the IT process areas through proper identi cation of associated risks and planning for the ANTI-MONEY LAUNDERING appropriate response to mitigate risks and/or seize opportunities We are committed to complying with the provisions of to increase its business value, while the latter was to obtain the Anti-Money Laundering (AML) law. Over the years, our a taxonomy/library of operational risks and key controls for the Compliance Of ce, headed by our chief compliance of cer implementation of the prescribed operational risk map/matrix. In (COO), Vice President Marissa B. Espino, has been developing the pipeline is an “assurance testing” in selected units or branches and implementing programs to prevent China Bank from being to validate, sanitize and detect defects in the RCSA exercise so that used for money laundering, through a combination of proper the RCSA output can become reliable. KYC (Know Your Customer), deterrence, detection, and record- Moving forward, the RCSA design and implementation keeping in order to facilitate investigations. To create bank-wide process will be ne-tuned by improving the data consolidation awareness, AML trainings are regularly conducted and the revised using the Basel risk event type instead of the operational risk Money Laundering and Terrorist Financing Prevention Program description. RMG also plans on re ning the Key Risk Indicator (KRI) (MLPP) Operations Manual is posted in our intranet system for easy strategy by exploring the data gathering centrally from the source reference. units and standardizing KRI library de nitions and categories. The KRI is an operational risk management tool that provides alerts to HEALTH AND SAFETY identify operational losses before it happens and raise the red ag The health and safety of our people and the integrity of if such goes beyond the de ned threshold. our business are important aspects of our operations. We are committed to maintain safe and healthy working conditions, TRUST RISK providing adequate facilities like a well-stocked clinic at the On August 17, 2012, BSP came out with Circular 766, Makati headquarters and rst aid kits at all branches, conducting Guidelines in Strengthening Corporate Governance and Risk inspections of buildings and departments, and disseminating Management Practices on Trust, Other Fiduciary Business, and information to ensure a safe and secure working environment. Investment Management Activities. The circular mandates Trust In addition to providing employees with comprehensive medical entities to “develop and implement a formal, comprehensive, and and dental bene ts, we employ a registered nurse and a doctor effective risk management program that outlines, among other to engage and consult with employees on health concerns and things, the risk management processes that effectively identify, provide advice and supervision on occupational health. Regular measure, monitor and control risks affecting the clients and the health and safety bulletins aimed at preventing accidents and
Annual Report 2013 41 minimizing cases of work-related ill health are regularly e-mailed to all our employees and are posted in the Bank’s intranet system. Reports/disclosures may be sent to: We also have emergency procedures / evacuation plans in case of re or other signi cant incident and periodically hold re and Mailing Address: earthquake drills. Escape routes in all our buildings and branches CHIEF COMPLIANCE OFFICER have signs. Evacuation plans are tested from time to time and China Banking Corporation updated as necessary. P. O. Box 2182, Makati Central Post Of ce 1226 Makati City, Philippines CODE OF ETHICS We are rmly committed to honest and ethical conduct of Mobile number: 0947-9960573 our business. Our Code of Ethics provides clear guidelines on E-mail address: [email protected] acceptable and unacceptable behavior and business practices at China Bank, applicable to all our directors and employees. To A disclosure form is also available at www.chinabank.ph promote adherence to the Code and deter wrongdoing, any breach of conduct is subject to appropriate actions. Training and compliance monitoring are integral parts of our Code CONFLICT OF INTEREST of Ethics. All new employees are given a copy of the Code of Con ict between the interest of the Bank and the interest of Ethics booklet. Receipt thereof is acknowledged in writing. The the employees should be avoided at all times. In cases of con ict, PDF format of the Code is also available in the Bank’s Intranet the interest of the Bank should prevail. Our employees are not under Compliance Of ce’s Public Folder, for easy reference. New allowed to have direct or indirect nancial interests that con ict employees likewise undergo the New Employees’ Orientation or appear to con ict with their duties and responsibilities as Course (NEOC) wherein our Code of Ethics is comprehensively employees of the Bank; to engage in other work outside of the discussed. Bank without the Bank’s written permission; and to have work competitive with the Bank. WHISTLE-BLOWING We have a whistle-blowing policy, wherein employees, INSIDER TRADING customers, shareholders, and third party service providers are We adopted a policy on securities transactions to reinforce encouraged to report questionable activity, unethical conduct, existing laws against insider trading. Our policy on insider trading fraud or any other malpractice by mail, phone or e-mail, prohibits directors, of cers, and employees who are considered without fear of reprisal or retaliation because the identity of the to have knowledge of material facts or changes in the affairs of whistleblower is kept con dential. Disclosures are directed to China Bank which have not yet been publicly disclosed, including Chief Compliance Of cer Marissa B. Espino, who is responsible any information likely to affect the share price of the Bank’s for determining the suf ciency and validity of the report. If stock, to directly or indirectly engage in nancial transactions as determined suf cient in form and substance, the CCO shall a result of, or primarily relying upon, “insider information.” Also refer the disclosure either to the Audit Division and/or Human covered are consultants and advisers and all other employees Resources Division (HRD) for further investigation. If the CCO who are made aware of undisclosed material information. nds the report baseless, she is required to respond to the whistleblower of its status within 24 hours from receipt thereof. RELATED PARTY TRANSACTIONS Meritorious disclosure, as may be determined by the CCO, should We recognize that Related Party Transactions may give rise be given recognition and may be entitled to an award as deemed to a con ict of interest. necessary by the HRD or the Investigation Committee. Through the Board of Directors, we ensure that transactions with related parties are reviewed to make sure that such are conducted at arm’s length or upon terms not less favorable to the Bank than those offered to others, and that corporate or business resources of the Bank are not misappropriated or misapplied; and more important, that these transactions are duly disclosed as prescribed by BSP Circular 749, Series of 2012.
42 CORPORATE GOVERNANCE
CHINA BANKING CORPORATION Signi cant Related Party Transactions as of December 2013
Name of Counterparty and Relationship Type of Transaction Amount/Contract Price Angela T. Dee-Cruz (Of cer of the Bank) Omnibus Line PhP51.0 Mn BDO Private Bank, Inc. (Subsidiary of an Af liate) Foreign Exchange Pre-settlement risk limits Amounts ranging from US$500 K to US$1.0 Mn BDO Unibank, Inc. (Af liate) Treasury Interbank limits US$10.0 Mn Foreign Exchange Pre-settlement risk limits Amounts ranging from US$500 K to US$15.0 Mn Money Market Line US$4,575,060.00 Pre-settlement risk Amount in excess of the limits: Jan. 2013 - US$l.50 Mn Jan. 2013 (3 instances of US$50,000) Jan. 2013 - US$200,000 Feb. 2013 - US$50,000 Pre-settlement risk Amounts ranging from US$0.050 Mn to US$2.250 Mn Pre-settlement risk Amounts ranging from US$0.025 Mn to US$0.100 Mn CBC Trust Group Pre-settlement risk PhP200.0 Mn China Bank Savings, Inc. Pre-settlement risk US$2.80 Mn China Bank Savings, Inc. (Subsidiary) Pre-settlement risk US$400.0 Mn China Bank Savings Trust US$400.0 Mn Henry Sy, Sr. (Stockholder) Loan Line PhP300.0 Mn JJACCIS Development Corporation (JDC)/ Omnibus Line PhP200.0 Mn Suntree Holdings Corporation (SHC) (Related Interest) Manufacturers Life Insurance Co. Pre-settlement risk limit PhP1.30 Bn The Manufacturers Life Insurance Co. (Phils.), Inc. Pre-settlement risk limit PhP90.0 Mn and Manulife China Bank Life Assurance Corporation US$400 K (Financial Allied Af liate) The Manufacturers Life Insurance Co. (Phils.), Inc.; Government Securities Dealing PhP600.0 Mn Manulife China Bank Life Assurance Corporation PhP400.0 Mn PhP300.0 Mn PhP573.0 Mn
Philippine Business Bank (PBB) (Related Interest) Underwriting of Initial Public Offering PhP1.0 Bn Trading Program Planters Development Bank (PDB) (Subsidiary) Money Market Lines PhP2.0 Bn Quantum Amusement Corporation (QAC) (Related Interest) Loan PhP74.450 Mn Rizal Commercial Banking Corporation (RCBC) (Related Interest) Pre-settlement risk limits Amounts ranging from US$1.0 Mn to US$5.0 Mn Money Market Line US$2,801,160.00 RCBC Savings Bank (Related Interest) Bonds pre-settlements US$50 Mn Government Securities Dealings PhP350.0 Mn Government Securities Dealings PhP1.5 Bn Loan Line PhP2.0 Bn Loan extension PhP1.85 Bn SM Development Corporation (SMDC) (Af liate) Tender Offer PhP2,229,695.92 Case-to-case Loan PhP8.5 Bn Loan Line PhP200.0 Mn SM Investments Corporation (Stockholder) Trust - SMIC Bonds PhP472.515 Mn
SM Investments Corporation (SMIC) Loan Line PhP15.5 Bn SM Hotels and Conventions Corporation (SMH) (Af liate) SM Prime Holdings, Inc. (SMPH) (Af liate) Multi-Realty Development Corporation (MRDC) (Af liate) Sybase Equity Investment Corporation (SEI) (Af liate) SM Land, Inc. (SML) (Af liate) Loan PhP750.0 Mn Loan Line PhP1.0 Bn SM Prime Holdings, Inc. (Af liate) Sale of Real Estate Property PhP77.0 Mn Sps. Irwin Marland and Consuelo Dee Ponce (Related Interest) Loan Line PhP80.0 Mn Summerhills Home Development Corporation (Related Interest) Loan Line PhP50.0 Mn Super Industrial Corporation (SIC) (Related Interest) Omnibus Line PhP50.0 Mn Sysmart Corporation (Af liate) Loan Line PhP2.0 Bn Loan Extension PhP1.85 Bn Union Motor Corporation (Related Interest) Omnibus Line PhP150,000,000.00
Annual Report 2013 43 Related party refers to any of the Bank’s directors, of cers, which is the preliminary step to pre-quali cation at China Bank. stockholders and their related interests (DOSRI). Related interests Suppliers and contractors invited to bid are evaluated accordingly mean individuals related to each other or common law, and prior to contract award. They are also evaluated on the basis two or more corporations owned or controlled by a single of actual performance as compared to promised delivery dates, individual or by the same family group or the same group of quality of work / goods, and adherence to agreed speci cations persons. Prior to Board approval, the Audit Committee reviews and purchase order prices. all related party transactions. No director is allowed to participate in the discussion/deliberation, including approval of a transaction DISCLOSURE AND TRANSPARENCY where he is a related party. We are committed to a high standard of disclosure and The table on the previous page shows the Bank’s signi cant transparency to facilitate understanding of the Bank’s true related party transactions (P50 million and above) as of nancial condition and the quality of our corporate governance. December 2013. All material information about China Bank is adequately and punctually disclosed, in accordance with SEC and PSE’s disclosure CONSUMER WELFARE PROTECTION policy. In addition to compliance with the reportorial requirements Our customers are the lifeline of our business and we go like publishing our quarterly nancial statements in leading to great lengths to maintain their trust and loyalty. We are newspapers and producing a comprehensive annual report for committed to fair and economically sound consumer practices, the Annual Stockholders’ Meeting, we promptly disclose major adhering to RA 7394 or the Consumer Act of the Philippines of and market-sensitive information like dividend declarations, joint 1991, the BSP’s Consumer Laws, and the various laws regulating ventures and acquisitions, sale and disposition of signi cant assets, the nancial industry as well as protecting consumers; promoting as well as nancial and non- nancial information that may affect consumer interest by providing complete and truthful information the investment decision of the investing public, in the form of press to build con dence in our products, services, and our institution; releases in newspapers and reports in our internal publication. We and upholding consumer rights by developing and implementing also electronically le our disclosures through the Online Disclosure a system to address and manage customer complaints and other System (Odisy) now, Electronic Disclosure Generation Technology customer issues. (Edge) of PSE which are then posted on the PSE website. Our corporate website is likewise regularly updated to include the SUPPLIER/CONTRACTOR SELECTION latest news and current information about the Bank. We maintain high legal, ethical, and professional standards in the management of the Bank’s resources. We ensure that the INFORMATION FOR SHAREHOLDERS goods or services procured are t for the purpose and provide the Bank with the best value available; that risks to personnel, Date of foundation company assets, and the environment arising from the China Bank was incorporated on July 20, 1920 and opened contracting or supply of materials, equipment, and services are for business on August 20, 1920. reduced to a level which is as low and as reasonably practicable The Bank is registered with the Securities and Exchange as possible; and that we deal with suppliers and contractors that Commission under SEC registration number 443. have the necessary experience, capability, and nancial viability to China Bank’s amended By-laws may be downloaded from undertake the work safely, economically, and technically correct, our website www.chinabank.ph or requested from the Of ce of in an environmentally sound manner, and in accordance with the the Corporate Secretary: contract, schedule, and applicable laws and regulations. We are committed to fair marketplace practices, selecting suppliers and Atty. Corazon I. Morando contractors through an open and non-discriminatory process, Vice President and Corporate Secretary based on criteria that ensure a thorough and competitive 11/F China Bank Building selection process: quality, price, service, and overall value to 8745 Paseo de Roxas corner Villar Street China Bank. We follow standards of objectivity, impartiality, and Makati City 1226, Philippines equality of opportunity, preventing any favoritism or interference Tel. Nos.: (632) 885-5131, 885-5132 from con icts of interest in the selection of suppliers and Fax No.: (632) 885-5135 contractors. We have a supplier/contractor accreditation process Email: [email protected]
44 CORPORATE GOVERNANCE
Registered Head Of ce Share capital China Bank Building China Bank’s authorized capital stock as of 31 December 8745 Paseo de Roxas corner Villar St. 2013 was P20.0 Billion, with total issued and outstanding shares Makati City 1226, Philippines of 1,427,661,658. Record and bene cial owners holding 5% or more of voting securities as of February 28, 2014:
Name of Bene cial Name, Address of Record Owner No. of Title of Class Owner & Relationship Citizenship Percentage & Relationship with Issuer Shares Held with Record Owner
PCD Nominee Corporation 37th Floor, Tower I, The Enterprise Center, 6766 Ayala Various stockholders/ Common Non-Filipino 331,488,039 23.22% Ave. corner Paseo de Roxas, Makati City clients Stockholder SM Investments Corporation Henry Sy, Sr. 10th Floor L.V. Locsin Bldg., Common (Indirect ownership) Filipino 245,594,580 17.20% 6752 Ayala Avenue, Makati City Stockholder Stockholder Sysmart Corporation Henry Sy, Sr. 10th Floor L.V. Locsin Bldg., Common (Indirect ownership) Filipino 211,488,651 14.81% 6752 Ayala Avenue, Makati City Stockholder Stockholder PCD Nominee Corporation 37th Floor, Tower I, The Enterprise Center Various stockholders/ Common Filipino 169,861,118 11.90% 6766 Ayala Ave. corner Paseo de Roxas, Makati City clients Stockholder
Directors and Management as of February 28, 2014:
Amount & Nature of Title of Class Name Position Bene cial / Citizenship Percent Record Ownership (a) Directors Common Hans T. Sy Chairman of the Board 1,700,479 Filipino 0.119% Common Gilbert U. Dee Vice Chairman 7,596,545 Filipino 0.532% Common Peter S. Dee President & CEO 929,060 Filipino 0.065% Common Joaquin T. Dee Director 27,460,246 Filipino 1.923% Common Dy Tiong Independent Director 131,571 Filipino 0.009% Common Herbert T. Sy Director 271,513 Filipino 0.019% Common Harley T. Sy Director 61,886 Filipino 0.004% Common Alberto S. Yao Independent Director 4,719 Filipino 0.000% Common Roberto F. Kuan Independent Director 17,941 Filipino 0.001% Common Jose T. Sio Director 1,870 Filipino 0.000% Common Ricardo R. Chua Director, SEVP & COO 77,484 Filipino 0.005% Total 38,253,314 2.679% (b) Executive Of cers (in addition to Messrs. Gilbert U. Dee, Peter S. Dee and Ricardo R. Chua) Common Nancy D. Yang Senior Vice President 1,569,216 Filipino 0.110% Common Rene J. Sarmiento Senior Vice President 14,091 Filipino 0.001% Common Rosemarie C. Gan Senior Vice President 16,973 Filipino 0.001% Common Gerard T. Dee First Vice President 4,180 Filipino 0.000% Total 1,604,460 0.112% GRAND TOTAL 39,857,774 2.791%
Annual Report 2013 45 Stock exchange listing the basis of outstanding stock held by them, as often and at such The shares of China Bank are listed on the Philippine Stock times as the Board of Directors may determine and in accordance Exchange under stock code “CHIB.” with law and applicable rules and regulations. The payment of dividends in the future will depend on the Participation and voting rights at the annual stockholders Bank’s earnings, cash ow, nancial condition and other factors. meeting Dividends may be declared only from unrestricted retained Shareholders may participate in the annual stockholders earnings. Circumstances which could restrict the payment meeting in person or through their authorized representatives. of cash dividends include, but are not limited to, when the Only stockholders of record as of March 20, 2013 were entitled Bank undertakes major projects and developments requiring to notice of and vote at the 2013 meeting. The stock and substantial cash expenditures. The Board of Directors may, at any transfer books of China Bank were closed from April 15 to time, modify the Bank’s dividend pay-out ratio depending on the May 2, 2013. Shareholders who cannot personally attend the results of operations and future projects and plans of the Bank. meeting designated their authorized representative by submitting As of December 31, 2013, the Bank had retained earnings a proxy instrument to the Of ce of the Corporate Secretary, not of approximately P29,080 million or P20.37 per Common Share, later than 5:00 p.m. of April 26, 2013. a signi cant amount of which is available for the payment of dividends. Dividend Policy As stipulated in China Bank’s by-laws, dividends shall be declared and paid out of the unrestricted retained earnings which shall be payable in cash, property, or stock to all stockholders on
For the years ended December 31 Earnings per Share Cash dividends per Share Stock dividend per Share 2011 P3.56(1) P12(2) 10% 2012 P3.51(1) P12(2) 10% 2013 P3.57 P1.2 10%
Notes: (1) Restated to show the effects of stock split and stock dividend distributed in 2013. (2) Based on authorized and outstanding shares of stock before stock split.
Stock and cash dividends declared for 2013 and for the two most recent years are as follows:
Stock dividend per Stock dividend Cash Dividend Per Cash Dividend BSP Approval Date Record Date Payment Date Share amount Share Amount 10% P1,073 million P12(1) P1,287 million June 10, 2011 July 1, 2011 July 27, 2011 10% P1,180 million P12(1) P1,416 million May 30, 2012 June 22, 2012 July 18, 2012 10% P1,298 million P1.2 P1,557 million June 21, 2013 July 19, 2013 August 14, 2013
Notes: (1) Based on authorized and outstanding shares of stock before stock split. In relation to foreign shareholders, dividends payable may not be remitted using foreign exchange sourced from the Philippine banking system unless the investment was rst registered with the BSP.
Investor relations Inquiries from investors, analysts, and the nancial community are handled by the Investor Relations Of ce:
Alexander C. Escucha Senior Vice President Head of Corporate Planning & Investor Relations 28/F BDO Equitable Tower 8751 Paseo de Roxas Makati City 1226, Philippines Tel. No.: (+632) 885-5601 Email: [email protected]
46 CONGLOMERATE MAP As of December 31, 2013
SM Retail Inc. (100%)
SM Prime Holdings Inc. (51.1%)
Multi-Realty Development Corporation (90.9%) China Bank Savings, Inc. (95.2518%) Intercontinental Development Corporation (99.7%) *Unity Bank (A Rural Bank) (99.949%) BDO Unibank Inc. (46.7%) CBC Properties & Computer Center, Inc. (100.0%) China Banking Corporation (20.0%)*** CBC Insurance Brokers, Inc. (100.0%) Primebridge Holdings, Inc. (98.2%) **CBC Forex Corporation (100.0%) Sodexo Motivation Solutions Philippines, Inc. (40.0%) Manulife China Bank Life Assurance Corporation (5.0%) Atlas Consolidated Mining and Development Corporation (29.0%)
Henfels Investments Premium Leisure & Amusement Inc. Corporation (99.0%) (18.1%) Legend: Belleshares Holdings, Inc. SMIC Subsidiary Belle Corporation (Formerly SM Commercial Properties, Inc.) (18.1%) Subsidiary of SMIC Subsidiary (59.0%)
Associates Mountain Bliss Resort and Manila Southcoast Development Associate of SMIC Subsidiary Development Corporation (100.0%) Corporation (94.4%) Financial Allied Subsidiary
Non Financial Allied Subsidiary Bellevue Properties Inc. Financial Allied Af liate (62.0%)
Notes: Asia Paci c College * Merged with China Bank Savings, Inc. effective (51.8%) January 20, 2014 ** For dissolution *** Refers to SMIC’s Effective Ownership in China Bank (17.2% represents direct ownership) Nagtahan Property Holdings (99.7%)
Annual Report 2013 47 BOARD OF DIRECTORS
HANS T. SY Hans T. Sy, 58, Filipino, is the chairman of the Board. He is also the chairman of the Executive Committee and the Compensation or Remuneration Committee, as well as a member of the Risk Management, Compliance, Corporate Governance, and Nominations committees. He was elected to the China Bank Board on May 21, 1986, serving as vice chairman from 1989 to 2011, when he became chairman. He is the president of SM Prime Holdings, Inc. and serves as adviser to the board of SM Investments Corporation, both companies are listed in the Philippine Stock Exchange (PSE). He is also a director of various companies in the SM Group. He holds a degree in Mechanical Engineering from the De La Salle University.
HENRY SY, SR. Henry Sy, Sr., 89, Filipino, is the honorary chairman of the Board since May 18, 2006* and advisor to the Board since 1997. He is also the chairman of SM Investments Corporation and SM Prime Holdings, Inc., and the chairman emeritus of BDO Unibank, Inc. He holds an Associate in Commercial Science degree from the Far Eastern University and was conferred a doctorate degree in Business Management Honoris Causa by the De La Salle University.
* Election was formalized on February 7, 2007 after clearances from BSP and SEC were obtained
48 GILBERT U. DEE PETER S. DEE Gilbert U. Dee, 78, Filipino, is the vice chairman of the Peter S. Dee, 72, Filipino, is a director and the president & Board. He is a member of the Executive, Risk Management, and chief executive of cer of China Bank. He is also a member of the Compensation or Remuneration committees. He is also the Executive, Compensation or Remuneration, and Trust Investment chairman of the Board of Trustees of CBC Employees’ Retirement committees, the co-chairman of the Credit Committee, and Plan, co-chairman of the Credit Committee, and a member of a member of the Management Committee and the Board of the Management Committee. He was elected to the China Bank Trustees of CBC Employees’ Retirement Plan. He was elected to Board on March 6, 1969, serving as chairman from 1989 to 2011. the China Bank Board on April 14, 1977 and became president & He is also in the boards of companies not listed in the PSE: China CEO in 1985. He is likewise in the boards of CBPCCI, China Bank Bank Properties and Computer Center, Inc. (CBPCCI) and Union Insurance Brokers, Inc. (CBIBI), Hydee Management & Resources Motor Corporation as chairman, and Super Industrial Corporation Corporation, and GDSK Development Corporation as director, and as director. He was formerly a director of Philippine Paci c Capital in the boards of PSE-listed corporations City & Land Developers, Inc. Corporation, Philex Mining Corporation, and CBC Finance and Cityland Development Corporation, as independent director. Corporation, and the president of GAB Investment Corporation. He served as director of Sinclair (Phils.), Inc. and Can Laquer, Inc. He obtained his Banking degree from the De La Salle University He is a graduate of the De La Salle University / University of the East and his MBA degree in Finance from the University of Southern with a degree in Commerce. He also completed a Special Banking California. course from the American Institute of Banking.
Annual Report 2013 49 BOARD OF DIRECTORS
JOAQUIN T. DEE DY TIONG* Joaquin T. Dee, 78, Filipino, is the chairman of the Compliance Dy Tiong, 84, Filipino, is the chairman of the Nominations Committee and a member of six other committees: Executive, Committee. He is also a member of the Audit and Compensation Risk Management, Audit, Corporate Governance, Nominations, or Remuneration committees. He was elected to the China and Compensation or Remuneration committees. He was Bank Board on May 9, 1985. He is also the vice chairman of elected to the China Bank Board on May 10, 1984. He is also Panelon Philippines, Inc., the honorary chairman of Chiang Kai af liated with three other companies, none of which are listed Shek College, and the chairman emeritus of the Dr. Sun Yat in the PSE: JJACCIS Development Corporation and Enterprise Sen Society, all of which are not listed in the PSE. He was the Realty Corporation as president/director, and Suntree Holdings president of CBC Finance, Inc. from 1980 to 2001 and Panelon Corporation, as treasurer/director. He was the vice president for Development Corporation from 1990 to 1994. He holds a sales and administration of Wellington Flour Mills from 1964 to Business Administration degree from the National Jean Kuan 1994. He holds a degree in Commerce from the Letran College. College.
* Independent Director
50 HERBERT T. SY HARLEY T. SY Herbert T. Sy, 57, Filipino, is a member of the Compensation Harley T. Sy, 54, Filipino, is a member of the Trust Investment or Remuneration Committee. He was elected to the China Committee. He was elected to the China Bank Board on Bank Board on January 7, 1993. He is also in the boards of May 24, 2001. He is the president of PSE-listed company SM SM Supermarket, SM Hypermarket, and Savemore Market, all Investments Corporation (SMIC) and holds positions in various non-listed companies, as vice chairman; and director of PSE-listed companies not listed in the PSE—treasurer of SM Land, Inc., company SM Prime Holdings, Inc. He has also been a director and director in SM Synergy Properties Holdings Corporation, and/or of cer for more than ve years in companies engaged Sybase Equity Investments Corporation, and Tagaytay Resort in food retailing, rubber manufacturing, investment, real estate Development Corp., to name a few. He has a Finance degree development, and mall operations. He obtained his Management from the De La Salle University. degree from the De La Salle University.
Annual Report 2013 51 BOARD OF DIRECTORS
ALBERTO S. YAO* ROBERTO F. KUAN* Alberto S. Yao, 67, Filipino, is the chairman of the Risk Roberto F. Kuan, 65, Filipino, is the chairman of the Corporate Management and Audit committees and a member of the Governance and Trust Investment committees. He was elected to Compliance and Corporate Governance committees. He was the China Bank Board on May 5, 2005 and is also an independent elected to the China Bank Board on July 7, 2004 and is also director of CBS and Plantersbank. He likewise holds directorships an independent director of China Bank subsidiaries China Bank / trusteeships at St. Luke’s Medical Center, SLMC Global City, Inc., Savings (CBS) and Planters Development Bank (Plantersbank). St. Luke’s College of Medicine - William H. Quasha Memorial, He also serves in companies not listed in the PSE: as president Brent International School, Inc., and Seaoil Phils., Inc. He is also an & CEO of Richwell Trading Corporation, Richwell Philippines, independent director of PSE-listed Far Eastern University, Inc. He Inc., Europlay Distributor Co., Inc., and Internationale Globale obtained his Business Administration degree from the University Marques Inc.; and the president of Richphil House Incorporated of the Philippines and Masters in Business Management (MBM) and Megarich Property Ventures Corp. He was the vice president degree from the Asian Institute of Management (AIM). He also for merchandising of Zenco Sales, Inc. from 1968 to 1975. He attended the Top Management Program conducted by AIM in holds a Business Administration degree from the Mapua Institute Bali, Indonesia in 1993. In 2011, he was conferred a doctorate of Technology. degree in Humanities Honoris Causa by the Lyceum Northwestern University. * Independent Director
52 JOSE T. SIO RICARDO R. CHUA Jose T. Sio, 74, Filipino, is a member of the Trust Investment Ricardo R. Chua, 61, Filipino, chief operating of cer (COO) Committee. He was elected to the China Bank Board on of China Bank, is a member of the Executive Committee. He is November 7, 2007. He is also the executive vice president and also the chairman of the Management Committee, vice chairman chief nancial of cer (CFO) of PSE-listed SM Investments of the Credit Committee, and a member of the Board of Trustees Corporation, the holding company of the SM Group. He was of CBC Employees’ Retirement Plan. He was elected to the Board voted as CFO of the Year in 2009 by the Financial Executives of the on May 8, 2008. He is also in the boards of CBS and CBPCCI. Philippines and recently chosen as Best CFO (Philippines) by Alpha He likewise holds directorships in CAVACON Corporation, Southeast Asia 2013 in Hong Kong. He is the advisor to the board Plantersbank, and Sun & Earth Corporation, all non-listed of listed BDO Unibank, Inc. and is also a director of companies companies, among others. He was a director and the treasurer not listed in the PSE: SM Keppel Land, Inc., Manila North Tollways of CBC Venture Capital Corp. from 1989 to 2003, and a director Corporation, and First Asia Realty Development Corporation. He of the Philippine Clearing House Corp. from 2005 to 2011. A was a partner of SyCip Gorres Velayo & Co. (SGV) from 1977 to certi ed public accountant, he graduated cum laude from the 1990. He holds an Accounting degree from the University of San University of the East. He completed his MBM degree at the Agustin and an MBA degree from New York University, USA. Asian Institute of Management (AIM).
Annual Report 2013 53 MANAGEMENT COMMITTEE
ANTONIO S. ESPEDIDO, JR., executive (CBPCCI). He served in a variety of senior vice president*, is the head of the Financial management roles at Metrobank, Republic SAMUEL L. CHIONG, senior vice president, Capital Markets & Investment Segment National Bank of New York, International was the BBG deputy group head, director and and concurrent head of the Treasury Exchange Bank, and Sterling Bank of Asia, treasurer of CBPCCI and CBIBI, and director Group. He is also a director of China Bank and had attended numerous seminars and of CBS until his retirement on January 31, subsidiaries CBC Forex Corporation (CBC conferences on corporate governance, 2014. He was previously connected with The Forex), China Bank Savings, Inc. (CBS), and branch based marketing, quality service Consolidated Bank & Trust Corporation and Planters Development Bank (Plantersbank). management, and sales management. He State Investment House, Inc. He completed He held various executive positions at the holds a Business Management degree from his Economics degree from the Ateneo de Bank of the Philippine Islands (BPI) and the De La Salle University. Manila University and attended law school Citytrust / BPI, among others, prior to in Ateneo de Davao University and Xavier joining China Bank, and has had extensive NANCY D. YANG, senior vice president, University. He also took the Advanced Bank training on fund transfer pricing, project is the head of the Retail Banking Business. Management Program at the Asian Institute management, and portfolio management. She also serves in the boards of CBS as vice of Management (AIM). He also attended the recent Corporate chairman and of CBIBI and Plantersbank as Governance Workshop conducted by the director. She had attended several training RAMON R. ZAMORA, senior vice Institute of Corporate Directors (ICD) for programs here and abroad, including the president, is the head of the Centralized China Bank directors and senior of cers. Allen Management Program, BAI Retail Operations Group, Remittance Business He graduated from the University of Delivery Conference in San Francisco Division, and Correspondent Banking San Francisco, USA with a Business and Florida, USA, Environmental Risk Division. He is also a director of CBC Forex, Administration degree. Management for Bankers conducted by CBPCCI, CBS, and Plantersbank. He was the Bank of America, and most recently, formerly a vice president at Citibank N.A. WILLIAM C. WHANG, executive vice ICD’s Corporate Governance Workshop. and has had extensive training on nancial president*, is the head of the Lending She holds a Bachelor of Arts degree from products, credit risk management, IFRS, Business Segment and concurrent head of the Philippine Women’s University and a nance professional module, and corporate Institutional Banking Group. He is also a post graduate scholarship grant in Human governance, among others. He holds an director of China Bank Insurance Brokers, Development & Child Psychology from Economics degree from the Ateneo de Inc. (CBIBI) and director/treasurer of China Merrill Palmer Institute in Detroit, Michigan, Manila University. Bank Properties and Computer Center, Inc. USA.
Seated: Gilbert U. Dee and Peter S. Dee. Standing from left: Alberto Emilio V. Ramos, Rosemarie C. Gan, Virgilio O. Chua, and Alexander C. Escucha
54 RENE J. SARMIENTO, senior vice Bank. He graduated cum laude from the of the Binondo Business Center (BBC). She president, is the head of the Trust Group. University of the Philippines with a degree has been with the Bank for over 35 years He is also a director of CBS and the in Economics. and has had extensive exposure and training president of Sarmiento-Jacinto, Inc. and in marketing, nancial analysis, credit Great Success Realty Corp. He has over 30 ALBERTO EMILIO V. RAMOS, senior vice portfolio management, strategic planning, years of investment and trust operations president, is the president / director of CBS. and corporate governance. She graduated experience gained from Ayala Investment He is also a director of Plantersbank and a magna cum laude from the University of and Development Corporation, Far East trustee / treasurer of the Chamber of Thrift Santo Tomas with a Management degree Bank & Trust Company, and Security Bank Banks. He joined China Bank in 2006 as head and was a recipient of the distinguished Corporation. A certi ed public accountant, of the Private Banking Group, after serving as Rector’s Award. In 2013, she attended AIM’s he holds an Accounting degree, magna cum the president of Philam Asset Management, Advanced Bank Management Program. laude, from the De La Salle University, and Inc. He held key executive positions at BPI, a Masters in Business Management (MBM) Citytrust Banking Corporation, Western VIRGILIO O. CHUA, rst vice president II, degree from AIM. State Bank, Tokai Bank of California, Urban is the head of Investment Banking Group. Development Bank, and Filinvest Credit He has 26 years of experience in the ALEXANDER C. ESCUCHA, senior vice Corporation. He had attended numerous elds of investment banking, corporate president, is the head of Corporate Planning training programs on treasury products, banking, and credit risk management. He Division and Investor Relations Of ce. He asset-liability management, credit and also has had extensive training on capital is also a director of CBS and Plantersbank, nancial analysis, performance appraisal and markets and investment banking, project the chairman of the UP Visayas Foundation, strategic marketing. He graduated from the nance, mergers and acquisitions, account Inc., and is an international resource person De La Salle University with degrees in Political management, nancial markets, corporate at The Asian Banker. He had served as Science and Marketing Management. He risk assessment, and corporate governance. chairman of the Federation of ASEAN also holds an MBM degree from AIM and Before joining China Bank, he held senior Economic Associations, and as president of has a Treasury Professional Certi cate from executive positions at Citibank N.A., First the Philippine Economic Society, Corporate the Banker’s Association of the Philippines. Metro Investment Corp., and ING Bank, N.V. Planning Society of the Philippines, and He holds a Management Engineering degree the Bank Marketing Association of the ROSEMARIE C. GAN, senior vice from the Ateneo de Manila University. Philippines. Before China Bank, he was a president*, is the deputy group head of the vice president at the International Corporate Retail Banking Business and concurrent head * Effective February 13, 2014
Seated: Nancy D. Yang and Ricardo R. Chua. Standing from left: Ramon R. Zamora, Samuel L. Chiong, William C. Whang, Rene J. Sarmiento, and Antonio S. Espedido, Jr.
Annual Report 2013 55 CHINA BANK SENIOR OFFICERS*
First Vice Presidents
From left: Ananias S. Cornelio III, Philip S.L. Tsai, Gerald Majella T. Dee, and Victor O. Martinez
Vice Presidents
From left: Lilibeth R. Cariño, Cristina P. Arceo, Layne Y. Arpon, Albert V. Alcala, Marie Carolina L. Chua, and Luis M. Afable, Jr.
Vice Presidents
From left: Maria Luz B. Favis, Jose Francisco Q. Cifra, Ma. Carla U. Ermita, Angela D. Cruz, Atty. Marissa B. Espino, Melissa F. Corpuz, and Jose L. Osmeña, Jr.
*Excluding ManCom Members 56 Vice Presidents
From left: Dorothy T. Maceda, Christina F. Gotuaco, Corazon I. Morando, Lily I. Reyes-Lao, Madelyn V. Fontanilla, and Delia Marquez
Vice Presidents
From left: Wilfredo L. Sy, Henry D. Sia, Manuel C. San Diego, Elizabeth C. Say, Shirley G.K.T. Tan, Stephen Y. Tan, and Edward Eli B. Tan
Vice Presidents
From left: Geoffrey D. Uy, Marilyn G. Yuchenkang, Maire Karabel D. Viola, Manuel M. Te, Marisol M. Teodoro, Noemi L. Uy, and Maria Rosanna Catherina L. Testa
Annual Report 2013 57 CHINA BANK SUBSIDIARIES SENIOR OFFICERS
CHINA BANK PROPERTIES AND COMPUTER CENTER, INC. CHINA BANK INSURANCE BROKERS, INC.
From left: General Manager Philip M. Tan, From left: President Chief Technology Of cer Julieta P. Guanlao and Editha N. Young, and Bancassurance Head VP Augusto P. Samonte Cynthia B. Nono
CHINA BANK SAVINGS, INC.
From left: EVP Jaime Valentin L. Araneta, FVPs Jan Nikolai M. Lim, and Jose Ramon O. Sta. Maria, VPs Edgar D. Dumlao, and Anna Maria P. Ylagan
From left: VPs Rosalinda T. Munsayac, Ma. Consuelo S. Ruffy, Emmanuel C. Geronimo, and Edralin G. Agbayani
58 CHINA BANK MANAGEMENT DIRECTORY
VICE CHAIRMAN Wilfredo L. Sy Reynaldo P. Del Rosario, Jr. Meliza O. De Leon Gilbert U. Dee Edward Eli B. Tan Jinky T. Dela Torre Mary Ann R. Ducanes Shirley G.K.T. Tan Gemma B. Deladia Susan U. Ferrer PRESIDENT & CHIEF EXECUTIVE Stephen Y. Tan Therese G. Escolin Pablito P. Flores OFFICER Manuel M. Te Grace Y. Ho Alexander V. Gaite Peter S. Dee Marisol M. Teodoro Vivian T. Kho Ma. Salome D. Garcia Maria Rosanna Melecio C. Labalan, Jr. Michelle Lorei R. Gayoma SENIOR EXECUTIVE Catherina L. Testa Eric Y. Lee Marites B. Go VICE PRESIDENT & Geoffrey D. Uy Juan Jesus C. Macapagal Virginia G. Go CHIEF OPERATING OFFICER Noemi L. Uy Jennifer Y. Macariola Francisco Raymund P. Gonzales Ricardo R. Chua Maire Karabel D. Viola Jocelyn A. Manga Lucia I. Gorayeb Marilyn G. Yuchenkang Ordon P. Maningding Ruth D. Holmes EXECUTIVE VICE PRESIDENTS Remedios Emilia R. Olivar Gladys Antonette P. Isidro Antonio S. Espedido, Jr. SENIOR ASSISTANT VICE Enrico J. Ong Alex A. Jacob William C. Whang PRESIDENTS Ma. Victoria G. Pantaleon Maria Margaret U. Kua Evelyn T. Alameda Frederick M. Pineda Ma. Giselle A. Liceralde SENIOR VICE PRESIDENTS Rogelio B. Avellanosa Rafael Ramon C. Ramos Ma. Gladys C. Liwag Alexander C. Escucha Camilo S. Cape Ana Ma. Raquel Y. Samala Mary Ann L. Llanes Rosemarie C. Gan Jeannette H. Chan Maria Sheila V. Sarmenta-Dayao Gloria G. Mañosca Alberto Emilio V. Ramos Grace A. Cruz Ma. Cecilia D. So Ronald R. Marcaida Rene J. Sarmiento James Christian T. Dee Maria Marta Theresa S. Suarez Sheila Jane F. Medrero Nancy D. Yang Adela A. Evangelista Jeanny C. Tan Erlan Antonio B. Olavere Ramon R. Zamora Cesare’ Edwin M. Garcia Julieta C. Tan Remberto D. Orcullo Ma. Arlene Mae G. Lazaro Ma. Cecilia V. Tejada Alfred Paul L. Paiso FIRST VICE PRESIDENTS Shirley C. Lee Edna A. Torralba Josephine D. Paredes Virgilio O. Chua Maria Alicia P. Libo-on Ma. Edita Lynn Z. Trinidad Flora C. Peña Ananias S. Cornelio III Mandrake P. Medina Christopher C. Ty Julie Ann T. Pring Gerard Majella T. Dee Juvy J. Pabustan Hudson Q. Uy Noreen S. Purificacion Victor O. Martinez Danilo T. Sarita Lauro C. Valera Roberto C. Ramos Philip S. L. Tsai Francisco Eduardo A. Sarmiento Esmeralda R. Vicente Hidelisa L. Robiñol Cynthia U. Surpia Anthony Ariel C. Vilar Maria Luisa C. Rodriguez VICE PRESIDENTS Clara C. Sy Rosario D. Yabut Arnulfo H. Roldan Luis M. Afable, Jr. Belenette C. Tan Carina L. Yandoc Alejandro F. Santos Albert V. Alcala Irene C. Tanlimco Vicente S. Yap, Jr. Charmaine V. Santos Cristina P. Arceo Jasmin O. Ty Michelle Y. Yap-Bersales Edgardo M. Santos Layne Y. Arpon Virginia Y. Uy Mary Joy L. Yu Fernando S. Santos III Lilibeth R. Cariño George C. Yap Ma. Graciela C. Santos Marie Carolina L. Chua Jocelyn O. Yu SENIOR MANAGERS Roque A. Secretaria, Jr. Jose Francisco Q. Cifra Kathlyn I. Abalos Emilie L. Sia Melissa F. Corpus ASSISTANT VICE PRESIDENTS Nellie S.D. Alar Ernanie V. Silvino Angela D. Cruz Baldwin A. Aguilar Ramiro A. Amanquiton Paul D. Siongco Ma. Carla U. Ermita Ma. Hildelita P. Alano Jay Angelo N. Anastacio Anna Liza M. Tan Marissa B. Espino* Patrick Y. Ang Freddie S. Bandong Roxana Angela S. Tan Maria Luz B. Favis Edwin D. Aquino Eric Von D. Baviera Michaela L. Teng Madelyn V. Fontanilla Marissa A. Auditor Meneleo S. Bernardo Mary Ann E. Tiu Cristina F. Gotuaco Ma. Luisa O. Baylosis Robert O. Blanch Nelson L. Tiu Dorothy T. Maceda Restituto B. Bayudan Jonathan C. Camarillo Jacqueline T. Tomacruz Delia Marquez Yasmin I. Biticon Alex M. Campilan Ruben M. Torres Corazon I. Morando Victor Geronimo S. Calo Hermenegildo G. Carino Cristina C. Ty Jose L. Osmeña, Jr. Victoria G. Capacio Crisostomo L. Celaje Edwin S. Ventura Lily I. Reyes-Lao Victoria L. Chua Ma. Rosalie F. Cipriano April Marie O. Yago Manuel C. San Diego Ma. Jeanette D. Cuyco Aida D. Cristobal Sandra Mae Y. Yao Elizabeth C. Say Ricardo J. De Guzman III Esperose S. De Claro Vivian L. Yong Henry D. Sia Norman D. Del Carmen Rodolfo S. De Lara Hanz Irvin S. Yoro
* seconded from Plantersbank
Annual Report 2013 59 FINANCIAL STATEMENTS CONTENT
61 Management’s Discussion on Results of Operations and Financial Condition 62 Disclosure on Capital Structure and Capital Adequacy 68 Report of the Audit Committee to the Board of Directors 69 Statement of Management’s Responsibility for Financial Statements 70 Independent Auditors’ Report 71 Balance Sheets 72 Statements of Income 73 Statements of Comprehensive Income 74 Statements of Changes in Equity 76 Statements of Cash Flows 78 Notes to Financial Statements
60 MANAGEMENT’S DISCUSSION ON RESULT OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
China Bank recorded a net income of P5.10 billion for 2013, up by 1.95% from the P5.00 billion registered in the same period last year. This income performance translates to an 11.31% return on equity and 1.45% return on assets.
Total operating income consisting of net interest income and fee-based income grew by 8.95% or P1.24 billion to P 15.10 billion. However, total operating expenses (including provision for impairment and credit losses) increased by 10.57% or P890.94 million mainly from the Bank’s on-going business and branch expansion.
Net interest income improved to P9.94 billion, 23.24% higher than 2012 due to higher volume of earning assets that generated more interest income, coupled with a decline in borrowing costs that decreased interest expense. Consequently, net interest margin stood at 2.98% from 2.90% last year.
Total fee-based income decreased by 10.93% to P5.16 billion from P5.79 billion last year mainly from the 34.68% drop in trading gains to P1.90 billion as interest rates volatility diminished opportunities for trading gains. Trust fees were lower at P135.23 million due to lower trust volume from the full phase-out of SDA investments held under Trust arrangements. Gain on sale of investment properties increased by 58.79% to P462.74 million due to higher sales volume of foreclosed properties. The foreign exchange loss of P89.66 million was due to the negative interest differential on forex swaps and forex revaluation losses. Service charges, fees and commissions increased by 10.52% boosted by investment banking fees and commissions. Miscellaneous income, mainly from dividends earned by the Parent bank and higher bancassurance commissions, grew to P1.09 billion. Share of total fee-based income to total revenues was at 26.82%.
Total operating expenses (excluding provision for impairment and credit losses) increased by 8.71% as the Bank continued to expand business operations, open new branches, hire additional manpower and invest in technology. The material components of operating expenses include compensation & fringe bene ts which accounted for 34.94%, occupancy cost at 13.81%, taxes & licenses at 9.30%, and depreciation & amortization at 8.45%. Cost-to-income ratio stood at 59.00%. With the growth in the Bank’s loan portfolio, provision for impairment and credit losses was increased to P414.34 million, improving the loan loss coverage ratio to 146.62% from 134.88% in 2012.
The sustained pro tability contributed to the Bank’s capital strength, enabling the consistent payment of dividends to stockholders. For 2013, China Bank paid cash dividends of P1.20 per share for a total of P1.56 billion, representing a total payout of 31.04% of prior year’s net income. The Bank also declared a 10% stock dividend or P1.30 billion.
FINANCIAL CONDITION
As of year-end 2013, the Bank’s total assets expanded to P413.70 billion or 27.62% higher than 2012, mainly from growth in loan portfolio and liquid assets supported by strong deposit growth.
Driven by higher demand from all customer segments: consumer, commercial and corporate, loans and receivables-net grew to P220.54 billion or by 16.01%. Customers from real estate, renting & business services comprised 26.46% of the Bank’s gross loan portfolio (inclusive of UDSCL), followed by wholesale & retail trade at 15.13%, manufacturing at 14.37%, and nancial intermediaries at 8.57%. More effective credit risk management led to a 10.0% drop in the Bank’s non-performing loans (NPLs) to P4.52 billion, reducing the NPL ratio to 1.99% and improving the loan loss coverage ratio to 146.62%, one of the best in the industry.
Liquid assets increased by 49.76% to P177.06 billion as higher liquid funds were allocated to deposits with banks and placements with BSP. Total investment securities which consist of Financial Assets at Fair Value through Pro t or Loss, Available-for-Sale and Held-to-Maturity Financial Assets reached P66.92 billion, representing 16.18% of total assets in keeping with the Bank’s strategy of reducing the share of treasury-managed assets to total assets.
On the liabilities side, total deposits increased by 30.26% to P354.27 billion, which can be attributed to the growth across all products: demand deposits by 26.60%, savings deposits by 37.01% and time deposits by 16.88%. The growth in deposits mainly funded the expansion in loan portfolio.
Total capital funds reached P45.40 billion, 6.23% higher than 2012. The Bank’s capital is largely comprised of Tier 1 (core) capital, the increase in which is mainly due to current year pro ts. Net unrealized gains (losses) on available for sale nancial assets declined by P1.44 billion or 105.83% due to the decrease in market value of unsold securities. The Bank’s Tier 1 capital adequacy ratio (CAR) of 14.50% and total CAR of 15.39% remained substantially higher than the 10% regulatory minimum requirement.
Annual Report 2013 61 DISCLOSURE ON CAPITAL STRUCTURE AND CAPITAL ADEQUACY
Capital Fundamentals
We believe that China Bank can only achieve sustainable growth by maintaining strong capital fundamentals. Major business initiatives are undertaken with the appropriate capital planning which also takes into consideration constraints and changes in the regulatory environment. This is necessary to ensure that our commercial objectives are equally aligned with our ability to maintain a capital position superior to the industry. The Board and Senior Management recognizes that a balance should be achieved with respect to China Bank’s earnings outlook vis-à-vis capital fundamentals that can take advantage of growth opportunities while increasing the Bank’s ability to absorb shocks.
Risk-based capital components, including deductions, on a parent and consolidated basis:
Qualifying Capital Consolidated Parent In PhP Million 2013 2012 2011 2013 2012 2011 Tier 1 Capital Paid-up common stock 14,276.62 12,978.74 11,798.77 14,276.62 12,978.74 11,798.77 Additional paid-in capital 671.50 671.50 671.50 671.50 671.50 671.50 Retained Earnings 26,527.68 23,968.99 21,657.17 26,258.03 23,976.91 21,657.17 Cumulative Foreign Currency Translation 66.35 (65.51) 25.34 66.35 (65.51) 25.34 Minority Interest 49.85 51.56 - - - - Less: Unsecured DOSRI (520.98) (258.69) (1,164.18) (520.52) (258.26) (1,164.01) Less: Deferred income tax (1,732.30) (1,768.48) (1,693.71) (1,724.64) (1,756.63) (1,684.11) Less: Goodwill (222.84) (241.31) (222.84) (222.84) (222.84) (222.84) Total Tier 1 Capital 39,115.88 35,336.80 31,072.05 38,804.50 35,323.91 31,081.82 Less: Investment in Subsidiary-50% (120.51) (102.14) (85.84) (768.26) (822.72) (726.78) Net Tier 1 Capital 38,995.37 35,234.66 30,986.21 38,036.24 34,501.19 30,355.04 Tier 2 Capital General Loan Loss Provisions 2,452.99 2,055.59 1,797.95 2,341.85 1,985.88 1,760.80 Unrealized Gain AFS Equity 39.14 29.80 0.05 39.14 29.80 0.05 Total Tier 2 Capital 2,492.13 2,085.39 1,798.00 2,380.99 2,015.68 1,760.85 Less: Investment in Subsidiary-50% (120.51) (102.14) (85.84) (768.26) (822.72) (726.78) Net Tier 2 Capital 2,371.62 1,983.25 1,712,17 1,612.73 1,192.96 1,034.07 Total Gross Qualifying Capital 41,608.01 37,422.19 32,870.05 41,185.49 37,339.59 32,842.67 Less: Total Investment in Subsidiary (241.01) (204.28) (171.67) (1,536.52) (1,645.45) (1,453.55) Total Qualifying Capital 41,367.00 37,217.91 32,698.38 39,648.97 35,694.14 31,389.12
Risk-based capital ratios:
Consolidated Parent 2013 2012 2011 2013 2012 2011 (Amounts in PhP Million) Tier 1 capital 39,115.88 35,336.80 31,072.05 38,804.50 35,323.91 31,081.82 Tier 2 capital 2,492.13 2,085.39 1,798.00 2,380.99 2,015.68 1,760.85 Gross qualifying capital 41,608.01 37,422.19 32,870.05 41,185.49 37,339.59 32,842.67 Less required deductions (241.01) (204.28) (171.67) (1,536.52) (1,645.45) (1,453.55) Total qualifying capital 41,367.00 37,217.91 32,698.38 39,648.97 35,694.14 31,389.12 Risk weighted assets 268,851.16 232,552.93 200,163.25 257,239.52 225,145.24 196,154.27 Tier 1 capital ratio 14.50% 15.15% 15.48% 14.79% 15.32% 15.48% Total capital ratio 15.39% 16.00% 16.34% 15.41% 15.85% 16.00%
The regulatory qualifying capital of the Group consists of Tier 1 capital (core), which comprises paid-up common stock, additional paid- in capital, 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. The other component of regulatory capital is Tier 2 capital (supplementary), which includes net unrealized gain on AFS equity securities (subject to a 55.00% discount) and general loan loss provision.
62 The capital requirements for Credit, Market and Operational Risk are listed below, on a parent and consolidated basis
Capital Requirement Consolidated Parent in PhP Million 2013 2012 2011 2013 2012 2011 Credit Risk 24,472.70 20,487.93 17,903.86 23,360.48 19,787.83 17,530.14 Market Risk 372.44 693.30 213.96 372.44 693.30 213.96 Operational Risk 2,039.97 2,074.06 1,898.51 1,991.02 2,033.40 1,871.33 Total Capital Requirements 26,885.12 23,255.29 20,016.33 25,723.95 22,514.53 19,615.43
Credit Risk-Weighted Assets
On-balance sheet exposures, net of specific provisions and not covered by CRM (in PhP million):
December 2013
Consolidated Parent On-Balance Sheet Assets Exposures, Exposures, net of Specific Exposures not net of Specific Exposures not Provisions Covered by CRM Provisions Covered by CRM Cash on Hand 7,217.74 7,217.74 6,973.57 6,973.57 Checks and Other Cash Items 83.93 83.93 83.72 83.72 Due from BSP 78,880.88 78,880.88 75,591.06 75,591.06 Due from Other Banks 23,218.10 23,218.10 22,547.97 22,547.97 Financial Assets at FVPL 4,865.08 4,856.41 4,865.08 4,856.41 Available-for-Sale Financial Assets 44,819.53 43,952.53 43,775.39 42,908.39 Held-to-Maturity Financial Assets 12,441.67 12,441.67 12,413.71 12,413.71 Unquoted Debt Securities Classified as Loans 2,411.03 2,411.03 2,066.92 2,066.92 Loans and Receivables 221,462.38 208,926.37 212,095.51 199,591.55 Loans and Receivables arising from Repurchase - - - - Agreements Sales Contract Receivables 462.81 462.81 392.30 392.30 Real and Other Properties Acquired 1,756.14 1,756.14 1,430.59 1,430.59 Other Assets 8,704.83 8,704.83 7,120.25 7,120.25 Total On-Balance Sheet Assets 406,324.12 392,912.44 389,356.07 375,976.44
December 2012
Consolidated Parent On-Balance Sheet Assets Exposures, Exposures, (in PhP million) net of Specific Exposures not net of Specific Exposures not Provisions Covered by CRM Provisions Covered by CRM Cash on Hand 6,055.42 6,055.42 5,902.60 5,902.60 Checks and Other Cash Items 134.47 134.47 126.54 126.54 Due from BSP 40,634.87 40,634.87 37,572.60 37,572.60 Due from Other Banks 4,388.13 4,388.13 4,151.12 4,151.12 Financial Assets at FVPL 5,008.01 5,000.00 5,008.01 5,000.00 Available-for-Sale Financial Assets 36,496.83 35,695.13 35,677.71 34,876.01 Held-to-Maturity Financial Assets 17,122.90 17,122.90 17,093.97 17,093.97 Unquoted Debt Securities Classified as Loans 2,804.72 2,804.72 2,462.13 2,462.13 Loans and Receivables 189,867.53 176,381.08 185,484.85 172,030.51 Loans and Receivables arising from Repurchase 446.00 446.00 - - Agreements Sales Contract Receivables 475.53 475.53 378.71 378.71 Real and Other Properties Acquired 2,042.99 2,042.99 1,739.42 1,739.42 Other Assets 9,562.04 9,562.04 8,440.45 8,440.45 Total On-Balance Sheet Assets 315,039.45 300,743.28 304,038.11 289,774.05
Annual Report 2013 63 DISCLOSURE ON CAPITAL STRUCTURE AND CAPITAL ADEQUACY
December 2011
Consolidated Parent On-Balance Sheet Assets Exposures, Exposures, (in PhP million) net of Specific Exposures not net of Specific Exposures not Provisions Covered by CRM Provisions Covered by CRM Cash on Hand 5,926.04 5,926.04 5,819.04 5,819.04 Checks and Other Cash Items 103.98 103.98 103.43 103.43 Due from BSP 30,119.34 30,119.34 29,568.22 29,568.22 Due from Other Banks 2,875.95 2,875.95 2,695.66 2,695.66 Financial Assets at FVPL 8.56 - 8.56 - Available-for-Sale Financial Assets 40,034.00 39,177.80 39,006.77 38,150.57 Held-to-Maturity Financial Assets 17,601.93 17,601.93 17,517.43 17,517.43 Unquoted Debt Securities Classified as Loans 3,085.10 3,085.10 2,628.18 2,628.18 Loans and Receivables 145,077.88 144,653.58 143,443.52 143,032.92 Loans and Receivables arising from Repurchase 671.00 671.00 - - Agreements Sales Contract Receivables 389.70 389.70 240.35 240.35 Real and Other Properties Acquired 2,313.17 2,313.17 2,228.68 2,228.68 Other Assets 11,752.11 11,752.11 10,732.32 10,732.32 Total On-Balance Sheet Assets 259,958.76 258,669.70 253,992.15 252,716.79
Credit equivalent amount for off-balance sheet items, broken down by type of exposures (in PhP million):
2013 2012 2011 Off-balance Sheet Consolidated Parent Consolidated Parent Consolidated Parent Assets Notional Credit Notional Credit Notional Credit Notional Credit Notional Credit Notional Credit Principal Equivalent Principal Equivalent Principal Equivalent Principal Equivalent Principal Equivalent Principal Equivalent Direct Credit Substitutes 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Transaction-related 15,937.73 7,968.86 15,937.35 7,968.68 7,374.39 3,687.20 7,374.39 3,687.20 7,812.56 3,906.28 7,812.56 3,906.28 contingencies Trade-related contingencies arising 4,647.72 929.54 4,647.72 929.54 4,320.16 864.03 4,320.16 864.03 6,084.79 1,216.96 6,084.79 1,216.96 from movement of goods Other commitments (which can be unconditionally 132,250.22 0.00 128,276.41 0.00 182,100.31 0.00 176,713.92 0.00 173,803.23 0.00 169,231.93 0.00 cancelled at any time by the bank without prior notice) Total Notional Principal and Credit Equivalent 152,835.67 8,898.40 148,861.48 8,898.22 193,794.86 4,551.23 188,408.47 4,551.23 187,700.58 5,123.24 183,129.28 5,123.24 Amount
Credit equivalent amount for counterparty credit risk, broken down by type of exposures (in PhP million):
December 2013
Consolidated Parent Standardized Approach Notional Credit Notional Credit Principal Equivalent Principal Equivalent Interest Rate Contracts 3,800.00 27.48 3,800.00 27.48 Exchange Rate Contracts 46,863.66 942.73 46,863.66 942.73 Equity Contracts - - - - Credit Derivatives - - - - Total Notional Principal and 50,663.66 970.21 50,663.66 970.21 Credit Equivalent Amount
64 December 2012
Consolidated Parent Standardized Approach Notional Credit Notional Credit Principal Equivalent Principal Equivalent Interest Rate Contracts - - - - Exchange Rate Contracts 43,593.18 623.42 43,593.18 623.42 Equity Contracts - - - - Credit Derivatives - - - - Total Notional Principal and 43,593.18 623.42 43,593.18 623.42 Credit Equivalent Amount
December 2011
Consolidated Parent Standardized Approach Notional Credit Notional Credit Principal Equivalent Principal Equivalent Interest Rate Contracts - - - - Exchange Rate Contracts 29,280.08 412.13 29,280.08 412.13 Equity Contracts - - - - Credit Derivatives - - - - Total Notional Principal and 29,280.08 412.13 29,280.08 412.13 Credit Equivalent Amount
The following credit risk mitigants are used in the December 2013 CAR Report: • ROP warrants • ROP guarantees • Holdout vs. Peso deposit / Deposit substitute • Holdout vs. FCDU deposit of resident • Holdout vs. FCDU deposit of non-resident • Assignment / Pledge of Government Securities
Total credit exposure after risk mitigation, broken down by type of exposures, risk buckets, as well as those that are deducted from capital (in PhP million):
2013 Consolidated Parent Company On-balance Off-balance On-balance Off-balance Weight Band sheet sheet Counterparty* Total sheet sheet Counterparty Total Below 100% 203,364.08 4,398.95 787.22 208,550.25 195,463.38 4,398.95 787.22 200,649.55 100% and Above 189,548.34 4,499.46 182.99 194,230.79 180,513.04 4,499.28 182.99 185,195.31 Total 392,912.42 8,898.41 970.21 402,781.04 375,976.42 8,898.23 970.21 385,844.86
2012 Consolidated Parent Company Weight Band On-balance Off-balance On-balance Off-balance sheet sheet Counterparty* Total sheet sheet Counterparty Total Below 100% 132,296.20 797.51 305.73 133,399.44 127,662.36 797.51 305.73 128,765.60 100% and Above 168,447.08 3,753.72 317.69 172,518.49 162,111.69 3,753.72 317.69 166,183.10 Total 300,743.28 4,551.23 623.42 305,917.93 289,774.05 4,551.23 623.42 294,948.70
2011 Consolidated Parent Company Weight Band On-balance Off-balance On-balance Off-balance sheet sheet Counterparty* Total sheet sheet Counterparty Total Below 100% 106,480.10 0.00 154.91 106,635.01 104,055.68 0.00 154.91 104,210.59 100% and Above 152,189.60 5,123.24 257.22 157,570.06 148,661.11 5,123.24 257.22 154,041.57 Total 258,669.70 5,123.24 412.13 264,205.07 252,716.79 5,123.24 412.13 258,252.16
Annual Report 2013 65 DISCLOSURE ON CAPITAL STRUCTURE AND CAPITAL ADEQUACY
Total credit risk-weighted assets, broken down by type of exposures (in PhP million):
2013 Consolidated Parent Company On-balance Off-balance On-balance Off-balance Weight Band sheet sheet Counterparty* Total sheet sheet Counterparty Total Below 100% 46,427.54 879.79 298.58 47,605.91 44,616.45 879.79 298.58 45,794.82 100% and Above 192,912.54 4,499.46 182.99 197,594.99 183,610.36 4,499.28 182.99 188,292.63 Covered by 97.86 0.00 0.00 97.86 97.86 0.00 0.00 97.86 CRM Excess GLLP (571.76) (580.47) Total 239,437.94 5,379.25 481.57 244,727.00 228,324.67 5,379.07 481.57 233,604.84
2012 Consolidated Parent Company On-balance Off-balance On-balance Off-balance Weight Band sheet sheet Counterparty* Total sheet sheet Counterparty Total Below 100% 26,623.29 159.50 100.24 26,883.03 26,227.09 159.50 100.24 26,486.83 100% and Above 171,913.47 3,753.72 317.69 175,984.88 165,338.60 3,753.72 317.69 169,410.01 Covered by 2,690.87 0.00 0.00 2,690.87 2,690.93 0.00 0.00 2,690.93 CRM Excess GLLP (679.50) (709.50) Total 201,227.63 3,913.22 417.93 204,879.28 194,256.62 3,913.22 417.93 197,878.27
2011 Consolidated Parent Company On-balance Off-balance On-balance Off-balance Weight Band sheet sheet Counterparty* Total sheet sheet Counterparty Total Below 100% 19,720.42 0.00 70.78 19,791.20 19,631.74 0.00 70.78 19,702.52 100% and Above 154,541.10 5,123.24 257.22 159,921.56 150,914.66 5,123.24 257.22 156,295.12 Covered by 82.12 0.00 0.00 82.12 82.12 0.00 0.00 82.12 CRM Excess GLLP (756.26) (778.37) Total 174,343.64 5,123.24 328.00 179,038.62 170,628.52 5,123.24 328.00 175,301.39
*Counterparty RWA covering Derivatives & Repo-style Transactions
The credit ratings given by the following rating agencies were used to determine the credit risk weight of On-balance sheet, Off-balance sheet, and Counterparty exposures:
For all rated credit exposures regardless of currency Standard & Poor (S&P) Moody’s Fitch Philratings
66 Market Risk-Weighted Assets
The Standardized Approach is used in China Bank’s market risk-weighted assets. The total market risk-weighted asset of the Bank as of December 2013 is PhP3.7 Bn for both parent and consolidated basis. This is composed of Interest Rate exposures amounting to PhP3.0 Bn and Foreign Exposures amounting to PhP0.7Bn.
Consolidated and Parent Company Interest Rate Exposures (in PhP Mn) 2013 2012 2011 Specific Risk 35.22 169.61 53.55 General Market Risk PHP 116.90 249.15 57.23 USD 89.24 85.17 22.63 Total Capital Charge 241.36 503.93 133.41 Adjusted Capital Charge 301.70 629.92 166.77 Subtotal Market Risk-Weighted Assets 3,016.96 6,299.17 1,667.66
Foreign Exchange Exposures 2013 2012 2011 Total Capital Charge 56.60 50.71 37.75 Adjusted Capital Charge 70.75 63.39 47.19 Subtotal Market Risk-Weighted Assets 707.48 633.86 471.90
Total Market Risk-Weighted Assets 3,724.44 6,933.03 2,139.56
Operational, Legal, and Other Risks
For Operational Risk, the exposure of the Bank is profiled using a number of methodologies which also include a scenario analysis exercise as part of the internal capital adequacy assessment process (ICAAP) to validate if the computed capital requirement using the Basic Indicator Approach (BIA) is enough to cover estimated losses arising from very adverse operating conditions and major incidents. For the 2014 ICAAP submission, the Bank allocated the amount of PhP2.04Bn as capital for Operational Risk which is more than adequate to cover the exposure from our scenario analysis exercise. In fact, the BIA provides a capital buffer of as much as PhP 903.54Mn.
Tools such as the Risks and Controls Self-Assessment (RCSA), the analysis of historical Loss Reports and the monitoring of Key Risk Indicators (KRI) further allow Risk Management to identify high risk areas, loss drivers, and trends which can be acted upon by Management to prevent material failures in our processes, people, systems, and resiliency measures against external events. These results are periodically reported to Management and cover all aspects of the business from core operating capabilities of the units, all products and services, outstanding legal cases, and even its sales and marketing practices.
Operational Risk-Weighted Assets
The BIA is used in computing China Bank’s Operational risk-weighted assets. On a parent basis, the Bank’s Operational risk-weighted assets as of December 2013 is PhP19.91 Bn while on a consolidated basis, the Bank’s Operational risk-weighted assets is PhP20.40 Bn. On a parent basis, the Bank’s Operational risk-weighted assets as of December 2012 is PhP20.33Bn while on a consolidated basis, the Bank’s Operational risk-weighted assets is PhP20.74Bn. On a parent basis, the Bank’s Operational risk-weighted assets as of December 2011 is PhP18.71Bn while on a consolidated basis, the Bank’s Operational risk-weighted assets is PhP18.99Bn.
Internal measurement of interest rate risk in the banking book
The Bank’s interest rate risk (IRR) originates from holdings of interest rate sensitive assets and interest rate sensitive liabilities. Internally, the Earnings-at-Risk (EaR) method is used to determine the effects of adverse interest rate change on the Bank’s interest earnings. The Bank’s loans is assumed affected by interest rate movements on its repricing date for floating rates and on its maturity date for fixed rates. Demand and savings deposits, on the other hand, is generally not interest rate sensitive. Provided in the table below are the approximate reduction in annualized interest income of a 100bps adverse change across the PhP and USD yield curves.
Earnings-at-Risk Consolidated Parent Company in PhP Million 2013 2012 2011 2013 2012 2011 PhP IRR Exposures (401) (355) (552) (432) (358) (552) USD IRR Exposures (219) (122) (179) (216) (117) (177)
Annual Report 2013 67 REPORT OF THE AUDIT COMMITTEE TO THE BOARD OF DIRECTORS FOR THE YEAR ENDED DECEMBER 31, 2013
The Audit Committee is a Board-constituted body that is charged to evaluate the adequacy and effectiveness of the Bank’s financial reporting and internal control, monitor compliance with legal and regulatory requirements, provide oversight over external and internal audit functions, and monitor management’s activities in managing risks of the Bank. The Committee is composed of three (3) non- executive directors, two (2) of whom are independent directors including the Chairman. The Committee’s roles and responsibilities are defined in the Audit Committee Charter approved by the Board of the Directors.
In 2013, the Committee held twelve (12) meetings. In line with the Charter, relevant laws and regulations, and international standards, the Committee confirms the following: . Consistent with the guidelines of the Securities and Exchange Commission for the assessment of performance of Audit Committees, and with global standards and practices, conducted self-assessment of performance effectiveness of the Committee. . Exercised full discretion to invite officers to attend meetings to allow them to bring to the attention of the Committee any matter or concern, and enable the Committee to effectively discharge its functions by obtaining feedback, evaluating the issues, arriving at resolutions and recommendations, and obtaining follow-up action. . With respect to the external auditors: - Reviewed the qualifications, performance, competence and independence of the external auditor, and endorsed the re- election/re-appointment of SyCip Gorres Velayo & Co. (SGV & Co.) / Ernst & Young as the Bank’s external auditor for 2013. - Discussed and passed upon the results of audit of the consolidated financial statements of the Bank and subsidiaries as of 31 December 2013, noting that the external auditors did not find any significant deficiencies or material weaknesses in internal controls, and has not noted any significant error or been made aware of irregularities during their audit. Further to this, the Committee reviewed and endorsed the audited financial statements, and approved the fees of the external auditor for the financial audit of the Bank. - Discussed with them new issuances by the Bureau of Internal Revenue, Securities and Exchange Commission, and/or Bangko Sentral ng Pilipinas (BSP), and their significance on the operations of the Bank. . As to the internal auditors of the Bank: - Considered the regular and special internal audit reports on and replies of branches and units of the Bank, review of other audit projects, and summary of audit findings; and monitored any outstanding issues relating to their audit. - Reviewed the effectiveness of the internal audit function, and confirmed the independence and objectivity of the internal auditors, including their compliance with the Institute of Internal Auditors’ International Standards for the Professional Practice of Internal Auditing (IIA-ISPPIA) and Code of Ethics. - Discussed on semestral basis, the accomplishments versus plans and budgets of the Branch Audit Department, Head Office and Subsidiaries Audit Department, IT Audit Department, and Quality Assurance and Control Department, including the approval of the Quality Assurance and Improvement Program (QAIP), which provides step-by-step procedures in conducting quality assessments and providing key information of the Bank’s QAIP activities to ensure that quality and continuous improvements are carried out in the internal audit function, in accordance with Standards 1300 of the IIA-ISPPIA as well as BSP requirements. - Reviewed and favorably acted upon the proposed annual audit plans and budget after ensuring their conformity with the Bank’s objectives. - Participated in the review, improvement and approval of audit rating systems for branches and various departments, which systems are designed to translate the results of a regular audit into a descriptive numeric assessment on each of the activities reviewed that would reflect the general condition of the unit at the time of the audit. - Reviewed the performance of the Chief Audit Executive. . Jointly with Compliance Committee, discussed the BSP Report of Examination as of October 31, 2012, latest issuances from the regulators, and updates and developments on global best practices. . Timely informed the Board of Directors of the matters taken up during Committee meetings.
Based on the review and discussion made by the Audit Committee referred to above, and subject to the limitations on duties and responsibilities referred to in the Charter, the Committee recommends to the Board of Directors that the audited financial statements and related schedules be approved, included and/or incorporated in the Annual Report for the year ended December 31, 2013.
Makati City, March 5, 2014.
ALBERTO S. YAO JOAQUIN T. DEE DY TIONG Chairman Member Member
68 STATEMENT OF MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL STATEMENTS
The Management of China Banking Corporation (the Bank) is responsible for the preparation and fair presentation of the consolidated financial statements for the years ended December 31, 2013 and 2012, including the additional components attached therein, in accordance with Philippine Financial Reporting Standards. This responsibility includes designing and implementing internal controls relevant to the preparation and fair presentation of the consolidated 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.
The Board of Directors reviews and approves the consolidated financial statements and submits the same to the stockholders.
SyCip Gorres Velayo & Co., the independent auditors appointed by the stockholders, has examined the consolidated financial statements of the Bank in accordance with Philippine Standards on Auditing, and in its report to the stockholders, has expressed its opinion on the fairness of presentation upon completion of such examination.
Hans T. Sy Peter S. Dee Chairman of the Board President and CEO
Ricardo R. Chua Antonio S. Espedido, Jr. Senior Executive Vice President and COO Executive Vice President and Principal Financial Officer
Delia Marquez Vice President - Controller
Republic of the Philippines Makati City S.S
Signed this 20th day of February 2014, affiants exhibiting to me their Social Security System Nos. as follows:
Name SSS Nos. Hans T. Sy 03-4301174-3 Peter S. Dee 03 -1183011- 8 Ricardo R. Chua 03-2416389-8 Antonio S. Espedido, Jr. 03-5696688-5 Delia Marquez 03-7205726-0
Doc. No.: 188 Page No: 46 CHRISTINE L. ZERNA-BRIONES Book No: 12 Notary Public for the City of Makati Series of: 2014 Appt. No. M-447 (2013-2014) 11/F China Bank Bldg. 8745 Paseo de Roxas, Makati City PTR No. 4234459; 01.10.14; Makati City IBP No. 945838; 12.12.13; Pampanga Roll of Attorney’s No. 42549
Annual Report 2013 69 INDEPENDENT AUDITORS’ REPORT
The Stockholders and the Board of Directors China Banking Corporation 8745 Paseo de Roxas corner Villar Street Makati City
Report on the Financial Statements
We have audited the accompanying consolidated financial statements of China Banking Corporation and Subsidiaries (the Group) and the parent company financial statements of China Banking Corporation (the Parent Company), which comprise the consolidated and parent company balance sheets as at December 31, 2013 and 2012, and the consolidated and parent company statements of income, statements of comprehensive income, statements of changes in equity and statements of cash flows for each of the three years in the period ended December 31, 2013, and a summary of significant accounting policies and other explanatory information.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with Philippine Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
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 about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated and the parent company financial statements present fairly, in all material respects, the financial position of the Group and of the Parent Company as at December 31, 2013 and 2012, and their financial performance and their cash flows for each of the three years in the period ended December 31, 2013 in accordance with Philippine Financial Reporting Standards.
Report on the Supplementary Information Required Under Revenue Regulations 15-2010 and 19-2011
Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplementary information required under Revenue Regulations 15-2010 and 19-2011 in Notes 37 and 38 to the parent company financial statements, respectively, is presented for purposes of filing with the Bureau of Internal Revenue and is not a required part of the basic financial statements. Such information is the responsibility of the management of China Banking Corporation. The information has been subjected to the auditing procedures applied in our audit of the basic financial statements. In our opinion, the information is fairly stated in all material respects in relation to the basic financial statements taken as a whole.
SYCIP GORRES VELAYO & CO.
Vicky Lee Salas Partner CPA Certificate No. 86838 SEC Accreditation No. 0115-AR-3 (Group A), February 14, 2013, valid until February 13, 2016 Tax Identification No. 129-434-735 BIR Accreditation No. 08-001998-53-2012, April 11, 2012, valid until April 10, 2015 PTR No. 4225181, January 2, 2014, Makati City
March 5, 2014
70 BALANCE SHEETS
Consolidated Parent Company December 31, January 1, December 31, January 1, 2012 2012 2012 2012 December 31, (As restated - (As restated - December 31, (As restated - (As restated - 2013 Notes 2 and 10) Note 2) 2013 Note 2) Note 2) ASSETS Cash and Other Cash Items P7,281,640,616 P6,160,371,861 P6,050,366,433 P7,035,251,105 P5,996,785,687 P5,902,040,106 Due from Bangko Sentral ng Pilipinas (Notes 7 and 16 ) 78,968,132,522 40,659,682,959 30,122,324,047 75,678,312,048 37,597,455,540 29,571,232,355 Due from Other Banks (Note 7) 23,885,538,128 4,527,376,998 2,745,404,931 23,215,575,357 4,289,620,222 2,729,474,436 Securities Purchased Under Resale Agreements (Note 7) − 446,000,000 671,000,000 − – – Financial Assets at Fair Value through Profit or Loss (Note 8) 10,421,423,053 12,166,678,192 2,446,064,218 10,421,423,053 12,166,678,192 2,446,064,218 Available-for-Sale Financial Assets (Note 8) 44,349,256,775 41,571,441,141 45,784,601,478 43,196,190,593 40,676,728,810 44,676,609,090 Held-to-Maturity Financial Assets (Note 8) 12,150,546,829 12,693,233,413 12,960,937,205 12,122,589,213 12,665,325,779 12,877,757,205 Loans and Receivables (Notes 9 and28) 220,540,902,915 190,100,306,325 145,238,662,573 210,762,269,411 185,361,754,668 143,426,574,049 Accrued Interest Receivable (Note 15) 1,899,408,789 1,834,766,400 1,765,726,064 1,801,594,853 1,789,455,915 1,734,364,664 Investment in Subsidiaries (Note 10) − – – 1,927,749,787 1,927,546,513 1,526,180,870 Investment in Associates (Note 10) 21,245,838 21,245,838 24,480,868 21,245,838 21,245,838 21,245,838 Bank Premises, Furniture, Fixtures and Equipment (Note 11) 5,279,940,404 4,755,316,371 4,922,208,392 4,725,647,705 4,240,859,684 4,226,814,198 Investment Properties (Note 12) 2,410,529,492 2,819,311,640 3,414,896,222 2,078,092,008 2,419,007,629 3,305,272,865 Deferred Tax Assets (Note 26) 627,795,898 637,425,891 882,969,788 763,461,954 788,268,395 877,562,259 Branch Licenses (Notes 10 and 13) 837,600,000 837,600,000 477,600,000 455,000,000 455,000,000 455,000,000 Goodwill (Note 13) 222,841,201 222,841,201 222,841,201 222,841,201 222,841,201 222,841,201 Other Assets (Note 14) 4,801,120,536 4,706,448,526 4,823,342,020 4,398,466,854 4,289,504,018 4,437,649,695 P413,697,922,996 P324,160,046,756 P262,553,425,440 P398,825,710,980 P314,908,078,091 P258,436,683,049
LIABILITIES AND EQUITY Liabilities Deposit Liabilities (Notes 16 and 28) Demand P76,735,905,420 P60,612,813,027 P54,627,745,221 P75,632,975,179 P59,900,275,608 P54,217,174,543 Savings 207,557,387,057 151,495,924,676 111,366,522,296 197,464,868,647 150,345,928,515 109,231,601,827 Time 69,974,910,203 59,868,502,167 50,139,445,784 66,734,009,661 52,827,905,234 48,524,077,921 354,268,202,680 271,977,239,870 216,133,713,301 339,831,853,487 263,074,109,357 211,972,854,291 Bills Payable (Note 17) 8,299,194,525 3,526,807,973 1,641,473,347 8,299,194,525 3,526,807,973 1,641,473,347 Manager’s Checks 859,892,248 801,208,565 487,057,846 704,488,259 736,088,844 445,940,641 Income Tax Payable 6,768,350 5,226,599 30,667,483 − – 23,145,879 Accrued Interest and Other Expenses (Note 18) 1,501,925,478 1,622,233,107 1,446,533,180 1,445,621,346 1,556,838,090 1,417,595,676 Derivative Liabilities (Note 24) 154,808,366 570,575,771 146,616,341 154,808,366 570,575,771 146,616,341 Other Liabilities (Note 19) 3,207,431,910 2,918,549,815 3,045,565,992 2,816,377,585 2,610,579,224 3,228,833,471 368,298,223,557 281,421,841,700 222,931,627,490 353,252,343,568 272,074,999,259 218,876,459,646 Equity Equity Attributable to Equity Holders of the Parent Company Capital stock (Note 22) 14,276,616,580 12,978,742,300 11,798,766,800 14,276,616,580 12,978,742,300 11,798,766,800 Capital paid in excess of par value 671,504,726 671,504,726 671,504,726 671,504,726 671,504,726 671,504,726 Surplus reserves (Notes 22 and 27) 775,068,774 733,440,119 678,182,490 775,068,774 733,440,119 678,182,490 Surplus (Notes 22 and 27) 29,079,842,263 26,873,535,782 24,506,423,787 29,261,041,727 26,973,507,752 24,487,646,477 Net unrealized gains (losses) on available- for-sale financial assets (Note 8) (79,257,616) 1,360,625,140 1,885,084,757 (73,855,091) 1,344,965,592 1,860,311,032 Remeasurement gain on defined benefit asset or liability 604,715,114 177,480,174 31,808,630 596,643,032 196,428,958 38,474,734 Cumulative translation adjustment 66,347,664 (65,510,615) 25,337,144 66,347,664 (65,510,615) 25,337,144 45,394,837,505 42,729,817,626 39,597,108,334 45,573,367,412 42,833,078,832 39,560,223,403 Non-controlling Interest 4,861,934 8,387,430 24,689,616 − – – 45,399,699,439 42,738,205,056 39,621,797,950 45,573,367,412 42,833,078,832 39,560,223,403 P413,697,922,996 P324,160,046,756 P262,553,425,440 P398,825,710,980 P314,908,078,091 P258,436,683,049
See accompanying Notes to Financial Statements.
Annual Report 2013 71 STATEMENTS OF INCOME
Consolidated Parent Company Years Ended December 31 2012 2011 2012 2011 (As restated - (As restated - (As restated - (As restated - 2013 Notes 2 and 10) Note 2) 2013 Note 2) Note 2) INTEREST INCOME Loans and receivables (Notes 9 and 28) P10,372,075,442 P9,522,024,446 P8,158,228,328 P9,729,506,391 P9,245,295,416 P7,986,157,528 Trading and investments (Note 8) 3,227,341,138 3,373,834,036 3,913,249,272 3,158,295,958 3,297,564,886 3,857,166,402 Due from Bangko Sentral ng Pilipinas and other banks (Note 7) 481,736,900 255,011,199 605,120,369 408,149,958 188,552,690 574,124,245 14,081,153,480 13,150,869,681 12,676,597,969 13,295,952,307 12,731,412,992 12,417,448,175 INTEREST EXPENSE Deposit liabilities (Notes 16 and 28) 4,047,245,174 4,963,125,873 3,991,837,571 3,737,550,341 4,730,727,574 3,870,059,041 Bills payable and other borrowings (Notes 17 and 23) 97,917,679 125,402,976 133,021,342 97,917,679 125,402,976 133,021,342 4,145,162,853 5,088,528,849 4,124,858,913 3,835,468,020 4,856,130,550 4,003,080,383 NET INTEREST INCOME 9,935,990,627 8,062,340,832 8,551,739,056 9,460,484,287 7,875,282,442 8,414,367,792 Trading and securities gain - net (Notes 8 and 20) 1,904,885,163 2,916,299,207 1,468,637,210 1,614,807,963 2,787,172,905 1,453,123,700 Service charges, fees and commissions (Note 20) 1,156,459,862 1,046,352,293 985,257,308 1,004,074,075 949,167,096 849,127,833 Gain on sale of investment properties 462,742,999 291,424,782 247,787,229 467,216,863 291,630,417 228,756,708 Trust fee income (Note 28) 420,721,273 555,954,835 517,288,168 416,286,552 552,576,294 515,752,305 Gain (loss) on asset foreclosure and dacion transactions (Note 12) 219,470,577 50,538,556 310,677,828 191,126,297 51,837,658 304,776,902 Foreign exchange gain (loss) - net (Note 24) (89,663,242) 259,100,974 107,063,636 (96,189,849) 260,605,044 106,956,091 Miscellaneous (Notes 10, 12 and 20) 1,085,974,887 673,944,104 555,087,095 1,082,832,730 499,813,658 510,292,275 TOTAL OPERATING INCOME 15,096,582,146 13,855,955,583 12,743,537,530 14,140,638,918 13,268,085,514 12,383,153,606 Compensation and fringe benefits (Notes 23 and 28) 3,112,588,968 2,850,571,322 2,444,326,187 2,762,462,214 2,604,402,428 2,282,461,955 Occupancy cost (Note 25) 1,229,979,549 1,065,386,034 901,711,635 1,059,665,123 949,205,463 837,412,398 Taxes and licenses 828,261,895 819,755,015 750,210,547 751,875,186 784,434,373 715,120,851 Depreciation and amortization (Notes 11 and 12) 752,886,033 825,295,807 716,104,851 595,746,442 620,913,478 665,727,176 Stationery, supplies and postage 699,570,330 605,316,347 489,649,771 681,351,714 598,933,969 477,540,719 Insurance 690,029,507 568,346,857 458,998,134 664,178,791 555,981,693 458,871,679 Provision for impairment and credit losses (Note 15) 414,335,872 236,756,182 155,097,500 278,540,863 200,181,569 155,097,500 Transportation and traveling 344,079,528 316,530,142 215,824,972 321,264,135 292,606,142 200,829,432 Entertainment, amusement and recreation 221,735,895 206,536,313 179,846,324 190,673,800 188,736,887 168,035,429 Professional fees, marketing and other related services 174,074,631 165,064,472 112,542,338 157,803,302 143,382,546 109,829,246 Repairs and maintenance 164,317,392 166,580,997 162,803,387 162,285,099 168,287,583 154,751,809 Miscellaneous (Note 20) 689,738,609 604,517,780 533,342,849 680,378,003 611,515,823 497,649,972 TOTAL OPERATING EXPENSES 9,321,598,209 8,430,657,268 7,120,458,495 8,306,224,672 7,718,581,954 6,723,328,166 INCOME BEFORE INCOME TAX 5,774,983,937 5,425,298,315 5,623,079,035 5,834,414,246 5,549,503,560 5,659,825,440 PROVISION FOR INCOME TAX (Note 26) 674,536,437 422,288,616 547,408,214 649,928,260 412,557,140 519,226,442 NET INCOME P5,100,447,500 P5,003,009,699 P5,075,670,821 P5,184,485,986 P5,136,946,420 P5,140,598,998 Attributable to: Equity holders of the Parent Company (Note 31) P5,103,258,492 P5,018,197,140 P5,076,104,662 Non-controlling interest (2,810,992) (15,187,441) (433,841) P5,100,447,500 P5,003,009,699 P5,075,670,821 Basic/Diluted Earnings Per Share (Note 31) P3.57 P3.51* P3.56*
* Restated to show the effects of stock dividends distributed in 2013 (Note 22). See accompanying Notes to Financial Statements.
72 STATEMENTS OF COMPREHENSIVE INCOME
Consolidated Parent Company Years Ended December 31 2012 2011 2012 2011 (As restated - (As restated - (As restated - (As restated - 2013 Notes 2 and 10) Note 2) 2013 Note 2) Note 2) NET INCOME P5,100,447,500 P5,003,009,699 P5,075,670,821 P5,184,485,986 P5,136,946,420 P5,140,598,998 OTHER COMPREHENSIVE INCOME (LOSS) Items that recycle to profit or loss in subsequent periods: Changes in fair value of AFS investments: Fair value gain for the year, net of tax 565,027,367 2,177,977,312 1,678,024,992 297,493,719 2,057,470,675 1,636,189,520 Gains taken to profit or loss (Note 20) (2,006,391,602) (2,701,942,417) (1,649,670,999) (1,716,314,402) (2,572,816,115) (1,634,157,490) Cumulative translation adjustment 131,858,279 (90,847,759) 87,610,861 131,858,279 (90,847,759) 87,610,861 Items that do not recycle to profit or loss in subsequent periods: Remeasurement gain on defined benefit asset or liability, net of tax 428,205,189 145,327,978 31,792,966 400,214,074 157,954,224 38,474,734 OTHER COMPREHENSIVE INCOME (LOSS) FOR THE YEAR, NET OF TAX (881,300,767) (469,484,886) 147,757,820 (886,748,330) (448,238,975) 128,117,625 TOTAL COMPREHENSIVE INCOME FOR THE YEAR P4,219,146,733 P4,533,524,813 P5,223,428,641 P4,297,737,656 P4,688,707,445 P5,268,716,623 Total comprehensive income attributable to: Equity holders of the Parent Company P4,222,468,955 P4,548,561,308 P5,222,709,324 Non-controlling interest (3,322,222) (15,036,495) 719,317 P4,219,146,733 P4,533,524,813 P5,223,428,641
See accompanying Notes to Financial Statements.
Annual Report 2013 73 STATEMENTS OF CHANGES IN EQUITY
Consolidated Equity Attributable to Equity Holders of the Parent Company Net Unrealized Gains/(Losses) Remeasurement Capital Paid in Surplus on Available-for- gain on defined Cumulative Non-controlling Capital Stock Excess of Reserves Surplus Sale Financial benefit asset or Translation Interest (Note 22) Par Value (Notes 22 and 27) (Notes 22 and 27) Assets (Note 8) liability Adjustment Total (Note 10) Total Equity Balance at January 1, 2013, as previously reported P12,978,742,300 P671,504,726 P733,440,119 P26,603,776,718 P1,360,625,140 P– (P65,510,615) P42,282,578,388 P8,816,044 P42,291,394,432 Effect of retroactive application of PAS 19 (Revised) (Note 2) – – – 373,606,157 – 177,480,174 – 551,086,331 (375,625) 550,710,706 Prior-period adjustment (Note 10) – – – (103,847,093) – – – (103,847,093) (52,989) (103,900,082) Balance at January 1, 2013, as restated 12,978,742,300 671,504,726 733,440,119 26,873,535,782 1,360,625,140 177,480,174 (65,510,615) 42,729,817,626 8,387,430 42,738,205,056 Total comprehensive income for the year − − − 5,103,258,492 (1,439,882,756) 427,234,940 131,858,279 4,222,468,955 (3,322,222) 4,219,146,733 Additional acquisition of non-controlling interest − − − − − − − − (203,274) (203,274) Transfer from surplus to surplus reserves − − 41,628,655 (41,628,655) – – – – − − Stock dividends - 10% 1,297,874,280 – – (1,297,874,280) – – – – − − Cash dividends - P1.2 per share – – – (1,557,449,076) – – – (1,557,449,076) − (1,557,449,076) Balance at December 31, 2013 P14,276,616,580 P671,504,726 P775,068,774 P29,079,842,263 (P79,257,616) P604,715,114 P66,347,664 P45,394,837,505 P4,861,934 P45,399,699,439 Balance at January 1, 2012, as previously reported P11,798,766,800 P671,504,726 P678,182,490 P24,205,703,726 P1,885,084,757 P– P25,337,144 P39,264,579,643 P24,745,053 P39,289,324,696 Effect of retroactive application of PAS 19 (Revised) (Note 2) – – – 300,720,061 – 31,808,630 – 332,528,691 (55,437) 332,473,254 Balance at January 1, 2012, as restated 11,798,766,800 671,504,726 678,182,490 24,506,423,787 1,885,084,757 31,808,630 25,337,144 39,597,108,334 24,689,616 39,621,797,950 Total comprehensive income for the year – – – 5,018,197,140 (524,459,617) 145,671,544 (90,847,759) 4,548,561,308 (15,036,495) 4,533,524,813 Share of non-controlling interest in Unity Bank’s net assets – – – – – – – – 99,952 99,952 Additional acquisition of non-controlling interest – – – – – – – – (1,365,643) (1,365,643) Transfer from surplus to surplus reserves – – 55,257,629 (55,257,629) – – – – – – Stock dividends - 10% 1,179,975,500 – – (1,179,975,500) – – – – – – Cash dividends - P1.2 per share – – – (1,415,852,016) – – – (1,415,852,016) – (1,415,852,016) Balance at December 31, 2012 P12,978,742,300 P671,504,726 P733,440,119 P26,873,535,782 P1,360,625,140 P177,480,174 (P65,510,615) P42,729,817,626 P8,387,430 P42,738,205,056 Balance at January 1, 2011, as previously reported P10,726,061,700 P671,504,726 P626,607,259 P21,607,769,897 P1,857,899,586 P– (P62,273,717) P35,427,569,451 P25,715,136 P35,453,284,587 Effect of retroactive application of PAS 19 (Revised) (Note 2) − − − 233,956,963 − – − 233,956,963 (60,487) 233,896,476 Balance at January 1, 2011, as restated 10,726,061,700 671,504,726 626,607,259 21,841,726,860 1,857,899,586 – (62,273,717) 35,661,526,414 25,654,649 35,687,181,063 Total comprehensive income for the year – – – 5,076,104,662 27,185,171 31,808,630 87,610,861 5,222,709,324 719,317 5,223,428,641 Additional acquisition of non-controlling interest – – – – – – – – (1,684,350) (1,684,350) Transfer from surplus to surplus reserves – – 51,575,231 (51,575,231) – – – – – – Stock dividends - 10% 1,072,705,100 – – (1,072,705,100) – – – – – – Cash dividends - P1.2 per share – – – (1,287,127,404) – – – (1,287,127,404) – (1,287,127,404) Balance at December 31, 2011 P11,798,766,800 P671,504,726 P678,182,490 P24,506,423,787 P1,885,084,757 P31,808,630 P25,337,144 P39,597,108,334 P24,689,616 P39,621,797,950
See accompanying Notes to Financial Statements.
Parent Company Net Unrealized Gains/(Losses) on Capital Paid in Surplus Available-for- Remeasurement gain Cumulative Capital Stock Excess of Reserves Surplus Sale Financial on defined benefit Translation (Note 22) Par Value (Notes 22 and 27) (Notes 22 and 27) Assets (Note 8) asset or liability Adjustment Total Equity Balance at January 1, 2013, as previously reported P12,978,742,300 P671,504,726 P733,440,119 P26,601,279,907 P1,344,965,592 P– (P65,510,615) P42,264,422,029 Effect of retroactive application of PAS 19 (Revised) (Note2) – – – 372,227,845 – 196,428,958 – 568,656,803 Balance at January 1, 2013, as restated 12,978,742,300 671,504,726 733,440,119 26,973,507,752 1,344,965,592 196,428,958 (65,510,615) 42,833,078,832 Total comprehensive income for the year – – – 5,184,485,986 (1,418,820,683) 400,214,074 131,858,279 4,297,737,656 Transfer from surplus to surplus reserves – – 41,628,655 (41,628,655) – – – – Stock dividends - 10% 1,297,874,280 – – (1,297,874,280) – – – – Cash dividends - P1.2 per share – – – (1,557,449,076) – – – (1,557,449,076) Balance at December 31, 2013 P14,276,616,580 P671,504,726 P775,068,774 P29,261,041,727 (P73,855,091) P596,643,032 P66,347,664 P45,573,367,412 Balance at January 1, 2012, as previously reported P11,798,766,800 P671,504,726 P678,182,490 P24,186,694,908 P1,860,311,032 P– P25,337,144 P39,220,797,100 Effect of retroactive application of PAS 19 (Revised) (Note2) − − − 300,951,569 − 38,474,734 − 339,426,303 Balance at January 1, 2012, as restated 11,798,766,800 671,504,726 678,182,490 24,487,646,477 1,860,311,032 38,474,734 25,337,144 39,560,223,403 Total comprehensive income for the year – – – 5,136,946,420 (515,345,440) 157,954,224 (90,847,759) 4,688,707,445 Transfer from surplus to surplus reserves – – 55,257,629 (55,257,629) – – – – Stock dividends - 10% 1,179,975,500 – – (1,179,975,500) – – – – Cash dividends - P1.2 per share – – – (1,415,852,016) – – – (1,415,852,016) Balance at December 31, 2012 P12,978,742,300 P671,504,726 P733,440,119 P26,973,507,752 P1,344,965,592 P196,428,958 (P65,510,615) P42,833,078,832 Balance at January 1, 2011, as previously reported P10,726,061,700 P671,504,726 P626,607,259 P21,522,829,639 P1,858,279,002 P– (P62,273,717) P35,343,008,609 Effect of retroactive application of PAS 19 (Revised) (Note2) – – – 235,625,575 – − – 235,625,575 Balance at January 1, 2011, as restated 10,726,061,700 671,504,726 626,607,259 21,758,455,214 1,858,279,002 − (62,273,717) 35,578,634,184 Total comprehensive income for the year – – – 5,140,598,998 2,032,030 38,474,734 87,610,861 5,268,716,623 Transfer from surplus to surplus reserves – – 51,575,231 (51,575,231) – – – – Stock dividends - 10% 1,072,705,100 – – (1,072,705,100) – – – – Cash dividends - P1.2 per share – – – (1,287,127,404) – – – (1,287,127,404) Balance at December 31, 2011 P11,798,766,800 P671,504,726 P678,182,490 P24,487,646,477 P1,860,311,032 P38,474,734 P25,337,144 P39,560,223,403
See accompanying Notes to Financial Statements.
74 Consolidated Equity Attributable to Equity Holders of the Parent Company Net Unrealized Gains/(Losses) Remeasurement Capital Paid in Surplus on Available-for- gain on defined Cumulative Non-controlling Capital Stock Excess of Reserves Surplus Sale Financial benefit asset or Translation Interest (Note 22) Par Value (Notes 22 and 27) (Notes 22 and 27) Assets (Note 8) liability Adjustment Total (Note 10) Total Equity Balance at January 1, 2013, as previously reported P12,978,742,300 P671,504,726 P733,440,119 P26,603,776,718 P1,360,625,140 P– (P65,510,615) P42,282,578,388 P8,816,044 P42,291,394,432 Effect of retroactive application of PAS 19 (Revised) (Note 2) – – – 373,606,157 – 177,480,174 – 551,086,331 (375,625) 550,710,706 Prior-period adjustment (Note 10) – – – (103,847,093) – – – (103,847,093) (52,989) (103,900,082) Balance at January 1, 2013, as restated 12,978,742,300 671,504,726 733,440,119 26,873,535,782 1,360,625,140 177,480,174 (65,510,615) 42,729,817,626 8,387,430 42,738,205,056 Total comprehensive income for the year − − − 5,103,258,492 (1,439,882,756) 427,234,940 131,858,279 4,222,468,955 (3,322,222) 4,219,146,733 Additional acquisition of non-controlling interest − − − − − − − − (203,274) (203,274) Transfer from surplus to surplus reserves − − 41,628,655 (41,628,655) – – – – − − Stock dividends - 10% 1,297,874,280 – – (1,297,874,280) – – – – − − Cash dividends - P1.2 per share – – – (1,557,449,076) – – – (1,557,449,076) − (1,557,449,076) Balance at December 31, 2013 P14,276,616,580 P671,504,726 P775,068,774 P29,079,842,263 (P79,257,616) P604,715,114 P66,347,664 P45,394,837,505 P4,861,934 P45,399,699,439 Balance at January 1, 2012, as previously reported P11,798,766,800 P671,504,726 P678,182,490 P24,205,703,726 P1,885,084,757 P–P25,337,144 P39,264,579,643 P24,745,053 P39,289,324,696 Effect of retroactive application of PAS 19 (Revised) (Note 2) – – – 300,720,061 – 31,808,630 – 332,528,691 (55,437) 332,473,254 Balance at January 1, 2012, as restated 11,798,766,800 671,504,726 678,182,490 24,506,423,787 1,885,084,757 31,808,630 25,337,144 39,597,108,334 24,689,616 39,621,797,950 Total comprehensive income for the year – – – 5,018,197,140 (524,459,617) 145,671,544 (90,847,759) 4,548,561,308 (15,036,495) 4,533,524,813 Share of non-controlling interest in Unity Bank’s net assets – – – – – – – – 99,952 99,952 Additional acquisition of non-controlling interest – – – – – – – – (1,365,643) (1,365,643) Transfer from surplus to surplus reserves – – 55,257,629 (55,257,629) – – – – – – Stock dividends - 10% 1,179,975,500 – – (1,179,975,500) – – – – – – Cash dividends - P1.2 per share – – – (1,415,852,016) – – – (1,415,852,016) – (1,415,852,016) Balance at December 31, 2012 P12,978,742,300 P671,504,726 P733,440,119 P26,873,535,782 P1,360,625,140 P177,480,174 (P65,510,615) P42,729,817,626 P8,387,430 P42,738,205,056 Balance at January 1, 2011, as previously reported P10,726,061,700 P671,504,726 P626,607,259 P21,607,769,897 P1,857,899,586 P– (P62,273,717) P35,427,569,451 P25,715,136 P35,453,284,587 Effect of retroactive application of PAS 19 (Revised) (Note 2) − − − 233,956,963 − – − 233,956,963 (60,487) 233,896,476 Balance at January 1, 2011, as restated 10,726,061,700 671,504,726 626,607,259 21,841,726,860 1,857,899,586 – (62,273,717) 35,661,526,414 25,654,649 35,687,181,063 Total comprehensive income for the year – – – 5,076,104,662 27,185,171 31,808,630 87,610,861 5,222,709,324 719,317 5,223,428,641 Additional acquisition of non-controlling interest – – – – – – – – (1,684,350) (1,684,350) Transfer from surplus to surplus reserves – – 51,575,231 (51,575,231) – – – – – – Stock dividends - 10% 1,072,705,100 – – (1,072,705,100) – – – – – – Cash dividends - P1.2 per share – – – (1,287,127,404) – – – (1,287,127,404) – (1,287,127,404) Balance at December 31, 2011 P11,798,766,800 P671,504,726 P678,182,490 P24,506,423,787 P1,885,084,757 P31,808,630 P25,337,144 P39,597,108,334 P24,689,616 P39,621,797,950
See accompanying Notes to Financial Statements.
Parent Company Net Unrealized Gains/(Losses) on Capital Paid in Surplus Available-for- Remeasurement gain Cumulative Capital Stock Excess of Reserves Surplus Sale Financial on defined benefit Translation (Note 22) Par Value (Notes 22 and 27) (Notes 22 and 27) Assets (Note 8) asset or liability Adjustment Total Equity Balance at January 1, 2013, as previously reported P12,978,742,300 P671,504,726 P733,440,119 P26,601,279,907 P1,344,965,592 P– (P65,510,615) P42,264,422,029 Effect of retroactive application of PAS 19 (Revised) (Note2) – – – 372,227,845 – 196,428,958 – 568,656,803 Balance at January 1, 2013, as restated 12,978,742,300 671,504,726 733,440,119 26,973,507,752 1,344,965,592 196,428,958 (65,510,615) 42,833,078,832 Total comprehensive income for the year – – – 5,184,485,986 (1,418,820,683) 400,214,074 131,858,279 4,297,737,656 Transfer from surplus to surplus reserves – – 41,628,655 (41,628,655) – – – – Stock dividends - 10% 1,297,874,280 – – (1,297,874,280) – – – – Cash dividends - P1.2 per share – – – (1,557,449,076) – – – (1,557,449,076) Balance at December 31, 2013 P14,276,616,580 P671,504,726 P775,068,774 P29,261,041,727 (P73,855,091) P596,643,032 P66,347,664 P45,573,367,412 Balance at January 1, 2012, as previously reported P11,798,766,800 P671,504,726 P678,182,490 P24,186,694,908 P1,860,311,032 P– P25,337,144 P39,220,797,100 Effect of retroactive application of PAS 19 (Revised) (Note2) − − − 300,951,569 − 38,474,734 − 339,426,303 Balance at January 1, 2012, as restated 11,798,766,800 671,504,726 678,182,490 24,487,646,477 1,860,311,032 38,474,734 25,337,144 39,560,223,403 Total comprehensive income for the year – – – 5,136,946,420 (515,345,440) 157,954,224 (90,847,759) 4,688,707,445 Transfer from surplus to surplus reserves – – 55,257,629 (55,257,629) – – – – Stock dividends - 10% 1,179,975,500 – – (1,179,975,500) – – – – Cash dividends - P1.2 per share – – – (1,415,852,016) – – – (1,415,852,016) Balance at December 31, 2012 P12,978,742,300 P671,504,726 P733,440,119 P26,973,507,752 P1,344,965,592 P196,428,958 (P65,510,615) P42,833,078,832 Balance at January 1, 2011, as previously reported P10,726,061,700 P671,504,726 P626,607,259 P21,522,829,639 P1,858,279,002 P– (P62,273,717) P35,343,008,609 Effect of retroactive application of PAS 19 (Revised) (Note2) – – – 235,625,575 – − – 235,625,575 Balance at January 1, 2011, as restated 10,726,061,700 671,504,726 626,607,259 21,758,455,214 1,858,279,002 − (62,273,717) 35,578,634,184 Total comprehensive income for the year – – – 5,140,598,998 2,032,030 38,474,734 87,610,861 5,268,716,623 Transfer from surplus to surplus reserves – – 51,575,231 (51,575,231) – – – – Stock dividends - 10% 1,072,705,100 – – (1,072,705,100) – – – – Cash dividends - P1.2 per share – – – (1,287,127,404) – – – (1,287,127,404) Balance at December 31, 2011 P11,798,766,800 P671,504,726 P678,182,490 P24,487,646,477 P1,860,311,032 P38,474,734 P25,337,144 P39,560,223,403
See accompanying Notes to Financial Statements.
Annual Report 2013 75 STATEMENTS OF CASH FLOWS
Consolidated Parent Company December 31 2012 2011 2012 2011 (As restated - (As restated - (As restated - (As restated - 2013 Notes 2 and 10) Note 2) 2013 Note 2) Note 2) CASH FLOWS FROM OPERATING ACTIVITIES Income before income tax P5,774,983,937 P5,425,298,315 P5,623,079,035 P5,834,414,246 P5,549,503,560 P5,659,825,440 Adjustments for: Trading and securities gain on available-for-sale financial assets (Note 20) (2,006,391,602) (2,701,942,417) (1,649,670,999) (1,716,314,402) (2,572,816,115) (1,634,157,490) Depreciation and amortization (Notes 10 and 11) 752,886,033 825,295,807 716,104,851 595,746,442 620,913,478 665,727,176 Gain on sale of investment properties (462,742,999) (291,424,782) (247,787,229) (467,216,863) (291,630,417) (228,756,708) Gain on bargain purchase (Note 10) – (165,885,493) – – – – Provision for impairment and credit losses (Note 15) 414,335,872 236,756,182 155,097,500 278,540,863 200,181,569 155,097,500 Unrealized market valuation loss (gain) on derivative assets and liabilities (Note 24) (877,329,828) 202,790,964 (906,927,956) (877,329,828) 202,790,964 (906,927,956) Gains on asset foreclosures and dacion transactions (219,470,577) (50,538,556) (310,677,828) (191,126,297) (51,837,658) (304,776,902) Changes in operating assets and liabilities: Decrease (increase) in the amounts of: Financial instruments at FVPL 2,206,817,562 (9,499,445,508) 4,401,756,875 2,206,817,562 (9,499,445,508) 4,401,756,875 Loans and receivables (31,031,274,375) (44,314,185,546) (28,445,295,808) (25,818,525,642) (41,675,493,491) (27,579,649,432) Other assets 192,306,235 72,384,299 (1,558,417,329) 172,768,019 (140,730,057) (1,522,728,725) Increase (decrease) in the amounts of: Deposit liabilities 82,290,962,810 54,863,508,126 3,092,103,848 76,757,744,130 51,101,255,066 986,349,779 Manager’s checks 58,683,683 314,150,719 146,541,782 (31,600,585) 290,148,203 141,502,533 Accrued interest and other expenses (120,307,629) 163,071,186 (527,061,348) (111,216,744) 139,242,414 (529,300,096) Other liabilities 288,882,095 (206,093,129) (315,087,930) 205,798,361 (266,807,347) (362,167,682) Net cash generated from (used in) operations 57,262,341,217 4,873,740,167 (19,826,242,536) 56,838,499,262 3,605,274,661 (21,058,205,688) Income taxes paid (495,207,289) (397,890,351) (518,041,465) (477,121,886) (370,560,842) (497,381,297) Net cash provided by (used in) operating activities 56,767,133,928 4,475,849,816 (20,344,284,001) 56,361,377,376 3,234,713,819 (21,555,586,985) CASH FLOWS FROM INVESTING ACTIVITIES Additions to bank premises, furniture, fixtures and equipment (Note 11) (1,165,241,076) (672,250,956) (705,749,909) (994,536,029) (559,705,134) (675,277,043) Proceeds from disposal of bank premises, furniture, fixtures and equipment (Note 11) 10,528,796 173,162,335 50,759,378 3,715,622 34,464,243 46,263,014 Proceeds from sale of investment properties 1,183,655,279 894,822,219 632,372,288 1,138,047,387 903,152,520 556,996,574 Acquisition through business combination - net of cash acquired (Note 10) – 285,009,741 – – – – Additions to equity investments (Note 10) – – (3,750,000) – (401,365,643) (5,434,350) Purchases of: Held-to-maturity financial assets – (919,066,409) – – (919,066,409) – Available-for-sale financial assets (54,203,924,571) (67,188,900,188) (60,773,830,107) (51,487,632,563) (62,145,836,118) (59,575,774,559) Proceeds from sale/maturity of: Held-to-maturity financial assets 542,686,584 1,214,677,836 5,588,815,569 542,736,566 1,131,497,835 5,588,815,569 Available-for-sale financial assets 51,992,306,306 73,472,915,046 67,828,091,113 49,266,834,500 68,186,241,260 67,091,191,720 Net cash provided by investing activities (1,639,988,682) 7,260,369,624 12,616,708,332 (1,530,834,517) 6,229,382,554 13,026,780,925 (Forward)
76 Consolidated Parent Company December 31 2012 2011 2012 2011 (As restated - (As restated - (As restated - (As restated - 2013 Notes 2 and 10) Note 2) 2013 Note 2) Note 2) CASH FLOWS FROM FINANCING ACTIVITIES Payments of bills payable (P44,688,753,580) (P4,190,278,412) (P1,465,762,235) (P44,688,753,580) (P4,190,278,412) (P1,465,762,235) Availments of bills payable 49,461,140,132 6,075,613,038 48,992,420 49,461,140,132 6,075,613,038 48,992,420 Acquisitions of non-controlling interest (Note 10) (203,274) (1,365,643) (1,684,350) (203,274) – – Payments of cash dividends (Note 22) (1,557,449,076) (1,415,852,016) (1,287,127,404) (1,557,449,076) (1,415,852,016) (1,287,127,404) Payment of subscription payable – – – – (252,464,431) – Net cash provided by (used in) financing activities 3,214,734,202 468,116,967 (2,705,581,569) 3,214,734,202 217,018,179 (2,703,897,219) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 58,341,879,448 12,204,336,407 (10,433,157,238) 58,045,277,061 9,681,114,552 (11,232,703,279) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR Cash and other cash items P6,160,371,861 P6,050,366,433 P6,436,427,163 P5,996,785,687 P5,902,040,106 P6,362,296,658 Due from Bangko Sentral ng Pilipinas 40,659,682,959 30,122,324,047 37,124,917,961 37,597,455,540 29,571,232,355 37,053,152,975 Due from other banks 4,527,376,998 2,745,404,931 5,918,907,525 4,289,620,222 2,729,474,436 5,970,000,543 Securities purchased under resale agreements 446,000,000 671,000,000 542,000,000 − – 50,000,000 51,793,431,818 39,589,095,411 50,022,252,649 47,883,861,449 38,202,746,897 49,435,450,176 CASH AND CASH EQUIVALENTS AT END OF YEAR Cash and other cash items 7,281,640,616 6,160,371,861 6,050,366,433 7,035,251,105 5,996,785,687 5,902,040,106 Due from Bangko Sentral ng Pilipinas 78,968,132,522 40,659,682,959 30,122,324,047 75,678,312,048 37,597,455,540 29,571,232,355 Due from other banks 23,885,538,128 4,527,376,998 2,745,404,931 23,215,575,357 4,289,620,222 2,729,474,436 Securities purchased under resale agreements – 446,000,000 671,000,000 – – – P110,135,311,266 P51,793,431,818 P39,589,095,411 P105,929,138,510 P47,883,861,449 P38,202,746,897
OPERATING CASH FLOWS FROM INTEREST
Consolidated Parent Company December 31 2013 2012 2011 2013 2012 2011 Interest paid P4,314,899,682 P4,923,244,739 P4,240,779,972 P4,007,533,566 P4,704,185,908 P4,129,661,850 Interest received 14,016,511,091 13,087,624,009 12,611,580,103 13,283,813,369 12,679,491,185 12,596,074,030
See accompanying Notes to Financial Statements.
Annual Report 2013 77 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 295 and 283 local branches as of December 31, 2013 and 2012, respectively.
The Parent Company has the following subsidiaries:
Effective Percentages of Ownership Country of Subsidiary 2013 2012 Incorporation Principal Activities Chinabank Insurance Brokers, Inc. (CIBI) 100.00% 100.00% Philippines Insurance brokerage CBC Properties and Computer Center, Inc. 100.00% 100.00% Philippines Computer services (CBC-PCCI) CBC Forex Corporation 100.00% 100.00% Philippines Foreign exchange China Bank Savings, Inc. (CBSI) 95.25% 95.24% Philippines Retail and consumer banking Unity Bank, A Rural Bank, Inc. (Unity Bank) 99.95% 99.95% Philippines Rural banking The Parent Company has no ultimate parent company. SM Investments Corporation, its significant investor, has effective ownership in the Parent Company of 19.54% and 20.63% as of December 31, 2013 and 2012.
The Parent Company’s principal place of business is at 8745 Paseo de Roxas corner Villar Streets, Makati City.
Merger of CBSI with Unity Bank The Board of Directors (BOD) of CBSI, in its meeting held last June 6, 2013, approved the proposed merger with Unity Bank. The terms of the Plan of Merger of CBSI with Unity Bank were approved by CBSI’s stockholders in their meeting held on July 18, 2013.
On November 22, 2013, the Monetary Board (MB), in its Resolution No. 1949, approved the Plan of Merger and Articles of Merger of CBSI and Unity Bank subject to certain conditions.
Acquisition of Planters Development Bank On September 18, 2013, the BOD of the Parent Company approved the Parent Company’s acquisition of at least 66.67% of the outstanding subscribed capital stock of Planters Development Bank (PDB). On the same date, the Parent Company, the PDB Shareholders, and PDB entered into a memorandum of agreement (MOA) wherein the PDB Shareholders agreed to sell their shares in PDB representing at least 66.67% of the total outstanding capital stock of PDB to the Parent Company at an estimated price of P15.54 per share.
On December 4, 2013, the BOD of the Parent Company approved the amendments to the P2.00 Billion Local Currency Money Market Line sub-limit approved for PDB by the BOD on November 6, 2013. The amendments include the increase in the sub- limit of the clean credit line from P1.00 billion to P1.30 billion and the option to convert availments from the clean credit line to equity, if warranted, subject to and at any time following the financial closing of the Share Purchase Agreement (SPA) to be executed pursuant to the MOA. As of December 31, 2013, outstanding availments of PDB from the clean credit line amounted to P500.0 million which is reported under ‘Due from other banks’. This availment matured on January 3, 2014.
On December 18, 2013, the Parent Company and the selling PDB Shareholders executed the SPA for the acquisition of the latter’s 84.77% equity interest in PDB in exchange for cash consideration. The SPA includes closing conditions and activities to be fulfilled by both the Parent Company and the selling PDB Shareholders on or before the Closing Date defined under the SPA. These closing conditions and activities include (a) the execution of the deed of absolute sale of the shares of all the Sale Shares belonging to the PDB Shareholders in favor of the Parent Company; (b) settlement of the Closing Amount for the shares purchased; (c) resignation of the incumbent PDB BOD; (d) the approval of the BSP’s MB of the transfer of the Sale Shares from the PDB Shareholders to the Parent Company; (e) compliance of both Parent Company and PDB Shareholders with the agreed covenants, representations and warranties; and (f) filing and submission of the necessary documentary requirements.
Also on December 18, 2013, the Parent Company obtained the MB’s approval-in-principle of the merger between PDB with either the Parent Company or CBSI within three years from December 13, 2013 (the date of MB approval), the first stage of which is the acquisition by the Parent Company of 84.77% of the outstanding subscribed capital stock of PDB. Such approval-in-principle is subject to submission of the necessary requirements. Further, the MB granted the Parent Company with certain incentives and reliefs as allowed under the Strengthening Program for Rural Bank (SPRB) Plus Framework but subject to compliance with regulatory requirements.
On January 15, 2014, both the Parent Company and majority of the selling PDB Shareholders complied with most of the closing conditions pursuant to the SPA (see Note 35).
The acquisition is considered a strategic move consistent with the Parent Company’s business plan, which calls for the most rapid geographical expansion and a faster expansion of its consumer and middle market/SME portfolio.
78 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 peso, and all values are rounded to the nearest peso except when otherwise indicated.
The financial statements provide comparative information in respect of the previous period. In addition, the Group presents an additional balance sheet at the beginning of the earliest period presented when there is a retrospective application of an accounting policy, a retrospective restatement, or a reclassification of items in financial statements. An additional balance sheet as at January 1, 2012 is presented in these financial statements due to retrospective application of certain accounting policies as discussed in the ‘Changes in Accounting Policies and Disclosures’ section of this note.
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).
Presentation of Financial Statements The Group and the Parent Company present its balance sheets in order of liquidity. An analysis regarding recovery of assets or settlement of liabilities within 12 months after the reporting date (current) and more than 12 months after the reporting date (non- current) is presented in Note 21.
Financial assets and financial liabilities are offset and the net amount reported in the balance sheets only when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the assets and settle the liability simultaneously. Income and expenses are not offset in the statement of income unless required or permitted by any accounting standard or interpretation, and as specifically disclosed in the accounting policies of the Group and the Parent Company.
Basis of Consolidation and Investments in Subsidiaries The consolidated financial statements of the Group are prepared for the same reporting year as the Parent Company, using consistent accounting policies. All significant intra-group balances, transactions and income and expenses resulting from intra-group transactions are eliminated in full.
Subsidiaries are consolidated from the date on which control is transferred to the Parent Company. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if and only if the Group has:
• power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee) • exposure, or rights, to variable returns from its involvement with the investee, and • the ability to use its power over the investee to affect its returns.
When the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including:
• the contractual arrangement with the other vote holders of the investee • rights arising from other contractual arrangements • the Group’s voting rights and potential voting rights.
The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the statement of comprehensive income from the date the Group gains control until the date the Group ceases to control the subsidiary. Profit or loss and each component of other comprehensive income (OCI) are attributed to the equity holders of the Group and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the financial statements of the subsidiary to bring its accounting policies into line with the Group’s accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.
Annual Report 2013 79 NOTES TO FINANCIAL STATEMENTS
A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Group loses control over a subsidiary, it:
• Derecognizes the assets (including goodwill) and liabilities of the subsidiary • Derecognizes the carrying amount of any non-controlling interest • Derecognizes the related OCI recorded in equity and recycle the same to profit or loss or surplus • Recognizes the fair value of the consideration received • Recognizes the fair value of any investment retained • Recognizes the remaining difference in profit or loss • Reclassifies the parent’s share of components previously recognized in OCI to profit or loss or retained earnings, as appropriate, as would be recognized if the Group had directly disposed of the related assets or liabilities
Non-Controlling Interest Non-controlling interest represents the portion of profit or loss and net assets not owned, directly or indirectly, by the Parent Company.
Non-controlling interest is presented separately in the consolidated statement of income, consolidated statement of comprehensive income, and within equity in the consolidated balance sheet, separately from parent shareholders’ equity. Any losses applicable to the non-controlling interest are allocated against the interests of the non-controlling interest even if this results in the non-controlling interest having a deficit balance.
Changes in Accounting Policies and Disclosures
The accounting policies adopted are consistent with those of the previous financial year except for the following new, amendments and improvements to PFRS which became effective as of January 1, 2013. Except as otherwise indicated, these changes in the accounting policies did not have any significant impact on the financial position or performance of the Group:
New and Amended Standards and Interpretations • PFRS 11, Joint Arrangements • Philippine Accounting Standard (PAS) 27, Separate Financial Statements (as revised in 2011) • PAS 28, Investments in Associates and Joint Ventures (as revised in 2011)
Improvements to PFRSs (2009-2011 cycle) • PFRS 1, First-time Adoption of PFRS - Borrowing Costs • PAS 1, Presentation of Financial Statements - Clarification of the requirements for comparative information • PAS 16, Property, Plant and Equipment - Classification of servicing equipment • PAS 32, Financial Instruments: Presentation - Tax effect of distribution to holders of equity instruments • PAS 34, Interim Financial Reporting - Interim financial reporting and segment information for total assets and liabilities
Standards that have been adopted and are deemed to have an impact on the financial statements or performance of the Group are described below:
PFRS 7, Financial instruments: Disclosures - Offsetting Financial Assets and Financial Liabilities These amendments require an entity to disclose information about rights of set-off and related arrangements (such as collateral agreements). The new disclosures are required for all recognized financial instruments that are set off in accordance with PAS 32. These disclosures also apply to recognized financial instruments that are subject to an enforceable master netting arrangement or ‘similar agreement’, irrespective of whether they are set-off in accordance with PAS 32. The amendments require entities to disclose, in a tabular format, unless another format is more appropriate, the following minimum quantitative information. This is presented separately for financial assets and financial liabilities recognized at the end of the reporting period: a) The gross amounts of those recognized financial assets and recognized financial liabilities; b) The amounts that are set off in accordance with the criteria in PAS 32 when determining the net amounts presented in the balance sheet; c) The net amounts presented in the balance sheet; d) The amounts subject to an enforceable master netting arrangement or similar agreement that are not otherwise included in (b) above, including: i. Amounts related to recognized financial instruments that do not meet some or all of the offsetting criteria in PAS 32; and ii. Amounts related to financial collateral (including cash collateral); and e) The net amount after deducting the amounts in (d) from the amounts in (c) above.
The amendments affect disclosures only and have no impact on the Group’s financial position or performance. The additional disclosures required by the amendments are presented in Note 34 to the financial statements.
PFRS 10, Consolidated Financial Statements The Group adopted PFRS 10 in the current year. PFRS 10 replaced the portion of PAS 27, Consolidated and Separate Financial Statements, that addressed the accounting for consolidated financial statements. It also included the issues raised in Standing Interpretations Committee (SIC) 12, Consolidation - Special Purpose Entities. PFRS 10 established a single control model that applied to all entities including special purpose entities. The changes introduced by PFRS 10 require management to exercise significant judgment to determine which entities are controlled, and therefore, are required to be consolidated by a parent, compared with the requirements that were in PAS 27. Refer to Note 3 for the significant judgment made by management in identifying entities for consolidation. The Parent Company assessed that it remains to control all of its subsidiaries under the control principle of PFRS 10.
80 PFRS 12, Disclosure of Interests in Other Entities PFRS 12 sets out the requirements for disclosures relating to an entity’s interests in subsidiaries, joint arrangements, associates and structured entities. The requirements in PFRS 12 are more comprehensive than the previously existing disclosure requirements for subsidiaries (for example, where a subsidiary is controlled with less than a majority of voting rights). None of the majority owned subsidiaries are held by non-controlling interests that are considered material to the Group and which will require additional disclosures by PFRS 12. Refer to Note 10 for the disclosure on the Parent Company’s equity investments.
PFRS 13, Fair Value Measurement PFRS 13 establishes a single source of guidance under PFRSs for all fair value measurements. PFRS 13 does not change when an entity is required to use fair value, but rather provides guidance on how to measure fair value under PFRS. PFRS 13 defines fair value as an exit price. PFRS 13 also requires additional disclosures.
As a result of the guidance in PFRS 13, the Group re-assessed its policies for measuring fair values, in particular, its valuation inputs such as non-performance risk for fair value measurement of liabilities. The Group has assessed that the application of PFRS 13 has not materially impacted the fair value measurements of the Group. Additional disclosures, where required, are provided in the individual notes relating to the assets and liabilities whose fair values were determined. Fair value hierarchy is provided in Note 5.
PAS 1, Presentation of Financial Statements - Presentation of Items of Other Comprehensive Income or OCI (Amendments) The Group applied the amendments to PAS 1 which introduced groupings of items in OCI as follows:
• items that can be reclassified (or “recycled”) to profit or loss at a future point in time (for example, upon derecognition or settlement). These include ‘Cumulative Translation Adjustment’ or ‘Net Unrealized Gains (Losses) on Available-for-Sale Financial Assets’; or • items that will never be recycled to profit or loss. These include ‘Remeasurement gain on defined benefit asset or liability’.
The amendments affect presentation only and have no impact on the Group’s financial position or performance.
PAS 19, Employee Benefits (Revised) Amendments to PAS 19 range from fundamental changes such as removing the corridor mechanism and the concept of expected returns on plan assets to simple clarifications and rewording. The revised standard also requires new disclosures such as, among others, a sensitivity analysis for each significant actuarial assumption, information on asset-liability matching strategies, duration of the defined benefit obligation, and disaggregation of plan assets by nature and risk.
The adoption of the revised standard, which required retrospective application, resulted in the restatement of previously reported retirement plan of the Group. The adjustment amounts were determined by the Group with an assistance of an external actuary. The Group closed to ‘Surplus’ the net effect of all transition adjustments as at January 1, 2011 (the transition date) upon retrospective application of PAS 19 (Revised). The Group will retain the remeasurements recognized in OCI and will not transfer these to other items in equity.
The effects of adoption of PAS 19 (Revised) are detailed below:
Consolidated 31 December 2013 31 December 2012 1 January 2012 Increase (decrease) in: Balance sheet Other asset P1,229,779,265 P652,840,642 P355,915,475 Deferred tax asset (202,977,895) (84,815,603) (16,176,339) Other liabilities 46,535,741 17,314,333 7,265,882 OCI 604,715,114 177,480,174 31,808,630 Surplus 375,344,714 373,606,157 300,720,061 Non-controlling interest 205,801 (375,625) (55,437) Consolidated 2013 2012 Statement of income Compensation and fringe benefits (P2,538,982) (P72,909,474) Statement of comprehensive income Remeasurement gain of defined benefit obligation 601,645,956 213,967,242 Income tax effects (173,440,767) (68,639,264) Other comprehensive income for the year, net of tax 428,205,189 145,327,978 Total comprehensive income for the year P430,744,171 P218,237,452 Attributable to: Equity holders of the parent P430,574,347 P218,557,640 Non-controlling interests 169,824 (320,188)
Annual Report 2013 81 NOTES TO FINANCIAL STATEMENTS
Parent Company 31 December 2013 31 December 2012 1 January 2012 Increase (decrease) in: Balance sheet Other asset P1,224,575,034 P652,840,642 P355,915,475 Deferred tax asset (255,704,157) (84,183,839) (16,489,172) OCI 596,643,032 196,428,958 38,474,734 Surplus 372,227,845 372,227,845 300,951,569
Parent Company 2013 2012 Statement of income Compensation and fringe benefits P− (P71,276,276) Statement of comprehensive income Remeasurement gain of defined benefit obligation 571,734,392 225,648,891 Income tax effects (171,520,318) (67,694,667) OCI for the year, net of tax 400,214,074 157,954,224 Total comprehensive income for the year P400,214,074 P229,230,500
Significant Accounting Policies
Foreign Currency Translation The consolidated financial statements are presented in Philippine peso, 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. The functional currency of the Parent Company’s subsidiaries is the Philippine peso.
Transactions and balances The books of accounts of the RBU are maintained in Philippine peso, the RBU’s functional currency, while those of the FCDU are maintained in United States (US) dollars (USD), the FCDU’s functional currency. For financial reporting purposes, the foreign currency- denominated monetary assets and liabilities in the RBU are translated in Philippine peso 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 (PDSWAR) 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.
FCDU As at the reporting date, the assets and liabilities of the FCDU are translated into the Parent Company’s presentation currency (the Philippine Peso) at the PDS closing rate prevailing at the balance sheet date, and its income and expenses are translated at the PDSWAR for the year. Exchange differences arising on translation are taken directly to the statement of comprehensive income under ‘Cumulative translation adjustment’.
Fair Value Measurement The Group measures financial instruments such as financial assets at FVPL and AFS investments at fair value at each balance sheet date. Also, fair values of financial instruments measured at amortized cost are disclosed in Note 5.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:
• in the principal market for the asset or liability, or • in the absence of a principal market, in the most advantageous market for the asset or liability.
The principal or the most advantageous market must be accessible to by the Group. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest. A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.
The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.
82 All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
• Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities • Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable • Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable
For assets and liabilities that are recognized in the financial statements on a recurring basis, the Group determines whether transfers have occurred between Levels in the hierarchy by re-assessing categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.
Cash and Cash Equivalents For purposes of reporting cash flows, cash and cash equivalents include cash and other cash items, due from Bangko Sentral ng Pilipinas (BSP) and other banks, and securities purchased under resale agreements (SPURA) which have original maturities of three months or less from dates of placements and that are subject to insignificant risk of changes in value.
SPURA The Group enters into short-term purchases of securities under resale agreements of identical securities with the BSP. Resale agreements are contracts under which a party purchases securities and resells such securities to the same selling party at a specified future date at a fixed price. The amounts advanced under resale agreements are carried as ‘Cash and cash equivalents’ in the balance sheet. SPURA are carried at cost. Interest earned on resale agreements is reported as ‘Interest income’ in the statement of income.
Financial Instruments - Initial Recognition and Subsequent Measurement Date of recognition Purchases or sales of financial assets, except for derivatives, that require delivery of assets within the time frame established by regulation or convention in the marketplace are recognized on the settlement date. Settlement date accounting refers to (a) the recognition of an asset on the day it is received by the Group, and (b) the derecognition of an asset and recognition of any gain or loss on disposal on the day that such asset is delivered by the Group. Any change in fair value of unrecognized financial asset is recognized in the statement of income for assets classified as financial assets at FVPL, and in equity for assets classified as AFS investments. Derivatives are recognized on a 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.
Initial recognition of financial instruments All financial instruments are initially recognized at fair value. Except for financial assets and financial liabilities at FVPL, the initial measurement of financial instruments 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 while financial liabilities are classified as financial liabilities at FVPL and financial liabilities carried at amortized cost. 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.
Financial assets and financial liabilities at FVPL 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 instruments held for trading Financial instruments held for trading (HFT) include government debt securities and quoted equity securities purchased and held principally with the intention of selling them in the near term. These securities are carried at fair value; realized and unrealized gains and losses on these instruments are recognized as ‘Trading and securities gain - net’ in the statement of income. Interest earned or incurred on financial instruments held for trading is reported under ‘Interest income’ (for financial assets) and ‘Interest expense’ (for financial liabilities).
Financial instruments designated at FVPL Financial assets and financial liabilities are designated as at FVPL by management on initial recognition when any of the following criteria is 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.
Annual Report 2013 83 NOTES TO FINANCIAL STATEMENTS
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 - net’ in the statement of income. Interest earned or incurred is recorded in ‘Interest income’ or ‘Interest expense’, respectively, while dividend income is recorded in ‘Miscellaneous income’ when the right to receive payment has been established.
Derivatives recorded at FVPL The Parent Company is a party to derivative instruments, particularly, forward exchange contracts, interest rate swaps (IRS) and warrants. 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, and interest rate 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.
Any gains or losses arising from changes in fair value of derivative instruments that do not qualify for hedge accounting are taken directly to the statement of income under ‘ Foreign exchange gain - net’ for forward exchange contracts and ‘Trading and securities gain-net’ for IRS, warrants and embedded credit derivatives.
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 a 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 that would otherwise be required.
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 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 (EIR). 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 translation of foreign currency-denominated HTM financial assets are recognized in the statement of income.
Loans and receivable This accounting policy relates to the balance sheet captions ‘Due from BSP’, ‘Due from other banks’, ‘SPURA’, ‘Loans and receivables’, and ‘Accrued interest receivable’. It also applies to accounts receivable and other financial instruments shown under ‘Other assets’. These are financial assets with fixed or determinable payments that are not quoted in an active market, other than:
• those that the Group intends to sell immediately or in the near term and those that the Group, upon initial recognition, designates as FVPL; • those that the Group, upon initial recognition, designates as AFS; and • those for which the Group may not cover substantially all of its initial investment, other than because of credit deterioration.
After initial measurement, these are subsequently measured at amortized cost using the effective interest 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 EIR. The amortization is included under ‘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 translation of 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 gain (loss) on AFS financial assets’ under OCI.
When the security is disposed of, the cumulative gain or loss previously recognized in OCI is recognized as ‘Trading and securities gain - net’ in the statement of income. Interest earned on holding AFS debt securities are reported as ‘Interest income’ using the EIR. Dividends earned on holding AFS equity instruments are recognized in the statement of income as ‘Miscellaneous income’ when the right to the payment has been established. The losses arising from impairment of such investments are recognized as ‘Provision for impairment and credit losses’ in the statement of income.
84 Other financial liabilities These are issued financial instruments or their components which are not designated as at FVPL and 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, other financial liabilities not qualified and not designated as at FVPL are subsequently measured at amortized cost using the effective interest 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 EIR.
This accounting policy relates to the balance sheet captions ‘Deposit liabilities’, ‘Bills payable’, ‘Manager’s checks’, and financial liabilities presented under ‘Accrued interest and other expenses’ and ‘Other liabilities’.
Reclassification of Financial Assets The Group may reclassify, in certain circumstances, non-derivative financial assets out of the HFT investments category and into the AFS investments, Loans and Receivables or HTM investments categories. The Group may also reclassify, in certain circumstances, financial instruments out of the AFS investment to Loans and Receivables category. Reclassifications are recorded at fair value at the date of reclassification, which becomes the new amortized cost.
The Group may reclassify a non-derivative trading asset out of HFT investments and into the Loans and Receivable category if it meets the definition of loans and receivables, the Group has the intention and ability to hold the financial assets for the foreseeable future or until maturity and only in rare circumstances. If a financial asset is reclassified, and if the Group subsequently increases its estimates of future cash receipts as a result of increased recoverability of those cash receipts, the effect of that increase is recognized as an adjustment to the EIR from the date of the change in estimate.
For a financial asset reclassified out of the AFS investments category, any previous gain or loss on that asset that has been recognized in OCI is amortized to profit or loss over the remaining life of the investment using the effective interest method. Any difference between the new amortized cost and the expected cash flows is also amortized over the remaining life of the asset using the effective interest method. If the asset is subsequently determined to be impaired then the amount recorded in OCI is recycled to the statement of income. Reclassification is at the election of management, and is determined on an instrument by instrument basis. The Group does not reclassify any financial instrument into the FVPL category after initial recognition. An analysis of reclassified financial assets is disclosed in Note 8.
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 risks and rewards of the asset but has transferred 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 the statement of income.
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 sheet as a loan to the Group, reflecting the economic substance of such transaction.
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 SPURA, and is considered a loan to the counterparty.
Annual Report 2013 85 NOTES TO FINANCIAL STATEMENTS
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 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.
Financial 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 there is objective evidence that an impairment loss has been incurred, the amount of 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 present value of the estimated future cash flows is discounted at the financial asset’s original EIR.
If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current EIR, 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. 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 EIR 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.
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.
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.
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 ‘Provision for impairment and credit losses’.
Financial 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 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 balance sheet date whether there is objective evidence that a financial asset or group of financial assets is impaired.
In the 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 OCI 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 OCI.
86 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. However, the amount recorded for impairment is the cumulative loss measured as the difference between the amortized cost and the current fair value, less any impairment loss on that investment previously recognized in profit or loss. Future interest income is based on the reduced carrying amount and is accrued based on the rate of interest used to discount future cash flows for the purpose of measuring impairment loss. Such accrual 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 EIR. The difference between the recorded value of the original loan and the present value of the restructured cash flows, discounted at the original EIR, is recognized in ‘Provision for impairment and credit losses’ in the statement of income.
Investment in Subsidiaries In the separate or parent company financial statements, investment in a subsidiary is carried at cost, less accumulated impairment in value. Dividends earned on this investment is recognized in the Parent Company’s statement of income as declared by the respective BOD of the investee.
Investment 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.
In the separate or parent company financial statements, investments in associates are carried at cost, less accumulated impairment in value. Dividends earned on these investments are recognized in the Parent Company’s statement of income as declared by the respective BOD of the investees.
Upon loss of significant influence over the associate, the Group measures and recognizes any retained investment at its fair value. Any difference between the carrying amount of the associate upon loss of significant influence and the fair value of the retained investment and proceeds from disposal is recognized in profit or loss.
Business Combinations and Goodwill Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value and the amount of any non-controlling interest in the acquiree. For each business combination, the acquirer measures the non-controlling interest in the acquiree either at fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition costs incurred are charged to profit or loss.
When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree.
If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s previously held equity interest in the acquiree is remeasured to fair value at the acquisition date through profit or loss.
Any contingent consideration to be transferred by the acquirer will be recognized at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration which is deemed to be an asset or liability, will be recognized in accordance with PAS 39, Financial Instruments: Recognition and Measurement, either in profit or loss or as a charge to OCI. If the contingent consideration is classified as equity, it should not be remeasured until it is finally settled within equity.
Annual Report 2013 87 NOTES TO FINANCIAL STATEMENTS
Goodwill is initially measured at cost being the excess of the aggregate of fair value of the consideration transferred and the amount recognized for non-controlling interest over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognized in profit or loss.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses.
Goodwill is tested for impairment annually. 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 an operating segment identified for segment reporting purposes.
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.
Bank Premises, Furniture, Fixtures and Equipment Land is stated at cost less any impairment in value while depreciable properties including buildings, leasehold improvements, and furniture, fixtures 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 and if the recognition criteria are met, but excluding 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 and leasehold improvements.
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 Investment properties include real properties acquired in settlement of loans and receivables which are measured initially 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.
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 EUL of the building and improvement components of investment properties which ranged from 10 to 20 years from the time of acquisition of the investment properties.
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.
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.
Intangible Assets Intangible assets include branch licenses resulting from the Parent Company’s acquisition of CBSI and Unity Bank (see Notes 10 and 13).
88 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.
Such intangible assets are not amortized, instead they are tested for impairment annually either individually or at the cash generating unit (CGU) level. Impairment is determined by assessing the recoverable amount of each cash-generating unit (or group of cash- generating units) to which the intangible asset relates. Recoverable amount is the higher of the cash-generating unit’s fair value less costs to sell and its value in use. Where the recoverable amount of the cash-generating units is less than its carrying amount, an impairment loss is recognized.
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 in associates, investment properties, bank premises, furniture, fixtures and equipment and 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 CGU to which it belongs. Where the carrying amount of an asset (or CGU) exceeds its recoverable amount, the asset (or CGU) 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 CGU).
An impairment loss is charged to operations in the year in which it arises.
For nonfinancial assets, excluding goodwill and branch licenses, 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, except for goodwill, 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. 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).
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 risks 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.
Non-current Assets Held for Sale Non-current assets held for sale include repossessed vehicles acquired in settlement of loans and receivable. The Group classifies non-current assets as held for sale if their carrying amounts will be recovered principally through a sale transaction rather than through continuing use. Non-current assets classified as held for sale are measured at the lower of their carrying amount and fair value less cost to sell (FVCTS).
Annual Report 2013 89 NOTES TO FINANCIAL STATEMENTS
The criteria for held for sale classification is regarded as met only when the sale is highly probable and the asset or disposal group is available for immediate sale in its present condition. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification.
After initial measurement, non-current assets held for sale are tested for impairment quarterly. Any impairment loss shall be recognized for any subsequent write-down of the asset to its FVCTS.
Gain for any subsequent increase in FVCTS of the asset shall be recognized, but not in excess of the cumulative impairment loss that has been recognized had it not been impaired in prior reporting periods.
Capital Stock Capital stocks are recorded at par. Proceeds in excess of par value are recognized under equity as ‘Capital paid in excess of par value’ in the balance sheets. Incremental costs incurred which is directly attributable to the issuance of new shares are shown in equity as a deduction from proceeds, net of tax.
Surplus Surplus represents the net accumulated profit of the Parent Company less cumulative dividends declared.
Revenue Recognition Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured, regardless of when the payment is being made. Revenue is measured at the fair value of the consideration received or receivable, taking into account contractually defined terms of payment and excluding taxes or duty. The Group assesses its revenue arrangements against specific criteria in order to determine if it is acting as principal or agent. The Group has concluded that it is acting as a principal in all of its revenue arrangements. 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 FVPL and AFS financial assets, interest income is recorded at the EIR, 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 EIR, as applicable, but not future credit losses. The adjusted carrying amount is calculated based on the original EIR. 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 EIR 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 collectability.
Dividend income Dividend income is recognized when the Group’s right to receive payment is established.
Trading and securities gain This represents results arising from trading activities including 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.
Other income Income from sale of service is recognized upon rendition of the service. Income from sale of properties is recognized upon completion of the earning process and when the collectability of the sales price is reasonably assured.
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’.
Expense Recognition Expense is recognized when it is probable that a decrease in future economic benefit related to a decrease in an asset or an increase in liability has occurred and the decrease in economic benefits can be measured reliably. Revenues and expenses that relate to the same transaction or other event are recognized simultaneously.
Interest Expense Interest expense for all interest-bearing financial liabilities are recognized in ‘Interest expense’ in the statement of income using the EIR of the financial liabilities to which they relate.
90 Other Expenses Expenses encompass losses as well as those expenses that arise in the ordinary course of business of the Group. Expenses are recognized when incurred.
Retirement Benefits Defined benefit plan The net defined benefit liability or asset is the aggregate of the present value of the defined benefit obligation at the end of the reporting period reduced by the fair value of plan assets and adjusted for any effect of limiting a net defined benefit asset to the asset ceiling. The defined benefit obligation is calculated annually by an independent actuary. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates on government bonds that have terms to maturity approximating the terms of the related retirement liability. The asset ceiling is the present value of any economic benefits available in the form of refunds from the plan or reductions in future contributions to the plan.
The cost of providing benefits under the defined benefit plans is actuarially determined using the projected unit credit method.
Defined benefit costs comprise the following: (a) service cost; (b) net interest on the net defined benefit liability or asset; and (c) remeasurements of net defined benefit liability or asset.
Service costs which include current service costs, past service costs and gains or losses on non-routine settlements are recognized as expense in profit or loss. Past service costs are recognized when plan amendment or curtailment occurs.
Net interest on the net defined benefit liability or asset is the change during the period in the net defined benefit liability or asset that arises from the passage of time which is determined by applying the discount rate based on high quality corporate bonds to the net defined benefit liability or asset. Net interest on the net defined benefit liability or asset is recognized as expense or income in profit or loss.
Remeasurements comprising actuarial gains and losses, return on plan assets and any change in the effect of the asset ceiling (excluding net interest on defined benefit liability) are recognized immediately in OCI in the period in which they arise. Remeasurements are not reclassified to profit or loss in subsequent periods.
Plan assets are assets that are held by a long-term employee benefit fund or qualifying insurance policies. Plan assets are not available to the creditors of the Parent Company, nor can they be paid directly to the Parent Company. The fair value of plan assets is based on market price information. When no market price is available, the fair value of plan assets is estimated by discounting expected future cash flows using a discount rate that reflects both the risk associated with the plan assets and the maturity or expected disposal date of those assets (or, if they have no maturity, the expected period until the settlement of the related obligations).
The Parent Company’s right to be reimbursed of some or all of the expenditure required to settle a defined benefit obligation is recognized as a separate asset at fair value when and only when reimbursement is virtually certain. If the fair value of the plan assets is higher than the present value of the defined benefit obligation, the measurement of the resulting defined benefit asset is limited to the present value of economic benefits available in the form of refunds from the plan or reductions in future contributions to the plan.
Employee leave entitlement Employee entitlements to annual leave are recognized as a liability when they are accrued to the employees. The undiscounted liability for leave expected to be settled after the end of the annual reporting period is recognized for services rendered by employees up to the end of the reporting period.
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.
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.
Annual Report 2013 91 NOTES TO FINANCIAL STATEMENTS
Deferred Tax Deferred tax is provided, using the balance sheet liability method, on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.
Deferred tax liabilities are recognized for all taxable temporary differences. 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 relate to the same taxable entity and the same taxation authority.
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 splits, 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 declared during the year that are approved after the balance sheet date are dealt with as an event after the balance sheet date.
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 30. 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.
Events after the Reporting Period Post-year-end events that provide additional information about the Group’s position at the balance sheet date (adjusting event) are reflected in the financial statements. Post-year-end events that are not adjusting events, if any, are disclosed when material to the financial statements.
Future Changes in Accounting Policies
The Group will adopt the Standards and Interpretations enumerated below when these become effective. Except as otherwise indicated, the Group does not expect the adoption of these new and amended PFRS and Philippine Interpretations to have significant impact on its financial statements.
Effective 2014 Investment Entities (Amendments to PFRS 10, PFRS 12 and PAS 27) These amendments are effective for annual periods beginning on or after January 1, 2014. They provide an exception to the consolidation requirement for entities that meet the definition of an investment entity under PFRS 10. The exception to consolidation requires investment entities to account for subsidiaries at fair value through profit or loss. It is not expected that this amendment would be relevant to the Group since none of the entities in the Group would qualify to be an investment entity under PFRS 10.
92 PAS 32, Financial Instruments: Presentation - Offsetting Financial Assets and Financial Liabilities (Amendments) The amendments clarify the meaning of “currently has a legally enforceable right to set-off” and also clarify the application of the PAS 32 offsetting criteria to settlement systems (such as central clearing house systems) which apply gross settlement mechanisms that are not simultaneous. The amendments affect presentation only and have no impact on the Group’s financial position or performance. The amendments to PAS 32 are to be retrospectively applied for annual periods beginning on or after January 1, 2014.
PAS 36, Impairment of Assets - Recoverable Amount Disclosures for Non-Financial Assets (Amendments) These amendments remove the unintended consequences of PFRS 13 on the disclosures required under PAS 36. In addition, these amendments require disclosure of the recoverable amounts for the assets or cash-generating units (CGUs) for which impairment loss has been recognized or reversed during the period. These amendments are effective retrospectively for annual periods beginning on or after January 1, 2014 with earlier application permitted, provided PFRS 13 is also applied. The amendments affect disclosures only and have no impact on the Group’s financial position or performance.
PAS 39, Financial Instruments: Recognition and Measurement - Novation of Derivatives and Continuation of Hedge Accounting (Amendments) These amendments provide relief from discontinuing hedge accounting when novation of a derivative designated as a hedging instrument meets certain criteria. These amendments are effective for annual periods beginning on or after January 1, 2014.
Philippine Interpretation IFRIC 21, Levies IFRIC 21 clarifies that an entity recognizes a liability for a levy when the activity that triggers payment, as identified by the relevant legislation, occurs. For a levy that is triggered upon reaching a minimum threshold, the interpretation clarifies that no liability should be anticipated before the specified minimum threshold is reached. IFRIC 21 is effective for annual periods beginning on or after January 1, 2014. The Group does not expect that IFRIC 21 will have material financial impact in future financial statements.
Effective 2015 onwards PAS 19, Employee Benefits - Defined Benefit Plans: Employee Contributions (Amendments) The amendments apply to contributions from employees or third parties to defined benefit plans. Contributions that are set out in the formal terms of the plan shall be accounted for as reductions to current service costs if they are linked to service or as part of the remeasurements of the net defined benefit asset or liability if they are not linked to service. Contributions that are discretionary shall be accounted for as reductions of current service cost upon payment of these contributions to the plans. The amendments to PAS 19 are to be applied retrospectively. The Group does not expect that the Amendments to PAS 19 will have material financial impact on the financial statements.
PFRS 9, Financial Instruments: Classification and Measurement PFRS 9, as issued, reflects the first phase on the replacement of PAS 39 and applies to the classification and measurement of financial assets and liabilities as defined in PAS 39, Financial Instruments: Recognition and Measurement. Work on impairment of financial instruments and hedge accounting is still ongoing, with a view to replacing PAS 39 in its entirety. PFRS 9 requires all financial assets to be measured at fair value at initial recognition. A debt financial asset may, if the fair value option (FVO) is not invoked, be subsequently measured at amortized cost if it is held within a business model that has the objective to hold the assets to collect the contractual cash flows and its contractual terms give rise, on specified dates, to cash flows that are solely payments of principal and interest on the principal outstanding. All other debt instruments are subsequently measured at fair value through profit or loss. All equity financial assets are measured at fair value either through OCI or profit or loss. Equity financial assets held for trading must be measured at fair value through profit or loss. For FVO liabilities, the amount of change in the fair value of a liability that is attributable to changes in credit risk must be presented in OCI.
The remainder of the change in fair value is presented in profit or loss, unless presentation of the fair value change in respect of the liability’s credit risk in OCI would create or enlarge an accounting mismatch in profit or loss. All other PAS 39 classification and measurement requirements for financial liabilities have been carried forward into PFRS 9, including the embedded derivative separation rules and the criteria for using the FVO. The adoption of the first phase of PFRS 9 will have an effect on the classification and measurement of the Group’s financial assets, but will potentially have no impact on the classification and measurement of financial liabilities.
PFRS 9 currently has no mandatory effective date. PFRS 9 may be applied before the completion of the limited amendments to the classification and measurement model and impairment methodology.
An evaluation was conducted to determine the impact of early adoption of PFRS and the accounts affected are ‘Available-for-sale investments’ and ‘Loans and receivables’. As at December 31, 2013, the Group opted not to early adopt PFRS 9.
Philippine Interpretation IFRIC 15, Agreement for Construction of Real Estate This interpretation covers accounting for revenue and associated expenses by entities that undertake the construction of real estate directly or through subcontractors. The SEC and the Financial Reporting Standards Council have deferred the effectivity of this interpretation until the final Revenue standard is issued by the International Accounting Standards Board and an evaluation of the requirements of the final Revenue standard against the practices of the Philippine real estate industry is completed. Adoption of the interpretation when it becomes effective will not have any impact on the financial statements of the Group.
Annual Report 2013 93 NOTES TO FINANCIAL STATEMENTS
Annual Improvements to PFRSs (2010-2012 cycle) The Annual Improvements to PFRSs (2010-2012 cycle) contain non-urgent but necessary amendments to the following standards:
PFRS 2, Share-based Payment - Definition of Vesting Condition The amendment revised the definitions of vesting condition and market condition and added the definitions of performance condition and service condition to clarify various issues. This amendment shall be prospectively applied to share-based payment transactions for which the grant date is on or after July 1, 2014. This amendment does not apply to the Group as it has no share-based payments.
PFRS 3, Business Combinations - Accounting for Contingent Consideration in a Business Combination The amendment clarifies that a contingent consideration that meets the definition of a financial instrument should be classified as a financial liability or as equity in accordance with PAS 32.
Contingent consideration that is not classified as equity is subsequently measured at fair value through profit or loss whether or not it falls within the scope of PFRS 9 (or PAS 39, if PFRS 9 is not yet adopted). The amendment shall be prospectively applied to business combinations for which the acquisition date is on or after July 1, 2014. The Group shall consider this amendment for future business combinations.
PFRS 8, Operating Segments - Aggregation of Operating Segments and Reconciliation of the Total of the Reportable Segments’ Assets to the Entity’s Assets The amendments require entities to disclose the judgment made by management in aggregating two or more operating segments. This disclosure should include a brief description of the operating segments that have been aggregated in this way and the economic indicators that have been assessed in determining that the aggregated operating segments share similar economic characteristics. The amendments also clarify that an entity shall provide reconciliations of the total of the reportable segments’ assets to the entity’s assets if such amounts are regularly provided to the chief operating decision maker. These amendments are applied retrospectively. The amendments affect disclosures only and have no impact on the Group’s financial position or performance.
PFRS 13, Fair Value Measurement - Short-term Receivables and Payables The amendment clarifies that short-term receivables and payables with no stated interest rates can be held at invoice amounts when the effect of discounting is immaterial.
PAS 16, Property, Plant and Equipment - Revaluation Method - Proportionate Restatement of Accumulated Depreciation The amendment clarifies that, upon revaluation of an item of property, plant and equipment, the carrying amount of the asset shall be adjusted to the revalued amount, and the asset shall be treated in one of the following ways:
a. The gross carrying amount is adjusted in a manner that is consistent with the revaluation of the carrying amount of the asset. The accumulated depreciation at the date of revaluation is adjusted to equal the difference between the gross carrying amount and the carrying amount of the asset after taking into account any accumulated impairment losses. b. The accumulated depreciation is eliminated against the gross carrying amount of the asset.
The amendment shall apply to all revaluations recognized in annual periods beginning on or after the date of initial application of this amendment and in the immediately preceding annual period. The Group does not expect that the Improvements to PAS 16 will have material financial impact on the financial statements.
PAS 24, Related Party Disclosures - Key Management Personnel The amendments clarify that an entity is a related party of the reporting entity if the said entity, or any member of a group for which it is a part of, provides key management personnel services to the reporting entity or to the parent company of the reporting entity. The amendments also clarify that a reporting entity that obtains management personnel services from another entity (also referred to as management entity) is not required to disclose the compensation paid or payable by the management entity to its employees or directors. The reporting entity is required to disclose the amounts incurred for the key management personnel services provided by a separate management entity. The amendments are applied retrospectively. The amendments affect disclosures only and have no impact on the Group’s financial position or performance.
PAS 38, Intangible Assets - Revaluation Method - Proportionate Restatement of Accumulated Amortization The amendments clarify that, upon revaluation of an intangible asset, the carrying amount of the asset shall be adjusted to the revalued amount, and the asset shall be treated in one of the following ways:
a. The gross carrying amount is adjusted in a manner that is consistent with the revaluation of the carrying amount of the asset. The accumulated amortization at the date of revaluation is adjusted to equal the difference between the gross carrying amount and the carrying amount of the asset after taking into account any accumulated impairment losses. b. The accumulated amortization is eliminated against the gross carrying amount of the asset.
The amendments also clarify that the amount of the adjustment of the accumulated amortization should form part of the increase or decrease in the carrying amount accounted for in accordance with the Standard.
The amendments shall apply to all revaluations recognized in annual periods beginning on or after the date of initial application of this amendment and in the immediately preceding annual period. The amendments have no impact on the Group’s financial position or performance.
94 Annual Improvements to PFRSs (2011-2013 cycle) The Annual Improvements to PFRSs (2011-2013 cycle) contain non-urgent but necessary amendments to the following standards:
PFRS 1, First-time Adoption of Philippine Financial Reporting Standards - Meaning of ‘Effective PFRSs’ The amendment clarifies that an entity may choose to apply either a current standard or a new standard that is not yet mandatory, but that permits early application, provided either standard is applied consistently throughout the periods presented in the entity’s first PFRS financial statements. This amendment is not applicable to the Group as it is not a first-time adopter of PFRS.
PFRS 3, Business Combinations - Scope Exceptions for Joint Arrangements The amendment clarifies that PFRS 3 does not apply to the accounting for the formation of a joint arrangement in the financial statements of the joint arrangement itself. The amendment is applied prospectively.
PFRS 13, Fair Value Measurement - Portfolio Exception The amendment clarifies that the portfolio exception in PFRS 13 can be applied to financial assets, financial liabilities and other contracts. The amendment is applied prospectively. The amendment has no significant impact on the Group’s financial position or performance.
PAS 40, Investment Property The amendment clarifies the interrelationship between PFRS 3 and PAS 40 when classifying property as investment property or owner-occupied property. The amendment stated that judgment is needed when determining whether the acquisition of investment property is the acquisition of an asset or a group of assets or a business combination within the scope of PFRS 3. This judgment is based on the guidance of PFRS 3. This amendment is applied prospectively. The amendment has no significant impact on the Group’s financial position or performance.
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 a. Assessment of control over the entities for consolidation The Group has majority owned subsidiaries discussed in Note 2. Management concluded that the Group controls these wholly owned and majority owned subsidiaries through its voting rights and, therefore, consolidates these entities in its consolidated financial statements.
Management also assessed that it has not yet obtained control over PDB as of December 31, 2013 because the substantive closing conditions pursuant to the SPA with the PDB Shareholders have not yet been satisfied as at year-end.
b. Assessment of significant influence over an associate Management concluded that the Parent Company has significant influence over an associate even though it holds less than 20.00% of the voting rights because of the arrangement entered into with the associate’s majority owner that grants the Parent Company with a representation in the associate’s BOD which allows it to participate in the policy-making process of the associate (see Note 10).
c. Functional currency PAS 21, The Effects of Changes in Foreign Exchange Rates, requires management to use its judgment in determining the entity’s functional currency such that it most faithfully represents the economic effects of the underlying transactions, events and conditions that are relevant to the entity. In making this judgment, the Group considers the following:
• the currency that mainly influences sales prices for financial instruments and services (this will often be the currency in which sales prices for its financial instruments and services are denominated and settled); • the currency in which funds from financing activities are generated; and • the currency in which receipts from operating activities are usually retained.
d. Fair value of financial instruments 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.
Where the fair values of financial assets and financial liabilities recorded on the balance sheet or disclosed in the notes 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.
Annual Report 2013 95 NOTES TO FINANCIAL STATEMENTS
e. 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.
f. Embedded derivatives The Group assesses the existence of an embedded derivative when it first becomes a party to the contract and performs reassessment if there is a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required.
An embedded derivative is separated from the host financial or nonfinancial contract and accounted for as a derivative if all of the following conditions are met:
• the economic characteristics and risks of the embedded derivative are not closely related to the economic characteristic of the host contract; • a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; and • the hybrid or combined instrument is not recognized at FVPL.
The Group determines whether a modification to cash flows is significant by considering the extent to which the expected future cash flows associated with the embedded derivative, the host contract or both have changed and whether the change is significant relative to the previously expected cash flows on the contract.
Embedded derivatives that are bifurcated from the host contracts are accounted for as financial assets or liabilities at FVPL. Changes in fair values of embedded derivatives are included in the statement of income. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative.
As of December 31, 2013, the Group’s investment in preferred shares contains embedded derivatives in the form of an optional redemption feature. The embedded option together with the preferred shares have been designated by management as at FVPL (Note 8).
g. Operating leases The Group has entered into commercial property leases on its investment property portfolio. The Group has determined based on the evaluation of the terms and conditions of the arrangements (i.e., the lease does not transfer the ownership of the asset to the lessee by the end of the lease term, the lessee has no option to purchase the asset at a price that is expected to be sufficiently lower than the fair value at the date the option is exercisable and the lease term is not for the major part of the asset’s economic life), that it retains all the significant risks and rewards of ownership of these properties which are leased out under operating leases.
The Group has also entered into leases on premises it uses for its operations. The Group has determined, based on the evaluation of the lease agreement, that all significant risks and rewards of ownership of the properties it leases are not transferrable to the Group.
h. 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 counsel handling the Group’s defense in these matters and is based upon an analysis of potential results. The Group currently does not believe that these proceedings will have a material adverse effect on the financial statements. 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.
Estimates a. Going concern The Group’s management has made an assessment of its ability to continue as a going concern and is satisfied that it has the resources to continue in business for the foreseeable future. Furthermore, management is not aware of any material uncertainties that may cast significant doubt upon the Group’s ability to continue as going concern. Therefore, the financial statements continue to be prepared on a going concern basis.
b. 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 5).
96 c. Credit losses on loans and receivables The Group reviews its loans and receivables at each reporting date to assess whether an allowance for credit losses 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.
The carrying values of loans and receivables and the related allowance for credit losses of the Group and the Parent Company are disclosed in Notes 9 and 15. d. Impairment of AFS equity investments The Group treats AFS equity investments as impaired when there has been a significant or prolonged decline in the 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 20.00% or more of the original cost of investment, and ‘prolonged’ as greater than 12 months. In addition, the Group evaluates other factors, including normal volatility in share price for quoted equities and future cash flows and discount factors for unquoted equities.
The carrying values of AFS equity investments and the related allowance for impairment of the Group and the Parent Company are disclosed in Notes 8 and 15. e. Impairment of HTM and AFS debt investments The Group determines that AFS debt investments are impaired based on the same criteria as loans and receivables.
As of December 31, 2013 and 2012, HTM and AFS debt investments were unimpaired. The carrying values of HTM and AFS debt investments are disclosed in Note 8. f. Estimated useful lives of bank premises, furniture, fixture and equipment, and investment properties The Group estimates the useful lives of its bank premises, furniture, fixture and equipment, and investment properties. These estimates are reviewed periodically to ensure that the period of depreciation and amortization are consistent with the expected pattern of economic benefits from the items of bank premises, furniture, fixture and equipment, and investment properties.
A reduction in the estimated useful lives of bank premises, furniture, fixture and equipment, and investment properties would increase the recorded depreciation and amortization expense and decrease noncurrent assets. The estimated useful lives of bank premises, furniture, fixture and equipment, and investment properties are disclosed in Note 2. g. Impairment on investments in subsidiaries and associates and other nonfinancial assets The Parent Company assesses impairment on its investments in subsidiaries and associate whenever events or changes in circumstances indicate that the carrying amount of the 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 on the technological, market, economic, or legal environment which had an adverse effect on the subsidiary or associate during the period or in the near future, in which the subsidiary operates.
The Group also assesses impairment on its nonfinancial assets (e.g., investment properties and bank premises, furniture, fixtures and equipment) and 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. Except for investment properties where recoverable amount is determined based on fair value less cost to sell, the recoverable amount of all other nonfinancial assets 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 Group is required to make estimates and assumptions that can materially affect the carrying amount of the asset being assessed. The carrying values of the Group’s investments in subsidiaries and associate and other nonfinancial assets are disclosed in Notes 10, 11 and 12, respectively.
Annual Report 2013 97 NOTES TO FINANCIAL STATEMENTS
h. Impairment of goodwill and branch licenses The Group conducts an annual review for any impairment in the value of goodwill and branch licenses. Goodwill and branch licenses are written down for impairment where the net present value of the forecasted future cash flows from the business is insufficient to support their carrying value. The Group estimates the discount rate used for the computation of the net present value by reference to industry cost of capital. Future cash flows from the business are estimated based on the theoretical annual income of the CGUs. Average growth rate is derived from the average increase in annual income of the CGUs during the last 5 years. The recoverable amount of the CGU is determined based on a value-in-use calculation using cash flow projections from financial budgets approved by senior management covering a five-year period. The pre-tax discount rate applied to cash flow projections is 12.05% and 11.89% in 2013 and 2012, respectively. Key assumptions in value-in-use calculation of CGUs are most sensitive to discount rates and growth rates used to project cash flows.
The carrying values of the Group’s goodwill and branch licenses are disclosed in Notes 10 and 13.
i. 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. These assumptions include, among others, discount rates, and salary increase.
The assumed discount rates were determined using the market yields on Philippine government bonds with terms consistent with the expected employee benefit payout as of the balance sheets date. Refer to Note 23 for the details on the assumptions used in the calculation.
The present value of the retirement obligation and fair value of plan assets are disclosed in Note 23.
j. 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.
The Group believes it will be able to generate sufficient taxable income in the future to utilize its recorded deferred tax assets. Taxable income is sourced mainly from interest income from lending activities and earnings from service charge, fees, commissions and trust activities.
The recognized and unrecognized deferred tax assets are disclosed in Note 26.
4. FINANCIAL INSTRUMENT CATEGORIES
The following table presents the total carrying amount of the Group’s and Parent Company’s financial instruments per category:
Consolidated Parent Company 2012 (As restated - 2013 Note 10) 2013 2012 Financial assets Cash and other cash items P7,281,640,616 P6,160,371,861 P7,035,251,105 P5,996,785,687 Financial assets at FVPL 10,421,423,053 12,166,678,192 10,421,423,053 12,166,678,192 AFS financial assets 44,349,256,775 41,571,441,141 43,196,190,593 40,676,728,810 HTM financial assets 12,150,546,829 12,693,233,413 12,122,589,213 12,665,325,779 Loans and receivables: Due from BSP 78,968,132,522 40,659,682,959 75,678,312,048 37,597,455,540 Due from other banks 23,885,538,128 4,527,376,998 23,215,575,357 4,289,620,222 SPURA – 446,000,000 – – Loans and receivables - net 220,540,902,915 190,100,306,325 210,762,269,411 185,361,754,668 Accrued interest receivable 1,899,408,789 1,834,766,400 1,801,594,853 1,789,455,915 Other assets* 2,605,330,259 3,161,061,297 2,355,729,934 2,851,211,793 327,899,312,613 240,729,193,979 313,813,481,603 231,889,498,138 Total financial assets P402,102,179,886 P313,320,918,586 P386,588,935,567 P303,395,016,606 * Other assets exclude net plan assets and creditable withholding taxes (see Note 14).
98 Consolidated Parent Company 2012 (As restated - 2013 Note 10) 2013 2012 Financial liabilities Other financial liabilities: Deposit liabilities P354,268,202,680 P271,977,239,870 P339,831,853,487 P263,074,109,357 Bills payable 8,299,194,525 3,526,807,973 8,299,194,525 3,526,807,973 Manager’s checks 859,892,248 801,208,565 704,488,259 736,088,844 Accrued interest and other expenses* 548,272,803 846,790,299 498,286,297 781,450,883 Other liabilities** 3,054,871,530 2,735,017,951 2,722,643,351 2,489,648,909 367,030,433,786 279,887,064,658 352,056,465,919 270,608,105,966 Financial liabilities at FVPL: Derivative liabilities 154,808,366 570,575,771 154,808,366 570,575,771 Total financial liabilities P367,185,242,152 P280,457,640,429 P352,211,274,285 P271,178,681,737 * Accrued interest and other expenses exclude accrued payable for employee benefits, accrued taxes and other licenses, and accrued lease payable. ** Other liabilities exclude withholding taxes payable and retirement liabilities (see Note 19).
5. FAIR VALUE MEASUREMENT
The Group has assets and liabilities in the consolidated balance sheets that are measured at fair value on a recurring and non- recurring basis after initial recognition. Recurring fair value measurements are those that another PFRS requires or permits to be recognized in the consolidated balance sheet at the end of each financial reporting period. These include financial assets and liabilities at FVPL and AFS financial assets. Non-recurring fair value measurements are those that another PFRS requires or permits to be recognized in the consolidated balance sheet in particular circumstances. For example, PFRS 5 requires an entity to measure an asset held for sale at the lower of its carrying amount and fair value less costs to sell. Since the asset’s fair value less costs to sell is only recognized in the balance sheet when it is lower than its carrying amount, that fair value measurement is non-recurring.
As of December 31, 2013 and 2012, except for the following financial instruments, the carrying values of the Group’s financial assets and liabilities as reflected in the balance sheets and related notes approximate their respective fair values:
Consolidated 2013 2012 (As restated - Note 10) Carrying Value Fair Value Carrying Value Fair Value Financial Assets HTM financial assets: Government bonds P11,800,868,261 P13,777,054,471 P12,372,496,675 P15,063,146,651 Private bonds 349,678,568 403,498,491 320,736,738 392,250,692 Loans and receivables: Corporate and commercial loans 180,258,652,458 181,699,876,526 157,348,768,095 162,082,056,112 Consumer loans 29,139,864,050 31,178,193,986 21,887,420,910 23,325,194,973 Trade-related loans 11,042,645,985 11,447,877,620 10,762,158,498 11,396,294,324 Others 99,740,422 103,584,257 101,958,822 103,218,919 Sales contracts receivable 474,299,468 488,640,974 481,866,255 508,129,730 Financial Liabilities Deposit liabilities 354,268,202,680 349,841,938,319 271,977,239,870 265,067,286,621 Bills payable 8,299,194,525 8,086,926,720 3,526,807,973 3,795,770,851
Parent Company 2013 2012 Carrying Value Fair Value Carrying Value Fair Value Financial Assets HTM financial assets: Government bonds P11,772,910,645 P13,749,096,855 P12,344,589,041 P15,032,793,188 Private bonds 349,678,568 403,498,491 320,736,738 391,250,692 Loans and receivables: Corporate and commercial loans 176,863,844,062 177,900,721,066 155,255,349,771 159,914,081,512 Consumer loans 22,765,855,816 23,148,845,237 19,251,841,266 21,136,973,623 Trade-related loans 11,042,645,985 11,447,877,620 10,762,158,498 11,396,294,324 Others 89,923,548 93,496,275 92,405,133 93,676,338 Sales contracts receivable 403,784,273 415,948,066 394,826,052 411,364,781 Financial Liabilities Deposit liabilities 339,831,853,487 334,990,850,792 263,074,109,357 256,169,281,721 Bills payable 8,299,194,525 8,086,926,720 3,526,807,973 3,795,770,851
Annual Report 2013 99 NOTES TO FINANCIAL STATEMENTS
The methods and assumptions used by the Group and Parent Company in estimating the fair values of the financial instruments follow:
Cash and other cash items, due from BSP and other banks, SPURA and accrued interest receivable - The carrying amounts approximate their fair values in view of the relatively short-term maturities of these instruments.
Debt securities - Fair values are generally based on 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 and sales contract receivable (SCR) included in other assets - Fair values of loans and receivables and SCR are estimated using the discounted cash flow methodology, where future cash flows are discounted using the Group’s current incremental lending rates for similar types of loans and receivables.
Accounts receivable, returned checks and other cash items (RCOCI) and other financial assets included in other assets - Quoted market prices are not readily available for these assets. These are reported at cost and are not significant in relation to the Group’s total portfolio of securities.
Derivative instruments (included under FVPL) - Fair values are estimated based on quoted market prices provided by independent parties or accepted valuation models (either based on discounted cash flow techniques or option pricing models, as applicable).
Derivative assets and liabilities - Fair values are calculated by reference to the prevailing interest differential and spot exchange rate as of the balance sheet date, taking into account the remaining term to maturity of the derivative assets and liabilities.
Bifurcated embedded derivatives (included under Derivative assets) - Fair values are estimated based on a valuation model from Bloomberg using inputs provided by counterparty banks.
Deposit liabilities (time, demand and savings deposits) - Fair values of time deposits are estimated using the discounted cash flow methodology, where future cash flows are discounted using the Group’s current incremental borrowing rates for similar borrowings and with maturities consistent with those remaining for the liability being valued. For 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, where future cash flows are discounted using the current incremental borrowing rates for similar borrowings and with maturities consistent with those remaining for the liability being valued.
Manager’s checks and accrued interest and other expenses - Carrying amounts approximate fair values due to the short-term nature of the accounts.
Other liabilities - Quoted market prices are not readily available for these liabilities. These are reported at cost and are not significant in relation to the Group’s total portfolio.
Fair Value Hierarchy The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:
Level 1: quoted prices in active markets for identical assets or liabilities; Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices); and Level 3: inputs that are not based on observable market data or unobservable inputs.
100 As of December 31, 2013 and 2012, the fair value hierarchy of the Group’s and Parent Company’s assets and liabilities are presented below:
Consolidated 2013 Level 1 Level 2 Level 3 Total Recurring fair value measurements(a) Financial assets at FVPL (Note 8) Held-for-trading: Government bonds P2,289,626,987 P− P− P2,289,626,987 Treasury notes 651,643,244 1,234,324,938 − 1,885,968,182 Private bonds and commercial papers 893,905,336 − − 893,905,336 Financial assets designated at FVPL 4,856,408,376 − − 4,856,408,376 Derivative assets − 495,514,172 − 495,514,172 AFS financial assets (Note 8) Government bonds 2,473,338,078 37,161,774,934 − 39,635,113,012 Private bonds and commercial papers 3,555,275,367 979,626,875 − 4,534,902,242 Quoted equity shares 150,459,385 – − 150,459,385 14,870,656,773 39,871,240,919 − 54,741,897,692 Financial liabilities at FVPL Derivative liabilities − 154,808,366 − 154,808,366 − 154,808,366 − 154,808,366 Fair values of assets carried at amortized cost/cost(a) HTM financial assets Government bonds 13,777,054,471 − − 13,777,054,471 Private bonds 403,498,491 − − 403,498,491 Loans and receivables Corporate and commercial loans − − 181,699,876,526 181,699,876,526 Consumer loans − − 31,178,193,986 31,178,193,986 Trade-related loans − − 11,447,877,620 11,447,877,620 Others − − 103,584,257 103,584,257 Sales contracts receivable − − 488,640,974 488,640,974 Investment properties(b) Land − − 5,083,109,886 5,083,109,886 Buildings and improvements − − 1,475,952,133 1,475,952,133 14,180,552,962 − 231,477,235,382 245,657,788,344 Fair values of liabilities carried at amortized cost(a) Deposit liabilities − − 349,841,938,319 349,841,938,319 Bills payable − − 8,086,926,720 8,086,926,720 − − 357,928,865,039 357,928,865,039 (a) valued as of December 31, 2013 (b) valued at various dates in 2013 Consolidated 2012 (As restated - Note 10) Level 1 Level 2 Level 3 Total Financial Assets Financial assets at FVPL (Note 8) Held-for-trading: Treasury notes P3,361,146,996 P582,329,443 P–P3,943,476,439 Government bonds 2,486,034,631 – – 2,486,034,631 Treasury bills 107,585 – – 107,585 Private bonds and commercial papers 484,724,705 – – 484,724,705 Financial assets designated at FVPL 4,999,995,000 – – 4,999,995,000 Derivative assets – 252,339,832 – 252,339,832 AFS financial assets (Note 8) Government bonds 1,330,816,977 34,330,455,570 – 35,661,272,547 Credit-linked notes (host) – 4,130,600,504 – 4,130,600,504 Private bonds and commercial papers 432,554,427 1,198,372,269 – 1,630,926,696 Quoted equity shares 121,751,295 – – 121,751,295 13,217,131,616 40,494,097,618 – 53,711,229,234 Financial Liabilities Financial liabilities at FVPL Derivative liabilities – 570,575,771 – 570,575,771 – 570,575,771 – 570,575,771
Annual Report 2013 101 NOTES TO FINANCIAL STATEMENTS
Parent Company 2013 Level 1 Level 2 Level 3 Total Recurring fair value measurements(a) Financial assets at FVPL (Note 8) Held-for-trading: Government bonds P2,289,626,987 P− P− P2,289,626,987 Treasury notes 651,643,244 1,234,324,938 − 1,885,968,182 Private bonds and commercial papers 893,905,336 – – 893,905,336 Financial assets designated at FVPL 4,856,408,376 – – 4,856,408,376 Derivative assets – 495,514,172 – 495,514,172 AFS financial assets (Note 8): Government bonds 1,497,096,370 37,161,774,934 – 38,658,871,304 Private bonds and commercial papers 3,394,861,168 979,626,875 – 4,374,488,043 Quoted equity shares 143,418,541 – – 143,418,541 13,726,960,022 39,871,240,919 – 53,598,200,941 Financial liabilities at FVPL Derivative liabilities − 154,808,366 – 154,808,366 − 154,808,366 – 154,808,366 Fair values of assets carried at amortized cost/cost(a) Held-to-maturity financial assets Government bonds 13,749,096,855 – – 13,749,096,855 Private bonds 403,498,491 – – 403,498,491 Loans and receivables Corporate and commercial loans – – 177,900,721,066 177,900,721,066 Consumer loans – – 23,148,845,237 23,148,845,237 Trade-related loans – – 11,447,877,620 11,447,877,620 Others – – 93,496,275 93,496,275 Sales contracts receivable – – 415,948,066 415,948,066 Investment properties(b) Land – – 4,894,397,892 4,894,397,892 Buildings and improvements – – 1,288,677,139 1,288,677,139 14,152,595,346 – 219,189,963,295 233,342,558,641 Fair values of liabilities carried at amortized cost Deposit liabilities – – 334,990,850,792 334,990,850,792 Bills payable – – 8,086,926,720 8,086,926,720 – – 343,077,777,512 343,077,777,512 (a) valued as of December 31, 2012 (b) valued at various dates in 2012
Parent Company 2012 Level 1 Level 2 Level 3 Total Financial Assets Financial assets at FVPL Held-for-trading (Note 8): Treasury notes P3,361,146,996 P582,329,443 P–P3,943,476,439 Government bonds 2,486,034,631 – – 2,486,034,631 Treasury bills 107,585 – – 107,585 Private bonds and commercial papers 484,724,705 – – 484,724,705 Derivative assets – 252,339,832 – 252,339,832 Financial assets designated at FVPL 4,999,995,000 – – 4,999,995,000 AFS financial assets Government bonds 590,638,611 34,330,455,571 – 34,921,094,182 Credit-linked notes (host) – 4,130,600,504 – 4,130,600,504 Private bonds and commercial papers 286,588,166 1,198,372,269 – 1,484,960,435 Quoted equity shares 120,660,984 – – 120,660,984 12,329,896,678 40,494,097,619 – 52,823,994,297 Financial Liabilities Financial liabilities at FVPL Derivative liabilities – 570,575,771 – 570,575,771 – 570,575,771 – 570,575,771 There were no transfers between Level 1 and Level 2 fair value measurements and no transfers into and out of Level 3 fair value measurements in 2013 and 2012.
102 The inputs used in the fair value measurement based on Level 2 are as follows:
Government securities - interpolated rates based on market rates of benchmark securities as of reporting date.
Derivative assets and liabilities - fair values are calculated by reference to the prevailing interest differential and spot exchange rate as of the balance sheet date, taking into account the remaining term to maturity of the derivative assets and liabilities.
Inputs used in estimating fair values of financial instruments carried at cost and categorized under level 3 include risk-free rates and applicable risk premium.
The fair values of the Group’s and Parent Company’s investment properties have been determined by the appraisal method by independent external and in-house appraisers based on highest and best use of property being appraised. Valuations were derived 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 and comparability of similar properties sold with the property being valued.
The table below summarizes the valuation techniques used and the significant unobservable inputs valuation for each type of investment properties held by the Group and the Parent Company:
Valuation Techniques Significant Unobservable Inputs Land Market Data Approach Price per square meter, size, location, shape, time element and corner influence Land and Building Market Data Approach and Cost Approach Reproduction Cost New
Description of the valuation techniques and significant unobservable inputs used in the valuation of the Group and the Parent Company’s investment properties are as follows:
Valuation Techniques Market Data Approach A process of comparing the subject property being appraised to similar comparable properties recently sold or being offered for sale. It is an estimate of the investment required to duplicate the property in its present condition. It is Cost Approach reached by estimating the value of the building “as if new” and then deducting the depreciated cost. Fundamental to the Cost Approach is the estimate of Reproduction Cost New of the improvements.
Significant Unobservable Inputs Reproduction Cost New The cost to create a virtual replica of the existing structure, employing the same design and similar building materials.
Size Size of lot in terms of area. Evaluate if the lot size of property or comparable conforms to the average cut of the lots in the area and estimate the impact of lot size differences on land value.
Shape Particular form or configuration of the lot. A highly irregular shape limits the usable area whereas an ideal lot configuration maximizes the usable area of the lot which is associated in designing an improvement which conforms with the highest and best use of the property.
Location Location of comparative properties whether on a Main Road, or secondary road. Road width could also be a consideration if data is available. As a rule, properties located along a Main Road are superior to properties located along a secondary road.
Time Element “An adjustment for market conditions is made if general property values have appreciated or depreciated since the transaction dates due to inflation or deflation or a change in investors’ perceptions of the market over time”. In which case, the current data is superior to historic data.
Discount Generally, asking prices in ads posted for sale are negotiable. Discount is the amount the seller or developer is willing to deduct from the posted selling price if the transaction will be in cash or equivalent.
Corner influence Bounded by two (2) roads.
Annual Report 2013 103 NOTES TO FINANCIAL STATEMENTS
6. 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 and thresholds, process controls and monitoring, and independent controls. As reflected in its corporate actions and organizational improvements, the Group has placed due importance on 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 CBSI, 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 BODs. The BOD of the Parent Company 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 and thresholds. The RMC is composed of four members of the BOD.
The Risk Management Group (RMG) 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 RMG is likewise responsible for monitoring the implementation of specific risk control procedures and enforcing compliance thereto. The RMG is also directly involved in the 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 RMG also ensures that risk measurements are accurately and completely captured on a timely basis in the management reporting system of the Parent Company. The RMG regularly reports the results of the risk measurements to the RMC. The RMG is headed by the Chief Risk Officer (CRO).
Apart from RMG, 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 Division 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 Division focuses 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 RMG. 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 RMG report to the RMC and are a resource 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 in its products, transactions 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, Value-at-Risk (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 single- name and sectoral concentration is included in the discussion with the RMC. 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.
The Parent Company has acquired a new risk management system which, for market and liquidity risk, will greatly improve its risk measurement and reporting, particularly those related to treasury products. In 2013, the Parent Company implemented the Asset and Liability Management system for liquidity risk and interest rate risk.
104 Risk Mitigation The Parent Company uses derivatives to manage exposures in its financial instruments resulting from changes in interest rates and foreign currencies exposures. 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.
To further mitigate risks throughout its different business units, the Parent Company created new risk management policies and improved existing policies. 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, preventive 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 created by the RMG are taken up and resolved in the RMC and ManCom.
Based on the approved Operational Risk Assessment Program, RMG spearheaded the bankwide (all Head Office units and branches) risk identification and self-assessment process. This would enable determination of priority risk areas, assessment of mitigating controls in place, and institutionalization of additional measures to ensure a controlled operating environment. RMG was also mandated to maintain and update the Parent Company’s Centralized Loss Database wherein all reported incidents of losses shall be encoded to enable assessment of weaknesses in the processes and come up with viable improvements to avoid recurrence.
Monitoring and controlling risks are primarily performed based on various limits and thresholds established by the top management covering the Group’s transactions and dealings. These limits and thresholds 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.
The Group’s Management identified the need for an asset-liability management (ALM) application to strategically manage risks arising from mismatches between the Parent Company’s assets and liabilities, particularly in the areas of interest rate risk and liquidity risk. An ALM would support high-level decisions with regard to funds pricing and resource allocation.
The ALM system project began in 2011. User Acceptance Testing (UAT) of the Static (phase 1) and Liquidity (phase 2) modules were completed in 2013. After conducting parallel-runs of the manual risk reports and Static ALM reports, the system was implemented in September 2013 for automated generation of Maximum Cumulative Outflow (MCO) and Earnings-at-Risk (EAR) reports. The automation of liquidity stress reports to maximize the use of the Liquidity module in ALM is targeted for 2014. The Dynamic (phase 3) and Funds Transfer Pricing modules (phase 4) of Treasury and Corporate Planning are handled by the respective groups.
The Group’s Management identified the need to accurately measure market risk exposures of its derivative instruments and standard products with non-normal returns by the implementation of Historical Simulation VaR approach for all trading products. In 2013, pending implementation of the Kondor Global Risk (KGR) Market Risk Module, the Parent Company has begun using Historical Simulation VaR delta approximation approach for its financial derivatives (IRS) and foreign exchange instruments (FX Swaps/ Forwards). Standard financial instruments (Fixed Income Securities) remain under Parametric VaR. Compared to the Parametric VaR approach where portfolio returns are assumed to be normally distributed and changes in returns assumed to be linear in relation to market factors, the Historical Simulation VaR approach uses the actual daily fluctuation of portfolio returns, and thus captures actual distribution of returns. Thus, historical simulation is the preferred methodology for trading derivatives which may not be linear.
The Parent Company is still testing and implementing a new market risk system module to support its trading and derivative activities. The module had been independently validated by a qualified third-party reviewer in 2013.
BSP issued Circular No. 639 dated January 15, 2009 which mandated the use of the Internal Capital Adequacy Assessment Process (ICAAP) by all universal and commercials banks to determine their minimum required capital relative to their business risk exposures. In this regard, the Board approved the engagement of the services of a consultant to assist in the bank-wide implementation and embedding of the ICAAP, as provided for under Pillar 2 of Basel II and BSP Circular No. 639.
On January 9, 2013, the BOD affirmed that the priority risks set in the 2009 Risk Self-assessment Survey and voting conducted among selected members of the BOD and Senior Management remain the same.
The Parent Company had submitted its ICAAP document, in compliance with BSP requirements on January 30, 2013. The document disclosed that the Parent Company has an appropriate level of internal capital relative to the Group’s risk profile.
For the ICAAP document submitted on January 30, 2014, the Parent Company retained the Pillar 1 Plus approach using the Pillar 1 capital as the baseline. The process of allocating capital for all types of risks above the Pillar 1 capital levels is now primarily based on the results of the Integrated Stress Test (IST). The adoption of the IST allows the Parent Company to quantify its overall vulnerability to market shocks and operational losses in a collective manner driven by events rather than in silo. The capital assessment in the document discloses that the Group and the Parent Company has appropriate and sufficient level of internal capital.
Annual Report 2013 105 NOTES TO FINANCIAL STATEMENTS
Credit Risk Credit Risk and Concentration of Assets and Liabilities and Off-Balance Sheet Items Credit risk is the risk of financial loss on account of a counterparty to a financial product failing to honor its 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 (i.e., 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).
The Group established risk limits and thresholds for purposes of monitoring and managing credit risk from individual counterparties and/or groups of counterparties, as well as industry divisions. It also conducts periodical assessment of the creditworthiness of its counterparties. In addition, the Group 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 Group established 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 total assets, total facilities, or total credit exposures amounting to 15.00 million and above.
Further, the CRRS was designed within the technical requirements defined under BSP Circular No. 439. It has two components, namely: a) Borrower Risk Rating (BRR) which provides an assessment of the creditworthiness 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.
In 2011, the Parent Company launched the Borrower Credit Score (BCS), a credit scoring system designed for retail small and medium entities and individual loan accounts. The BCS is currently implemented on a test run basis.
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.
The distribution of the Group’s and Parent Company’s assets, liabilities, and credit commitment items (see Note 30) by geographic region as of December 31, 2013 and 2012 (in millions) follows:
Consolidated 2013 2012 (As restated - Note 10) Credit Credit Assets Liabilities Commitments Assets Liabilities Commitments Geographic Region: Philippines P372,203 P359,930 P147,608 P296,669 P279,796 P189,416 Asia 4,132 183 3,951 7,041 226 3,212 Europe 1,430 6,123 659 533 72 490 United States 23,521 943 592 8,293 360 621 Others 816 6 27 785 4 64 P402,102 P367,185 P152,837 P313,321 P280,458 P193,803
Parent Company 2013 2012 Credit Credit Assets Liabilities Commitments Assets Liabilities Commitments Geographic Region: Philippines P356,690 P344,956 P143,633 P286,746 P270,517 P184,030 Asia 4,132 183 3,951 7,041 226 3,212 Europe 1,430 6,123 659 533 72 490 United States 23,521 943 592 8,290 360 621 Others 816 6 27 785 4 64 P386,589 P352,211 P148,862 P303,395 P271,179 P188,417
106 Information on credit concentration as to industry of loans and receivables is presented in Note 9 to the financial statements.
Maximum exposure to credit risk The table below provides the analysis of the maximum exposure to credit risk of the Parent Company’s financial instruments (the maximum exposure to credit risk of subsidiaries were no longer disclosed as they are not material to the Group), excluding those where the carrying values as reflected in the balance sheets and related notes already represent the financial instrument’s maximum exposure to credit risk, before and after taking into account collateral held or other credit enhancements:
Parent Company 2013 Financial effect of collateral or Gross maximum credit exposure Net exposure enhancement Credit risk exposure relating to on-balance sheet items are as follows: Loans and receivables Corporate and commercial lending P176,863,670,106 P159,448,468,418 P22,311,199,404 Consumer lending 22,765,855,816 21,834,315,464 1,808,162,237 Trade-related lending 11,042,819,940 10,367,988,874 1,369,386,028 Others 89,923,549 86,847,493 – 210,762,269,411 191,737,620,249 25,488,747,669 Sales contracts receivable 403,784,273 – 403,784,273 P211,166,053,684 P191,737,620,249 P25,892,531,942
Parent Company 2012 Financial effect Gross maximum of collateral or credit exposure Net exposure enhancement Credit risk exposure relating to on-balance sheet items are as follows: Loans and receivables Corporate and commercial lending P155,255,349,771 P133,905,287,543 P23,701,198,502 Consumer lending 19,251,841,266 12,155,413,201 8,208,663,977 Trade-related lending 10,762,158,498 10,162,599,881 1,141,624,131 Others 92,405,133 89,309,365 70,888,401 185,361,754,668 156,312,609,990 33,122,375,011 Sales contracts receivable 394,826,052 – 394,826,052 P185,756,580,720 P156,312,609,990 P33,517,201,063
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 such as unused commercial letters of credit, outstanding guarantees and others as disclosed in Note 29 to the financial statements.
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 with regard to the acceptability of types of collateral and valuation parameters.
The main types of collateral obtained are as follows: • For securities lending and reverse repurchase transactions - cash or securities • For consumer lending - real estate and chattel over vehicle • For corporate lending and commercial lending- real estate, chattel over properties, assignment of deposits, shares of stocks, bonds, and guarantees
Management requests additional collateral in accordance with the underlying agreement and takes into consideration the market value of collateral during its review of the adequacy of allowance for credit losses.
It is the Group’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.
Collaterals foreclosed in 2013 and 2012 and are still held by the Group as of December 31, 2013 and 2012 amounted to P362.38 million and P119.14 million, respectively. These collaterals comprised of real estate properties and stock securities.
Annual Report 2013 107 NOTES TO FINANCIAL STATEMENTS
Credit quality per class of financial assets The credit quality of financial assets is managed by the Group using an internal credit rating system for the purpose of measuring credit risk in a consistent manner as accurately as possible. The model on risk ratings is assessed and updated regularly because the Group uses this information as a tool for business and financial decision making.
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 monitored regularly. The standard credit rating equivalent grades are relevant only for certain 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 Especially Mentioned 8 Substandard 9 Doubtful 10 Loss
The credit grades are defined as follows:
Excellent - 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 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.
Strong - This category applies to a borrower with a low probability of going into default in the coming year. The borrower normally has a comfortable degree of stability, substance, and diversity. Under normal market conditions, the borrower in this category has good access to public markets to raise funds. The borrower has a strong market and financial position with a history of successful performance. The overall debt service capacity as measured by cash flow to total debt service is deemed very strong; the critical balance sheet ratios (vis-à-vis industry) are conservative.
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 (vis-à-vis industry). The debt service capacity, as measured based on cash flows, is strong.
Satisfactory - This category represents the borrower where clear risk elements exist and the probability of default is somewhat greater. This probability is reflected in volatility of earnings and overall performance. The borrower in this category normally has limited access to public financial markets. The borrower 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.
Acceptable - The risk elements for the Parent Company are sufficiently pronounced, although the borrower 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.
Watchlist - This category represents the borrower 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. It includes the borrower 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.
108 Especially Mentioned - This category applies to the borrower that is 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) unacceptable risk is generated by potential or emerging weaknesses as far as asset protection and/or cash flow is concerned; (c) 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; (d) 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.
Substandard - This category represents the borrower where one or more of the following factors apply: (a) the collection of principal or interest becomes questionable regardless of scheduled payment date, by reason of adverse developments on account of a financial, managerial, economic, or political nature, or by important weaknesses in cover; (b) the probability of default is assessed at up to 50.00%. Substandard loans are loans or portions thereof which 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.
Doubtful - This category includes the borrower with “non-performing loan” status or with any portion of interest and/or principal payment is in arrears for more than ninety (90) days. The borrower is unable or unwilling to service debt over an extended period of time and near future prospects of orderly debt service is doubtful. Doubtful loans are loans or portions thereof which have the weaknesses inherent in those classified as “Substandard”, with the added characteristics that existing facts, conditions, and values make collection or liquidation in full highly improbable and in which substantial loss is probable.
Loss - This category represents the borrower whose prospect for re-establishment of creditworthiness and debt service is remote. It 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. These loans or portions thereof which are considered uncollectible or worthless and of such little value that their continuance as bankable assets is not warranted although the loans may have some recovery or salvage value.
The Group’s loans and receivables from customers were classified according to credit quality as follows:
Credit Quality Rating Criteria Neither Past Due Nor Impaired High Loans with risk rating of 1 and 2 Standard Loans with risk rating of 3 to 5 Sub-Standard Generally, loans with risk rating of 6 to 8 Past Due or Impaired Past Due but not Impaired Those that were classified as Past Due per BSP guidelines or those that Impaired are still in current status but have objective evidence of impairment; Generally, loans with risk rating of 9 to 10 The table below shows the Group’s loans and receivables, excluding other receivables (gross allowance for credit losses and unearned discount) as of December 31, 2013 and 2012 classified according to credit quality:
Consolidated 2013 Neither Past Due nor Impaired Standard Substandard Past Due But Past Due High Grade Grade Grade Unrated Not Impaired or Impaired Total Corporate and commercial lending P39,523,396,520 P89,964,099,619 P37,855,162,641 P14,976,848,430 P224,291,228 P3,352,973,774 P185,896,772,212 Consumer lending 5,221,711,739 3,226,505,935 4,034,221,523 15,841,163,745 884,539,272 674,808,197 29,882,950,411 Trade-related lending 386,106,248 9,267,251,497 1,331,651,319 72,260,053 23,296,240 697,799,879 11,778,365,236 Others 10,125,096 – – 87,888,834 2,035,163 246,772 100,295,865 Total P45,141,339,603 P102,457,857,051 P43,221,035,483 P30,978,161,062 P1,134,161,903 P4,725,828,622 P227,658,383,724
Consolidated 2012 (As restated - Note 10) Neither Past Due nor Impaired Standard Substandard Past Due But Past Due High Grade Grade Grade Unrated Not Impaired or Impaired Total Corporate and commercial lending P30,292,483,624 P94,399,189,831 P17,930,372,729 P15,038,363,209 P667,780,662 P4,746,911,364 P163,075,101,419 Consumer lending 2,026,708,257 6,210,743,263 2,017,819,612 11,525,168,922 812,508,719 645,523,425 23,238,472,198 Trade-related lending 376,886,724 8,951,140,910 1,108,573,430 53,340,362 235,150,764 633,121,963 11,358,214,153 Others 9,487,772 – – 91,113,885 1,452,837 65,917 102,120,411 Total P32,705,566,377 P109,561,074,004 P21,056,765,771 P26,707,986,378 P1,716,892,982 P6,025,622,669 P197,773,908,181
Annual Report 2013 109 NOTES TO FINANCIAL STATEMENTS
Parent Company 2013 Neither Past Due nor Impaired Standard Substandard Past Due But Past Due High Grade Grade Grade Unrated Not Impaired or Impaired Total Corporate and commercial lending P36,379,935,883 P89,541,599,619 P37,855,162,641 P14,886,805,641 P117,387,056 P3,185,828,949 P181,966,719,789 Consumer lending 1,827,836,514 3,164,536,698 1,350,769,025 15,878,205,587 883,909,047 517,484,186 23,622,741,057 Trade-related lending 386,106,248 9,267,251,497 1,331,651,319 72,260,053 23,296,240 697,799,879 11,778,365,236 Others – – – 87,888,832 2,035,163 180,857 90,104,852 Total P38,593,878,645 P101,973,387,814 P40,537,582,985 P30,925,160,113 P1,026,627,506 P4,401,293,871 P217,457,930,934
Parent Company 2012 Neither Past Due nor Impaired Standard Substandard Past Due But Past Due High Grade Grade Grade Unrated Not Impaired or Impaired Total Corporate and commercial lending P28,750,194,152 P94,214,740,697 P17,885,020,075 P14,545,792,934 P667,533,159 P4,741,776,051 P160,805,057,068 Consumer lending 40,474,402 5,924,610,742 1,514,427,522 11,525,168,922 787,562,858 552,096,088 20,344,340,534 Trade-related lending 376,886,724 8,951,140,910 1,108,573,430 53,340,362 235,150,764 633,121,963 11,358,214,153 Others – – – 91,113,885 1,452,837 – 92,566,722 Total P29,167,555,278 P109,090,492,349 P20,508,021,027 P26,215,416,103 P1,691,699,618 P5,926,994,102 P192,600,178,477
Depository accounts with the BSP and counterparty banks, Trading and Investment Securities For these financial assets, outstanding exposure is rated primarily based on external risk rating (i.e. Standard and Poor’s (S&P)), otherwise, rating is based on risk grades by a local rating agency or included under “Unrated”, when the counterparty has no available risk grade.
The external risk rating of the Group’s depository accounts with the BSP and counterparty banks, trading and investment securities, is grouped as follows:
Credit Quality Rating External Credit Risk Rating Credit Rating Agency High grade AAA, AA+, AA, AA- S&P Aaa, Aa1, Aa2, Aa3 Moody’s AAA, AA+, AA, AA- Fitch
Standard grade A+, A, A-, BBB+, BBB, BBB- S&P A1, A2, A3, Baa1, Baa2, Baa3 Moody’s A+, A, A-, BBB+, BBB, BBB- Fitch
Substandard grade BB+, BB, BB-, B/B+, CCC, R, SD & D S&P Ba1, Ba2, Ba3, B1, B2, R, SD & D Moody’s BB+, BB, BB-, B/B+, CCC, R, SD & D Fitch Following is the credit rating scale applicable for foreign banks, and government securities (aligned with S&P ratings):
AAA - An obligor has extremely strong capacity to meet its financial commitments.
AA - An obligor has very strong capacity to meet its financial commitments. It differs from the highest-rated obligors at a minimal degree.
A - An obligor has strong capacity to meet its financial commitments but is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligors in higher-rated categories.
BBB and below:
BBB - An obligor has adequate capacity to meet its financial commitments. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitments.
BB - An obligor is less vulnerable in the near term than other lower-rated obligors. However, it faces major ongoing uncertainties and exposure to adverse business, financial, or economic conditions which could lead to the obligor’s inadequate capacity to meet its financial commitments.
B - An obligor is more vulnerable than the obligors rated ‘BB’, but the obligor currently has the capacity to meet its financial commitments. Adverse business, financial, or economic conditions will likely impair the obligor’s capacity or willingness to meet its financial commitments.
CCC - An obligor is currently vulnerable and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitments.
110 CC - An obligor is currently vulnerable. The rating is used when a default has not yet occurred, but expects default to be a virtual certainty, regardless of the anticipated time to default.
R - An obligor is under regulatory supervision owing to its financial condition. During the pendency of the regulatory supervision, the regulators may have the power to favor one class of obligations over others or pay some obligations and not others.
SD and D - An obligor is in default on one or more of its financial obligations including rated and unrated financial obligations but excluding hybrid instruments classified as regulatory capital or in non-payment according to terms.
The table below shows the credit quality of deposits and investments as of December 31, 2013 and 2012, based on external risk ratings (gross of allowance for credit losses).
Consolidated 2013 Substandard High Grade Standard Grade Grade Total Due from BSP P− P78,968,132,522 P− P78,968,132,522 Due from other banks 2,159,986,516 20,765,480,093 239,930,517 23,165,397,126 SPURA − − − − Financial assets at FVPL 945,686,067 3,581,761,128 58,547,169 4,585,994,364 AFS financial assets 3,295,269,202 40,155,832,843 − 43,451,102,045 HTM financial assets − 12,150,546,829 − 12,150,546,829 P6,400,941,785 P155,621,753,415 P298,477,686 P162,321,172,886
Consolidated 2012 (As restated - Note 10) Substandard High Grade Standard Grade Grade Total Due from BSP P– P–P40,659,682,959 P40,659,682,959 Due from other banks 1,363,768,111 2,367,754,420 738,166,151 4,469,688,682 SPURA – – 446,000,000 446,000,000 Financial assets at FVPL 50,084,415 6,342,764,487 295,139,332 6,687,988,234 AFS financial assets 4,523,766,552 7,665,548,627 28,910,656,034 41,099,971,213 HTM financial assets – – 12,693,233,413 12,693,233,413 P5,937,619,078 P16,376,067,534 P83,742,877,889 P106,056,564,501
Parent Company 2013 Substandard High Grade Standard Grade Grade Total Due from BSP P–P75,678,312,048 P–P75,678,312,048 Due from other banks 2,109,105,336 20,573,174,805 31,294,886 22,713,575,027 Financial assets at FVPL 945,686,067 3,581,761,128 58,547,169 4,585,994,364 AFS financial assets 3,295,269,202 39,169,591,135 – 42,464,860,337 HTM financial assets – 12,122,589,213 – 12,122,589,213 P6,350,060,605 P151,125,428,329 P89,842,055 P157,565,330,989
Parent Company 2012 Substandard High Grade Standard Grade Grade Total Due from BSP P– P–P37,597,455,540 P37,597,455,540 Due from other banks 1,338,324,970 2,330,241,902 614,751,992 4,283,318,864 Financial assets at FVPL 50,084,415 6,342,764,487 295,139,332 6,687,988,234 AFS financial assets 4,523,766,552 7,665,548,627 28,169,378,169 40,358,693,348 HTM financial assets – – 12,665,325,779 12,665,325,779 P5,912,175,937 P16,338,555,016 P79,342,050,812 P101,592,781,765
Annual Report 2013 111 NOTES TO FINANCIAL STATEMENTS
Due from other banks and government securities The external risk rating of the Group’s depository accounts with counterparty banks, trading and investment securities, is grouped as follows (aligned with the Philippine Ratings System):
Credit Quality Rating External Credit Risk Rating High grade PRSAAA, PRSAa+, PRSAa, PRSAa- Standard grade PRSA+, PRSA, PRSA-, PRSBaa+, PRSBaa, PRSBaa- Substandard grade PRSBa+, PRSBa, PRSBa-, PRSB+, PRSB, PRSB-, PRSCaa+, PRSCaa, PRSCaa-, PRSCa+, PRSCa, PRSCa-, PRSC+, PRSC, PRSC- PRSAaa - The obligor’s capacity to meet its financial commitment on the obligation is extremely strong.
PRSAa - The obligor’s capacity to meet its financial commitment on the obligation is very strong.
PRSA - With favorable investment attributes and are considered as upper-medium grade obligations. Although obligations rated ‘PRSA’ are somewhat more susceptible to the adverse effects of changes in economic conditions, the obligor’s capacity to meet its financial commitments on the obligation is still strong.
PRSBaa - An obligation rated ‘PRS Baa’ exhibits adequate protection parameters. However, adverse economic conditions and changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation. PRSBaa-rated issues may possess certain speculative characteristics.
PRSBa - An obligation rated ‘PRSBa’ is less vulnerable to nonpayment than other speculative issues. However, it faces major ongoing uncertainties relating to business, financial or economic conditions, which could lead to the obligor’s inadequate capacity to meet its financial commitment on the obligation.
PRSB - An obligation rated ‘PRSB’ is more vulnerable to nonpayment than obligations rated ‘PRSBa’, but the obligor currently has the capacity to meet its financial commitment on the obligation. Adverse economic conditions will likely impair the obligor’s capacity to meet its financial commitment on the obligation. The issue is characterized by high credit risk.
PRSCaa - An obligation rated ‘PRSCaa’ is presently vulnerable to nonpayment and is dependent upon favorable business, financial and economic conditions for the obligor to meet its financial commitments on the obligation. In the event of adverse economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the obligation. The issue is considered to be of poor standing and is subject to very high credit risk.
PRSCa - An obligation rated “PRSCa” is presently highly vulnerable to nonpayment. Likely already in or very near default with some prospect for partial recovery of principal or interest.
PRSC - An obligation is already in default with very little prospect for any recovery of principal or interest.
The table below shows the credit quality of deposits and investments, by class, as of December 31, 2013 and 2012, based on risk grades of a local rating agency (gross of allowance for credit losses).
Consolidated 2013 High Grade Standard Grade Substandard Grade Total Due from other banks P134,390,575 P583,750,097 P–P718,140,672 Financial assets at FVPL 5,735,439,184 – – 5,735,439,184 AFS financial assets 545,170,185 – – 545,170,185 HTM financial asset – – – – Total P6,414,999,944 P583,750,097 P–P6,998,750,041
Consolidated 2012 (As restated – Note 10) High Grade Standard Grade Substandard Grade Total Due from other banks P–P50,906,947 P–P50,906,947 Financial assets at FVPL 5,219,385,422 – – 5,219,385,422 AFS financial assets 438,474,268 – – 438,474,268 Total P5,657,859,690 P50,906,947 P–P5,708,766,637
112 Parent Company 2013 Substandard High Grade Standard Grade Grade Total Due from other banks P–P500,000,000 P–P500,000,000 Financial assets at FVPL 5,735,439,184 – – 5,735,439,184 AFS financial assets 387,715,142 – – 387,715,142 Total P6,123,154,326 P500,000,000 P–P6,623,154,326
Parent Company 2012 High Grade Standard Grade Substandard Grade Total Financial assets at FVPL P5,219,385,422 P– P–P5,219,385,422 AFS financial assets 292,508,007 – – 292,508,007 Total P5,511,893,429 P– P–P5,511,893,429
The table below shows the breakdown of unrated deposits and investments as of December 31, 2013 and 2012 (gross of allowance):
Consolidated Parent Company 2012 2013 2012 (As restated - 2013 Note 10) Due from other banks P2,000,330 P6,781,369 P2,000,330 P6,301,358 Financial assets at FVPL 99,989,505 259,304,536 99,989,505 259,304,536 AFS financial assets 392,600,039 72,621,581 349,938,085 31,860,853 Other assets* 3,366,965,189 3,792,582,848 3,098,778,718 3,464,946,062 Total P3,861,555,063 P4,131,290,334 P3,550,706,638 P3,762,412,809 * Other assets exclude net plan assets and creditable withholding taxes (see Note 14).
The table below shows the aging analysis of gross past due but not impaired loans and receivables that the Group and Parent Company held as of December 31, 2013 and December 31, 2012. Under PFRS 7, a financial asset is past due when a counterparty has failed to make a payment when contractually due.
Consolidated Less than More than December 31, 2013 30 days 31 to 60 days 61 to 90 days 91 days Total Loans and receivables Corporate and commercial lending P25,504,398 P24,856,611 P305,645 P173,624,574 P224,291,228 Consumer lending 406,178,102 57,496,191 41,735,167 379,129,812 884,539,272 Trade-related lending 15,743,516 − − 7,552,724 23,296,240 Others 697,633 − 11,182 1,326,348 2,035,163 Total P448,123,649 P82,352,802 P42,051,994 P561,633,458 P1,134,161,903
Consolidated Less than More than December 31, 2012 30 days 31 to 60 days 61 to 90 days 91 days Total Loans and receivables Corporate and commercial lending P447,557,769 P12,954,892 P3,581,478 P203,686,523 P667,780,662 Consumer lending 301,060,084 46,249,032 49,420,003 415,779,600 812,508,719 Trade-related lending 113,711,843 – – 121,438,921 235,150,764 Others 970,409 42,904 172,364 267,160 1,452,837 Total P863,300,105 P59,246,828 P53,173,845 P741,172,204 P1,716,892,982
Parent Company Less than More than December 31, 2013 30 days 31 to 60 days 61 to 90 days 91 days Total Loans and receivables Corporate and commercial lending P25,504,398 P24,529,294 P− P67,353,364 P117,387,056 Consumer lending 405,578,102 57,496,191 41,734,733 379,100,021 883,909,047 Trade-related lending 15,743,516 – − 7,552,724 23,296,240 Others 697,633 – 11,182 1,326,348 2,035,163 Total P447,523,649 P82,025,485 P41,745,915 P455,332,457 P1,026,627,506
Annual Report 2013 113 NOTES TO FINANCIAL STATEMENTS
Parent Company Less than More than December 31, 2012 30 days 31 to 60 days 61 to 90 days 91 days Total Loans and receivables Corporate and commercial lending P447,557,769 P12,954,892 P3,333,975 P203,686,523 P667,533,159 Consumer lending 299,844,540 45,852,940 38,756,938 403,108,440 787,562,858 Trade-related lending 113,711,843 – – 121,438,921 235,150,764 Others 970,409 42,904 172,364 267,160 1,452,837 Total P862,084,561 P58,850,736 P42,263,277 P728,501,044 P1,691,699,618
The following table presents the carrying amount of financial assets of the Group and Parent Company as of December 31, 2013 and 2012 that would have been considered past due or impaired if not renegotiated:
Consolidated Parent Company 2013 2012 2013 2012 Loans and advances to customers: Corporate and commercial lending P690,027,946 P862,159,498 P668,959,232 P862,159,498 Consumer lending 11,790,809 227,852 11,790,809 227,852 Total renegotiated financial assets P701,818,755 P862,387,350 P680,750,041 P862,387,350
Impairment assessment The main considerations for the loan impairment assessment include whether any payment of principal or interest is overdue by more than 90 days, or there are 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 realizable 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.
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 no objective evidence of individual impairment yet. 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 no objective evidence of the impairment yet per an individual assessment. Impairment losses are estimated by taking into consideration 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.
Market Risk Market risk is the risk of loss that may result from changes in the value of a financial product. The Parent Company’s market risk originates from its holdings of domestic and foreign-denominated debt securities, foreign exchange instruments, equities, foreign exchange derivatives and interest rate derivatives.
The RMG of the Parent Company is responsible for assisting the RMC with its responsibility for identifying, measuring, managing and controlling market risk. Market risk management measures the Parent Company market risk exposures through the use of VaR. VaR is a statistical measure that estimates the maximum potential loss from a portfolio over a holding period, within a given confidence level.
VaR assumptions The Parent Company calculates the Bankwide VaR in certain trading activities. The Parent Company uses the Parametric Variance- Covariance and Duration-Based approach to VaR for domestic- and foreign- denominated debt securities and Delta Approximation Historical Simulation approach to VaR for foreign exchange instruments, equities, foreign exchange derivatives and interest rate derivatives, using a 99.00% confidence level and a 1-day holding period.
The use of a 99.00% 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. The validity of the VaR model is verified through back testing, which examines how frequently actual and hypothetical daily losses exceeds daily VaR. The Parent Company measures and monitors the VaR and profit and loss on a daily basis.
114 Since VaR is an integral part of the Parent Company’s market risk management, VaR limits have been established for all trading positions and exposures are reviewed daily against the limits by management. Further, stress testing is performed in monitoring extreme events.
Limitations of the VaR Methodology The VaR models are designed to measure market risk in a normal market environment using equally 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 the same 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 assumptions. 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.
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 Group would withstand an extreme market event.
A summary of the VaR position of the trading portfolio of the Parent Company is as follows:
Foreign Interest Rate1 Exchange2 Equity Interest Rate3 Interest Rate4 (In Millions) 2013 31 December P68.69 P13.70 P62.09 P15.90 P11.40 Average daily 80.03 14.82 105.59 12.36 6.60 Highest 132.29 37.37 131.56 39.21 14.54 Lowest 42.28 5.70 62.09 4.90 0.39
1 Interest rate VaR for debt securities (Interest rate VaR for foreign currency denominated debt securities are translated to PHP using prior month’s closing rate) 2 FX VaR is the bankwide foreign exchange risk 3 Interest rate VaR for FX swaps and FX forwards 4 Interest rate VaR for IRS Foreign Interest Rate1 Exchange2 Equity Interest Rate3 Interest Rate4 (In Millions) 2012 31 December P66.21 P8.44 P86.57 P– P– Average daily 41.50 12.15 90.88 – – Highest 80.93 26.70 95.04 – – Lowest 18.71 3.42 86.57 – –
1 Interest rate VaR for debt securities (Interest rate VaR for foreign currency denominated debt securities are translated to PHP using prior month’s closing rate) 2 FX VaR is the bankwide foreign exchange risk 3 Interest rate VaR for FX swaps and FX forwards 4 Interest rate VaR for IRS
Interest Rate Risk The Group’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, 2013 and 2012, 72.82% and 77.12% of the Group’s total loan portfolio, respectively, comprised of floating rate loans which are repriced periodically by reference to the transfer pool rate which reflects the Group’s internal cost of funds. In keeping with banking industry practice, the Group 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 22.26% and 22.77% of total deposits of the Parent Company as of December 31, 2013 and 2012, respectively.
Interest is paid on savings accounts and time deposits accounts, which constitute 58.11% and 57.15%, respectively, of total deposits of the Parent Company as of December 31, 2013, and 19.63% and 20.08%, respectively, as of December 31, 2012.
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.
Annual Report 2013 115 NOTES TO FINANCIAL STATEMENTS
The Group is likewise exposed to fair value interest rate risk due to its holdings of fixed rate government bonds as part of its AFS and FVPL portfolios. 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 of the Group and of the Parent Company as of December 31, 2013 and 2012:
Consolidated 2013 2012 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 0.75% – – 0.63% – – Due from banks 0.28% – – 0.40% – – Investment securities* 0.88% 4.70% 5.43% 4.91% 5.59% 7.28% Loans and receivables 5.28% 7.04% 9.80% 5.34% 6.54% 6.97%
Liabilities Deposit liabilities 1.18% 2.05% 6.12% 2.00% 4.85% 4.93% Bills payable 3.76% 3.76% 4.15% 4.35% 5.06% 5.86% USD Assets Investment securities* 2.77% – 4.78% 3.11% 3.85% 4.74% Loans and receivables 2.51% 2.08% 5.65% 3.02% 3.03% 3.00%
Liabilities Deposit liabilities 1.34% 1.70% – 1.13% 1.47% – Bills payable 0.52% – 1.12% 0.09% – – * Consisting of financial assets at FVPL, AFS financial assets and HTM financial assets.
Parent Company 2013 2012 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 0.70% – – 0.52% – – Due from banks 0.29% – – 0.41% – – Investment securities* 0.88% 4.71% 5.47% 4.89% 5.94% 7.39% Loans and receivables 5.24% 6.33% 9.07% 5.34% 6.39% 6.78%
Liabilities Deposit liabilities 1.15% 1.96% 6.59% 2.01% 5.11% 4.64% Bills payable 3.76% 3.76% 4.15% 4.35% 5.06% 5.86% USD Assets Investment securities* 2.77% – 4.78% 3.11% 3.85% 4.78% Loans and receivables 2.51% 2.08% 5.65% 3.02% 3.03% 3.00%
Liabilities Deposit liabilities 1.34% 1.71% – 1.13% 1.45% – Bills payable 0.52% – 1.12% 0.09% – – * Consisting of financial assets at FVPL, AFS financial assets and HTM financial assets.
The asset-liability gap analysis method is used by the Group to measure the sensitivity of its assets and liabilities to interest rate fluctuations. This analysis measures the Group’s susceptibility to changes in interest rates. The repricing gap is calculated by first distributing the assets and liabilities contained in the Group’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 the total of repricing (interest rate sensitive) liabilities.
116 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 than its interest rate sensitive liabilities, restraining the growth of its net income or resulting in a decline in net interest income.
The following table sets forth the repricing gap position of the Group and Parent Company as of December 31, 2013 and 2012 (in millions):
Consolidated 2013 Up to 3 >3 to 12 >12 Month Months Months Total Financial Assets Due from BSP P78,968 P– P– P78,968 Due from banks 23,886 – – 23,886 Investment securities 1,376 431 65,114 66,921 Loans and receivables 173,849 25,710 20,982 220,541 Total financial assets 278,079 26,141 86,096 390,316 Financial Liabilities Deposit liabilities 187,147 8,875 158,246 354,268 Bills payable 4,028 1 4,270 8,299 Total financial liabilities 191,175 8,876 162,516 362,567 Repricing gap P86,904 P17,265 (P76,420) P27,749
Consolidated 2012 Up to 3 >3 to 12 >12 Month Months Months Total Financial Assets Due from BSP P40,226 P– P– P40,226 Due from banks 4,342 – – 4,342 Investment securities 6,667 2,457 44,911 54,035 Loans and receivables 161,654 21,704 6,311 189,669 Total financial assets 212,889 24,161 51,222 288,272 Financial Liabilities Deposit liabilities 149,872 16,976 104,644 271,492 Bills payable 1,380 718 1,429 3,527 Total financial liabilities 151,252 17,694 106,073 275,019 Repricing gap P61,637 P6,467 (P54,851) P13,253
Parent Company 2013 Up to 3 >3 to 12 >12 Month Months Months Total Financial Assets Due from BSP P75,678 P– P– P75,678 Due from banks 23,216 – – 23,216 Investment securities 1,376 430 63,934 65,740 Loans and receivables 172,065 22,123 16,574 210,762 Total financial assets 272,335 22,553 80,508 375,396 Financial Liabilities Deposit liabilities 179,377 8,694 151,761 339,832 Bills payable 4,028 1 4,270 8,299 Total financial liabilities 183,405 8,695 156,031 348,131 Repricing gap P88,930 P13,858 (P75,523) P27,265
Annual Report 2013 117 NOTES TO FINANCIAL STATEMENTS
Parent Company 2012 Up to 3 >3 to 12 >12 Month Months Months Total Financial Assets Due from BSP P37,565 P– P– P37,565 Due from banks 4,151 – – 4,151 Investment securities 6,652 2,428 44,266 53,346 Loans and receivables 160,360 20,134 4,205 184,699 Total financial assets 208,728 22,562 48,471 279,761 Financial Liabilities Deposit liabilities 143,500 16,789 102,786 263,075 Bills payable 1,380 718 1,429 3,527 Total financial liabilities 144,880 17,507 104,215 266,602 Repricing gap P63,848 P5,055 (P55,744) P13,159 The Group 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 Group’s interest income and interest expenses to parallel changes in the interest rate curve in a given 12-month period.
The following table sets forth the estimated change in the Group’s and Parent Company’s annualized net interest income due to a parallel change in the interest rate curve as of December 31, 2013 and 2012:
Consolidated 2013 Change in interest rates (in basis points) 100bp rise 50bp rise 50bp fall 100bp fall Change in annualized net interest income P998,533,038 P499,266,519 (P499,266,519) (P998,533,038) As a percentage of the Group’s net interest income for the year ended December 31, 2013 10.05% 5.02% (5.02%) (10.05%)
Consolidated 2012 Change in interest rates (in basis points) 100bp rise 50bp rise 50bp fall 100bp fall Change in annualized net interest income P664,875,937 P332,437,969 (P332,437,969) (P664,875,937) As a percentage of the Group’s net interest income for the year ended December 31, 2012 8.25% 4.12% (4.12%) (8.25%)
Parent Company 2013 Change in interest rates (in basis points) 100bp rise 50bp rise 50bp fall 100bp fall Change in annualized net interest income P993,241,986 P496,620,993 (P496,620,993) (P993,241,986) As a percentage of the Group’s net interest income for the year ended December 31, 2013 10.50% 5.25% (5.25%) (10.50%)
Parent Company 2012 Change in interest rates (in basis points) 100bp rise 50bp rise 50bp fall 100bp fall Change in annualized net interest income P676,394,648 P338,197,324 (P338,197,324) (P676,394,648) As a percentage of the Group’s net interest income for the year ended December 31, 2012 8.59% 4.29% (4.29%) (8.59%)
118 The following table sets forth the estimated change in the Group’s and Parent Company’s income before tax and equity due to a reasonably possible change in the market prices of quoted bonds classified under financial assets at FVPL and AFS financial assets, brought about by movement in the interest rate curve as of December 31, 2013 and 2012:
Consolidated 2013 Change in interest rates (in basis points) 25bp rise 10bp rise 10bp fall 25bp fall Change in income before tax (P86,819,142) (P34,977,851) P35,316,047 P88,933,009 Change in equity (862,447,259) (347,649,561) 351,263,124 885,033,833
Consolidated 2012 Change in interest rates (in basis points) 25bp rise 10bp rise 10bp fall 25bp fall Change in income before tax (P134,352,828) (P54,333,122) P54,860,292 P138,681,509 Change in equity (685,402,798) (276,973,633) 280,755,683 709,139,680
Parent Company 2013 Change in interest rates (in basis points) 25bp rise 10bp rise 10bp fall 25bp fall Change in income before tax (P86,819,142) (P34,977,851) P35,316,047 P88,933,009 Change in equity (848,828,466) (342,166,905) 345,733,011 871,118,409
Parent Company 2012 Change in interest rates (in basis points) 25bp rise 10bp rise 10bp fall 25bp fall Change in income before tax (P134,352,828) (P54,333,122) P54,860,292 P138,681,509 Change in equity (683,578,810) (276,236,636) 277,796,178 701,700,847 Foreign Currency Risk The Group’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 Group’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 Group.
Foreign currency liabilities are generally used to fund the Group’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. In addition, the BSP requires a 30% liquidity reserve on all foreign currency-denominated liabilities held in the FCDU.
The Group’s policy is to maintain foreign currency exposure within existing regulations, and within acceptable risk limits. The Group 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 Group and its subsidiaries are engaged.
The table below summarizes the Group’s and Parent Company’s exposure to foreign exchange risk. Included in the table are the Group’s and Parent Company’s assets and liabilities at carrying amounts (stated in US Dollars), categorized by currency (in thousands): Consolidated 2013 2012 Other Other USD Currencies Total PHP USD Currencies Total PHP Assets Cash and other cash items $9,674 $2,978 $12,652 P561,692 $11,465 $2,885 $14,350 P589,051 Due from other banks 482,367 17,507 499,874 22,191,914 71,650 18,663 90,313 3,707,348 Financial assets at FVPL 50,347 1,422 51,769 2,298,297 44,911 2,059 46,970 1,928,136 AFS financial assets 352,368 1,497 353,865 15,676,194 470,575 1,508 472,083 19,379,019 HTM financial assets 269,465 3,597 273,062 12,122,589 404,123 3,397 407,520 16,728,710 Loans and receivables 917,188 4,271 921,459 40,908,151 588,936 – 588,936 24,175,822 Accrued interest receivable 17,852 322 18,174 806,848 19,585 335 19,920 817,702 Other assets 233 2 235 10,436 21,472 – 21,472 850,859 $2,099,494 $31,596 $2,131,090 P94,576,121 $1,632,717 $28,847 $1,661,564 P68,176,647 (Forward)
Annual Report 2013 119 NOTES TO FINANCIAL STATEMENTS
Consolidated 2013 2012 Other Other USD Currencies Total PHP USD Currencies Total PHP Liabilities Deposit liabilities $1,586,248 $12,133 $1,598,381P70,960,118 $1,302,189 $13,530 $1,315,719 P54,010,287 Bills payables 186,293 − 186,293 8,270,476 6,312 – 6,312 259,102 Accrued interest and other expenses 17,852 9 17,861 112,118 1,722 11 1,733 71,138 Other liabilities 233 2,142 2,375 1,105,154 28,219 539 28,758 1,180,568 1,790,626 14,284 1,804,910 80,447,866 1,338,442 14,080 1,352,522 55,521,095 Currency spot 16,876 (1,376) 15,500 688,258 13,500 – 13,500 554,055 Currency forwards (337,720) − (337,720)(15,338,006) (321,127) – (321,127) (12,793,583) Net Exposure ($11,976) $15,936 $3,960 (P521,493) ($13,352) $14,767 $1,415 P416,024
Parent Company 2013 2012 Other Other USD Currencies Total PHP USD Currencies Total PHP Assets Cash and other cash items $9,631 $2,978 $12,609 P559,788 $11,275 $2,885 $14,160 P581,251 Due from other banks 477,207 17,507 494,714 21,962,833 67,691 18,663 86,354 3,544,843 Financial assets at FVPL 50,347 1,422 51,769 2,298,297 44,911 2,059 46,970 1,928,136 AFS financial assets 344,757 1,497 346,254 15,338,314 455,765 1,508 457,273 18,771,054 HTM financial assets 269,465 3,597 273,062 12,122,589 404,123 3,397 407,520 16,728,710 Loans and receivables 917,188 4,271 921,459 40,908,151 588,936 – 588,936 24,175,822 Accrued interest receivable 17,651 322 17,973 797,932 19,180 335 19,515 801,089 Other assets 233 2 235 10,436 21,471 – 21,471 850,831 2,086,479 31,596 2,118,075 93,998,340 1,613,352 28,847 1,642,199 67,381,736 Liabilities Deposit liabilities 1,575,121 12,133 1,587,254 70,466,129 1,284,351 13,530 1,297,881 53,278,029 Bills payables 186,293 − 186,293 8,270,476 6,312 – 6,312 259,102 Accrued interest and other expenses 2,498 9 2,507 111,301 1,677 11 1,688 69,273 Other liabilities 22,757 2,142 24,899 1,105,113 27,020 539 27,559 1,131,351 1,786,669 14,284 1,800,953 79,953,019 1,319,360 14,080 1,333,440 54,737,755 Currency spot 16,876 (1,376) 15,500 688,258 13,500 – 13,500 554,055 Currency forwards (337,720) – (337,720) (15,338,006) (321,127) – (321,127) (12,793,583) Net Exposure ($21,034) $15,936 ($5,098) (P604,427) ($13,635) $14,767 $1,132 P404,453
The following table sets forth, for the period indicated, the impact of the range of reasonably possible changes in the US$ 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 2013 USD 2% P49 P361 Other 1% 1 1 USD (2%) (49) (361) Other (1%) (1) (1) Consolidated Change in Foreign Sensitivity of Sensitivity of Exchange Rate Pretax Income Equity 2012 USD 2% P36 P422 Other 1% 1 1 USD (2%) (36) (422) Other (1%) (1) (1)
120 Parent Company Change in Foreign Sensitivity of Sensitivity of Exchange Rate Pretax Income Equity 2013 USD 2% P49 P354 Other 1% 1 1 USD (2%) (49) (354) Other (1%) (1) (1)
2012 USD 2% P36 P410 Other 1% 1 1 USD (2%) (36) (410) Other (1%) (1) (1) The impact in pre-tax income and equity is due to the effect of foreign currency behaviour to Philippine peso.
Equity Price Risk Equity price risk is the risk that the fair values of equities change as a result of movements in both 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 and Parent Company’s equity as a result of a change in the fair value of equity instruments held as available- for-sale due to a reasonably possible change in equity indices, with all other variables held constant, is as follows (in millions):
Consolidated Change in Effect on equity index Equity 2013 +10% P11.1 -10% (6.9) 2012 +10% 9.0 -10% (9.0) Parent Company Change in Effect on equity index Equity 2013 +10% P11.1 -10% (6.9) 2012 +10% 9.0 -10% (9.0) 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 become 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, 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, internal liquidity ratios and monitoring of large funds providers have been set to determine sufficiency of liquid assets over deposit liabilities.
Annual Report 2013 121 NOTES TO FINANCIAL STATEMENTS
Liquidity is managed by the Parent and subsidiaries on a daily basis, while scenario stress tests are conducted periodically. The table below shows the maturity profile of the Parent Company’s assets and liabilities, based on contractual undiscounted cash flows:
December 31, 2013 Less than On demand 1 year 1 to 2 years 2 to 3 years 3 to 5 years Total (In Millions) Financial Assets Cash and other cash items P7,035 P– P– P– P–P7,035 Due from BSP 75,678 – – – – 75,678 Due from other banks 23,216 – – – – 23,216 Financial assets at FVPL – 369 282 546 10,516 11,713 AFS financial assets – 2,623 2,598 3,728 50,387 59,336 Loans and receivables – 107,116 18,441 13,947 90,351 229,855 105,929 110,108 21,321 18,221 151,254 406,833 Financial Liabilities Deposit liabilities Demand 75,633 – – – – 75,633 Savings – 197,466 − − − 197,466 Time – 60,378 303 3,129 4,591 68,401 Bills payable – 4,019 2,108 2,337 8,475 16,939 Manager’s checks – 704 – – – 704 Accrued interest and other expenses – 1,446 – – – 1,446 Derivative liabilities – 155 – – – 155 Other liabilities Accounts payable – 618 – – – 618 Acceptances payable – 955 – – – 955 Due to PDIC – 317 – – – 317 Margin deposits – 1 – – – 1 Miscellaneous – 979 – – – 979 Total liabilities 75,633 267,038 2,411 5,466 13,066 363,614 Net Position P30,296 (P156,930) P18,910 P12,755 P138,188 P43,219
December 31, 2012 Less than On demand 1 year 1 to 2 years 2 to 3 years 3 to 5 years Total (In Millions) Financial Assets Cash and other cash items P5,997 P– P– P– – P5,997 Due from BSP 37,597 – – – – 37,597 Due from other banks 4,290 – – – – 4,290 Financial assets at FVPL – 7,542 375 375 5,375 13,667 AFS financial assets – 5,546 5,410 3,865 42,857 57,678 Loans and receivables – 110,031 14,862 9,708 76,327 210,928 47,884 123,119 20,647 13,948 124,559 330,157 Financial Liabilities Deposit liabilities Demand 60,084 – – – – 60,084 Savings – 113,539 164 37,986 151,689 Time – 49,445 512 410 4,432 54,799 Bills payable – 2,696 54 46 1,294 4,090 Manager’s checks – 736 – – – 736 Accrued interest and other expenses – 1,557 – – – 1,557 Derivative liabilities – 571 – – – 571 Other liabilities Accounts payable – 805 – – – 805 Acceptances payable – 271 – – – 271 Due to PDIC – 234 – – – 234 Margin deposits – 3 – – – 3 Miscellaneous – 1,176 – – – 1,176 Total liabilities 60,084 171,033 730 38,442 5,726 276,015 Net Position (P12,200) (P47,914) P19,917 (P24,494) 118,833 P54,142
122 Starting mid-2011, the Parent Company revised its liquidity risk management policies, methodologies, assumptions, stress scenarios limits structure, monitoring and reporting process to Behavioral MCO to strengthen the management of liquidity risk.
7. DUE FROM BSP AND OTHER BANKS AND SPURA
Due from BSP This account consists of:
Consolidated Parent Company 2013 2012 2013 2012 Demand deposit account P49,018,604,183 P38,427,320,508 P48,179,783,709 P 37,565,093,089 Special deposit account 29,851,000,000 2,200,000,000 27,400,000,000 – Others 98,528,339 32,362,451 98,528,339 32,362,451 P78,968,132,522 P40,659,682,959 P75,678,312,048 P37,597,455,540 Due from Other Banks This account consists of:
Consolidated Parent Company 2013 2012 2013 2012 Foreign banks P15,159,212,398 P2,163,786,372 P14,718,331,172 P2,088,534,969 Local banks 8,726,325,730 2,363,590,626 8,497,244,185 2,201,085,253 P23,885,538,128 P4,527,376,998 P23,215,575,357 P4,289,620,222 SPURA This account bears nominal annual interest rates ranging from 3.50% to 4.41% in 2012 and from 4.00% to 4.70% in 2011.
Interest Income on Due from BSP and Other Banks This account consists of:
Consolidated Parent Company 2013 2012 2011 2013 2012 2011 Due from BSP P450,734,237 P221,122,736 P555,943,966 P396,819,129 P173,411,222 P545,213,923 Due from other banks 31,002,663 33,888,463 49,176,403 11,330,829 15,141,468 28,910,322 P481,736,900 P255,011,199 P605,120,369 P408,149,958 P188,552,690 P574,124,245
8. DERIVATIVES, TRADING AND INVESTMENT SECURITIES
Financial assets at FVPL This account consists of:
2013 2012 Held-for-trading: Government bonds P2,289,626,987 P2,486,034,631 Treasury notes 1,885,968,182 3,943,476,439 Private bonds and commercial papers 893,905,336 484,724,705 Treasury bills – 107,585 5,069,500,505 6,914,343,360 Financial assets designated at FVPL (Note 20) 4,856,408,376 4,999,995,000 Derivative assets (Note 24) 495,514,172 252,339,832 P10,421,423,053 P12,166,678,192 Financial assets designated at FVPL pertain to the Parent Company’s investments in preferred shares. The preferred shares are redeemable at the option of the issuer, at a price equivalent to the issue price of 75.00 per share plus cumulative and unpaid dividend, starting on the third anniversary from the listing date (September 28, 2012) or any dividend payment date thereafter.
The preferred shares also contain dividend rate step-up which is the higher of the dividend rate of 7.50% or the 10-year PDST-F plus 300 bps. The dividend rate step-up will apply if the issuer does not redeem the preferred shares on the fifth year of issuance.
The preferred shares have an embedded derivative in the form of an optional redemption feature, which is deemed not clearly and closely related to its equity host. In this regard, PAS 39 provides that if a contract contains one or more embedded derivatives, an entity may designate the entire hybrid contract at FVPL unless the embedded derivative does not significantly modify the cash flows that otherwise would be required by the contract, or it is clear with little or no analysis when a similar hybrid instrument is first considered that separation of the embedded derivative is prohibited. On this basis, management has determined that the preferred shares shall be designated as at FVPL.
Annual Report 2013 123 NOTES TO FINANCIAL STATEMENTS
As of December 31, 2013 and 2012, HFT securities include fair value loss of P39.92 million and of P56.91 million, respectively. Both realized and unrealized gains and losses on HFT and financial assets designated at FVPL are included under ‘Trading and securities gain - net’ (see Note 20).
AFS financial assets This account consists of:
Consolidated Parent Company 2012 (As restated - 2013 Note 10) 2013 2012 Quoted: Government bonds (Note 27) P39,635,113,012 P35,661,272,547 P38,658,871,304 P34,921,094,182 Private bonds 3,555,275,367 432,554,427 3,394,861,168 286,588,166 Equities 150,459,385 121,751,295 143,418,541 120,660,984 43,340,847,764 36,215,578,269 42,197,151,013 35,328,343,332 Unquoted: Credit-linked notes (host) – 4,130,600,504 – 4,130,600,504 Private bonds and commercial papers - net 979,626,875 1,198,372,269 979,626,875 1,198,372,269 Equities - net * 28,782,136 26,890,099 19,412,705 19,412,705 1,008,409,011 5,355,862,872 999,039,580 5,348,385,478 Total P44,349,256,775 P41,571,441,141 P43,196,190,593 40,676,728,810 * Includes fully impaired equity investments with acquisition cost of P39.62 million for the Group and P6.32 million for the Parent Company in 2013 and P39.63 million for the Group and P6.33 million for the Parent Company in 2012.
Credit-linked notes (CLN) As approved by the BOD on August 6, 2008, the Parent Company invested US$100,000,000, in five separate CLNs of US$20,000,000 each. The CLNs are linked to the performance of a specific Republic of the Philippines (ROP) bond, the underlying bond collateral, and London Interbank Offer Rate (LIBOR). In the event of a credit event or a default event on the specific ROP bond or the bond collateral, the investment will unwind and the Parent Company will receive the deliverable obligation as defined under the contract. If no credit event or default event occurs, the Parent Company will receive the maturity value of the CLNs, which is the face amount. The CLNs bear floating interest based on 6-month USD LIBOR plus an agreed spread, payable semi-annually, and with tenor of five years. All CLNs matured in 2013.
The embedded credit derivatives on the above CLNs have been bifurcated (see Note 24) and the host contracts were classified under AFS financial assets.
Unquoted equity securities This account comprises of shares of stocks of private corporations that are carried at cost since fair value cannot be reliably estimated due to lack of reliable estimates of future cash flows and discount rates necessary to calculate the fair value. There is currently no market for these investments and the Group intends to hold them for the long term.
Net unrealized gains (losses) AFS financial assets include fair value loss of P79.26 million and P73.86 million for the Group and Parent Company, respectively, as of December 31, 2013, and fair value gains of P1.36 billion and P1.34 billion for the Group and Parent Company, respectively, as of December 31, 2012. The fair value gains or losses are recognized under OCI. The deferred tax liabilities recognized on net unrealized gains amounted to P1.17 million and P1.84 million as of December 31, 2013 and 2012, respectively, for both the Group and Parent Company. Impairment loss on AFS financial assets which was charged to operations amounted to 5.13 million in 2012. No impairment loss was recognized in 2013 and 2011.
HTM financial assets This account consists of: Consolidated Parent Company 2012 (As restated - 2013 Note 10) 2013 2012 Government bonds P11,713,844,329 P12,274,025,013 P11,685,809,329 P12,245,970,013 Private bonds 358,933,575 331,889,250 358,933,575 331,889,250 12,072,777,904 12,605,914,263 12,044,742,904 12,577,859,263 Unamortized premium – net 77,768,925 87,319,150 77,846,309 87,466,516 P12,150,546,829 P12,693,233,413 P12,122,589,213 P12,665,325,779 Reclassification of Financial Assets In 2008, as approved by its BOD, the Parent Company identified assets for which it had a clear change of intent to hold the investments to maturity rather than to exit or trade these investments in the foreseeable future and reclassified those investments from AFS financial assets to HTM financial assets effective October 2, 2008.
124 As of October 2, 2008, the total carrying value of AFS financial assets reclassified to HTM financial assets amounted to P9.04 billion, with unrealized losses of P47.44 million deferred under ‘Net unrealized gains (losses) on AFS financial assets’ under OCI.
HTM financial assets reclassified from AFS financial assets with total face amount of P30.41 million matured in 2013.
As of December 31, 2013 and 2012, HTM financial assets reclassified from AFS financial assets have the following balances:
Unamortized Net Unrealized Original Carrying Fair Loss Deferred Face Value Cost Value Value in Equity Amortization (In Thousands) 2013 Government bonds* P2,513,659 P2,826,638 P2,652,572 P3,020,586 P6,800 (P22,886) Private bonds** 356,936 356,918 347,865 401,253 (9,064) 12,335 P2,870,595 P3,183,556 P3,000,437 P3,421,839 (P2,264) (P10,551) 2012 Government bonds* P2,346,064 P2,637,471 P2,509,729 P3,020,900 P9,388 (P18,654) Private bonds** 330,042 330,026 319,108 389,073 (10,925) 8,861 P2,676,106 P2,967,497 P2,828,837 P3,409,973 (P1,537) (P9,793) * Consist of US dollar-denominated bonds with face value of $52.89 million and $53.58 million as of December 31, 2013 and 2012, respectively, and euro-denominated bonds with face value of P2.71 million as of December 31, 2013 ** Consist of US dollar-denominated bonds with face value of $8.04 million
Had these securities not been reclassified to HTM financial assets, additional mark-to-market gain that would have been credited to the statement of comprehensive income amounted to P421.40 million, P581.14 million and P542.60 million in 2013, 2012 and 2011, respectively.
Effective interest rates on the reclassified securities range from 5.51% to 8.99%. The Parent Company expects to recover 100.00% of the principal and interest due on the reclassified investments totaling P3.72 billion and P3.69 billion, as of December 31, 2013 and 2012, respectively. No impairment loss was recognized on these securities in 2013, 2012 and 2011.
Interest Income on Trading and Investment Securities This account consists of:
Consolidated Parent Company 2013 2012 2011 2013 2012 2011 Financial assets at FVPL P352,133,595 P298,948,370 P326,059,117 P352,133,595 P298,948,370 P326,059,117 AFS financial assets 1,811,974,578 2,078,764,841 2,341,486,771 1,744,705,222 1,818,703,205 2,292,266,252 HTM financial assets 1,063,232,965 996,120,825 1,245,703,384 1,061,457,141 1,179,913,311 1,238,841,033 P3,227,341,138 P3,373,834,036 P3,913,249,272 P3,158,295,958 P3,297,564,886 P3,857,166,402
9. LOANS AND RECEIVABLES
This account consists of:
Consolidated Parent Company 2012 (As restated - 2013 Note 10) 2013 2012 Loans and discounts Corporate and commercial lending P185,896,772,212 P163,075,101,419 P181,966,719,789 P160,805,057,068 Consumer lending 29,882,950,411 23,238,472,198 23,622,741,057 20,344,340,534 Trade-related lending 11,778,365,236 11,358,214,153 11,778,365,236 11,358,214,153 Others 100,295,865 102,120,411 90,104,852 92,566,722 227,658,383,724 197,773,908,181 217,457,930,934 192,600,178,477 Unearned discounts (484,400,529) (894,151,834) (378,681,663) (671,973,994) 227,173,983,195 196,879,756,347 217,079,249,271 191,928,204,483 Allowance for impairment and credit losses (Note 15) (6,633,080,280) (6,779,450,022) (6,316,979,860) (6,566,449,815) P220,540,902,915 P190,100,306,325 P210,762,269,411 P185,361,754,668 The Group’s and Parent Company’s loans and discounts under corporate lending include unquoted debt securities with carrying amount of P2.38 billion and P2.04 billion as of December 31, 2013, respectively, and P2.77 billion and P2.43 billion as of December 31, 2012, respectively.
Annual Report 2013 125 NOTES TO FINANCIAL STATEMENTS
BSP Reporting Information on the amounts of secured and unsecured loans and receivables (gross of unearned discounts and allowance for impairment and credit losses) of the Group and Parent Company are as follows:
Consolidated Parent Company 2013 2012 (As restated - Note 10) 2013 2012 Amounts % Amounts % Amounts % Amounts % Loans secured by: Real estate P34,238,716,703 15.04 P33,306,153,339 16.84 P31,636,943,961 14.55 P31,772,993,920 16.50 Chattel mortgage 20,072,559,602 8.82 6,000,801,794 3.03 17,924,950,148 8.24 4,317,209,252 2.24 Deposit hold out 3,173,880,795 1.39 13,482,758,223 6.82 3,137,272,126 1.44 13,432,382,805 6.98 Shares of stock of other banks (Note 28) 2,942,000,000 1.29 640,965,000 0.32 2,942,000,000 1.35 640,965,000 0.33 Others 46,891,567,995 20.60 39,467,176,399 19.96 46,891,567,995 21.57 38,679,273,894 20.08 107,318,725,095 47.14 92,897,854,755 46.97 102,532,734,230 47.15 88,842,824,871 46.13 Unsecured loans 120,339,658,629 52.86 104,876,053,426 53.03 114,925,196,704 52.85 103,757,353,606 53.87 P227,658,383,724 100.00 P197,773,908,181 100.00 P217,457,930,934 100.00 P192,600,178,477 100.00
Loans and receivables of the Group amounting to nil and P2.06 billion as of December 31, 2013 and 2012, respectively, are pledged to secure certain bills payable to the BSP under the Parent Company’s rediscounting privileges (see Note 17).
Information on the concentration of credit as to industry of the Group and Parent Company follows:
Consolidated 2013 2012 (As restated - Note 10) Amounts % Amounts % Real estate, renting and business services P60,230,149,588 26.46 P51,420,258,996 26.00 Wholesale and retail trade 34,434,621,617 15.13 29,062,114,156 14.69 Manufacturing 32,723,302,187 14.37 34,101,622,193 17.24 Financial intermediaries 19,509,696,732 8.57 24,740,818,791 12.51 Transportation, storage and communication 18,728,510,372 8.23 14,888,821,275 7.53 Electricity, gas and water 13,361,046,785 5.87 11,246,076,837 5.69 Construction 6,074,279,567 2.67 3,945,972,540 1.99 Agriculture 4,174,326,839 1.83 4,965,847,953 2.51 Mining and quarrying 803,749,446 0.35 1,534,003,882 0.78 Others 37,618,700,591 16.52 21,868,371,558 11.06 P227,658,383,724 100.00 P197,773,908,181 100.00
Parent Company 2013 2012 Amounts % Amounts % Real estate, renting and business services P56,569,557,306 26.01 P50,067,613,011 26.00 Wholesale and retail trade 33,660,321,224 15.48 28,282,448,431 14.68 Manufacturing 32,678,273,990 15.03 33,981,574,046 17.64 Financial intermediaries 18,716,522,416 8.61 24,671,627,406 12.81 Transportation, storage and communication 18,424,306,894 8.47 14,518,224,558 7.54 Electricity, gas and water 13,360,581,687 6.14 11,245,143,731 5.84 Construction 5,962,632,897 2.74 3,751,352,625 1.95 Agriculture 4,163,167,175 1.92 4,945,980,599 2.57 Mining and quarrying 802,688,379 0.37 1,534,003,882 0.80 Others 33,119,878,966 15.23 19,602,210,188 10.17 P217,457,930,934 100.00 P192,600,178,477 100.00 The BSP considers that loan concentration exists when the total loan exposure to a particular industry or economic sector exceeds 30.00% of total loan portfolio. As of December 31, 2013 and 2012, the Group does not have credit concentration in any particular industry.
As of December 31, 2013 and 2012, secured and unsecured NPLs of the Group and Parent Company follow:
Consolidated Parent Company 2013 2012 2013 2012 Secured P2,370,944,220 P3,253,879,192 P2,055,920,376 P3,085,572,847 Unsecured 2,152,985,178 1,772,360,572 2,062,015,314 1,717,059,011 P4,523,929,398 P5,026,239,764 P4,117,935,690 P4,802,631,858 Generally, NPLs refer to loans whose principal and/or interest is unpaid for thirty (30) days or more after due date or after they have become past due in accordance with existing BSP rules and regulations. This shall apply to loans payable in lump sum and loans payable in quarterly, semi-annual, or annual installments, in which case, the total outstanding balance thereof shall be considered nonperforming.
126 In the case of loans that are payable in monthly installments, the total outstanding balance thereof shall be considered nonperforming when three (3) or more installments are in arrears.
In the case of loans that are payable in daily, weekly, or semi-monthly installments, the total outstanding balance thereof shall be considered nonperforming at the same time that they become past due in accordance with existing BSP regulations, i.e., the entire outstanding balance of the receivable shall be considered as past due when the total amount of arrearages reaches ten percent (10.00%) of the total loan balance.
Loans are classified as nonperforming in accordance with BSP regulations, or when, in the opinion of management, collection of interest or principal is doubtful. Loans are not reclassified as performing until interest and principal payments are brought current or the loans are restructured in accordance with existing BSP regulations, and future payments appear assured.
Loans which do not meet the requirements to be treated as performing loans shall also be considered as NPLs. Effective January 1, 2013, the exclusion of NPLs classified as loss but are fully covered by allowance was removed by the BSP through Circular No. 772. Previous banking regulations allow banks that have no unbooked valuation reserves and capital adjustments to exclude from nonperforming classification those loans classified as Loss in the latest examination of the BSP which are fully covered by allowance for credit losses, provided that interest on said receivables shall not be accrued.
As of December 31, 2012, under previous banking regulations, NPLs of the Group and Parent Company net of those which are fully provided with allowance for credit losses of amounted to P4.06 billion and P3.84 billion, respectively.
As of December 31, 2013, based on the revised definition of NPL under Circular No. 772, gross and net NPLs of the Parent Company as reported to BSP amounted to P4.12 billion and P0.25 billion, respectively. As of December 31, 2013, gross and net NPL ratios of the Parent Company are 1.92% and 0.12%, respectively.
Interest Income on Impaired Loans Accretion of individually impaired loans and receivables of the Parent Company included as part of interest income amounted to P63.18 million in 2011. There were no interest income accreted on individually impaired loans in 2013 and 2012.
10. EQUITY INVESTMENTS
The Parent Company’s investments consist of: 2013 2012 Subsidiaries: CBSI (Note 13) P1,473,810,787 P1,473,607,513 Unity Bank 400,000,000 400,000,000 CBC Forex Corporation 50,000,000 50,000,000 CBC-PCCI 2,439,000 2,439,000 CIBI 1,500,000 1,500,000 1,927,749,787 1,927,546,513 Associate: Manulife China Bank Life Assurance Corporation (MCB Life) 21,245,838 21,245,838 P1,948,995,625 P1,948,792,351 The foregoing balances represent the acquisition cost of the Parent Company’s subsidiaries and associate.
CBSI Cost of investment includes the original amount incurred by the Parent Company from its acquisition of CBSI in 2007 amounting to P1.07 billion (net of goodwill and branch licenses transferred to the Parent Company amounting to P0.66 million) and additional acquisition of non- controlling interest in 2013 and 2012 of P0.20 million and P1.37 million, respectively. Additional acquisitions brought up the Parent Company’s interest in CBSI to 95.25% and 95.24% as of December 31, 2013 and 2012, respectively.
CBC Forex On May 5, 2009 the BOD approved to dissolve the operations of the Company by shortening its corporate life until December 31, 2009. The Company is still in the process of liquidation and awaiting clearance from regulatory bodies to effect dissolution.
Unity Bank On September 7, 2012, in line with the BSP’s SPRB Plus, the Parent Company and the majority shareholders of Unity Bank (the Parties) entered into a MOA, whereby the Parent Company agreed to buy and the majority shareholders agreed to sell 2,998,454 shares representing the latter’s 99.949% ownership in Unity Bank.
The purchase price of the acquisition of Unity Bank, net of the unpaid subscription, amounted to P30.00 million which is payable as follows:
a. P20.00 million - within 24 hours from receipt of the approval by the BSP of the sale/purchase for incentives under the BSP’s SPRB Plus; b. P10.00 million - upon the execution of Deed of Assignment of Shares but no earlier than the approval required of the BSP, which amount shall be earmarked to pay off all Unity Bank employee’s separation pay. Annual Report 2013 127 NOTES TO FINANCIAL STATEMENTS
In accordance with the MOA, the Parties entered into an Escrow Agreement with CBSI on September 20, 2012. As escrow agent, CBSI held in trust the purchase price in favor of the Parties pending the approval of the BSP of the acquisition of Unity Bank. Under the Escrow Agreement, the Parties further agreed for an additional purchase price of 10.00 million which will be contingent on the outcome of the valuation of the investment properties of Unity Bank. The investment properties subject of valuation is enumerated in the List of Foreclosed & Acquired Properties as of July 17, 2012 (“Contingent Accounts”), which Unity Bank provided to the Parent Company. The contingent amount will be released to the majority shareholders ninety (90) calendar days from the approval of the BSP of the acquisition of Unity Bank and when the appraised values of the investment properties, which are determined by appraisers mutually agreed upon by the Parties, shall be at least 60.00% of the investment properties’ book value of P261.00 million. The book value is based on the June 30, 2012 unaudited balance sheet and income statement of Unity Bank.
If the appraised value of the investment properties fall below 60.00% of the book value, no additional purchase price shall be paid to the majority shareholders and the contingent amount will be released to the Parent Company. As of December 31, 2013, the remaining balance under escrow amounted to P1.70 million.
On November 20, 2012, the BSP approved the acquisition by the Parent Company of the 99.949% outstanding shares of Unity Bank. As of this date, the Parent Company effectively obtained control of Unity Bank.
The Parent Company accounted for the transaction under the acquisition method of PFRS 3. In accordance with PFRS 3, the Parent Company determined the cost of the acquisition to be P30.00 million, which excludes the 10.00 million purchase price that is earmarked as payment for the separation pay of Unity Bank’s employees. The Parent Company accounted for such amount as additional capital infusion to Unity Bank.
The fair value of the identifiable assets and liabilities of Unity Bank as at November 20, 2012 follows:
Fair Value Recognized on Acquisition (As restated) Assets Cash and other cash items P23,233,626 Due from BSP 24,535,196 Due from other banks 267,240,919 Available for sale investments 1,090,311 HTM financial assets 27,907,634 Loans and receivables 349,069,402 Bank premises, furniture, fixtures and equipment 31,556,252 Investment properties 277,550,900 Branch licenses 20,846,202 Sales contracts receivable 360,000,000 Other assets 9,894,395 Total P1,392,924,837 Liabilities Deposit liabilities P980,018,443 Accrued expenses 12,628,741 Deferred tax liabilities (Note 26) 133,326,974 Other liabilities 70,965,233 Total 1,196,939,391 Net Assets P195,985,446 Share in the fair value of the net assets acquired (99.949%) P195,885,493
Part of the identifiable assets the Parent Company recognized from the acquisition are the 24 branch licenses on restricted areas which the BSP provided as incentive under the SPRB Plus. The branch licenses are granted under the SPRB Plus to make up for the expected shortfall in the net assets of acquiree banks.
The net assets recognized in the 2012 financial statements were based on a provisional assessment of their fair value while post due diligence of the assets and liabilities of Unity Bank, including appraisal of all of its real properties by an external appraiser, is completed by the Parent Company.
After completion of the post due diligence review, the fair value acquired from Unity Bank and the gain on bargain purchase recognized by the Parent Company decreased by P103.85 million.
The decrease primarily resulted from the identification of additional nonperforming loans, provisions, tax and rental liabilities. The 2012 comparative information was restated to reflect the adjustment to the provisional amounts.
The resulting gain on bargain purchase based on the final fair values of the net assets acquired from Unity Bank amounted to P165.89 million. This amount is included under ‘Miscellaneous income’ in the statements of income.
128 The impact on 2012 financial statement accounts as a result of restatement to effect the final fair values of the assets acquired and liabilities assumed from Unity Bank follows:
Increase (decrease) in: December 31, 2012 Balance sheet Assets AFS financial assets P1,090,311 HTM financial assets (1,019,028) Loans and receivables (45,029,437) Accrued interest receivable 2,625,219 Bank premises, furniture, fixtures and equipment (5,150,263) Investment properties 3,453,000 Deferred tax assets 3,055,915 Other assets (12,468,402)
Liabilities Income tax payable 334,900 Accrued interest and other expenses 6,685,452 Other liabilities 43,437,045
Equity Equity attributable to equity holders of the Parent Company Surplus (103,847,093) Non-controlling interest (52,989)
Statement of income Miscellaneous income (103,847,093) Cash flow on acquisition follows:
Cash and cash equivalents acquired from Unity Bank* P315,009,741 Cash paid (30,000,000) Net cash inflow P285,009,741 * Includes Cash and other cash items, Due from BSP and Due from other banks.
On December 12, 2012, the Parent Company made additional capital infusion to Unity Bank of P360.00 million to maintain the latter’s capital adequacy ratio (CAR) at a minimum of 10.00% in light of recording additional loan loss provisioning required by the BSP.
Investment in associates Investment in associates 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 in its financial statements as an investment in an associate) which is carried at nil amount as of December 31, 2013 and 2012. The equity in net earnings of these investments is not significant to the Group.
MCB Life On August 2, 2006, the 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 on March 23, 2007. The Parent Company acquired 5.00% interest of MCB Life on August 8, 2007. This investment is accounted for as an investment in an associate by virtue of the Bancassurance Alliance Agreement which provides the Parent Company to be represented in MCB Life’s BOD and, thus, exercise significant influence over the latter.
The BSP requires the Parent Company to maintain a minimum of 5% ownership over MCB Life in order for MCB Life to be allowed to continue distributing its insurance products through the Parent Company’s branches.
Commission income earned by the Parent Company from its bancassurance agreement amounting to P294.80 million, P214.57 million and P178.27 million in 2013, 2012 and 2011, respectively, is included under ‘Miscellaneous income’ in the statements of income (Note 20).
Annual Report 2013 129 NOTES TO FINANCIAL STATEMENTS
11. BANK PREMISES, FURNITURE, FIXTURES AND EQUIPMENT
The composition of and movements in this account follow:
Consolidated Furniture, Fixtures and Leasehold Construction- 2013 Land Equipment Buildings Improvements in-Progress Total Cost Balance at beginning of year P2,464,639,930 P4,615,682,659 P1,526,411,978 P853,865,207 P− P9,460,599,774 Additions − 632,080,470 15,392,179 129,742,485 388,025,941 1,165,241,075 Disposals/transfers* 7,195,289 (138,238,786) 2,479,146 (10,363,988) − (138,928,339) Balance at end of year 2,471,835,219 5,109,524,343 1,544,283,303 973,243,704 388,025,941 10,486,912,510 Accumulated Depreciation and Amortization Balance at beginning of year − 3,583,863,946 651,028,573 470,390,884 − 4,705,283,403 Depreciation and amortization − 458,386,423 98,452,429 88,688,560 − 645,527,412 Disposals/transfers* − (137,237,727) (7,646) (11,222,171) − (148,467,544) Balance at end of year − 3,905,012,642 749,473,356 547,857,273 − 5,202,343,271 Accumulated Impairment (Note 15) Balance at beginning of year − − − − − − Reclassification − 4,628,835 − − − 4,628,835 Balance at end of year − 4,628,835 − − − 4,628,835 Net Book Value at End of Year P2,471,835,219 P1,199,882,866 P794,809,947 P425,386,431 P388,025,941 P5,279,940,404 *Includes transfers from investment properties amounting to P15.44 million.
Consolidated (As restated - Note 10) Furniture, Fixtures and Leasehold Construction- 2012 Land Equipment Buildings Improvements in-Progress Total Cost Balance at beginning of year P2,450,749,930 P4,235,059,123 P1,564,868,018 P763,255,613 P–P9,013,932,684 Additions – 516,247,974 43,778,146 112,224,836 – 672,250,956 Acquisition of Unity Bank 13,890,000 2,066,774 11,203,470 4,396,008 – 31,556,252 Disposals/reclassification – (137,691,212) (93,437,656) (26,011,250) – (257,140,118) Balance at end of year 2,464,639,930 4,615,682,659 1,526,411,978 853,865,207 – 9,460,599,774 Accumulated Depreciation and Amortization Balance at beginning of year – 3,262,664,839 422,562,028 391,294,477 – 4,076,521,344 Depreciation and amortization – 431,391,533 174,796,525 91,348,836 – 697,536,894 Disposals/reclassification – (110,192,426) 53,670,020 (12,252,429) – (68,774,835) Balance at end of year – 3,583,863,946 651,028,573 470,390,884 – 4,705,283,403 Accumulated Impairment (Note 15) Balance at beginning of year – – 15,202,948 – – 15,202,948 Reclassification – – (15,202,948) – – (15,202,948) Balance at end of year – – – – – – Net Book Value at End of Year P2,464,639,930 P1,031,818,713 P875,383,405 P383,474,323 P–P4,755,316,371
Parent Company Furniture, Fixtures and Leasehold Construction- 2013 Land Equipment Buildings Improvements in-Progress Total Cost Balance at beginning of year P2,321,830,036 P4,343,050,069 P1,099,864,750 P739,962,496 P–P8,504,707,351 Additions – 514,451,997 5,625,935 86,432,155 388,025,941 994,536,028 Disposals/reclassification – (99,600,692) – 1,469,841 − (98,130,851) Balance at end of year 2,321,830,036 4,757,901,374 1,105,490,685 827,864,492 388,025,941 9,401,112,528 Accumulated Depreciation and Amortization Balance at beginning of year – 3,423,135,745 385,123,501 455,588,421 – 4,263,847,667 Depreciation and amortization – 405,742,449 32,766,801 67,523,136 – 506,032,386 Disposals/reclassification – (95,142,021) (7,646) 734,437 – (94,415,230) Balance at end of year – 3,733,736,173 417,882,656 523,845,994 – 4,675,464,823 Net Book Value at End of Year P2,321,830,036 P1,024,165,201 P687,608,029 P304,018,498 P388,025,941 P4,725,647,705
130 Parent Company Furniture, Fixtures and Leasehold Construction- 2012 Land Equipment Buildings Improvements in-Progress Total Cost Balance at beginning of year P2,321,830,036 P4,007,963,944 P1,090,509,612 P673,579,473 P–P8,093,883,065 Additions – 465,308,732 21,596,345 72,800,057 – 559,705,134 Disposals/reclassification – (130,222,607) (12,241,207) (6,417,034) – (148,880,848) Balance at end of year 2,321,830,036 4,343,050,069 1,099,864,750 739,962,496 – 8,504,707,351 Accumulated Depreciation and Amortization Balance at beginning of year – 3,136,651,713 353,201,165 377,215,989 – 3,867,068,867 Depreciation and amortization – 395,981,040 36,841,933 78,372,432 – 511,195,405 Disposals/reclassification – (109,497,008) (4,919,597) – – (114,416,605) Balance at end of year – 3,423,135,745 385,123,501 455,588,421 – 4,263,847,667 Net Book Value at End of Year P2,321,830,036 P919,914,324 P714,741,249 P284,374,075 P–P4,240,859,684
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, revaluation increment amounting to P1.28 billion was closed to surplus (Note 22) in 2011.
In 2011, depreciation and amortization amounting to P555.16 million and P509.81 million for the Group and Parent Company, respectively, are included in the statements of income under ‘Depreciation and amortization’ account.
On August 26, 2011, the Parent Company was registered as an Economic Zone Information Technology (IT) Facilities Enterprise with the Philippine Economic Zone Authority (PEZA) to operate and maintain a proposed 17-storey building located inside the CBP-IT Park in Barangays Mabolo, Luz, Hipodromo, Carreta, and Kamputhaw, Cebu City, for lease to PEZA-registered IT enterprises, and to be known as China Bank Tower. This registration is under PEZA Registration Certificate No. 11-03-F.
Under this registration, the Bank is entitled to five percent (5%) final tax on gross income earned from locator IT enterprises and related operations in accordance with existing PEZA rules. The Bank shall also be exempted from the payment of all national and local taxes in relation to this registered activity.
As of December 31, 2013, China Bank Tower has not commenced commercial operations. The building is still under construction and projected to be operational by 2014.
12. INVESTMENT PROPERTIES
The composition of and movements in this account follow:
Consolidated Buildings and 2013 Land Improvements Total Cost Balance at beginning of year P3,534,381,180 P1,384,739,653 P4,919,120,833 Additions 372,157,950 65,350,797 437,508,747 Disposals/write-off/transfers* (631,380,624) (208,749,601) (840,130,225) Balance at end of year 3,275,158,506 1,241,340,849 4,516,499,355 Accumulated Depreciation and Amortization Balance at beginning of year − 660,649,571 660,649,571 Depreciation and amortization − 107,358,622 107,358,622 Disposals/write-off/transfers* − (102,365,322) (102,365,322) Balance at end of year P− P665,642,871 P665,642,871 (Forward) Accumulated Impairment Loss (Note 15) Balance at beginning of year P1,306,987,244 P132,172,378 P1,439,159,622 Provisions during the year − 2,580,829 2,580,829 Reclassification (73,828,444) 72,414,985 (1,413,459) Balance at end of year 1,233,158,800 207,168,192 1,440,326,992 Net Book Value at End of Year P2,041,999,706 P368,529,786 P2,410,529,492 *Includes transfers to bank premises amounting to P15.44 million.
Annual Report 2013 131 NOTES TO FINANCIAL STATEMENTS
Consolidated (As restated - Note 10) Buildings and 2012 Land Improvements Total Cost Balance at beginning of year P3,801,810,369 P1,417,489,369 P5,219,299,738 Additions 49,106,437 85,784,051 134,890,488 Acquisition of Unity Bank 219,547,433 58,003,467 277,550,900 Disposals/write-off (536,083,059) (176,537,234) (712,620,293) Balance at end of year 3,534,381,180 1,384,739,653 4,919,120,833 Accumulated Depreciation and Amortization Balance at beginning of year – 637,719,163 637,719,163 Depreciation and amortization – 127,758,913 127,758,913 Disposals/write-off – (104,828,505) (104,828,505) Balance at end of year – 660,649,571 660,649,571 Accumulated Impairment Loss (Note 15) Balance at beginning of year 1,098,256,241 68,428,112 1,166,684,353 Disposals/write-off (4,110,750) (283,601) (4,394,351) Reclassification 212,841,753 64,027,867 276,869,620 Balance at end of year 1,306,987,244 132,172,378 1,439,159,622 Net Book Value at End of Year P2,227,393,936 P591,917,704 P2,819,311,640
Parent Company Buildings and 2013 Land Improvements Total Cost Balance at beginning of year P3,255,787,462 P1,232,341,127 P4,488,128,589 Additions 359,613,722 60,015,237 419,628,959 Disposals/write-off (597,960,384) (161,821,126) (759,781,510) Balance at end of year 3,017,440,800 1,130,535,238 4,147,976,038 Accumulated Depreciation and Amortization Balance at beginning of year – 636,022,201 636,022,201 Depreciation and amortization – 89,714,056 89,714,056 Disposals/write-off – (88,950,986) (88,950,986) Balance at end of year – 636,785,271 636,785,271 Accumulated Impairment Loss (Note 15) Balance at beginning and end of year 1,230,710,193 202,388,566 1,433,098,759 Net Book Value at End of Year P1,786,730,607 P291,361,401 P2,078,092,008
Parent Company Buildings and 2012 Land Improvements Total Cost Balance at beginning of year P3,741,717,431 P1,330,504,819 P5,072,222,250 Additions 48,826,192 73,842,200 122,668,392 Disposals/write-off (534,756,161) (172,005,892) (706,762,053) Balance at end of year 3,255,787,462 1,232,341,127 4,488,128,589 Accumulated Depreciation and Amortization Balance at beginning of year – 617,149,727 617,149,727 Depreciation and amortization – 109,718,073 109,718,073 Disposals/write-off – (90,845,599) (90,845,599) Balance at end of year P–P636,022,201 P636,022,201 Accumulated Impairment Loss (Note 15) Balance at beginning of year P1,026,121,765 P123,677,893 P1,149,799,658 Disposals/write-off (4,110,750) (283,601) (4,394,351) Transfer 208,699,178 78,994,274 287,693,452 Balance at end of year 1,230,710,193 202,388,566 1,433,098,759 Net Book Value at End of Year P2,025,077,269 P393,930,360 P2,419,007,629 The Group’s investment properties consist entirely of real estate properties acquired in settlement of loans and receivables. The difference between the fair value of the investment property upon foreclosure and the carrying value of the loan is recognized under ‘Gain on asset foreclosure and dacion transactions’ in the statements of income.
In 2011, depreciation and amortization amounting to P160.95 million and P155.92 million for the Group and Parent Company, respectively, are included in the statements of income under ‘Depreciation and amortization’ account.
132 Details of rent income earned and direct operating expenses incurred on investment properties follow:
Consolidated 2013 2012 2011 Rent income on investment properties P13,392,985 P36,590,737 P60,901,894 Direct operating expenses on investment properties generating rent income 6,733,827 5,298,199 9,290,776 Direct operating expenses on investment properties not generating rent income 74,096,497 47,874,641 33,765,717 Parent Company 2013 2012 2011 Rent income on investment properties P8,833,767 P16,058,824 P34,305,415 Direct operating expenses on investment properties generating rent income 6,733,827 5,298,199 9,290,776 Direct operating expenses on investment properties not generating rent income 71,791,484 41,107,203 32,084,887 Rent income earned from leasing out investment properties is included under ‘Miscellaneous income’ in the statements of income.
As of December 31, 2013 and 2012, fair values of investment properties amounted to P6.56 billion and P7.16 billion, respectively, for the Group and P6.18 billion and P6.38 billion, respectively, for the Parent Company.
13. GOODWILL AND BRANCH LICENSES
Branch licenses and goodwill in the Parent Company’s balance sheet amounting to P455.00 million and P222.84 million, respectively, arose from the Parent Company’s acquisition of CBSI in 2007.
On June 21, 2007, the Parent Company and the majority shareholders of CBSI entered into a MOA whereby the former agreed to buy and the latter agreed to sell 87.52% of their equity interest in CBSI for P1.65 billion.
On September 3, 2007, the Parent Company’s officers were appointed as members of CBSI’s BOD. As of this date, the Parent Company effectively obtained control of CBSI. Subsequent thereto, a tender offer was made to all remaining shareholders of CBSI at the price of 214.65 per share. A total of 4.30% of CBSI’s common shares were subsequently acquired through a tender offer, which expired on January 15, 2008.
The acquisition resulted in recognition of goodwill determined as follows:
Total cost of acquisition: Cost to acquire 87.52% P1,650,283,292 Cost to acquire 4.30% 84,689,943 1,734,973,235 Less: Fair value of net assets acquired 1,512,132,034 Goodwill P222,841,201
The Parent Company attributed the goodwill to factors such as increase in geographical presence and customer base due to the branches acquired. On November 21, 2007, the BOD approved the transfer of certain assets and liabilities (including certain branches) of CBSI to the Parent Company. As the economic value of goodwill arising from the CBSI acquisition can be attributed to the branches transferred, such goodwill was transferred to the books of the Parent Company.
The branch licenses pertaining to the branches transferred were also transferred to the Parent Company. The transfers resulted in a reduction of the investment account of the Parent Company by P0.66 billion as of December 31, 2007.
Since goodwill is attributed to the branches transferred, the Parent Company’s Branch Banking Group (BBG) has been identified as the CGU for impairment testing of the goodwill. The BBG has also been identified as the CGU for impairment testing of the branch licenses.
The recoverable amount of the CGU has been determined based on a value-in-use calculation using cash flow projections from financial budgets approved by senior management covering a five-year period, which do not include restructuring activities that the Group is not yet committed to or significant future investments that will enhance the asset base of the CGU being tested. The discount rate applied to cash flow projections is 12.05% in 2013 and 11.89% in 2012 and cash flows beyond the five year-period are extrapolated using a steady growth rate of 1.00% and 3.00% in 2013 and 2012, respectively, which does not exceed the long-term average growth rate for the industry.
Annual Report 2013 133 NOTES TO FINANCIAL STATEMENTS
The calculation of the value-in-use of the CGU is most sensitive to the following assumptions:
• Interest margin • Discount rates • Market share during the budget period • Steady growth rate used to extrapolate cash flows beyond the budget period • Local inflation rates
With regard to the assessment of value-in-use of the CGU, management believes that no reasonably possible change in any of the above key assumptions would cause the carrying value of the goodwill and branch licenses to materially exceed its recoverable amount as of December 31, 2013 and 2012.
14. OTHER ASSETS
This account consists of: Consolidated Parent Company 2012 2012 (As restated - (As restated - 2013 Notes 2 and 10) 2013 Note 2) Financial Assets Accounts receivable P2,246,848,092 P2,316,561,783 P2,050,625,476 P2,145,561,124 SCR 496,495,246 496,644,756 425,543,982 409,168,484 RCOCI 74,677,585 110,891,261 74,677,585 108,656,681 Miscellaneous Sundry debit 80,689,768 287,510,298 80,689,768 287,287,949 Prepaid expenses 55,472,738 56,203,903 53,293,366 53,486,464 Others 412,781,760 524,770,847 413,948,541 460,785,360 548,944,266 868,485,048 547,931,675 801,559,773 Total 3,366,965,189 3,792,582,848 3,098,778,718 3,464,946,062 Nonfinancial Assets Net plan assets (Note 23) 1,504,128,446 930,707,083 1,502,441,475 930,707,083 Creditable withholding taxes (CWT) 691,661,831 614,680,146 540,295,445 507,585,142 Total 2,195,790,277 1,545,387,229 2,042,736,920 1,438,292,225 5,562,755,466 5,337,970,077 5,141,515,638 4,903,238,287 Allowance for impairment and credit losses (Note 15) (761,634,930) (631,521,551) (743,048,784) (613,734,269) P4,801,120,536 P4,706,448,526 P4,398,466,854 P4,289,504,018 Accounts Receivable As of December 31, 2013 and 2012, about 76% and 79%, respectively, of the Parent Company’s accounts receivable represents final withholding taxes (FWT) imposed by the Bureau of Internal Revenue (BIR) and withheld by the Bureau of Treasury from the proceeds collected by the Parent Company upon maturity of the Poverty Eradication and Alleviation Certificates (PEACe) bonds on October 18, 2011.
On October 17, 2011, the Parent Company together with seven other banks filed a joint petition against the BIR’s decision to impose 20% FWT on PEACe bonds. The high court issued a temporary restraining order in favor of these banks on the same day and ordered these banks to place in escrow an amount equivalent to the disputed withholding tax until final decision is rendered. However, the government withheld the 20% FWT from the proceeds of the PEACe bonds and held it in an escrow account with the Land Bank of the Philippines.
As discussed in more detail in Note 2, the Parent Company considers several factors in determining whether a financial asset is impaired, including the present value of the expected future cash flows discounted at the asset’s original contractual effective rate. As of December 31, 2013 and 2012, the Parent Company, in consultation with its legal counsel has determined that the said accounts receivable is collectible.
Accounts receivable also includes noninterest bearing advances to officers and employees, with terms ranging from 1 to 30 days and receivables of the Parent Company from ATM transactions of clients of other banks through any of the Parent Company’s ATM terminals.
Miscellaneous Assets Miscellaneous assets - others consist mainly of documentary stamps, unissued stationary and supplies, inter-office float items, security deposits and deposits for various services.
In the consolidated financial statements, miscellaneous assets - others include non-current assets held for sale which comprised of foreclosed vehicles amounting to P4.28 million and P9.40 million as of December 31, 2013 and 2012, respectively, for which management assessed that sale of such asset to be highly probable.
134 The following tables present the reconciliation of the movement of the allowance for impairment and credit losses on other assets:
Consolidated Accounts Receivable SCR Miscellaneous Total At January 1, 2013 P422,083,499 P14,778,501 P194,659,551 P631,521,551 Provisions during the year (Note 15) 99,450,446 2,786,601 1,520,770 103,757,817 Transfers/others 9,964,908 4,630,676 11,759,978 26,355,562 At December 31, 2013 P531,498,853 P22,195,778 P207,940,299 P761,634,930
At January 1, 2012 P134,029,733 P14,222,891 P201,459,741 P349,712,365 Provisions (reversals) of impairment losses (Note 15) 27,026,356 119,541 (26,587) 27,119,310 Transfers/others 261,027,410 436,069 (6,773,603) 254,689,876 At December 31, 2012 P422,083,499 P14,778,501 P194,659,551 P631,521,551
Parent Company Accounts Receivable SCR Miscellaneous Total At January 1, 2013 P410,412,520 P14,342,432 P188,979,317 P613,734,269 Provisions during the year (Note 15) 97,463,494 2,786,601 921,469 101,171,564 Transfers/others 11,752,295 4,630,676 11,759,980 28,142,951 At December 31, 2013 P519,628,309 P21,759,709 P201,660,766 P743,048,784
At January 1, 2012 P133,849,332 P14,222,891 189,053,933 P337,126,156 Provisions during the year (Note 15) 16,054,584 119,541 – 16,174,125 Transfers/others 260,508,604 – (74,616) 260,433,988 At December 31, 2012 P410,412,520 P14,342,432 P188,979,317 P613,734,269
15. ALLOWANCE FOR IMPAIRMENT AND CREDIT LOSSES
Changes in the allowance for impairment and credit losses are as follows:
Consolidated Parent Company 2013 2012 2013 2012 Balances at beginning of year: Loans and receivables P6,779,450,022 P7,569,243,302 P6,566,449,815 P7,403,118,580 Investment properties 1,439,159,622 1,166,684,353 1,433,098,759 1,149,799,658 Accrued interest receivable 81,113,369 84,282,814 80,567,819 83,737,263 AFS financial assets 39,625,921 33,397,735 6,333,398 1,204,678 Bank premises, furniture, fixtures and equipment – 15,202,948 – – Other assets 631,521,551 349,712,365 613,734,269 337,126,156 8,970,870,485 9,218,523,517 8,700,184,060 8,974,986,335 Provisions charged to operations 414,335,872 236,756,182 278,540,863 200,181,569 Accounts charged off and others (407,945,587) (484,409,214) (381,845,861) (474,983,844) P6,390,285 (P247,653,032) (P103,304,998) (P274,802,275) (Forward) Balances at end of year: Loans and receivables (Note 9) P6,633,080,280 P6,779,450,022 P6,316,979,860 P6,566,449,815 Investment properties (Note 12) 1,440,326,992 1,439,159,622 1,433,098,759 1,433,098,759 Accrued interest receivable 97,974,239 81,113,369 97,428,688 80,567,819 AFS financial assets 39,615,494 39,625,921 6,322,971 6,333,398 Bank premises, furniture, fixtures and equipment (Note 11) 4,628,835 – – – Other assets (Note 14) 761,634,930 631,521,551 743,048,784 613,734,269 P8,977,260,770 P8,970,870,485 P8,596,879,062 P8,700,184,060 At the current level of allowance for 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.
Annual Report 2013 135 NOTES TO FINANCIAL STATEMENTS
A reconciliation of the allowance for credit losses on loans and receivables from customers, AFS financial assets and accrued interest receivable follows:
Consolidated 2013 Accrued AFS Financial Interest Loans and Receivables Assets Receivable Corporate Consumer Trade-related Unquoted Lending Lending Lending Others Total Securities At January 1, 2013 P5,724,591,365 P458,641,413 P596,055,655 P161,589 P6,779,450,022 P39,625,921 P81,113,369 Provisions (recoveries) during the year 192,318,066 95,180,719 20,673,784 5,096 308,177,665 – (180,439) Transfers/others (739,100,069) 165,722,186 118,815,858 14,618 (454,547,407) (10,427) 17,041,309 At December 31, 2013 P5,177,809,362 P719,544,318 P735,545,297 P181,303 P6,633,080,280 P39,615,494 P97,974,239 Individual impairment P3,076,957,279 P532,039,333 P699,866,436 P177,704 4,309,040,752 P39,615,494 P97,974,239 Collective impairment 2,100,852,083 187,504,985 35,678,861 3,599 2,324,039,528 – – P5,177,809,362 P719,544,318 P735,545,297 P181,303 P6,633,080,280 P39,615,494 P97,974,239
Consolidated 2012 Accrued AFS Financial Interest Loans and Receivables Assets Receivable Corporate Consumer Trade-related Unquoted Lending Lending Lending Others Total Securities At January 1, 2012 P6,300,241,913 P353,900,062 P913,920,953 P1,180,374 P7,569,243,302 P33,397,735 P84,282,814 Provisions (recoveries) during the year 193,164,620 12,256,608 (915,413) – 204,505,815 5,128,720 2,337 Transfers/others (768,815,168) 92,484,743 (316,949,885) (1,018,785) (994,299,095) 1,099,466 (3,171,782) At December 31, 2012 P5,724,591,365 P458,641,413 P596,055,655 P161,589 P6,779,450,022 P39,625,921 P81,113,369 Individual impairment P3,237,518,009 P501,127,048 P490,509,517 P161,589 4,229,316,163 P39,625,921 P81,113,369 Collective impairment 2,487,073,356 (42,485,635) 105,546,138 – 2,550,133,859 – – P5,724,591,365 P458,641,413 P596,055,655 P161,589 P6,779,450,022 P39,625,921 P81,113,369
Parent Company 2013 Accrued AFS Financial Interest Loans and Receivables Assets Receivable Corporate Consumer Trade-related Unquoted Lending Lending Lending Others Total Securities At January 1, 2013 P5,549,707,297 P420,525,274 P596,055,655 P161,589 P6,566,449,815 P6,333,398 P80,567,819 Provisions (recoveries) during the year 139,452,126 17,418,732 20,673,784 5,096 177,549,738 – (180,439) Transfers/others (727,641,130) 181,790,961 118,815,858 14,618 (427,019,693) (10,427) 17,041,308 At December 31, 2013 P4,961,518,293 P619,734,967 P735,545,297 P181,303 P6,316,979,860 P6,322,971 P97,428,688 Individual impairment P3,039,928,029 P490,384,594 P699,866,436 P177,704 P4,230,356,763 P6,322,971 P97,428,688 Collective impairment 1,922,220,264 129,350,373 35,678,861 3,599 2,087,253,097 – – P4,962,148,293 P619,734,967 P735,545,297 P181,303 P6,317,609,860 P6,322,971 P97,428,688
Parent Company 2012 AFS Financial Loans and Receivables Assets Accrued Corporate Consumer Trade-related Unquoted Interest Lending Lending Lending Others Total Securities Receivable At January 1, 2012 P6,136,549,012 P351,468,241 P913,920,953 P1,180,374 P7,403,118,580 P1,204,678 P83,737,263 Provisions (recoveries) during the year 180,018,358 (226,557) (915,413) – 178,876,388 5,128,720 2,336 Transfers/others (766,860,073) 69,283,590 (316,949,885) (1,018,785) (1,015,545,153) – (3,171,780) At December 31, 2012 P5,549,707,297 P420,525,274 P596,055,655 P161,589 P6,566,449,815 P6,333,398 P80,567,819 Individual impairment P3,077,670,385 P479,271,213 P490,509,517 P161,589 P4,047,612,704 P6,333,398 P80,567,819 Collective impairment 2,472,036,912 (58,745,939) 105,546,138 – 2,518,837,111 – – P5,549,707,297 P420,525,274 P596,055,655 P161,589 P6,566,449,815 P6,333,398 P80,567,819
136 16. DEPOSIT LIABILITIES
As of December 31, 2013 and 2012, 56.50% and 60.54% respectively, of the total deposit liabilities of the Group are subject to periodic interest repricing. The remaining deposit liabilities bear annual fixed interest rates ranging from 0.13% to 8.25% in 2013 and 2012, and 0.25% to 8.25% in 2011.
On April 2, 2008, the Parent Company’s BOD authorized the issuance of Long-Term Negotiable Certificates of Deposit (LTNCDs) to expand its asset base. On August 8, 2008, the Parent Company issued 5-year LTNCDs with aggregate principal amount of 5.00 billion at par, which matured on August 9, 2013. As of December 31, 2012, the LTNCDs were included under the ‘Time deposit liabilities’ account. The LTNCDs bear a coupon rate of 8.25% per annum, payable quarterly at the end of each 3-month period. The statutory reserve for LTNCD is 2.00%. It is not subject to liquidity reserve in accordance with the Deposit Substitutes section of the MORB.
On March 29, 2012, BSP Circular No. 753 was issued providing unification of the statutory and liquidity reserve requirement, non-remuneration of the unified reserve requirement, exclusion of cash in vault and demand deposits as eligible forms of reserve requirement compliance, and reduction in the unified reserve requirement ratios.
As of December 31, 2013 and 2012, Due from BSP amounting to P48.04 billion and P37.57 billion, respectively, were set aside as reserves for deposit liabilities per latest report submitted by the Parent Company to the BSP.
17. BILLS PAYABLE
The Group’s and the Parent Company’s bills payable consist of: 2013 2012 Interbank loans payable P8,240,891,256 P− Government lending programs 28,718,441 1,207,178,185 BSP - rediscounting (Note 9) − 2,060,527,961 Others 29,584,828 259,101,827 P8,299,194,525 P3,526,807,973 Interbank loans payable consist of the following dollar-denominated borrowings:
Counterparty Average term Interest rate Amount JP Morgan Chase London 3 months 0.65% to 0.75% P4,000,891,273 Citibank N.A. Manila 3 years 1.69% 2,219,750,014 Barclays Bank London 2 years 1.40% 2,020,249,969 P8,240,891,256
As of December 31, 2013, the carrying amount of HTM and AFS financial assets pledged by the Parent Company as collateral for its interbank borrowings amounted to P6.81 billion and P2.54 billion, respectively. The fair value of HTM financial assets pledged as collateral amounted to P8.20 million as of December 31, 2013.
Details of the government lending programs follow:
Counterparty Average term Rates 2013 2012 Development Bank of the Philippines 6 years 4.00% to 8.25% P27,646,333 P781,349,950 Land Bank of the Philippines 5 years 5.13% 1,072,108 425,819,366 Social Security Services 3 years 4.00% − 8,869 P28,718,441 P1,207,178,185
18. ACCRUED INTEREST AND OTHER EXPENSES
This account consists of: Consolidated Parent Company 2012 (As restated - 2013 Note 10) 2013 2012 Accrued payable for employee benefits P752,231,486 P642,125,261 P752,231,486 P642,125,261 Accrued interest payable 388,391,903 558,128,732 362,063,310 534,128,856 Accrued taxes and other licenses 134,295,387 72,402,968 134,188,984 72,347,367 Accrued lease payable 67,125,802 60,914,579 60,914,579 60,914,579 Accrued other expenses payable 159,880,900 288,661,567 136,222,987 247,322,027 P1,501,925,478 P1,622,233,107 P1,445,621,346 P1,556,838,090
Annual Report 2013 137 NOTES TO FINANCIAL STATEMENTS
19. OTHER LIABILITIES
This account consists of: Consolidated Parent Company 2012 (As restated - 2013 Notes 2 and 10) 2013 2012 Financial liabilities Accounts payable P862,260,400 P977,638,028 P618,051,235 P804,649,279 Acceptances payable 954,605,687 271,316,801 954,605,687 271,316,801 Due to the Treasurer of the Philippines 450,277,877 659,049,344 450,277,877 659,049,344 Due to PDIC* 316,812,241 234,442,155 316,812,241 234,442,155 Other credits-dormant 188,616,465 98,400,409 188,616,465 98,400,409 Margin deposits 922,346 3,015,493 922,346 3,015,493 Miscellaneous 281,376,514 491,155,721 193,357,500 418,775,428 Total 3,054,871,530 2,735,017,951 2,722,643,351 2,489,648,909 Nonfinancial liabilities Withholding taxes payable 106,024,639 128,664,585 93,734,234 120,930,315 Retirement liabilities (Note 23) 46,535,741 54,867,279 – – Total 152,560,380 183,531,864 93,734,234 120,930,315 P3,207,431,910 P2,918,549,815 P2,816,377,585 P2,610,579,224 *Philippine Deposit Insurance Corporation
Accounts payable includes payables to suppliers and service providers, and loan payments and other charges received from customers in advance.
Miscellaneous liabilities mainly include sundry credits, inter-office float items, and dormant deposit accounts.
20. OTHER OPERATING INCOME AND MISCELLANEOUS EXPENSES
Trading and Securities Gain This account consists of: Consolidated Parent Company 2013 2012 2011 2013 2012 2011 Financial assets at FVPL: Held-for-trading (P93,904,356) P247,651,111 (P94,145,027) (P93,904,356) P247,651,111 (P94,145,027) Designated at FVPL 73,749,921 – – 73,749,921 – – Derivatives assets (Note 24) (81,352,004) (33,294,321) (86,888,762) (81,352,004) (33,294,321) (86,888,763) AFS financial assets 2,006,391,602 2,701,942,417 1,649,670,999 1,716,314,402 2,572,816,115 1,634,157,490 P1,904,885,163 P2,916,299,207 P1,468,637,210 P1,614,807,963 P2,787,172,905 P1,453,123,700
Service Charges, Fees and Commissions Details of this account are as follows: Consolidated Parent Company 2013 2012 2011 2013 2012 2011 Service and collection charges Deposits P505,554,168 P591,106,429 P620,201,649 P485,209,813 P578,003,661 P610,997,297 Loans 85,299,409 23,839,053 101,647,865 35,839,305 23,527,821 100,969,628 Others 197,757,214 43,193,556 65,975,502 108,482,813 42,294,399 478,694 Fees and commissions 367,849,071 388,213,255 197,432,292 374,542,144 305,341,215 136,682,214 P1,156,459,862 P1,046,352,293 P985,257,308 P1,004,074,075 P949,167,096 P849,127,833
Miscellaneous Income Details of this account are as follows: Parent Company 2012 (As restated - 2013 Note 10) 2011 2013 2012 2011 Dividends (Note 8) P486,381,921 P9,516,508 P27,664,086 P486,381,921 P9,516,508 P27,664,086 Bancassurance (Note 10) 294,797,215 214,571,987 178,271,487 294,797,215 214,571,987 178,271,487 Fund transfer fees 104,613,783 46,389,926 67,989,808 104,613,783 46,389,926 67,989,808 Participation fee 32,778,522 32,317,059 50,122,489 32,778,522 32,317,059 50,122,489 Rental on bank premises 28,693,424 27,795,805 25,042,745 28,693,424 27,795,805 25,042,745 Late fees 18,842,213 34,928,226 23,492,035 18,842,213 34,928,225 23,492,035 Rental safety deposit boxes 14,479,453 13,783,285 13,896,467 14,479,453 13,783,285 13,896,467 Recovery of charged off assets 293,043 2,518,353 14,259,993 293,043 2,518,353 14,259,993 Miscellaneous income 105,095,313 292,122,955 154,347,985 101,953,156 117,992,510 109,553,165 P1,085,974,887 P673,944,104 P555,087,095 P1,082,832,730 P499,813,658 P510,292,275
138 Dividends earned by the Parent Company from its investment in preferred shares designated at FVPL amount to P478.25 million in 2013 and nil in 2012.
Miscellaneous Expenses Details of this account are as follows: Consolidated Parent Company 2013 2012 2011 2013 2012 2011 Information technology P208,503,155 P214,630,676 P144,722,221 P206,865,179 P212,599,285 P142,551,712 Litigations 119,596,154 29,061,855 65,488,608 114,607,943 28,716,149 64,611,129 Broker’s fee 61,272,891 31,795,328 29,477,653 61,272,891 31,795,328 29,477,653 Freight 48,446,195 46,067,749 40,683,834 48,446,195 45,306,771 39,683,719 Clearing and processing fee 18,354,364 20,605,749 19,618,802 18,354,364 20,605,749 19,618,802 Membership fees and dues 15,435,837 16,388,146 13,000,309 15,435,837 16,388,146 13,000,309 Miscellaneous expense 218,130,013 245,968,277 220,351,422 215,395,594 256,104,395 188,706,648 P689,738,609 P604,517,780 P533,342,849 P680,378,003 P611,515,823 P497,649,972
21. 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, 2013 and 2012 analyzed according to when they are expected to be recovered or settled within one year and beyond one year from the respective balance sheet date: Consolidated 2013 2012 (As restated - Notes 2 and 10) Less than Over Less than Over Twelve Months Twelve Months Total Twelve Months Twelve Months Total Financial assets Cash and other cash items P7,281,640,616 P– P7,281,640,616 P6,160,371,861 P– P6,160,371,861 Due from BSP 78,968,132,522 – 78,968,132,522 40,659,682,959 – 40,659,682,959 Due from other banks 23,885,538,128 – 23,885,538,128 4,527,376,998 – 4,527,376,998 SPURA – – – 446,000,000 – 446,000,000 Financial assets at FVPL 5,556,344,777 4,865,078,276 10,421,423,053 7,158,666,538 5,008,011,654 12,166,678,192 AFS financial assets - gross 854,830,732 43,534,041,537 44,388,872,269 7,912,111,248 33,698,955,814 41,611,067,062 HTM financial assets 802,043,787 11,348,503,042 12,150,546,829 1,414,017,682 11,279,215,731 12,693,233,413 Loans and receivables - gross 106,494,552,162 121,163,831,562 227,658,383,724 97,820,097,072 99,953,811,109 197,773,908,181 Accrued interest receivable – gross 1,997,383,028 − 1,997,383,028 1,915,879,769 − 1,915,879,769 Other assets - gross 2,969,480,219 397,484,970 3,366,965,189 3,295,938,094 496,644,754 3,792,582,848 P228,809,945,971 P181,308,939,387 P410,118,885,358 P171,310,142,221 P150,436,639,062 P321,746,781,283 Nonfinancial assets Bank premises, furniture, fixtures and equipment - gross P− P5,284,569,239 P5,284,569,239 P– P4,755,316,371 P4,755,316,371 Investment properties - gross − 3,850,856,484 3,850,856,484 – 4,258,471,262 4,258,471,262 Deferred tax assets – 627,795,898 627,795,898 – 637,425,891 637,425,891 Investments in associates – 21,245,838 21,245,838 – 21,245,838 21,245,838 Branch licenses – 837,600,000 837,600,000 – 837,600,000 837,600,000 Goodwill – 222,841,201 222,841,201 – 222,841,201 222,841,201 Other assets - gross 691,661,831 1,504,128,446 2,195,790,277 614,680,146 930,707,083 1,545,387,229 P691,661,831 P12,349,037,106 P13,040,698,937 P614,680,146 P11,663,607,646 P12,278,287,792 Less: Allowances for impairment and credit losses (Note 15) (P8,977,260,770) (P8,970,870,485) Unearned interest and discounts (Note 9) (484,400,529) (894,151,834) (9,461,661,299) (9,865,022,319) P413,697,922,996 P324,160,046,756 Financial liabilities Deposit liabilities P343,800,398,152 P10,467,804,528 P354,268,202,680 P166,838,787,926 P105,138,451,944 P271,977,239,870 Bills payable 4,014,507,046 4,284,687,479 8,299,194,525 1,795,806,439 1,731,001,534 3,526,807,973 Manager’s checks 859,892,248 − 859,892,248 801,208,565 – 801,208,565 Accrued interest and other expenses 548,272,803 − 548,272,803 846,790,299 – 846,790,299 Derivative liabilities 154,808,366 − 154,808,366 570,575,771 – 570,575,771 Other liabilities 3,054,871,530 − 3,054,871,530 2,735,017,951 – 2,735,017,951 P352,432,750,145 P14,752,492,007 P367,185,242,152 P173,588,186,951 P106,869,453,478 P280,457,640,429 Nonfinancial liabilities Accrued payable for employee benefits – 752,231,486 752,231,486 – 642,125,261 642,125,261 Accrued taxes and other licenses 134,295,387 – 134,295,387 72,402,968 – 72,402,968 Accrued lease payable – 67,125,802 67,125,802 – 60,914,579 60,914,579 Withholding taxes payable 106,024,639 − 106,024,639 128,664,585 – 128,664,585 Accrued income tax payable 6,768,350 − 6,768,350 5,226,599 – 5,226,599 Retirement liabilities (Note 23) − 46,535,741 46,535,741 – 54,867,279 54,867,279 P352,679,838,521 P15,618,385,036 P368,298,223,557 P173,794,481,103 P107,627,360,597 P281,421,841,700
Annual Report 2013 139 NOTES TO FINANCIAL STATEMENTS
Parent Company 2013 2012 (As restated - Note 2) Less than Over Less than Over Twelve Months Twelve Months Total Twelve Months Twelve Months Total Financial assets Cash and other cash items P7,035,251,105 P– P7,035,251,105 P5,996,785,687 P– P5,996,785,687 Due from BSP 75,678,312,048 – 75,678,312,048 37,597,455,540 – 37,597,455,540 Due from other banks 23,215,575,357 – 23,215,575,357 4,289,620,222 – 4,289,620,222 Financial assets at FVPL 5,556,344,777 4,865,078,276 10,421,423,053 7,158,666,537 5,008,011,655 12,166,678,192 AFS financial assets - gross 854,830,733 42,347,682,831 43,202,513,564 7,737,825,872 32,945,236,336 40,683,062,208 HTM financial assets 802,043,787 11,320,545,426 12,122,589,213 1,414,017,682 11,251,308,097 12,665,325,779 Loans and receivables - gross 103,235,987,057 114,221,943,877 217,457,930,934 95,538,146,118 97,062,032,359 192,600,178,477 Accrued interest receivable - gross 1,899,023,541 – 1,899,023,541 1,870,023,734 – 1,870,023,734 Other assets - gross 2,701,293,748 397,484,970 3,098,778,718 3,055,777,579 409,168,483 3,464,946,062 P220,978,662,153 P173,152,735,380 P394,131,397,533 P164,658,318,971 P146,675,756,930 P311,334,075,901 Nonfinancial assets Bank premises, furniture, fixtures and equipment – 4,725,647,705 4,725,647,705 – 4,240,859,684 4,240,859,684 Investment properties - gross – 3,511,190,767 3,511,190,767 – 3,852,106,388 3,852,106,388 Deferred tax assets – 763,461,954 763,461,954 – 788,268,395 788,268,395 Investments in subsidiaries and associates – 1,948,995,625 1,948,995,625 – 1,948,792,351 1,948,792,351 Branch licenses – 455,000,000 455,000,000 – 455,000,000 455,000,000 Goodwill – 222,841,201 222,841,201 – 222,841,201 222,841,201 Other assets - gross 540,295,445 1,502,441,475 2,042,736,920 507,585,142 930,707,083 1,438,292,225 P540,295,445 P13,129,578,727 P13,669,874,172 P507,585,142 P12,438,575,102 P12,946,160,244 Less: Allowances for impairment and credit losses (Note 15) (8,596,879,062) (8,700,184,060) Unearned interest and discounts (Note 9) (378,681,663) (671,973,994) (8,975,560,725) (9,372,158,054) P398,825,710,980 P314,908,078,091 (Forward) Financial liabilities Deposit liabilities P332,583,633,864 P7,248,219,623 P339,831,853,487 P160,285,441,660 P102,788,667,697 P263,074,109,357 Bills payable 4,014,507,046 4,284,687,479 8,299,194,525 1,795,806,439 1,731,001,534 3,526,807,973 Manager’s checks 704,488,259 – 704,488,259 736,088,844 – 736,088,844 Accrued interest and other expenses 498,286,297 – 498,286,297 781,450,883 – 781,450,883 Derivative liabilities 154,808,366 – 154,808,366 570,575,771 – 570,575,771 Other liabilities 2,722,643,351 – 2,722,643,351 2,489,648,909 – 2,489,648,909 340,678,367,183 11,532,907,102 352,211,274,285 166,659,012,506 104,519,669,231 271,178,681,737 Nonfinancial liabilities Accrued payable for employee benefits – 752,231,486 752,231,486 – 642,125,261 642,125,261 Accrued taxes and other licenses 134,188,984 – 134,188,984 72,347,367 – 72,347,367 Accrued lease payable – 60,914,579 60,914,579 – 60,914,579 60,914,579 Withholding taxes payable 93,734,234 – 93,734,234 120,930,315 – 120,930,315 P340,906,290,401 P12,346,053,167 P353,252,343,568 P166,852,290,188 P105,222,709,071 P272,074,999,259
22. EQUITY
The Parent Company’s capital stock consists of:
2013 2012 Shares Amount Shares Amount Common stock - 10 par value Authorized - shares 2,000,000,000 2,000,000,000 Issued and outstanding Balance at beginning of year 1,297,874,230 P12,978,742,300 1,179,876,680 P11,798,766,800 Stock dividends* 129,787,428 1,297,874,280 117,997,550 1,179,975,500 1,427,661,658 P14,276,616,580 1,297,874,230 P12,978,742,300 *The stock dividends declared include fractional shares equivalent to 5 shares in 2013 and 9,882 shares in 2012.
The Parent Company shares are listed in the Philippine Stock Exchange.
140 The SEC approved the increase in the capital stock of the Parent Company. The summarized information on the Company’s registration of securities under the Securities Regulation Code follows:
Date of SEC Approval Authorized Shares April 12, 1991 10,000,000 October 7, 1993 15,000,000 August 30, 1994 20,000,000 July 26, 1995 25,000,000 September 12, 1997 50,000,000 September 5, 2005 100,000,000 September 14, 2007 160,000,000 September 5, 2008 200,000,000 As reported by the Parent Company’s transfer agent, Stock Transfer Service, Inc., the total number of stockholders is 1,998 and 2,002 as of December 31, 2013 and 2012, respectively.
On April 4, 2012 and May 3, 2012, the BOD and the stockholders owning or representing at least two-thirds of the outstanding capital stock, respectively, approved the amendment of Article Sixth (a) of the Parent Company’s Articles of Incorporation to effect a ten-for-one stock split of the Parent Company’s common shares which resulted in an increase in the number of authorized shares from P0.20 million to P2.00 billion shares and a reduction in par value of the shares from P100.00 to P10.00 per share, without affecting the authorized capital stock of the Parent Company of 20.00 billion. The SEC approved the amendment of Articles of Incorporation on August 24, 2012.
Dividends On May 2, 2013, the BOD approved the declaration of 10.00% stock and P12 per share cash dividends to stockholders of record as of July 19, 2013. The BSP and SEC approved the dividend declaration on June 21, 2013.
On May 3, 2012, the BOD approved the declaration of 10.00% stock and P12 per share cash dividends to stockholders of record as of July 18, 2012. The BSP and SEC approved the dividend declaration on May 30, 2012.
On May 4, 2011, the BOD approved the declaration of 10.00% stock and P12 per share cash dividends to stockholders of record as of July 1, 2011. The BSP and SEC approved the dividend declaration on June 10, 2011.
The computation of surplus available for dividend declaration in accordance with SEC Memorandum Circular No. 11 issued in December 2008 differs to a certain extent from the computation following BSP guidelines.
As of December 31, 2013 and 2012, surplus includes the amount of P1.28 billion, net of deferred tax liability of P547.40 million, representing transfer of revaluation increment on land which was carried at deemed cost when the Group transitioned to PFRS in 2005 (Note 11). This amount will be available to be declared as dividends upon sale of the underlying land.
In the consolidated financial statements, a portion of the Group’s surplus corresponding to the net earnings of the subsidiaries amounting to P211.67 million and P170.99 million as of December 31, 2013 and 2012, respectively, is not available for dividend declaration. The accumulated equity in net earnings becomes available for dividends upon declaration and receipt of cash dividends from the investees.
Reserves In compliance with BSP regulations, 10.00% 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 20.00% of the Parent Company’s authorized capital stock.
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.
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 as of December 31, 2013 and 2012.
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 of the BSP.
Annual Report 2013 141 NOTES TO FINANCIAL STATEMENTS
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, 2013 and 2012, the Group’s CAR under BSP Circular No. 538 is 15.39% and 16.00%, respectively.
The CAR of the Group and the Parent Company as of December 31, 2013 and December 31, 2012 as reported to the BSP are shown in the table below.
Consolidated Parent Company 2013 2012 2013 2012 (Amounts in Million Pesos) Tier 1 capital P41,592 P37,605 P41,272 P37,562 Less required deductions 2,597 2,370 3,236 3,061 Sub-total 38,995 35,235 38,036 34,501 Excess from Tier 2 deducted to Tier 1 Capital* − − − − Net Tier 1 Capital 38,995 35,235 38,036 34,501 Tier 2 Capital 2,492 2,085 2,381 2,016 Less: Required deductions 121 102 768 823 Sub-total 2,371 1,983 1,613 1,193 Excess from Tier 2 deducted to Tier 1 Capital* − − − − Net Tier 2 Capital 2,371 1,983 1,613 1,193 Total qualifying capital P41,366 P37,218 P39,649 P35,694 *Deductions to Tier 2 Capital are capped at its total gross amount and any excess shall be deducted from Tier 1 Capital.
Consolidated Parent Company 2013 2012 2013 2012 (Amounts in Million Pesos) Credit RWA P244,727 P204,879 P233,605 P197,878 Market RWA 3,724 6,933 3,725 6,933 Operational RWA 20,400 20,741 19,910 20,334 Total RWA 268,851 232,553 257,240 225,145
Tier 1 capital ratio 14.50% 15.15% 14.79% 15.32% Total capital ratio 15.39% 16.00% 15.41% 15.85% The regulatory qualifying capital of the Group consists of Tier 1 (core) capital, which comprises paid-up common stock, additional paid- in capital, surplus including current year profit, surplus reserves and minority interest less required deductions such as unsecured credit accommodations to directors, officers, stockholders, and other related interests (DOSRI), deferred income tax, and goodwill. The other component of regulatory capital is Tier 2 (supplementary) capital, which includes general loan loss provision, and net unrealized gains on AFS equity securities.
Standardized credit risk weights were used in the credit assessment of asset exposures. Third party credit assessments were based on ratings by Standard & Poor’s, Moody’s and Fitch, while PhilRatings were used on peso-denominated exposures to Sovereigns, MDBs, Banks, LGUs, Government Corporations, Corporates.
The Group and its individually regulated operations have complied with all externally imposed capital requirements throughout the period.
The issuance of BSP Circular No. 639 covering the ICAAP in 2009 supplements the BSP’s risk-based capital adequacy framework under Circular No. 538. In compliance with this new circular, the Parent Company has adopted and developed its ICAAP framework to ensure that appropriate level and quality of capital are maintained by the Group. Under this framework, the assessment of risks extends beyond the Pillar 1 set of credit, market and operational risks and onto other risks deemed material by the Parent Company. The level and structure of capital are assessed and determined in light of the Parent Company’s business environment, plans, performance, risks and budget; as well as regulatory edicts. BSP requires submission of an ICAAP document every January 31. The Group has complied with this requirement.
On January 15, 2013, the BSP issued Circular No. 781, Basel III Implementing Guidelines on Minimum Capital Requirements, which provides the implementing guidelines on the revised risk-based capital adequacy framework particularly on the minimum capital and disclosure requirements for universal banks and commercial banks, as well as their subsidiary banks and quasi-banks, in accordance with the Basel III standards. The circular took effect on January 1, 2014.
The Circular sets out a minimum Common Equity Tier 1 (CET1) ratio of 6.0% and Tier 1 capital ratio of 7.5%. It also introduces a capital conservation buffer of 2.5% comprised of CET1 capital. The BSP’s existing requirement for Total CAR remains unchanged at 10% and this ratio shall be maintained at all times.
Further, existing capital instruments as of December 31, 2010 which do not meet the eligibility criteria for capital instruments under the revised capital framework shall no longer be recognized as capital upon the effectivity of Basel III. Capital instruments issued under BSP Circular Nos. 709 and 716 (the circulars amending the definition of qualifying capital particularly on Hybrid
142 Tier 1 and Lower Tier 2 capitals), starting January 1, 2011 and before the effectivity of BSP Circular No. 781, shall be recognized as qualifying capital until December 31, 2015. In addition to changes in minimum capital requirements, this Circular also requires various regulatory adjustments in the calculation of qualifying capital.
The Group has taken into consideration the impact of the foregoing requirements to ensure that the appropriate level and quality of capital are maintained on an ongoing basis.
23. 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 as of December 31, 2013.
The Group’s annual contribution to the retirement plan consists of a payment covering the current service cost, unfunded actuarial accrued liability and interest on such unfunded actuarial liability.
The amounts of net defined benefit asset (liability) in the balance sheets follow:
Consolidated Parent Company December 31, December 31, 2012 2012 December 31, (As restated - December 31, (As restated - 2013* Note 2)* 2013 Note 2) Net plan assets (included in ‘Other assets’) P1,504,128,446 P930,707,083 P1,502,441,475 P930,707,083 Retirement liabilities (included in ‘Other liabilities’) (46,535,741) (54,867,279) – – P1,457,592,705 P875,839,804 P1,502,441,475 P930,707,083 *CIBI has net defined benefit asset as of December 31, 2013 amounting to P1.69 million and net defined liability as of December 31, 2012 amounting to P2.34 million.
The movements in the defined benefit asset (liability), present value of defined benefit obligation and fair value of plan assets follow:
Consolidated 2013 Net benefit cost Remeasurements in other comprehensive income Return on Actuarial Actuarial plan assets changes changes (excluding arising arising amount from from changes Changes in January 1, Current Net pension Benefits included experience in financial remeasurement Contribution December 31, 2013 service cost Net interest expense* paid in net interest) adjustments assumptions gains by employer 2013 (k) = a + d + e (a) (b) (c) (d) = b + c (e) (f) (g) (h) (i) = f + g + h (j) + i + j Fair value of plan assets P4,001,777,872 P− P228,605,350 P228,605,350 (P135,133,484) P246,949,468 P− P− P246,949,468 P207,401,404 P4,549,600,610 Present value of defined benefit obligation 3,125,938,068 305,968,258 150,831,551 456,799,809 (135,133,484) − (50,452,099) (305,144,389) (355,596,488) − 3,092,007,905 Net defined benefit asset P875,839,804 (P305,968,258) P77,773,799 (P228,194,459) P− P246,949,468 P50,452,099 P305,144,389 P602,545,956 P207,401,404 P1,457,592,705 *Presented under Compensation and fringe benefits in the statements of income.
Parent 2013 Net benefit cost Remeasurements in other comprehensive income Return on Actuarial Actuarial plan assets changes changes (excluding arising arising amount from from changes Changes in January 1, Current Net pension Benefits included experience in financial remeasurement Contribution December 31, 2013 service cost Net interest expense* paid in net interest) adjustments assumptions gains by employer 2013 (k) = a + d + e (a) (b) (c) (d) = b + c (e) (f) (g) (h) (i) = f + g + h (j) + i + j Fair value of plan assets P3,956,363,063 P− P225,908,331 P225,908,331 (P135,133,484) P247,129,316 P− P− P247,129,316 P202,401,404 P4,496,668,630 Present value of defined benefit obligation 3,025,655,980 283,488,056 144,821,679 428,309,735 (135,133,484) − (27,162,029) (297,443,047) (324,605,076) − 2,994,227,155 Net defined benefit asset P930,707,083 (P283,488,056) P81,086,652 (P202,401,404) P− P247,129,316 P27,162,029 P297,443,047 P571,734,392 P202,401,404 P1,502,441,475 *Presented under Compensation and fringe benefits in the statements of income.
Annual Report 2013 143 NOTES TO FINANCIAL STATEMENTS
Consolidated 2012 (As restated - Note 2) Net benefit cost Remeasurements in other comprehensive income Return on plan assets Actuarial Actuarial (excluding changes arising changes arising amount from from changes Changes in January 1, Current Net pension Benefits included experience in financial remeasurement Contribution December 31, 2012 service cost Net interest expense* paid in net interest) adjustments assumptions gains by employer 2012 (k) = a + d + e (a) (b) (c) (d) = b + c (e) (f) (g) (h) (i) = f + g + h (j) + i + j Fair value of plan assets P3,118,706,700 P− P200,535,279 P200,535,279 (P106,637,938) P550,479,931 P− P− 550,479,931 P238,693,900 P4,001,777,872 Present value of defined benefit obligation 2,547,868,858 217,591,435 130,603,024 348,194,459 (106,637,938) − (86,085,754) 422,598,443 336,512,689 − 3,125,938,068 Net defined benefit asset P570,837,842 (P217,591,435) P69,932,255 (P147,659,180) P− P550,479,931 P86,085,754 (P422,598,443) P213,967,242 P238,693,900 P875,839,804 *Presented under Compensation and fringe benefits in the statements of income. Parent 2012 (As restated - Note 2) Net benefit cost Remeasurements in other comprehensive income Return on plan assets Actuarial Actuarial (excluding changes arising changes arising amount from from changes Changes in January 1, Current Net pension Benefits included experience in financial remeasurement Contribution December 31, 2012 service cost Net interest expense* paid in net interest) adjustments assumptions gains by employer 2012 (k) = a + d + e (a) (b) (c) (d) = b + c (e) (f) (g) (h) (i) = f + g + h (j) + i + j Fair value of plan assets P3,080,345,100 P− P197,910,149 P197,910,149 (P106,472,875) P550,786,789 P− P− P550,786,789 P233,793,900 P3,956,363,063 Present value of defined benefit obligation 2,477,977,600 203,076,176 125,937,181 329,013,357 (106,472,875) − (86,543,602) 411,681,500 325,137,898 − 3,025,655,980 Net defined benefit asset P602,367,500 (P203,076,176) P71,972,968 (P131,103,208) P− P550,786,789 P86,543,602 (P411,681,500) P225,648,891 P233,793,900 P930,707,083 *Presented under Compensation and fringe benefits in the statements of income.
The Parent Company does not expect to contribute to its defined benefit pension plan in 2014.
In 2013 and 2012, the major categories of plan assets as a percentage of the fair value of total plan assets are as follows:
Consolidated Parent Company 2013 2012 2013 2012 Parent Company shares 41.78% 39.93% 42.27% 40.41% Debt instruments 28.64% 26.21% 28.29% 25.76% Cash and cash equivalents 21.43% 25.34% 21.31% 25.37% Equity instruments 4.89% 1.61% 4.84% 1.63% Other assets 3.26% 6.91% 3.29% 6.83% 100.00% 100.00% 100.00% 100.00% The following table shows the breakdown of fair value of the plan assets:
Consolidated Parent Company 2013 2012 2013 2012 Due from BSP P856,773,500 P589,400,000 P856,773,500 P588,630,000 Deposits in banks 118,866,676 425,326,309 101,887,968 415,138,437 Financial assets at FVPL 204,229,514 49,602,480 204,229,514 49,602,480 AFS financial assets Quoted debt securities 739,157,245 658,712,424 711,143,662 634,037,155 Quoted equity securities 18,414,208 14,987,663 13,598,062 14,987,663 Parent Company shares 1,902,084,657 1,598,747,582 1,902,084,657 1,598,747,582 Investments in unit investment trust fund 122,927,004 106,666,297 122,927,004 101,916,845 Corporate bonds 441,979,075 390,858,000 438,820,000 384,958,000 Loans and receivables 572,664 17,650,842 572,664 17,650,842 Investment properties* 136,568,000 136,568,001 136,568,000 136,568,000 Other assets 11,057,589 15,658,274 11,093,610 14,126,059 P4,552,630,132 P4,004,177,872 P4,499,698,641 P3,956,363,063 * Investment properties comprise properties located in Manila.
144 The carrying value of the plan assets of the Group and Parent Company amounted to P4.55 billion and P4.50 billion as of December 31, 2013, respectively, and P4.00 billion and P3.96 billion, as of December 31, 2012, respectively.
The principal actuarial assumptions used in 2013 and 2012 in determining the retirement liability for the Group’s and Parent Company’s retirement plans are shown below: 2013 Parent CBSI CBC-PCCI CIBI Discount rate: January 1 5.71% 6.11% 5.94% 5.92% December 31 5.08% 5.77% 5.76% 5.88% Salary increase rate 6.00% 6.00% 6.00% 6.00%
2012 Parent CBSI CBC-PCCI CIBI Discount rate: January 1 6.35% 6.86% 6.59% 6.59% December 31 5.71% 6.11% 5.94% 5.92% Future salary increases 7.50% 6.50% 6.50% 7.50% The sensitivity analysis below has been determined based on the impact of reasonably possible changes of each significant assumption on the defined benefit liability as of the end of the reporting period, assuming all other assumptions were held constant:
December 31, 2013 Parent CBS PCCI CIBI Discount rate 6.08% (+1%) (P235,683,452) (P2,285,262) (P6,168,476) (P767,206) 4.08% (-1%) 276,137,776 8,622,146 7,590,054 965,468
Salary increase rate 7.00% (+1%) 257,517,466 8,392,825 7,189,382 930,943 5.00% (-1%) (224,938,940) (2,210,724) (5,959,120) (756,844)
24. DERIVATIVE FINANCIAL INSTRUMENTS
Occasionally, the Parent Company enters into forward exchange contracts as an accommodation to its clients. These derivatives are not designated as accounting hedges. The aggregate notional amounts of the outstanding buy US dollar currency forwards as of December 31, 2013 and 2012 amounted to US$478.66 million and US$362.14 million, respectively, while the sell US dollar forward contracts amounted to US$816.38 million and US$683.27 million, respectively. Weighted average buy US dollar forward rates as of December 31, 2013 and 2012 are P43.41 and P42.52, respectively, while the weighted average sell US dollar forward rates are P44.24 and P41.26, respectively.
As of December 31, 2013 and 2012, the fair values of derivatives follow:
2013 2012 Derivative Derivative Derivative Derivative Asset Liability Asset Liability Currency forwards P475,864,396 P119,315,938 P187,483,726 P570,575,771 IRS 10,979,876 35,492,428 – – Warrants 8,669,900 – 8,016,654 – Embedded credit derivatives – – 56,839,452 – P495,514,172 P154,808,366 P252,339,832 P570,575,771 Fair Value Changes of Derivatives The net movements in fair value changes of derivative instruments are as follows:
2013 2012 Balance at beginning of year (P318,235,939) P71,407,720 Fair value changes during the year 877,329,828 (202,790,964) Settled transactions (218,388,083) (186,852,695) Balance at end of year P340,705,806 (P318,235,939) The net movements in the value of the derivatives are presented in the statements of income under the following accounts:
2013 2012 2011 Foreign exchange gain (loss) P740,293,749 (P356,349,338) P1,005,847,116 Trading and securities gains (loss)* (81,352,004) (33,294,321) (86,888,763) P658,941,745 (P389,643,659) P918,958,353 *Net movements in the value related to embedded credit derivatives and IRS.
Annual Report 2013 145 NOTES TO FINANCIAL STATEMENTS
25. LEASE CONTRACTS
The lease contracts are for periods ranging from one to 25 years from the dates of contracts and are renewable under certain terms and conditions. Various lease contracts include escalation clauses, most of which bear an annual rent increase of 5.00% to 10.00%.
Annual rentals on these lease contracts included in ‘Occupancy cost’ in the statements of income in 2013, 2012 and 2011 amounted to P296.00 million, P212.69 million and P215.63 million, respectively, for the Group, and P229.00 million, P181.00 million and P195.57 million, respectively, for the Parent Company.
Future minimum rentals payable of the Group and the Parent Company under non-cancellable operating leases follow:
Consolidated Parent Company 2013 2012 2013 2012 Within one year P325,934,096 P206,827,312 P244,684,361 P175,138,323 After one year but not more than five years 976,665,074 677,554,792 684,530,837 546,089,725 After more than five years 312,086,414 250,667,618 225,696,367 164,381,871 P1,614,685,584 P1,135,049,722 P1,154,911,565 P885,609,919 The Group and the Parent Company also has entered into commercial property leases on its investment properties (Note 12). These noncancellable leases have remaining noncancellable lease terms of between one and five years for the Group and one and five months for the Parent Company.
Future minimum rentals receivable under noncancellable operating leases follow:
Consolidated Parent Company 2013 2012 2013 2012 Within one year P3,033,924 P11,404,342 P2,523,860 P113,400 After one year but not more than five years 88,032,366 14,063,996 − − After more than five years 342,119,090 − − − P433,185,380 P25,468,338 P2,523,860 P113,400
26. INCOME AND OTHER TAXES
Income taxes include corporate income tax and FCDU final taxes, as discussed below, and final tax paid at the rate of 20.00% 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 RCIT rate shall be 30.00% while interest expense allowed as a deductible expense is reduced to 33.00% of interest income subject to final tax.
An MCIT of 2.00% on modified gross income is computed and compared with the RCIT. Any excess MCIT over RCIT is deferred and can be used as a tax credit against future income tax liability for the next three years. In addition, the NOLCO is allowed as a deduction from taxable income in the next three years from the year of inception.
Effective in May 2004, RA No. 9294 restored the tax exemption of FCDUs and 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 10.00% gross income tax.
Interest income on deposit placements with other FCDU and offshore banking units (OBUs) is taxed at 7.50%, while all other income of the FCDU is subject to the 30.00% corporate tax.
On March 15, 2011, the BIR issued Revenue Regulation (RR) No. 4-2011 which prescribes the attribution and allocation of expenses between FCDUs/EFCDUs or OBU and RBU and within RBU. Pursuant to the regulations, the Parent Company made an allocation of its expenses in calculating income taxes due for RBU and FCDU.
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 1.00% of the Parent Company’s net revenue.
146 The provision for income tax consists of:
Consolidated Parent Company 2013 2012 2011 2013 2012 2011 Current: Final tax P474,708,084 P397,890,351 P449,467,074 P474,690,027 P370,560,842 P448,394,727 RCIT 367,639,848 94,057,428 65,071,858 345,598,892 100,531,347 56,152,927 MCIT – 9,293,831 20,650,380 – 8,580,008 2,459,886 842,347,932 501,241,610 535,189,312 820,288,919 479,672,197 507,007,540 Deferred (167,811,495) (78,952,994) 12,218,902 (170,360,659) (67,115,057) 12,218,902 P674,536,437 P422,288,616 P547,408,214 P649,928,260 P412,557,140 P519,226,442 The details of net deferred tax assets follow:
Consolidated Parent Company 2013 2012 2013 2012 Deferred tax assets (liabilities) on: Allowance for impairment and credit losses P1,777,532,312 P1,686,099,103 P1,751,407,360 P1,660,046,108 Revaluation increment on land (547,404,615) (547,404,615) (547,404,615) (547,404,615) Remeasurement gain on defined benefit asset or liability (255,154,157) (165,626,371) (255,704,157) (167,543,772) Fair value adjustment on asset foreclosures and dacion transactions - net of depreciated portion (144,695,215) (173,934,310) (102,636,766) (131,875,860) Fair value adjustments on net assets of Unity Bank (133,326,974) (133,326,974) – – Unrealized gain on FVPL and AFS (101,140,186) (44,214,522) (100,783,603) (43,905,157) Accrued rent 22,733,929 22,733,929 18,274,374 18,274,374 Unamortized past service cost 1,001,930 1,467,738 309,361 677,317 Others 8,248,874 (8,368,087) – – P627,795,898 P637,425,891 P763,461,954 P788,268,395 The Group 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:
Consolidated Parent Company 2013 2012 2013 2012 Allowance for impairment and credit losses P3,052,153,063 P3,350,540,142 P2,758,854,529 P3,166,697,035 NOLCO 170,663,471 251,026,680 − – Accrued compensated absences 75,453,795 81,464,190 75,453,795 81,464,190 Excess of MCIT over RCIT 13,435,356 39,545,759 − 24,316,874 Others − 75,262,444 − – P3,311,705,685 P3,797,839,215 P2,834,308,324 P3,272,478,099 Details of the Group’s NOLCO are as follows:
Original Used Expired Amount Remaining Expiry Inception Year Amount Amount Balance Year 2010 P47,604,000 P35,073,293 P12,530,707 P− 2013 2011 18,744,851 − − 18,744,851 2014 2012 136,431,306 − − 136,431,306 2015 2013 48,246,523 − − 48,246,523 2016 P251,026,680 P35,073,293 P12,530,707 P203,422,680
As of December 31, 2013, details of the excess of MCIT over RCIT of the Group follow:
Original Used Expired Amount Remaining Expiry Inception Year Amount Amount Balance Year 2010 P15,070,509 P13,276,980 P1,793,529 P− 2013 2011 14,306,296 11,039,894 − 3,266,402 2014 2012 1,943,794 − − 1,943,794 2015 2013 8,225,160 − − 8,225,160 2016 P39,545,759 P24,316,874 P1,793,529 P13,435,356
The Parent Company applied its excess MCIT over RCIT amounting to P24.32 million to defray its income tax liability in 2013.
Annual Report 2013 147 NOTES TO FINANCIAL STATEMENTS
The reconciliation of the statutory income tax to the provision for income tax follows:
Consolidated Parent Company 2012 2011 2012 2011 (As restated - (As restated - (As restated - (As restated - 2013 Notes 2 and 10) Note 2) 2013 Note 2) Note 2) Statutory income tax P1,732,495,181 P1,627,589,495 P1,686,923,711 P1,750,324,274 P1,664,851,068 P1,697,947,632 Tax effects of: FCDU income (407,003,965) (833,055,070) (608,508,935) (407,253,711) (832,008,105) (607,661,996) Interest income subjected to final tax (246,573,693) (201,204,070) (197,666,087) (234,210,635) (188,738,968) (189,303,497) Non-taxable income (730,180,246) (556,142,627) (607,236,269) (715,563,632) (553,638,681) (607,045,968) Nondeductible expenses 596,864,488 464,122,693 394,557,925 501,389,235 446,220,023 385,297,127 Others (271,065,328) (79,021,805) (120,662,131) (244,757,271) (124,128,197) (160,006,856) Provision for income tax P674,536,437 P422,288,616 P547,408,214 P649,928,260 P412,557,140 P519,226,442
27. 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 29).
In compliance with the requirements of current banking regulations relative to the Parent Company’s trust functions: (a) government securities included under AFS financial assets in the balance sheets with a total face value of P1.12 billion and P1.40 billion as of December 31, 2013 and 2012, 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 20.00% of the Parent Company’s authorized capital stock.
28. 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. The Group’s related parties include: • key management personnel, close family members of key management personnel and entities which are controlled, significantly influenced by or for which significant voting power is held by key management personnel or their close family members, • significant investors • subsidiaries, joint ventures and associates and their respective subsidiaries, and • post-employment benefit plans for the benefit of the Group’s employees.
The Group has several business relationships with related parties. Transactions with such parties are made in the ordinary course of business and on substantially same terms, including interest and collateral, as those prevailing at the time for comparable transactions with other parties. These transactions also did not involve more than the normal risk of collectability or present other unfavorable conditions.
Transactions with retirement plans Under PFRS, certain post-employment benefit plans are considered as related parties. The Group has business relationships with a number of its retirement plans pursuant to which it provides trust and management services to these plans. Income earned by the Group and Parent Company from such services amounted to P42.67 million and P42.39 million, respectively, in 2013, P36.11 million and P35.87 million, respectively, in 2012, and P30.37 million and P30.14 million, respectively, in 2011. The Group’s retirement funds may hold or trade the Parent Company’s shares or securities. Significant transactions of the retirement fund, particularly with related parties, are approved by the Trust Investment Committee (TIC) of the Parent Company. The members of the TIC are directors and key management personnel of the Parent Company.
A summary of transactions with related party retirement plans follows:
Consolidated Parent Company 2013 2012 2013 2012 Deposit in banks P118,866,676 P425,326,309 P101,887,968 P415,138,437 Equity investment 1,902,084,657 1,598,747,582 1,902,084,657 1,598,747,582 Dividend income 35,169,516 31,972,284 35,169,516 31,972,284 Interest income 5,014,496 12,421,404 4,787,801 12,177,530 Number of shares held 32,238,723 29,307,930 Total market value P1,902,084,657 P1,598,747,582
148 In 2011, dividend income and interest income of the retirement plan from investments and placements in the Parent Company amounted to P29.07 million and P9.43 million, respectively, for the Group, and P29.07 million and P9.17 million, respectively, for the Parent Company.
Voting rights over the Parent Company’s shares are exercised by an authorized trust officer.
Remunerations of Directors and other Key Management Personnel Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly. The Group considers the members of the Management Committee to constitute key management personnel for purposes of PAS 24.
Total remunerations of key management personnel are as follows:
Consolidated Parent Company 2013 2012 2011 2013 2012 2011 Short-term employee benefits P344,566,502 P338,425,670 P337,171,905 P311,417,108 P313,589,717 P320,453,500 Post-employment benefits 3,736,499 2,572,668 1,970,724 2,499,378 1,410,741 537,327 P348,303,001 P340,998,338 P339,142,629 P313,916,486 P315,000,458 P320,990,827 Members of the BOD are entitled to a per diem of 500.00 for attendance at each meeting of the Board or of any committees and to four percent of the Parent Company’s net earnings. Non-executive directors do not receive any performance-related compensation. Directors’ remuneration covers all China Bank Board activities and membership of committees and subsidiary companies.
The Group also provides banking services to directors and other key management personnel and persons connected to them. These transactions are presented in the tables below.
Other related party transactions Transactions between the Parent Company and its subsidiaries meet the definition of related party transactions. Transactions between the Group and its associated companies also qualify as related party transactions. Details of the Parent Company’s subsidiaries and associate are disclosed in Notes 1 and 10.
Group Related party transactions of the Group by category of related party are presented below.
December 31, 2013 Category Amount / Volume Outstanding Balance Terms and Conditions Significant Investor Loans P2,400,000,000 Include secured loans with interest rate of 2.85% Issuances P2,400,000,000 and maturity of two months. Collateral includes Repayments (4,883,400,000) shares of stocks with fair value of P22.15 billion. Deposit liabilities 60,311 These are checking account with annual average Deposits 4,174,084,667 interest rate of 0.125%. Withdrawals (4,182,512,264) Associate Deposit liabilities 152,072,841 These are savings account with annual average Deposits 7,591,722,279 interest rates ranging from Withdrawals (7,563,467,767) 0.25% to 1.00%. Key Management Personnel Loans 4,351,616 Include secured and unsecured loans with Issuances 2,747,722 interest rate ranging from 6.00% to 8.00% and Repayments (731,125) maturity of 15 years. Collaterals include real estate properties amounting to P8.03 million. Deposit liabilities 76,890,073 These are savings account with annual average Deposits 447,292,410 interest rates ranging from Withdrawals (375,764,486) 0.25% to 1.00%. Other Related Parties Loans – Issuances – Repayments (4,991,550,000) Deposit liabilities 155,743,571 These are checking and savings account with Deposits 20,719,935,219 annual average interest rates ranging from Withdrawals (20,617,613,708) 0.125% to 1.00%.
Annual Report 2013 149 NOTES TO FINANCIAL STATEMENTS
December 31, 2012 Category Amount / Volume Outstanding Balance Terms and Conditions Significant Investor Loans P4,883,400,000 Loans with interest rate of 4.50% and maturity Issuances P4,883,400,000 of six months. Collateral includes deposit hold- Repayments (3,000,000,000) out amounting to P6.90 billion. Deposit liabilities 8,487,908 These are checking and savings account with Deposits 97,690,282 annual interest rates ranging from 0.13% to Withdrawals (98,102,934) 0.25%. Associate Deposit liabilities 123,818,329 This is a checking account earning interest at Deposits 3,910,206,691 an annual rate of 0.13%. Withdrawals (3,829,258,176) Key Management Personnel Loans 2,335,019 Include secured and unsecured loans with Issuances – interest rate of 8.00% and maturity of 15 years. Repayments (1,341,679) Collateral includes real estate properties with value of P8.03 million. Deposit liabilities 5,362,149 These are checking and savings account Deposits 61,765,332 with annual interest rates ranging Withdrawals (59,869,808) from 0.13% to 0.25%. Other Related Parties Loans 4,991,550,000 Loans with interest rate of 4.50% to 8.14%. Issuances 3,841,550,000 Collaterals include shares of stocks and deposit Repayments (15,541) hold-out with an aggregate amount of P14.59 million Deposit liabilities 53,422,060 These are checking and savings account Deposits 22,709,479,598 with annual interest rates ranging Withdrawals (22,695,833,424) from 0.13% to 0.25%. Interest income earned and interest expense incurred from the above loans and deposit liabilities in 2013, 2012, and 2011 follow:
Significant Investor Associate 2013 2012 2011 2013 2012 2011 Interest income P20,556,375 P163,301,442 P28,125,000 P– P– P– Interest expense 3,792 13,271 5,183 172,030 153,315 133,696
Key Management Personnel Other Related Parties 2013 2012 2011 2013 2012 2011 Interest income P316,051 P244,003 P294,384 P– P154,511,645 P86,755,373 Interest expense 107,162 – – 120,457 85,887 34,588 Related party transactions of the Group with significant investor, associate and other related parties pertain to transactions of the Parent Company with these related parties.
Parent Company Related party transactions of the Parent Company by category of related party, except those already presented in the Group disclosures, are presented below.
December 31, 2013 Category Amount / Volume Outstanding Balance Nature, Terms and Conditions Subsidiaries Deposit liabilities P446,574,603 These are checking and savings account Deposits P11,080,784,886 with annual average interest rates ranging Withdrawals (10,969,978,397) from 0.125% to 1.00% Key Management Personnel Loans 4,351,616 Loans with interest rate ranging from Issuances 2,747,722 6.00% to 8.00% and maturity of 15 years. Repayments (731,125)
Deposit liabilities 76,890,073 These are savings account with annual Deposits 447,371,207 average interest rates ranging from 0.25% Withdrawals (375,764,486) to 1.00%
150 December 31, 2012 Category Amount / Volume Outstanding Balance Nature, Terms and Conditions Subsidiaries Deposit liabilities P335,768,114 These are checking and savings account Deposits P2,122,405,559 with annual interest rates ranging from Withdrawals (2,061,239,970) 0.13% to 0.25%. Key Management Personnel Loans 2,335,019 Loans with interest rate of 6.00% to Issuances – 8.00% and maturity of 15 years. Collateral Repayments (1,341,679) includes real estate amounting to P5.25 million. Deposit liabilities 5,283,352 These are checking and savings account Deposits 59,789,004 with annual interest rates ranging Withdrawals (57,847,152) from 0.13% to 0.25%. Interest income earned and interest expense incurred from the above loans and deposit liabilities in 2013, 2012 and 2011 follow:
Subsidiaries Key Management Personnel 2013 2012 2011 2013 2012 2011 Interest income P– P– P– P 316,051 P186,801 P239,808 Interest expense 223,584 123,415 258,522 107,162 9,178 14,228 Outstanding loan balances with related parties are unimpaired as at year-end, thus no impairment allowance was recorded.
Outright purchases and outright sale of debt securities of the Parent Company with its subsidiaries in 2013 and 2012 follow:
Subsidiaries 2013 2012 Outright purchase P2,000,000,000 P5,220,518,720 Outright sale 2,435,000,000 4,883,400,000 The following table shows the amount and outstanding balance of other related party transactions included in the financial statements:
Subsidiaries 2013 2012 Nature, Terms and Conditions Balance Sheet Subscription payable P– P309,000 This pertains to unpaid subscription payable arising from the acquisition of CBSI.
Subsidiaries 2013 2012 2011 Nature, Terms and Conditions Income Statement Miscellaneous income P1,800,000 P1,800,000 P1,800,000 Human resources functions provided by the Parent Company to its subsidiaries (except CBC Forex and Unity Bank) such as recruitment and placement, training and development, salary and benefits development, systems and research, and employee benefits. Under the MOA between the Parent Company and its subsidiaries, the subsidiaries shall pay the Parent Company an annual fee. Occupancy cost 11,342,758 12,843,191 24,360,834 Certain units of the condominium owned by CBSI are being leased to the Parent Company for a term of 5 years, with no escalation clause. Miscellaneous expense 93,347,801 77,507,889 67,948,669 This pertains to the computer and general banking services provided by CBC-PCCI to the Parent Company to support its reporting requirements. Regulatory Reporting As required by BSP, the Group discloses loan transactions with investees and with certain DOSRI. Existing banking regulations limit the amount of individual loans to DOSRI, 70.00% of which must be secured, to the total of their respective deposits and book value of their respective investments in the lending company within the Group. In the aggregate, loans to DOSRI generally should not exceed total equity or 15.00% of total loan portfolio, whichever is lower.
Annual Report 2013 151 NOTES TO FINANCIAL STATEMENTS
BSP Circular No. 423 dated March 15, 2004 amended the definition of DOSRI accounts. 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 (amounts in thousands): Consolidated Parent Company 2013 2012 2013 2012 Total outstanding DOSRI loans P6,899,699,448 P17,101,226,688 P6,890,582,635 P17,091,391769 Percent of DOSRI loans granted under regulations existing prior to BSP Circular No. 423 − – − − Percent of DOSRI loans granted under BSP Circular No. 423 − – − – Percent of DOSRI loans to total loans 3.08% 8.69% 3.21% 9.02% Percent of unsecured DOSRI loans to total DOSRI loans 7.55% 1.51% 7.55% 1.51% The amounts of loans disclosed for related parties above differ with the amounts disclosed for key management personnel since the composition of DOSRI is more expansive than that of key management personnel.
BSP Circular No. 560 provides that the total outstanding loans, other credit accommodation and guarantees to each of the bank’s/ quasi-bank’s subsidiaries and affiliates shall not exceed 10.00% of the net worth of the lending bank/quasi-bank, provided that the unsecured portion of which shall not exceed 5.00% of such net worth. Further, the total outstanding loans, credit accommodations and guarantees to all subsidiaries and affiliates shall not exceed 20.00% of the net worth of the lending bank/quasi-bank; and the subsidiaries and affiliates of the lending bank/quasi-bank are not related interest of any director, officer and/or stockholder of the lending institution, except where such director, officer or stockholder sits in the BOD or is appointed officer of such corporation as representative of the bank/quasi-bank. As of December 31, 2013 and 2012, the Parent Company is in compliance with these requirements.
On May 12, 2009, BSP issued Circular No. 654 allowing a separate individual limit of twentyfive (25.00%) of the net worth of the lending bank/quasi-bank to loans of banks/quasi-banks to their subsidiaries and affiliates engaged in energy and power generation. As of December 31, 2013 and 2012, the Parent Company is in compliance with these requirements.
29. 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.
The following is a summary of contingencies and commitments of the Group and the Parent Company with the equivalent peso contractual amounts: Consolidated Parent Company 2013 2012 2013 2012 Trust department accounts (Note 27) P67,447,457,904 P133,990,082,969 P63,479,015,562 P128,608,409,873 Future exchange sold 36,116,560,158 28,193,379,035 36,116,560,158 28,193,379,035 Future exchange bought 20,778,554,007 15,399,796,450 20,778,554,007 15,399,796,450 Unused commercial letters of credit 17,574,202,929 9,296,546,289 17,573,829,122 9,296,546,289 IRS receivable 3,800,000,000 − 3,800,000,000 − Spot exchange bought 1,770,013,561 1,959,558,702 1,770,013,561 1,959,558,702 Spot exchange sold 1,081,746,061 1,397,070,000 1,081,746,061 1,397,070,000 Late deposits/payments received 506,175,794 363,757,406 502,489,719 360,993,305 Outstanding guarantees issued 327,707,419 347,346,511 327,707,419 347,346,511 Deficiency claims receivable 297,072,923 266,170,084 297,072,923 266,170,084 Inward bills for collection 231,328,492 372,071,503 231,328,492 372,071,503 Outward bills for collection 220,930,542 166,745,683 219,305,915 164,832,966 Others 2,684,834,278 2,050,690,811 2,684,780,321 2,050,660,044
30. 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 - principally handles housing and auto loans for individual and corporate customers; b. Institutional Banking Group (formerly Account Management Group) - principally administers all the lending, trade finance and corollary banking products and services offered to corporate and institutional customers;
152 c. Branch Banking Group - principally handles retail and commercial loans, individual and corporate deposits, overdrafts and funds transfer facilities, trade facilities and all other services for retail customers; d. Treasury Group - principally provides money market, trading and treasury services, as well as the management of the Group’s funding operations by the use of government securities, placements and acceptances with other banks; and e. Others - principally handles other services including but not limited to asset management, insurance brokerage, remittances, operations and financial control, and other support services.
The Group reports its primary segment information to the Chief Operating Decision Maker (CODM) on the basis of the above- mentioned segments. The CODM of the Group is the Chief Operating Officer.
Segment assets are those operating assets that are employed by a segment in its operating activities that are either directly attributable to the segment or can be allocated to the segment on a reasonable basis.
Segment liabilities are those operating liabilities that result from the operating activities of a segment and that either are directly attributable to the segment or can be allocated to the segment on a reasonable basis.
Interest income is reported net as management primarily relies on the net interest income as performance measure, not the gross income and expense.
The segment results include internal transfer pricing adjustments across business units as deemed appropriate by management. Transactions between segments are conducted at estimated market rates on an arm’s length basis. Interest is charged/credited to the business units based on a pool rate which approximates the marginal cost of funds.
Other operating income mainly consists of trading and securities gain (loss) - net, service charges, fees and commissions, trust fee income and foreign exchange gain - net. Other operating expense mainly consists of compensation and fringe benefits, provision for impairment and credit losses, taxes and licenses, occupancy, depreciation and amortization, stationery, supplies and postage and insurance. Other operating income and expense are allocated between segments based on equitable sharing arrangements.
The Group has no significant customers which contributes 10% or more of the consolidated revenues.
The Group’s asset producing revenues are located in the Philippines (i.e., one geographical location); therefore, geographical segment information is no longer presented.
The following tables present relevant financial information regarding business segments measured in accordance with PFRS as of and for the years ended December 31, 2013, 2012 and 2011 (in thousands): Institutional Banking Consumer Banking (formerly Account Management) 2013 2012 2011 2013 2012 2011 Results of Operations Net interest income Third party P1,422,959 P1,258,111 P1,044,611 P6,033,066 P5,811,273 P4,558,210 Intersegment (522,995) (795,294) (516,529) (2,773,931) (3,971,960) (2,700,568) 899,964 462,817 528,082 3,259,135 1,839,313 1,857,642 Other operating income 63,714 64,575 61,589 497,992 245,117 278,284 Total revenue 963,678 527,392 589,671 3,757,127 2,084,430 2,135,926 Other operating expense (405,082) (237,536) (189,591) (517,812) (612,499) (546,730) Income before income tax 558,596 289,856 400,080 3,239,315 1,471,931 1,589,196 Income tax provision − – – − – – Net income P558,596 P289,856 P400,080 P3,239,315 P1,471,931 P1,589,196 Total assets P22,903,039 P19,618,617 P15,495,942 P145,369,828 P126,520,656 P98,182,533 Total liabilities P111,769 P207,159 P104,225 P784,801 P1,783,490 P2,158,825 Depreciation and amortization P4,429 P5,374 P6,201 P5,163 P5,067 P4,597 Provision for impairment and credit losses 169,868 P42,955 P22,529 P242,599 P265,794 P263,502 Capital expenditures P7,465 P6,075 P17,735 P4,275 P11,370 P21,579
Annual Report 2013 153 NOTES TO FINANCIAL STATEMENTS
Branch Banking Treasury 2013 2012 2011 2013 2012 2011 Results of Operations Net interest income Third party (P544,700) (P1,083,972) (P1,482,725) P2,408,163 P1,627,403 P2,966,299 Intersegment 4,150,825 5,329,492 5,440,319 (977,468) (320,445) (1,313,183) 3,606,125 4,245,520 3,957,594 1,430,695 1,306,958 1,653,116 Other operating income 1,186,744 1,150,101 1,113,488 1,963,049 3,016,280 1,609,319 Total revenue 4,792,869 5,395,621 5,071,082 3,393,744 4,323,238 3,262,435 Other operating expense (4,770,170) (4,374,814) (3,998,324) (600,707) (628,332) (427,521) Income before income tax 22,699 1,020,807 1,072,758 2,793,037 3,694,906 2,834,914 Income tax provision (4,650) – – (445,260) (352,701) (446,431) Net income P18,049 P1,020,807 P1,072,758 P2,347,777 P3,342,205 P2,388,483 Total assets P229,840,578 P164,497,356 P137,667,024 P101,327,433 P69,279,450 P65,791,965 Total liabilities P276,074,955 P211,473,913 P177,898,412 P64,108,438 P46,388,275 P31,094,602 Depreciation and amortization P345,769 P343,375 P331,722 P3,733 P5,975 P9,927 Provision for impairment and credit losses P173,267 P265,794 P179,307 P− P– P– Capital expenditures P87,630 P488,989 P147,596 P2,583 P17,035 P18,424
Others Total 2012 2011 2012 2011 (As restated - (As restated - (As restated - (As restated - 2013 Notes 2 and 10) Note 2) 2013 Notes 2 and 10) Note 2) Results of Operations Net interest income Third party P616,503 P449,526 P1,465,344 P9,935,991 P8,062,341 P8,551,739 Intersegment 123,569 (241,793) (910,039) − – – 740,072 207,733 555,305 9,935,991 8,062,341 8,551,739 Other operating income 1,449,092 1,317,541 1,129,118 5,160,591 5,793,614 4,191,798 Total revenue 2,189,164 1,525,274 1,684,423 15,096,582 13,855,955 12,743,537 Other operating expense (3,027,827) (2,577,476) (1,958,292) (9,321,598) (8,430,657) (7,120,458) Income before income tax (838,663) (1,052,202) (273,869) 5,774,984 5,425,298 5,623,079 Income tax provision (224,626) (69,587) (100,977) (674,536) (422,288) (547,408) Net income (P1,063,289) (P1,121,789) (P374,846) P5,100,448 P5,003,010 P5,075,671 Total assets (P85,742,955) (P55,756,032) (P54,584,039) P413,697,923 P324,160,047 P262,553,425 Total liabilities P27,218,261 P21,569,005 P11,675,563 P368,298,224 P281,421,842 P222,931,627 Depreciation and amortization P393,792 P465,505 P363,658 P752,886 P825,296 P716,105 Provision for impairment and credit losses (P171,398) (P337,787) (P310,240) P414,336 P236,756 P155,098 Capital expenditures P1,063,288 P148,782 P500,416 P1,165,241 P672,251 P705,750
31. EARNINGS PER SHARE (EPS)
Basic EPS 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:
2012 2011 (As restated - (As restated - 2013 Notes 2 and 10) Note 2) a. Net income attributable to equity holders of the parent P5,103,258,492 P5,018,197,140 P5,076,104,662 b. Weighted average number of common shares outstanding* (Note 22) 1,427,661,658 1,427,661,658 1,427,661,658 c. EPS (a/b) P3.57 P3.51 P3.56 *Weighted average number of outstanding common shares in 2012 and 2011 was recomputed after giving retroactive effect to stock dividends declared on May 2, 2013 (see Note 22).
As of December 31, 2013, 2012 and 2011, there were no outstanding dilutive potential common shares.
Before consideration of the 10.00% stock dividends declared in 2013, the EPS for 2012 and 2011 were P3.87 and P3.91, respectively.
154 32. FINANCIAL PERFORMANCE
The following basic ratios measure the financial performance of the Group and the Parent Company:
Consolidated Parent Company 2012 (As restated - 2011 2012 2011 Notes 2 and (As restated - (As restated - (As restated - 2013 10) Note 2) 2013 Note 2) Note 2) Return on average equity 11.31% 12.22% 13.81% 11.53% 12.54% 13.99% Return on average assets 1.45% 1.71% 2.06% 1.53% 1.79% 2.12% Net interest margin 2.98% 2.90% 3.76% 2.94% 2.91% 3.74%
33. NON-CASH INVESTING ACTIVITIES
The following is a summary of certain non-cash investing activities that relate to the analysis of the statements of cash flows:
Consolidated 2013 2012 2011 Fair value gain in AFS investment (P1,441,364,235) (P432,619,037) P27,185,171 Addition to investment properties from settlement of loans 504,757,989 204,077,996 624,772,731 Addition to chattel mortgage from settlement of loans 16,391,313 12,437,314 11,686,526 Addition to non-current assets held for sale from settlement of loan 16,013,040 18,704,256 – Cumulative translation adjustment 131,858,279 (90,847,759) 87,610,861
Parent Company 2013 2012 2011 Fair value gain in AFS investment (P1,418,820,683) (P423,504,964) P2,032,030 Addition to investment properties from settlement of loans 419,628,959 122,668,392 610,465,821 Addition to chattel mortgage from settlement of loans 9,809,868 12,437,314 11,686,526 Cumulative translation adjustment 131,858,279 (90,847,759) 87,610,861
34. OFFSETTING OF FINANCIAL ASSETS AND LIABILITIES
The amendments to PFRS 7, which is effective January 1, 2013, require the Group to disclose information about rights of offset and related arrangements (such as collateral posting requirements) for financial instruments under an enforceable master netting agreements or similar arrangements. The effects of these arrangements are disclosed in the succeeding table.
December 31, 2013 Effect of remaining rights of set-off (including rights to set Gross amounts Net amount off financial collateral) that offset in presented in do not meet PAS 32 offsetting Financial instruments Gross carrying accordance statements of criteria recognized at amounts with financial Fair value of end of reporting (before the offsetting position Financial financial Net exposure period by type offsetting) criteria [a-b] instruments collateral [c-d] [a] [b] [c] [d] [e] Financial assets Currency forwards P67,952,065 P− P67,952,065 P23,893,192 − P44,058,873 IRS 34,423,045 − 34,423,045 34,423,045 − − P102,375,110 P− P102,375,110 P58,316,237 − P44,058,873
Financial liabilities Bills payable P8,240,891,256 P− 8,240,891,256 P10,740,888,564 P− P− Currency forwards 23,893,192 − 23,893,192 − − 23,893,192 IRS 10,792,268 − 10,792,268 − 18,891,048 − P8,275,576,716 P− 8,275,576,716 P10,740,888,564 P18,891,048 P23,893,192
Annual Report 2013 155 NOTES TO FINANCIAL STATEMENTS
December 31, 2012 Effect of remaining rights of set-off (including rights to set Net amount off financial collateral) that Gross amounts presented in do not meet PAS 32 offsetting Financial instruments offset in statements of criteria recognized at Gross carrying accordance with financial Fair value of end of reporting amounts (before the offsetting position Financial financial Net exposure period by type offsetting) criteria [a-b] instruments collateral* [c-d] [a] [b] [c] [d] [e] Financial assets Currency forwards P45,814,986 P–P45,814,986 P11,100,762 P–P34,714,224
Financial liabilities Currency forwards P180,897,145 P–P180,897,145 P11,100,762 P106,730,000 P63,066,383 *Financial collateral pertains to cash collateral margin with counterparties to cover for certain mark-to-market losses.
The amounts disclosed in column (d) include those rights to set-off amounts that are only enforceable and exercisable in the event of default, insolvency or bankruptcy. This includes amounts related to financial collateral both received and pledged, whether cash or non-cash collateral, excluding the extent of over-collateralization.
35. EVENTS AFTER THE REPORTING PERIOD
Acquisition of PDB On January 15, 2014, the Parent Company obtained control of PDB upon its acquisition of majority of PDB’s outstanding subscribed capital stock in exchange for a cash consideration amounting to P1.13 billion (net of a 10.00% amount held under escrow to cover indemnifications to the Parent Company). The acquisition is pursuant to the SPA signed on December 18, 2013 by the Parent Company and the selling PDB stockholders representing 84.77% interest in PDB.
Also on January 15, 2014, the following significant closing conditions of the SPA were carried out: a) Execution of the deeds of absolute sale of shares in favor of the Parent Company, evidencing the sale, assignment, transfer, and conveyance by majority of the selling PDB shareholders of the relevant sale shares; b) Resignation of each of the original members of the BOD of PDB; c) Election/re-election of the new members of the BOD of PDB, majority of which are members of the BOD of the Group.
On January 17, 2014, the Parent Company remitted cash amounting to P1.30 billion to PDB which will be converted to PDB common shares as an additional capital infusion.
As of the date of the authorization for issue of the financial statements, the MB of the BSP has yet to formally approve the transfer of the Sale Shares from the PDB Shareholders to the Parent Company. Also, the initial accounting for the business combination with PDB is incomplete and the P1.30 billion capital infusion has not been converted to PDB common shares. As of March 5, 2014, PDB has no outstanding availments from the clean credit facility granted by the Parent Company.
Merger of CBSI and Unity Bank On January 20, 2014, CBSI obtained SEC’s approval of its merger with Unity Bank. The merger was effected via a share-for-share exchange, with CBSI as the surviving entity.
Other Matters On March 5, 2014, the BOD of the Parent Company approved the capital infusion to its subsidiary, CBSI, of up to P800.0 million in tranches as may be considered necessary to support CBSI’s planned business growth and expansion and to enable CBSI to meet the minimum capital requirement under Basel III. In the said meeting, the BOD authorized the Parent Company to conduct a Rights Issue, by way of offering common shares to certain eligible shareholders, subject to approval of the regulatory agencies.
The Parent Company expects to raise proceeds of up to P8.0 billion for the Rights Issue. The additional capital will enable the Parent Company to pursue growth strategies while ensuring that its capital adequacy levels remain above the new Basel III requirements, particularly in light of the recent acquisition of PDB.
36. APPROVAL OF THE FINANCIAL STATEMENTS
The accompanying consolidated and parent company financial statements were authorized for issue by the Parent Company’s BOD on March 5, 2014.
37. SUPPLEMENTARY INFORMATION UNDER RR NO. 15-2010
In compliance with the requirements set forth by RR 15-2010, hereunder are the details of percentage and other taxes paid or accrued by the Parent Company in 2013.
156 Gross receipts tax P674,410,922 Local taxes 42,995,273 Fringe benefit tax 4,949,157 Others 560,828,642 Balance at end of year P1,283,183,994
Withholding Taxes Details of total remittances of withholding taxes in 2013 and amounts outstanding as of December 31, 2013 are as follows:
Total Amounts Remittances outstanding Final withholding taxes P706,773,225 P67,311,092 Withholding taxes on compensation and benefits 431,338,836 25,186,932 Expanded withholding taxes 95,939,169 5,550,035 P1,234,051,230 P98,048,059
38. SUPPLEMENTARY INFORMATION UNDER RR 19-2011
In its 2013 filing for income tax return, the Parent Company disclosed the following information on taxable income and deductions using the revised format as required under RR 19-2011:
Receipts/fees P9,362,727,396 Other taxable income not subjected to final tax 1,516,252,454 Cost of services (5,122,057,836) Ordinary allowable itemized deductions (4,610,004,834) P1,146,917,180
Receipts/fees are as follows:
Interest income P8,399,469,307 Bank commission, fees and other charges 920,085,212 Lease of properties 43,172,877 P9,362,727,396
Other taxable income not subjected to final tax are as follows:
Income from assets acquired P660,651,426 Trust department earnings 416,286,552 Other operating earnings 439,314,476 P1,516,252,454
Cost of services are as follows:
Salaries and wages P2,741,944,847 Interest expense 1,872,857,001 PDIC payments 408,797,611 BSP supervision fee 98,458,377 P5,122,057,836
Ordinary allowable itemized deductions are as follows:
Taxes and licenses P1,132,058,196 Rental 536,842,609 Depreciation 500,514,372 Bad debts 247,988,708 Communication, light and water 246,025,729 Security services 205,452,579 Losses 187,211,244 Transportation and travel 166,955,186 Repairs and maintenance 161,838,035 Fuel and oil 153,663,669 Janitorial and messengerial services 121,610,736 Representation and entertainment 108,789,798 Insurance 84,250,440 Office supplies 82,443,661 Professional fees 12,205,920 Advertising and promotions 9,580,786 Charitable contributions 171,670 Miscellaneous 652,401,496 P4,610,004,834
Annual Report 2013 157 CHINA BANK BRANCHES
MAKATI MAIN BRANCH (HO) AYALA-COLUMNS BRANCH BLUMENTRITT BRANCH CUBAO-AURORA BRANCH CBC Bldg., 8745 Paseo de Roxas G/F The Columns Tower 3 1777-1781 Cavite corner Leonor 911 Aurora Boulevard Extension corner cor. Villar Sts., Makati City Ayala Avenue, Makati City Rivera St. Blumentritt Miami Street, Cubao, Quezon City Trunkline:885-5555 Tel. Nos.: 915-3672/3673/3674/3675 Sta. Cruz, Manila Tel. Nos.: 912-5164/57 (Private Exchange Connecting All Fax No.: 915-3672 Tel. Nos.: 742-0254;711-8589 913-4675/76; 911-3524 Departments) Lorela M. Guillermo Fax No.: 711-8541 Fax No.: 912-5167 Fax No.: 892-0220;817-1325 Jennet P. Jose Aida D. Cristobal Marissa A. Auditor BALINTAWAK-BONIFACIO BR. 657 A. Bonifacio Avenue BO. KAPITOLYO BRANCH D. TUAZON BRANCH BINONDO BUSINESS CENTER Balintawak, Quezon City G/F P&E Building, 12 United corner 174 A-B D. Tuazon St., Brgy. Maharlika CBC Bldg., Dasmariñas Tel. Nos.: 361-3449; 361-7825 First Sts., Bo. Kapitolyo, Pasig City Sta. Mesa Heights, Quezon City cor. Juan Luna Sts., Binondo, Manila 362-3660; 361-0450 Tel. Nos.: 634-8370/8915/3697 Tel. Nos.: 731-2516/2508 Trunklines: 247-5388; 8855-222 Fax No.: 361-0199 Fax No.: 634-7504 Fax No.: 731-0592 (Private Exchange Connecting Vivian T. Kho Ana Victorina D. Camacho Ella Jane D. Cortez All Departments) Fax No.: 241-7058; 242-7225 BALUT BRANCH BONNY SERRANO BRANCH DASMARIÑAS VILLAGE BRANCH Rosemarie C. Gan North Bay Shopping Center G/F Greenhills Garden Square 2283 Pasong Tamo Ext. Honorio Lopez Boulevard 297 Col. Bonny Serrano Ave. corner Lumbang Street, Makati City METRO MANILA Balut, Tondo, Manila Quezon City Tel. Nos.: 894-2392/93; 813-2958 Tel. Nos.: 253-9921/29; 253-9620 Tel. Nos.: 410-0677; 997-8043 Fax No.: 894-2355 999 MALL BRANCH 251-1182/86 997-8031 Ruth D. Holmes Unit 3D-5; 3D-7 999 Shopping Mall Fax No.: 253-9917 Fax No.: 410-0677 Bldg. 2, Recto-Soler Sts. Josephine D. Paredes Arnold Y. Matutina DIVISORIA-STA. ELENA BRANCH Binondo, Manila New Divisoria Condominium Center Tel. Nos.: 523-1216/ 1217/ 1218/ BANAWE BRANCH CAINTA BRANCH 632 Sta. Elena St., Binondo, Manila 1219 CBC Building, 680 Banawe Avenue CBC Bldg (Beside Sta. Lucia East Mall) Tel. Nos.: 247-1435/36/37 Fax No.: 523-1215 Sta. Mesa Hts., District I, Quezon City Felix Ave. (Imelda Ave.), Cainta, Rizal Fax No.: 247-1436 Arnold S. Castillo Tel. Nos.: 743-7486/88 Tel. Nos.: 646-0691/93; 645-9974 Mary Elizabeth Uy 416-7028/7030; 711-8694 682-1795 ANTIPOLO CITY BRANCH Fax No.: 743-7487 Fax No.: 646-0050 DON ANTONIO BRANCH G/F BudgetLane Arcade Rodolfo S. De Lara Hidelisa L. Robiñol G/F Royale Place, Don Antonio Ave. No. 6, Provincial Road Brgy. Old Balara, Quezon City Brgy. San Jose, Antipolo City, Rizal BANAWE- MA. CLARA BRANCH CAPITOL HILLS BRANCH Tel. Nos.: 932-9477; 952-9678/9354 Tel. Nos.: 650-3277; 650-2087 G/F Prosperity Bldg. G/F 88 Design Pro Building Capitol Hills Fax No.: 952-9344 695-1509 Banawe St., Quezon City Old Balara, Quezon City Lilibeth M. David Fax No.: 650-2640 Tel. Nos.: 732-1060; 740-4864 Tel. Nos.: 952-7776/7805/7804 Judy Kristine N. Achacoso 743-8967 Fax No.: 952-7806 DEL MONTE AVENUE BRANCH Fax No.: 740-4864 Joanna Leigh R. Gojar No. 497 Del Monte Ave. ARANETA AVE. BRANCH Raidis M. De Guzman Bgry. Manresa, Quezon City Philippine Whithasco Bldg. COMMONWEALTH AVENUE Tel. Nos.: 413-2826; 413-2825 420 Araneta Avenue, cor. Bayani St. BEL-AIR BRANCH BRANCH 916-8828; 871-2745 Quezon City G/F Avant Building, 48 Jupiter LGF Ever Gotesco Mall Fax No.: 361-1101 Tel. Nos.: 731-2252; 731-2261 cor. Mars Streets Bel-Air Village Commonwealth Center Wendy C. Tan 732-4153; 731-2179 Makati City Commonwealth Avenue corner 731-2216 Tel. Nos.: 897-2212; 899-4186/0685 Don Antonio Road, Quezon City DEL MONTE-MATUTUM BRANCH Fax No.: 731-2243 Fax No.: 890-4062 Tel. Nos.: 932-0818/0820 No. 202 Del Monte Avenue Arlene T. Uy Glenn R. Narvaez 431-5000/01 near corner Matutum St. Fax No.: 932-0822 Brgy St. Peter, Quezon City ARRANQUE BRANCH BETTER LIVING SUBD. BRANCH Meneleo S. Bernardo Tel. Nos.: 731-2535; 731-2571 Don Felipe Building 128 Doña Soledad Ave. 413-2118; 416-7791 675 Tomas Mapua St. Parañaque City CONGRESSIONAL AVENUE Fax No.: 416-7791 Sta. Cruz, Manila Tel. Nos.: 556-3467; 556-3468 BRANCH Stella A. Lim Tel. Nos.: 733-3477; 734-4777 556-3470 G/F Unit C The Arete Square 733-7704; 733-8335 to 40 Fax No.: 556-3470 Congressional Ave. Project 8 E. RODRIGUEZ-HILLCREST BRANCH 734-4497 Flormina B. Jacinto Quezon City No. 402 E. Rodriguez Sr. Blvd. 734-4501/06 Tel. Nos.: 351-8648; 351-8645 Cubao, Quezon City Fax No.: 733-3481 BF HOMES BRANCH 351-8646 Tel. Nos.: 571-8927; 571-8928 Flora C. Peña Aguirre cor. El Grande Aves. Fax No.: 351-8645 571-8929 United BF Homes, Parañaque City Marlon Darcy A. Mendoza Fax No.: 571-8927 ASUNCION BRANCH Tel. Nos.: 825-6138/6891/6828 Rachel D. Umali Units G6 & G7 Chinatown Steel Fax No.: 825-5979 CORINTHIAN HILLS BRANCH Towers, Asuncion St. Charity N. Santos G/F The Clubhouse, Corinthian Hills E. RODRIGUEZ SR. BLVD. BRANCH San Nicolas, Manila Temple Drive Brgy. Ugong Norte CBC Bldg., #286 E. Rodriguez Sr. Blvd. Tel. Nos.: 241-2311/52/59/61 BF HOMES- AGUIRRE BRANCH Quezon City Brgy. Damayang Lagi, Quezon City Fax No.: 241-2352 Margarita Centre, Aguirre Ave. Tel. Nos.: 637-3170/3180/1915 Tel. Nos.: 416-3166; 722-5860 Mary Ann E. Tiu corner Elsie Gaches Street Fax No.: 637-1905 722-5893 BF Homes, Parañaque City Ma. Anacleta B. Gloria 725-9641 (MCB) AYALA-ALABANG BRANCH Tel. Nos.: 799-4707/4942 Fax No.: 726-2865 G/F, CBC-Building, Acacia Ave. 659-3359/3360; 556-5845 CUBAO-ARANETA BRANCH Ana Ma. Raquel Y. Samala Madrigal Business Park Fax No.: 659-3359 Shopwise Arcade Building Ayala Alabang, Muntinlupa City Maria Adelfa E. Bolivar Times Square St., Araneta Shopping EASTWOOD CITY BRANCH Tel. Nos.: 807-0673-74 Center, Cubao, Quezon City Unit D, Techno Plaza One, Eastwood 850-3785/9640/8888 BF RESORT VILLAGE BRANCH Tel. Nos.: 911-2369/70; 438-3830-32 City Cyberpark, E. Rodriguez Jr. Ave. Fax No.: 850-8670 BF Resort Drive cor. Gloria Diaz St. 911-2397 (C-5) Bagumbayan, Quezon City Victoria G. Capacio BF Resort Village Talon Dos Fax No.: 911-2432 Tel. Nos.: 706 3491/3493/1979/ Las Piñas City Arnulfo C. Tongson 3320/3448 Tel. Nos.: 873-4542, 873-4541 Fax No.: 438-5531 873-4540 Ramiro A. Amanquiton Fax No.: 873-4543 Heizel P. Bautista
158 EDSA-KALOOKAN BRANCH FORT BONIFACIO GLOBAL CITY JUAN LUNA BRANCH LAS PIÑAS-MANUELA BRANCH No. 531 (Lot 5 Block 30) EDSA BRANCH G/F Aclem Building, 501 Juan Luna St. Alabang-Zapote Road cor. near corner Biglang Awa Street G/F Marajo Tower, 26th Street Binondo, Manila Philamlife Ave., Pamplona Dos Kalookan City cor. 4th Avenue, Fort Bonifacio Global Tel. Nos.: 247-3570/3795/3786 Las Piñas City Tel. Nos.: 442-4338; 442-4339 City, Taguig City 480-0211 Tel. Nos.: 872-9801/9572/9533 442-4340 Tel. Nos.: 799-9072/9074 Fax No.: 247-3795 871-0770 Fax No.: 442-4339 856-4416/4891/5196 Mary Ann K. Abrigo Fax No.: 871-0771 Carlito W. Macusi 403-1558 (MCB) Mario D. Dalangin Fax No.: 856-4416 KALAYAAN AVE. BRANCH EDSA-TIMOG AVE. BRANCH Shellane S. Salgatar G/F PPS Building LEGASPI VILLAGE-AIM BRANCH G/F Richwell Corporate Center Kalayaan Avenue, Quezon City G/F Cacho-Gonzales Building 102 Timog Ave., Brgy. Sacred Heart GIL PUYAT AVENUE BRANCH Tel. Nos.: 332-3858; 332-3859 101 Aguirre cor. Trasierra Streets Quezon City No. 65 Sen Gil Puyat Ave. 332-3860 Legaspi Village, Makati City Tel. Nos.: 441-5225; 441-5226 Brgy. Palanan, Makati City Fax No.: 332-3859 Tel. Nos.: 818-8156; 818-0734 441-5227 Tel. Nos.: 844-0492/94 Rowena C. Lagman 818-9649; 894-5882 to 85 Fax No.: 441-5228 844-0688/90 Fax No.: 818-0240 Antonio J. Tan, Jr. Fax No.: 844-0497 KALOOKAN BRANCH Ma. Luisa C. Rivera Juvy P. Caguiat CBC Bldg., 167 Rizal Avenue Extension ELCANO BRANCH Grace Park, Kalookan City LEGASPI VILLAGE-C. PALANCA G/F Elcano Tower, Elcano Street GREENBELT 1 BRANCH Tel. Nos.: 364-0515/35; 364-0717/31 BRANCH San Nicolas, Manila G/F Greenbelt 1, Legaspi Street 364-0494; 364-9948 Suite A, Basic Petroleum Building Tel. Nos.: 244-6760; 244-6765 near corner Paseo de Roxas 366-9457 104 C. Palanca Jr. Street 244-6779 Makati City Fax No.: 364-9864 Legaspi Village, Makati City Fax No.: 244-6760 Tel. Nos.: 836-1387; 836-1405 Danilo T. Sarita Tel. Nos.: 894-5915/18; 810-1464 Gervie Roy S. Mendoza 836-1406 Fax No.: 894-5868 Fax No.: 836-1406 KALOOKAN- CAMARIN BRANCH Ma. Rosalie F. Cipriano ERMITA BRANCH Evanzueda T. Moran Annex Bldg. Space No. 3, Zabarte Ground Floor A, Ma. Natividad Bldg. Town Center No. 588 Camarin Road LEGASPI VILLAGE-PEREA BRANCH #470 T. M. Kalaw cor. Cortada Sts. GREENHILLS BRANCH corner Zabarte Road Kalookan City G/F Greenbelt Mansion, 106 Perea St. Ermita, Manila G/F Gift Gate Bldg. Tel. Nos.: 442-6830; 442-7541 Legaspi Village, Makati City Tel. Nos.: 525-6477;;536-7794 Greenhills Shopping Center Fax No.: 442-6825 Tel. Nos.: 893-2273/2272/2827 525-6544;523-0074 San Juan, Metro Manila Albert V. Timbang Fax No.: 893-2272 523-9862 Tel. Nos.: 721-0543/56; 721-3189 Paul J. Bugayong Fax No.: 525-8137 727-9520;724-5078 KALOOKAN-MONUMENTO Gloria G. Mañosca 724-6173; 727-2798 BRANCH LEGASPI VILLAGE-SALCEDO Fax No.: 726-7661 779 Mc Arthur Highway, Kalookan City BRANCH ESPAÑA BRANCH Maria Marta Theresa S. Suarez Tel. Nos.: 364-2571; 361-3270 G/F Fedman Suites, 199 Salcedo España cor. Valencia Sts. 921-3043 Street, Legaspi Village, Makati City Sampaloc, Manila GREENHILLS-ORTIGAS BRANCH Fax No.: 361-3271 Tel. Nos.: 893-7680; 893-2618 Tel. Nos.: 741-9572/6209/6208/9565 CBC-Building, 14 Ortigas Avenue Mercedez F. Lazaro 759-2462 Fax No.: 741-6207 Greenhills, San Juan, Metro Manila 893-1503; 816-0905 Jose Omar S. Yuan Tel. Nos.: 723-0530/01; 723-0502/04 KAMIAS BRANCH Fax No.: 893-3746 726-1492; 727-4163 G/F CRM Building II, 116 Kamias Road Manuel O. Yap EXAMINER BRANCH (Area Head) corner Kasing-Kasing Street No. 1525 Quezon Ave. Fax No.: 723-0556; 725-9025 Quezon City MAGALLANES VILLAGE BRANCH cor. Examiner St., West Triangle Jose Redentor V. Trinidad Tel. Nos.: 433-6007; 920-7367 G/F DHI Bldg., No. 2 Lapu-Lapu Ave. Quezon City 920-8770 corner EDSA, Magallanes Village Tel. Nos.: 376-3313/3314/3317/3318 HEROES HILLS BRANCH Fax No.: 920-5723 Makati City Fax No.: 376-3315 Quezon Ave. corner J. Abad Santos Mary Ann P. Arroyo Tel. Nos.: 757-0272/0240; 852-1290 Ma. Salome D. Garcia Street, Heroes Hills, Quezon City 852-1245 Tel. Nos.: 351-4359/5121; 411-3375 KARUHATAN BRANCH Fax No.: 852-1245 EVANGELISTA BRANCH 412-5697 No. 248 McArthur Highway Ma. Monica M. Ela Evangelista corner Gen. Estrella Sts. Fax No.: 351-5121 Karuhatan, Valenzuela City Bangkal, Makati City Mirasol C. Ruiz Tel. Nos.: 291-0431/0175; 440-0033 MAKATI AVENUE BRANCH Tel. Nos.: 759-5095; 759-5096 Fax No.: 440-00-33 G/F CBC Building, Makati Ave. 856-0434; 856-0433 ILAYA BRANCH Rosa C. Arteche cor. Hercules St., Makati City Fax No.: 759-5096 #947 APL-YSL Bldg. Tel. Nos.: 890-6971 to 74 Sheijan A. Baladji Ilaya, Tondo, Manila KATIPUNAN AVE.-ST. IGNATIUS Fax No.: 890-6975 Tel. Nos.: 245-2416; 245-2548 BRANCH Ma. Emma Lourdes A. Libas FAIRVIEW BRANCH 245-2557 CBC Building, No. 121 Katipunan Ave. G/F Angelenix House, Fairview Ave. Fax No.: 245-2545 Brgy. St. Ignatius, Quezon City MALABON-CONCEPCION BRANCH corner Camaro St., Quezon City Je erson G. Ching Tel. Nos.: 913-5532; 912-5003 Gen. Luna corner Paez Streets Tel. Nos.: 937-5597; 938-9636 913-3226 Concepcion, Malabon 937-8086; 461-3004 INTRAMUROS BRANCH Fax No.: 913-5532 Tel. Nos.: 281-0102/03/04/05 Fax No.: 937-8086 No. 409 A. Soriano Avenue Ramiro Mateo D. Valdivia 281-0293 Marilyn L. Navarro Intramuros, Manila Fax No.: 281-0106 Tel. Nos.: 528-4241; 536-1044 LAS PIÑAS BRANCH Ma. Elenita M. Baradi FILINVEST CORPORATE CITY 536-5971; 310-5122 CBC- Bldg., Alabang-Zapote Road BRANCH Fax No.: 536-1044 cor. Aries St., Pamplona Park Subd. MALABON-GOV. PASCUAL BRANCH G/F Wilcon Depot, Alabang-Zapote Shirley L. Coquinco Las Piñas City CBC Building, Gov. Pascual Avenue road cor. Bridgeway Ave., Filinvest Tel. Nos.: 874-6204; 874-6210 Malabon City Corporate City, Alabang, Muntinlupa J. ABAD SANTOS AVENUE BRANCH Fax No.: 874-6414 Tel. Nos.: 352-1816;352-1817 Tel. Nos.: 775-0097/0126 2159 J. Abad Santos Ave. Myra D. Adriano 352-1822; 961-2147 842-1993/2198 cor. Batangas St., Tondo, Manila Fax No.: 352-1822 807-2657 (area Office) Tel. Nos.: 255-1201 to 02; 255-1204 Amy A. Go Fax No.: 775-0322 Fax No.: 255-1203 Mary Grace D.P. Macaraig Gil P. Navelgas
Annual Report 2013 159 CHINA BANK BRANCHES
MALABON-POTRERO BRANCH MAYON BRANCH ONGPIN BRANCH PARAÑAQUE-SUCAT BRANCH CBC Bldg., McArthur Highway 561-B. Mayon St. G/F Se Jo Tong Building, No. 8260 (between AMA Computer Potrero, Malabon Brgy. N.S. Amoranto, Quezon City 808 Ongpin Street, Sta. Cruz, Manila School and PLDT), Dr. A. Santos Tel. Nos.: 448-0524/25 Tel. Nos.: 731-9054/2766; 741-2409 Tel. Nos.: 733-8962 to 66; 735-5362 Avenue, Brgy. San Isidro 361-8671/7056 Fax No.: 731-2766 Fax No.: 733-8964 Parañaque City Fax No.: 448-0525 Teresita G. Sy Dolly C. Diu Tel. Nos.: 820-8951/52; 820-2044 Leslie Y. De Los Angeles 825-2501 MEZZA RESIDENCES BRANCH ORTIGAS-ADB AVE. BRANCH Fax No.: 825-9517 MALANDAY BRANCH G/F Mezza Residences, Aurora Blvd. LGF City & Land Mega Plaza Alejandro I. Alvarez, Jr. CBC Bldg. McArthur Highway corner Araneta Avenue ADB Ave. cor. Garnet Rd. Malanday, Valenzuela City Brgy. Doña Imelda, Quezon City Ortigas Center, Pasig City PASAY-LIBERTAD BRANCH Tel. Nos.: 432-9787; 292-6956/57 Tel. Nos.: 516-0764; 516-0765 Tel. Nos.: 687-2457/58 CBC-Building, 184 Libertad Street 445-3201; 432-9785 516-0766 687-2226/3263 Antonio Arnaiz Ave., Pasay City Fax No.: 292-6956 Fax No.: 516-0764 Fax No.: 687-2457 Tel. Nos.: 551-7159; 834-8978 Miguela Gladiola G. Santos Manuel S. Aurora Jossef Dennis Z. Timbol 831-0306; 831-0498 Fax No.: 551-7160 MANDALUYONG-BONI AVE. MUNTINLUPA- PUTATAN BRANCH ORTIGAS AVE. EXT.- RIVERSIDE Michelle C. Ang BRANCH G/F Teknikos Bldg., National Highway BRANCH G/F VOS Bldg., Boni Avenue corner Brgy. Putatan, Muntinlupa City Unit 2-3 Riverside Arcade PASAY-ROXAS BLVD. BRANCH San Rafael Street, Mandaluyong City Tel. Nos.: 511-0980; 808-1817 Ortigas Avenue Extension corner GF Unit G-01 Antel Seaview Towers Tel. Nos.: 746-6283/85; 534-2289 Fax No.: 808-1819 Riverside Drive, Brgy. Sta. Lucia 2626 Roxas Blvd., Pasay City Fax No.: 534-1968 Carina A. Cariño Pasig City Tel. Nos.: 551-9067/68/69; 833-5048 Paul J. Siongco Tel. Nos.: 748-18-08; 748-4426 Fax No.: 551-1768 N. DOMINGO BRANCH 655-7403; 655-8350 Ronaldo H. Francisco MANDALUYONG-PIONEER BRANCH G/F The Main Place, No. 1 Fax No.: 655-8350 UG-05 Globe Telecom Plaza Tower I Pinaglabanan, cor. N. Domingo Sts. Tita C. Ibarbia PASIG- C. RAYMUNDO BRANCH Pioneer Street, Mandaluyong City San Juan City G/F MicMar Apartments Tel. Nos.: 746-6949; 635-4198 Tel. Nos.: 470-2915; 470-2916 ORTIGAS CENTER BRANCH No. 6353 C. Raymundo Avenue 632-1399 470-2917 Unit 101 Parc Chateau Condominium Brgy. Rosario, Pasig City Fax No.: 746-6948 Fax No.: 470-2916 Onyx corner Sapphire Streets Tel. Nos.: 642-3652; 628-3912 Marie Jane V. Malig Jocelyn S. Salvador Ortigas Center, Pasig City 628-3922; 628-3922 Tel. Nos.: 633-7960/70/53/54 Fax No.: 576- 4134 MARIKINA- STA. ELENA BRANCH NAVOTAS BRANCH 634-0178 Mary Roslyne D. Balatbat 250 J.P. Rizal Street, Sta. Elena No. 500 M. Naval St. near corner Fax No.: 633-7971 Marikina City Lacson St., Brgy. North Bay Boulevard Virginia G. Go PASIG- MERCEDES BRANCH Tel. Nos.: 646-4281; 646-4277 North (NBBN), Navotas City Commercial Motors Corp. Compound 646-4279; 646-1807 Tel. Nos.: 283-0752 to 54 ORTIGAS COMPLEX BRANCH Mercedes Ave., Pasig City Fax No.: 646-1807 Fax No.: 283-0752 G/F Padilla Building, F. Ortigas Jr. Road Tel. Nos.: 628-0197/0209/0201 Rosalinda R. Yuseco Maria Cristina B. Tamayo (formerly Emerald Avenue) Fax No.: 628-0211 Ortigas Center, Pasig City Rosanna H. Malavega MARIKINA- FAIRLANE BRANCH NOVALICHES BRANCH Tel. Nos.: 634-3469; 631-2772 G/F E & L Patricio Building 954 Quirino Highway, Novaliches Fax No.: 633-9039 PASIG-SANTOLAN BRANCH No. 809 J.P. Rizal Ave. Proper, Novaliches, Quezon City Christabel Ethel C. Gabriana G/F Felmarc Business Center Concepcion Uno, Marikina City Tel. Nos.: 936-3512; 937-1133/35/36 Amang Rodriguez Avenue Tel. Nos.: 997-0684; 997-0897 Fax No.: 936-1037 ORTIGAS-JADE DRIVE BRANCH Santolan, Pasig City 998-1817; 948-6120 (MCB) Edwin T. Tamayo Unit G-03, Antel Global Corporate Tel. Nos.: 646-0635; 682-3474 Fax No.: 997-0897 Center, Jade Drive, Ortigas Center 682-3514; 681-4575 Homer D. Petallano NOVALICHES-SANGANDAAN Pasig City Fax# 646-0514 BRANCH Tel. Nos.: 638-4489; 638-4490 Joanaru B. Macalagay MARIKINA- GIL FERNANDO CBC Building, Quirino Highway 638-4510; 638-4540 BRANCH corner Tandang Sora Ave. Fax No.: 638-4540 PASIG- SM SUPERCENTER BRANCH Block 9, Lot 14 Gil Fernando Ave. Brgy. Sangandaan Novaliches Grace N. Soriano G/F SM Supercenter Pasig Marikina City Quezon City Frontera Drive, C-5, Ortigas, Pasig City Tel. Nos.: 646-0780; 646-8032 Tel. Nos.: 935-3049; 935-3491 PACO BRANCH Tel. Nos.: 706-3207/3208/3209 358-2138 Fax No.: 935-2130 Gen. Luna corner Escoda Street Fax No.: 706-3208 Fax No.: 646-8032 Ronaldo T. Uy, Jr. Paco, Manila Maria Norissa D. Mempin Imelda F. Polenday Tel. Nos.: 526-6492; 536-6630/31/72 NOVALICHES-TALIPAPA BRANCH Fax No.: 536-6657 PASO DE BLAS BRANCH MARIKINA- SSS VILLAGE BRANCH 528 Copengco Bldg., Quirino Highway Susan V. Co G/F CYT Bldg., No. 178 Paso de Blas Lilac cor. Rainbow Sts., SSS Village Talipapa, Novaliches, Quezon City Valenzuela City Concepcion Dos, Marikina City Tel. Nos.: 936-2202; 936-3311 PACO- OTIS BRANCH Tel. Nos.: 292-3215/3213/3216 Tel. Nos.: 948-5135; 941-7709 936-7765 G/F Union Motor Corporation Bldg. Fax No.: 444-8850 997-3343 Fax No.: 936-2202 1760 Dra. Paz Guazon St. Ma. Letecia G. Milan Fax No.: 942-0048 Joseph Nestor B. Belisario Paco, Manila Nerissa J. Ramos Tel. Nos.: 561-6902; 561-6981 PASONG TAMO BAGTIKAN NOVALICHES- ZABARTE BRANCH 564-2247 BRANCH MASANGKAY BRANCH G/F C.I. Bldg 1151 Quirino Highway Fax No.: 561-6981 G/F Trans-Phil House 959-961 G. Masangkay Street corner Zabarte Road, Brgy. Kaligayahan Ma. Victoria O. Rondilla 1177 Chino Roces Ave. Binondo, Manila Novaliches, Quezon City cor. Bagtikan St., Makati City Tel. Nos.: 244-1828/35/48/56/59 Tel. Nos.: 461-7691; 461-7694 PADRE FAURA BRANCH Tel. Nos.: 403-4820; 403-4821 Fax No.: 244-1833 461-7698 G/F Regal Shopping Center 403-4822; 738-7591 Christopher C. Ty Fax No.: 461-7691 A. Mabini cor. P. Faura Sts. Fax No.: 403-4821 Caroline K. Barcinal Ermita, Manila Rose Marie Y. Oquendo MASANGKAY- LUZON BRANCH Tel. Nos.: 526-0586; 527-3202 1192 G. Masangkay St. NUEVA BRANCH 527-7865 PASONG TAMO-CITYLAND BRANCH Sta. Cruz, Manila Unit Nos. 557 & 559 G/F Ayson Fax No.: 527-3202 Units UG30-UG32 Cityland Pasong Tel. Nos.: 255-0739; 254-9974 Building Yuchengco St. Carmina P. Manimbo Tamo Tower, 2210 Pasong Tamo St. 254-9335 Binondo, Manila Makati City Fax No.: 254-9974 Tel. Nos.: 247-6374; 247-6396 Tel. Nos.: 817-9337/47/51/60/82 Gina C. Chua 247-0493; 480-00-66 Fax No.: 817-9351 Fax No.: 247-6396 Arnnie B. Alanano Melissa S. Uy 160 PHILAM BRANCH SHAW-PASIG BRANCH SM CITY NORTH EDSA- ANNEX TAFT AVE. - QUIRINO BRANCH #8 East Lawin Drive G/F RCC Center BRANCH 2178 Taft Avenue near corner Philam Homes, QC No. 104 Shaw Boulevard, Pasig City UGF New Annex Building Quirino Avenue, Malate, Manila Tel. Nos.: 927-9841; 924-2872 Tel. Nos.: 634-5018/19; 634-3343/44 SM City North EDSA Tel. Nos.: 521-7825; 527-3285 929-5734 747-7812; 634-3340 EDSA, Quezon City 527-6747 Fax No.: 929-3115 638-2751 (MCB) Tel. Nos.: 441-1370/1372/1373 Fax No.: 527-3285 April Jean P. Chiong Fax No.: 634-3344 Fax No.: 441-1372 Jorielyn B. Nuqui Hermenegildo G. Cariño Rommel R. Sunga QUEZON AVE. BRANCH TIMOG AVE. BRANCH No. 18 G & D Bldg., Quezon Ave. SHAW-SUMMIT ONE BRANCH SM CITY SAN LAZARO BRANCH G/F Prince Jun Condominium cor. D. Tuazon St., Q.C. Unit 102 Summit One Office Tower UGF (Units 164-166) SM City 42 Timog Ave., Q.C. Tel. Nos.: 712-3676; 712-0424 530 Shaw Boulevard Mandaluyong City San Lazaro, Felix Huertas Street Tel. Nos.: 371-4523/24; 371-4522/06 740-7779/80; 712-1105 Tel. Nos.: 531-3970; 531-5736 corner A.H. Lacson Extension 986-3668 416-8891; 732-2137 (MCB) 531-4058; 531-1304 Sta. Cruz, Manila Fax No.: 371-4503 Fax No.: 712-3006 533-8723; 533-4948 Tel. Nos.: 742-1572; 742-2330 Jasmine O. Ty Anita Y. Samala Fax No.: 531-9469 493-7115 Lilian B. Orlina Fax No.: 732-7935 TRINOMA BRANCH QUIAPO BRANCH Jocelyn E. Tan Unit P002, Level P1, Triangle North of 216-220 Villalobos St. SM AURA PREMIER BRANCH Manila, North Avenue corner EDSA Quiapo, Manila L/G SM Aura Premier, McKinley SM CITY TAYTAY BRANCH Quezon City Tel. Nos.: 733-2052/59/61 Parkway, Fort Bonifacio Global City Unit 147 Bldg. B, SM City Taytay Tel. Nos.: 901-5570-5573 733-6282/86 Taguig City Manila East Road Brgy. Dolores Fax No.: 901-5573 Fax No.: 733-6282 Tel. Nos.: 808-9727; 808-9701 Taytay, Rizal Maria Catleya C. Reyes Leslie C. So (telefax) Tel. Nos.: 286-5844; 286-5979 Cristina S. Filio 661-2276; 661-2277 TUTUBAN PRIME BLOCK BRANCH ROOSEVELT AVE. BRANCH Fax No.: 661-2235 Rivera Shophouse, Podium Area CBC Bldg., #293 Roosevelt Ave. SM CITY BF PARAÑAQUE BRANCH Godofredo B. Ponciano, Jr. Tutuban Center Prime Block San Francisco Del Monte, Quezon City G/F SM City BF Parañaque C.M. Recto Ave. corner Rivera Street Tel. Nos.: 371-5133 to 35; 410-2160 Dr. A. Santos Ave. corner President’s SM MALL OF ASIA BRANCH Manila 410-1957; 371-2766 Avenue, Parañaque City G/F Main Mall Arcade, SM Mall of Asia Tel. Nos.: 255-1414/15 Fax No.: 371-2765 Tel. Nos.: 825-3201; 825-2990 Bay Blvd., Pasay City Fax No.: 255-5441 Eileen M. Felipe 825-3095; 820-0911 Tel. Nos.: 556-0100/0102/0099 Irene C. Chan Fax No.: 825-1062 625-2246 SALCEDO VILLAGE-TORDESILLAS Aldrin S. Parco Fax No.: 556-0099 UP TECHNO HUB BRANCH BRANCH Charmaine V. Santos UP AyalaLand Techno Hub G/F Prince Tower Condominium SM CITY BICUTAN BRANCH Commonwealth Ave., Quezon City 14 Tordesillas St., Salcedo Village LGF, Bldg. B, SM City Bicutan SM MEGAMALL BRANCH Tel. Nos.: 441-1331/1332/1334 Makati City Doña Soledad Ave. cor. LGF Building A, SM Megamall Fax No.: 798-4800 Tel. Nos.: 813-4901/32/33 West Service Rd., Parañaque City E. delos Santos Avenue corner Anna Mercedes B. Flores 813-4944/52 Tel. Nos.: 821-0600/0700/0600 J. Vargas St. Mandaluyong City Fax No.: 813-4933 777-9347 Tel. Nos.: 633-1611/12; 633-1788/89 VALENZUELA BRANCH Pamela Joyce E. Gonzalez Fax No.: 821-0500 638-7213 to15 CBC-Bldg., Mc Arthur Highway Kathlyn I. Abalos Fax No.: 633-4971 or 633-1788 cor. V. Cordero St., Marulas SALCEDO VILLAGE-VALERO Edna A. Torralba Valenzuela City BRANCH SM CITY FAIRVIEW BRANCH Tel. Nos.: 293-8920; 293-6160 G/F Valero Tower, 122 Valero Street LGF, SM City Fairview SM SOUTHMALL BRANCH 293-5088 to 90; 293-8919 Salcedo Village, Makati City Quirino Avenue corner Regalado UGF SM Southmall, Alabang-Zapote Fax No.: 293-5091 Tel. Nos.: 892-7768/69; 812-9207 Avenue, Fairview, Quezon City Road, Talon 1, Almanza, Las Piñas City Rosa L. Chiu 893-8188/96 Tel. Nos.: 417-2878; 939-3105 Tel. Nos.: 806-6116/19; 806-3536 Fax No.: 892-7769 Fax No.: 418-8228 806-3547 VALENZUELA- GEN. LUIS BRANCH Nellie S.D. Alar Ma. Nila B. Dujunco Fax No.: 806-3548 AGT Building, 425 Gen. Luis Street Virgilio V. Villarosa Paso de Blas, Valenzuela City SALES- RAON BRANCH SM CITY MARIKINA BRANCH Tel. Nos.: 443-6160/61; 983-3861/62 611 Sales St., Quiapo, Manila G/F SM City Marikina SOLER- 168 BRANCH Fax No.: 443-6161 Tel. Nos.: 734-5806; 734-7427 Marcos Highway, Brgy. Calumpang G/F R & S Bldg, Soler St., Manila Alicia S. Gavino 734-6959 Marikina City Tel. Nos.: 242-1041; 242-1674 Fax No.: 734-6959 Tel. Nos.: 477-1845/46/47; 799-6105 242-1685 VISAYAS AVE. BRANCH Elizabeth I. Trinidad Fax No.: 477-1847 Fax No.: 242-1041 CBC-Building, Visayas Avenue corner Donna G. Del Rosario Charles T. Salaya Congressional Ave. Ext., Quezon City SAN JUAN BRANCH Tel. Nos.: 454-0189; 925-2173 17 (new) F. Blumentritt St. SM CITY MASINAG BRANCH STO. CRISTO BRANCH 455-4334/35 San Juan, M. M. SM City Masinag, Marcos Highway 711-715 Sto. Cristo cor. Fax No.: 925-2155 Tel. Nos.: 724-8263; 726-4826 Brgy. Mayamot, Antipolo City Commercio Sts., Binondo, Manila Thelma S. Cabanban 744-5616 to 18; 723-7333 Tel. Nos.: 655-8764; 655-9124 Tel. Nos.: 242-4668/73; 242-5361 Fax No.: 723-4998 655-8771 241-1243; 242-5449 WEST AVE. BRANCH Area Office- 725-9025 Fax No.: 655-9124 242-3670 82 West Avenue, Quezon City Joel Kenward Y. Uy Kathleen Joy R. Chupungco Fax No.: 242-4672; 242-4761 Tel. Nos.: 924-3131/3143/6363 Victoria L. Chua 920-6258; 411-6010/6011 SHAW-HAIG BRANCH SM CITY NORTH EDSA BRANCH 928-3270 G/F First of Shaw Bldg., Shaw Blvd. Cyberzone Carpark Bldg. T. ALONZO BRANCH Fax No.: 924-6364 corner Haig St., Mandaluyong City SM City North Avenue, corner EDSA Abeleda Business Center Corina R. Sesdoyro Tel. Nos.: 534-1073; 534-0744 Quezon City 908 T. Alonzo corner Espeleta Streets 718-0218; 621-6459 Tel. Nos.: 456-6633; 454-8108/21 Sta. Cruz, Manila XAVIERVILLE BRANCH 531-0795 (MCB) 925-4273 Tel. Nos.: 733-9581/82 65 Xavierville Ave. Fax No.: 576-3841 (telefax) Fax No.: 927-2234 734-3231 to 33 Loyola Heights, Quezon City Virginia T. Bernabe Edmund R. Vicente Fax No.: 733-9582 Tel. Nos.: 433-8696; 929-1265 Hermenia L. Tan 927-9826 Fax No.: 929-3343 Alma A. Sevilla
Annual Report 2013 161 CHINA BANK BRANCHES
LUZON BALER BRANCH CARMONA BRANCH ISABELA-ILAGAN BRANCH Provincial Road, Barrio Suklayain CBC Building, Paseo de Carmona G/F North Star Mall ANGELES CITY BRANCH Baler, Aurora Brgy. Maduya, Carmona, Cavite Maharlika Highway CBC-Building, 949 Henson St. Tel. No.: (02) 703-331 (Manila line) Tel. Nos.: (046) 430-1969/1277/3568 Brgy. Alibagu, Ilagan, Isabela Angeles City Renato P. del Rosario, Jr. 4753941 (Manila line) Tel. Nos.: (078) 323-0179; 323-0178 Tel. Nos.: (045) 887-1549; 323-5343 Fax No.: (046)430-1277 Fax No.: (078) 323-0179 887-1550/2291 BALIWAG BRANCH Jonathan John H. Zamora Donnabella D. Castillo 625-8660/61 Km. 51, Doña Remedios Trinidad (DRT) Fax No.: (045) 625-8661 Highway Baliwag, Bulacan CAUAYAN CITY BRANCH ISABELA- ROXAS BRANCH Luzviminda Grace M. Santos Tel. Nos.: (044) 766-1066/5257 G/F Prince Christopher Bldg. National Road, Brgy. Bantug 673-5338 Maharlika Highway, Cauayan City Roxas, Isabela ANGELES CITY- BALIBAGO BRANCH Fax No.: (044) 766-5257 Isabela Tel. Nos.: (078) 376-0422 Diamond Square, Service Road Janet R. De Castro Tel. Nos.: (078) 652-1849; 897-1338 376-0434 McArthur Highway cor. Charlotte St. 652-0061 Adeluiso L. Cabugos Balibago, Angeles City, Pampanga BATANGAS CITY BRANCH Fax No.: (078) 652-1849 Tel. Nos.: (045) 892-5136; 892-5144 P. Burgos Street, Batangas City Mary Ann S. Gaspar GAPAN BRANCH Fax No.: (045) 892-5144 Tel. Nos.: (043) 723-0953; 520-6118 G/F Waltermart Center - Gapan Rean S. Bernarte (Mla-direct) CAVITE-DASMARIÑAS BRANCH Maharlika Highway, Brgy. Bayanihan Fax No.: 520-6118 (Mla-direct) G/F CBC Bldg., Gapan, Nueva Ecija ANGELES CITY- MARQUEE MALL (043) 402-9157 Gen. E. Aguinaldo Highway Tel. Nos.: (044) 486-0217 BRANCH Erlan Antonio B. Olavere Dasmariñas, Cavite 486-0434; 486-0695 G/F Marquee Mall Tel. Nos.: (046) 416-5036/39/40 Fax No.: (044) 486-0434 Angeles City, Pampanga BATANGAS- BAUAN BRANCH 584-40-83 (Manila line) Medel C. Driz Tel. Nos.: (045) 436-4013; 304-0850 62 Kapitan Ponso St., Bauan, Batangas Fax No.: (046) 416-5036 889-0975 Tel. Nos.: (043) 702-4481; 702-5383 Arlyn G. Araña GUAGUA BRANCH Fax No.: (045) 304-0850 Fax No.: (043) 702-4481 Yabut Building, Plaza Burgos Joselito M. Datu Ruvishella S. Bicol CAVITE-IMUS BRANCH Guagua, Pampanga G/F CBC Bldg., Nueno Avenue Tel. Nos.: (045) 458-1045; 458-1046 ANGELES- MCARTHUR HIGHWAY BATANGAS- LEMERY BRANCH Tanzang Luma, Imus, Cavite Telefax: (045) 458-1043 BRANCH Miranda Building, Ilustre Avenue Tel. Nos.: (046) 970-8726/64 Nikita D. Masbang CBC Bldg. San Pablo St. corner Lemery, Batangas 471-2637; 471-7094 Mc Arthur Highway, Angeles City Tel. No.: (043) 409-3467 Fax No.: (046) 471-2637 LA TRINIDAD BRANCH Tel. Nos.: (045) 323-5793; 887-6028 984-0206 (Manila line) Noreen S. Puri cacion G/F SJV Bulasao Building 625-9362 Enrique M. Padua Km. 4, La Trinidad, Benguet Fax No.: (045) 887-6029 CAVITE- MOLINO BRANCH Tel. Nos.: (074) 422-2065/2590 Maria Josefa R. Nisce BULACAN- STA. MARIA BRANCH Patio Jacinto, Molino Road 309-1663 J.P Rizal corner C. de Guzman St. Molino 3, Bacoor, Cavite Fax No.: (074) 422-2065 ANGELES CITY- STO. ROSARIO Poblacion, Sta. Maria Tel. Nos.: (046) 431-0632 Liza L. Serrano BRANCH Tel. Nos.: (044) 288-2006; 815-2951 TelefFax: (046) 431-0901 Angeles Business Center Bldg. 913-0334 Mario E. Sayoc II LA UNION BRANCH Teresa Avenue Nepo Mart Complex Fax No.: (044) 288-2006 Quezon Avenue, National Highway Angeles City, Pampanga Karen S. Mendoza CAVITE-ROSARIO BRANCH San Fernando, La Union Tel. Nos.: (045) 888-5175; 322-9596 G/F CBC Building, Gen Trias Drive Tel. Nos.: (072) 607-8931/8932 Fax No.: (045) 888-5175 CABANATUAN CITY BRANCH Rosario, Cavite 8933/8934 Gina K. Reyes Melencio cor. Sanciangco Sts. Tel. Nos.: (046) 437-0057 to 59 Fax No.: (072) 607-8934 Cabanatuan City Fax No.: (046) 437-0058 Fenalyn G. Rimando APALIT BRANCH Tel. Nos.: (044) 600-4265 Ma. Lorna A. Virata CBC Building, McArthur Highway 463-0935 to 36 LAGUNA - CALAMBA BRANCH San Vicente, Apalit, Pampanga Fax No.: (044) 463-0936 DAET BRANCH CBC-Building, National Highway Tel. Nos.: (045) 652-1131 Juanito C. Santiago Vinzons Avenue, Daet Crossing, Calamba, Laguna Fax No.: (045) 302-9560 Camarines Norte Tel. Nos.: (049) 545-7134 to 38 Nancy T. Mensalvas CABANATUAN-MAHARLIKA Tel. No.: (054) 440-0067 Fax No.: (049) 545-7138 BRANCH Telefax: (054) 440-0066 Estela A. Liamson BAGUIO CITY BRANCH CBC-Building, Maharlika Highway Sheila F. Dalupang G/F Juniper Bldg. Cabanatuan City LAGUNA- STA. CRUZ BRANCH A. Bonifacio Rd., Baguio City Tel. Nos.: (044) 463-8586/87 DAGUPAN - PEREZ BRANCH A. Regidor St., Sta. Cruz, Laguna Tel. Nos.: (074) 442-9581; 443-5908 463-7964; 600-3590 Siapno Building, Perez Boulevard Tel. Nos.: (049) 501-4977 443-8659 to 60; 442-9663 940-2395 Dagupan City 501-4107; 501-4085 Fax No.: (074) 442-9663 Fax No.: (044) 463-8587 Tel. Nos.: (075) 522-2562 to 64 Fax No.: (049) 501-4107 Mary Anne A. Tiwaquen Jocelyn C. Concepcion Fax No.: (075) 522-8308 Liza Catalina P. Maglapuz Josephine C. Dee BAGUIO CITY- ABANAO BRANCH CALAPAN CITY BRANCH LAOAG CITY BRANCH G/F Paladin Hotel, No. 136 Abanao Ext. J.P. Rizal St., San Vicente DAGUPAN- M.H. DEL PILAR Liberato Abadilla Street, Brgy 17 corner Cariño St., Baguio City Calapan City, Oriental Mindoro BRANCH San Francisco, Laoag City Tel. Nos.: (074) 424-4837; 424-4838 Tel. Nos.: (043) 288-8978/8508 Carried Realty Bldg., No. 28 M.H. del Tel. Nos.: (077) 772-1024/27 Fax No.: (074) 424-4838 441-0382 Pilar Street, Dagupan City 771-4688; 771-4417 Edward U. Catipon Fax No.: (043) 441-0382 Tel. Nos.: (075) 523-5606; 515-8952 Fax No.: (077) 772-1035 Ruel A. Añonuevo 515-8956 Anna Christie P. Reyes BALANGA CITY BRANCH Fax No.: (075) 522-8929 G/F Dilig Building, Don Manuel Banzon CANDON CITY BRANCH Rommel M. Agacita LEGAZPI CITY BRANCH Street, Balanga City, Bataan CBC Building, National Road, Poblacion G/F Emma Chan Bldg. Tel. Nos.: (047) 237-9388/89 Candon City, Ilocos Sur DOLORES BRANCH F. Imperial St., Legazpi City 791-1779 Tel. No.: (077) 674-0554 CBC Bldg., McArthur Highway Tel. Nos.: (052) 480-6048; 480-6519 Fax No.: (047) 791-1779 Telefax: (077) 674-0574 Dolores, City of San Fernando 214-3077 Michelle Y. Aquino Lucia R. Gacula Pampanga Fax No.: 429-1813 (Direct-Mla line) Tel. Nos.: (045) 963-3413 to 15 Alex A. Jacob 860-1780/81 Fax No.: (045) 963-1014 Roberto P. Basilio
162 LUCENA CITY BRANCH SAN FERNANDO BRANCH SM CITY OLONGAPO BRANCH TARLAC BRANCH 233 Quezon Avenue, Lucena City CBC Bldg., V. Tiomico Street SM City Olongapo, Magsaysay Dr. CBC Building, Panganiban near corner Tel. Nos.: (042) 373-2317 City of San Fernando, Pampanga cor. Gordon Ave., Brgy. Pag-asa F. Tanedo Street, Tarlac City, Tarlac 373-3872/80/87 Tel. Nos.: (045) 961-3542/49 Olongapo City, Zambales Tel. Nos.: (045) 982-7771 to 75 660-7861 963-5458 to 60; 961-5651 Tel. Nos.: (047) 602-0039; 602-0040 Fax No.: (045) 982-7772 Fax No.: (042) 373-3879 860-1925; 892-3211 Fax No.: (047) 602-0038 Perla S. Aquino Rossana V. Miralles Fax No.: (045) 961-8352 Edelmar D. Lee Yalda Y. Ocampo TARLAC- CAMILING BRANCH MABALACAT-DAU BRANCH SM CITY PAMPANGA BRANCH Savewise Super Market, Poblacion R.D. Policarpio Bldg., McArthur SAN FERNANDO- SINDALAN Unit AX3 102, Building 4, SM City Camiling, Tarlac Highway, Dau, Mabalacat, Pampanga BRANCH Pampanga Mexico, Pampanga Tel. Nos.: (045) 491-6445; 934-5086 Tel. Nos.: (045) 892-4969; 892-6040 Jumbo Jenra Sindalan, Brgy. Sindalan Tel. Nos.: (045) 455-0304/0305/ Telefax: (045) 934-5085 Fax No.: (045) 892-6040 San Fernando City, Pampanga 0306/0307 Gary V. Eugenio Emerlita R. Dizon Tel. Nos.: (045) 866-5464; 455-0569 Fax No.: (045) 455-0307 Fax No.: (045) 861-3081 Roderick R. De Leon TRECE MARTIRES BRANCH MALOLOS CITY BRANCH Armando Arepentido G/F Waltermart, Governor’s Drive G/F Graceland Mall, BSU Grounds SM CITY SAN PABLO BRANCH corner City Hall Road, Brgy. San McArthur Highway, Guinhawa SAN JOSE CITY BRANCH G/F SM City San Pablo National Agustin, Trece Martires City, Cavite Malolos City, Bulacan Maharlika Highway, Brgy. Malasin Highway, Brgy. San Rafael Tel. Nos.: (046) 460-4897 Tel. Nos.: (044) 794-5840; 662-2013 San Jose City, Nueva Ecija San Pablo City, Laguna 460-4898; 460-4899 Fax No.: (044) 794-5840 Tel. Nos.: (044) 958-9094; 985-9096 Tel. Nos.: (049) 521-0071 to 72 Fax No.: (046) 460-4898 Oscar S. Alhambra, Jr. 511-2898 Fax No.: (049) 521-0072 Lhovina A. Del n Fax No.: (044) 958-9094 Soliman A. Dela Mar MARILAO BRANCH Josephine D. Cariño TUGUEGARAO CITY BRANCH G/F, SM City Marilao SM CITY STA. ROSA BRANCH A. Bonifacio Street Km. 21, Brgy. Ibayo, Marilao, Bulacan SAN PABLO CITY BRANCH G/F SM City Sta. Rosa, Bo. Tagapo Tuguegarao, Cagayan Tel. Nos.: (044) 711-1803/1814 M. Paulino Street Sta. Rosa, Laguna Tel. Nos.: (078) 844-0175; 844-0831 815-8956/8957 San Pablo City, Laguna Tel. Nos.: (049) 534-4640/4813 846-1709 Fax No.: (044) 711-1814 Tel. Nos.: (049) 562-5481 to 84 Fax No.: 901-1632 Fax No.: (078) 844-0836 Marites B. Go Fax No.: (049) 562-5485 (Manila Direct Line) Shirly Leocel A. Narag Oscar B. Villavicencio Antonio C. Manilay MASBATE BRANCH VIGAN CITY BRANCH Espinosa Bldg., Zurbito St. SANTIAGO CITY BRANCH SOLANO BRANCH Burgos Street near corner Rizal Street Masbate City, Masbate Navarro Bldg., Maharlika Highway National Highway, Brgy. Quirino Vigan City, Ilocos Sur Tel. Nos.: (056) 333-2363/65 near corner Bayaua St. Solano, Nueva Vizcaya Tel. Nos.: (077) 722-6968, 674-2272 Fax No.: (056) 333-2365 Santiago City, Isabela Tel. Nos.: (078) 326-6559/60/61 Fax No.: (077) 722-6948 Ernie C. Torrevillas Tel. Nos.: (078) 682-7024 to 26 Fax No.: (078) 326-6561 Maria R. Pelayo Fax No.: (078) 305-2445 Rafael F. Ilarde NAGA CITY BRANCH Helen N. Ng VISAYAS Peñafrancia corner Panganiban Streets SORSOGON BRANCH Naga City SM CITY BACOOR BRANCH CBC Bldg., Ramon Magsaysay Ave. ANTIQUE- SAN JOSE BRANCH Tel. Nos.: (054) 472-1359; 472-1358 LGF SM City Bacoor Sorsogon City, Sorsogon Felrosa Building, Gen. Fullon St. 473-7920 Tirona Highway corner Aguinaldo Tel. Nos.: (056) 211-1610; 421-5105 corner Cerdena St., San Jose, Antique Fax No.: 250-8169 (Manila line) Highway, Bacoor, Cavite Fax No.: (02) 429-1124 Tel. Nos.: (036) 540-7095; 540-7097 Perfecto S. Real Tel. Nos.: (046) 417-0572/ 0746/ – Manila Line Fax No.: (036) 540-7096 0623/0645 Arthur B. Falcotelo Anna Marie B. Sentina NUEVA ECIJA- STA. ROSA BRANCH Fax No.: (046) 417-0583 CBC Building, Maharlika Highway Elvira M. Montesa SUBIC BAY FREEPORT ZONE BACOLOD-ARANETA BRANCH Poblacion, Sta. Rosa, Nueva Ecija BRANCH CBC-Building, Araneta corner Tel. No.: (044) 940-1407 SM CITY CLARK BRANCH CBC Building., Subic Bay San Sebastian Streets, Bacolod City Fax No.: (044) 333-6215 G/F (Units 172-173) SM City Clark Gateway Park, Rizal Highway Tel. Nos.: (034) 435-0247/48 Teresita P. Esteban M. Roxas St., CSEZ, Angeles City Subic Bay Freeport Zone 433-3818/19; 433-7152/53 Pampanga Tel. Nos.: (047) 252-1568; 252-1575 709-1618 PANGASINAN-ALAMINOS CITY Tel. Nos.: (045) 499-0252 to 54 252-1591 Fax No.: (034) 435-0247 BRANCH Fax No.: (045) 499-0254 Fax No.: (047) 252-1575 Michelle Lorei R. Gayoma Marcos Avenue, Brgy. Palamis Pablito P. Flores Renato S. Cunanan Alaminos City, Pangasinan BACOLOD- LIBERTAD BRANCH Tel. Nos.: (075) 551-3859; 654-0286 SM CITY DASMARIÑAS BRANCH TABACO CITY BRANCH Libertad Street, Bacolod City Fax No.: (075) 654-0296 LGF SM City Dasmariñas Ziga Ave. corner Berces Street Negros Occidental Edwin D. Viado Governor’s Drive, Pala-pala Tabaco City, Albay Tel. Nos.: (034) 435-1645; 435-1646 Dasmariñas, Cavite Tel. Nos.: (052) 487-7150; 830-4178 Fax No.: (034) 435-1645 PANGASINAN-URDANETA BRANCH Tel. Nos.: 046) 424-1134 Fax No.: 429-1811 (Manila line) Maria Ruema S. Quimba EF Square Bldg., Mc Arthur Highway Fax No.: (046) 424-1133 Katherine Y. Barra Poblacion Urdaneta City, Pangasinan Evelyn T. Jardiniano BACOLOD- MANDALAGAN BRANCH Tel. Nos.: (075) 632-2637; 632-0541 TAGAYTAY CITY BRANCH Lacson Street, Mandalagan 656-2022; 656-2618 SM CITY LIPA BRANCH Olivarez Plaza Tagaytay Bacolod City, Negros Occidental Fax No.: (075) 656-2618 G/F (Units 1111-1113) SM City Lipa E. Aguinaldo Highway Silang Crossing Tel. Nos.: (034) 441-0500; 441-0388 Glenda N. Anonas Ayala Highway Brgy. Maraouy, Lipa Tagaytay City, Cavite 709-0067 City, Batangas Tel. Nos.: 529-8174 (Manila Line) Fax No.: (034) 709-0067 PASEO DE STA. ROSA BRANCH Tel. Nos.: (043) 784-0212; 784-0213 (046) 483-0609, 483-0608 Olimpia L. Diones Unit 3, Paseo 5, Paseo de Sta. Rosa Fax No.: (043) 784-0212 Fax No.: 529-8174 (Manila Line) Sta. Rosa City, Laguna Jose L. Nario, Jr. Mandrake P. Medina BACOLOD-NORTH DRIVE BRANCH Tel. Nos.: (049) 837-1831; 502-3016 Anesa Bldg., B.S. Aquino Drive 502-2859; 827-8178 SM CITY NAGA BRANCH TALAVERA BRANCH Bacolod City 420-8042 (Manila line) SM City Naga, CBD II, Brgy. Triangulo CBC Building, Marcos District Tel. Nos.: (034) 435-0063 to 65 Fax No.: 420-8042 (Manila line) Naga City Talavera, Nueva Ecija 709-1658 Gerald A. Reta Tel. Nos.: (054) 472-1366; 472-1367 Tel. Nos.: (044) 940-2620; 940-2621 Fax No.: (034) 435-0065 Fax No.: 250-8183 (Manila Line) Fax No.: (044) 940-2620 G. Romulo F. Lopez Perfecto S. Real Edwin Q. Manuel, Jr.
Annual Report 2013 163 CHINA BANK BRANCHES
BAYBAY BRANCH CEBU-F. RAMOS BRANCH CEBU-MANDAUE NORTH ROAD ILOILO-MABINI BRANCH Magsaysay Avenue, Baybay, Leyte F. Ramos Street, Cebu City BRANCH A. Mabini Street, Iloilo City Tel. Nos.: (053) 335-2899/98 Tel. Nos.: (032) 253-9463; 254-4867 G/F Units G1-G3, Basak Commercial Tel. Nos.: (033) 335-0295; 335-0370 563-9228 412-5858 Building, (Kel-2) Basak, Mandaue City 509-0599 Fax No.: (053) 563-9228 Fax No.: (032) 253-9461 Tel. Nos.: (032) 345-8861; 345-8862 Fax No.: (033) 335-037 Jose Alvin P. Sumalinog Alan Y. Go 420-6767 Sharlan G. Chu Fax No.: (032) 420-6767 BORONGAN BRANCH CEBU- GORORDO BRANCH Ferdinand R. Sy ILOILO- MANDURRIAO BRANCH Balud II, Poblacion, Borongan No 424. Gorordo Ave., Bo. Camputhaw Benigno Aquino Ave., Brgy. San Rafael Eastern Samar Lahug District, Cebu City, Cebu CEBU- MINGLANILLA BRANCH Mandurriao, Iloilo City, Iloilo Tel. Nos.: (055) 560-9948; 560-9938 Tel. Nos.: (032) 414-0509; 239-8654 Unit 9, Plaza Margarita Lipata Tel. Nos.: (033) 333-3988; 333-4088 261-5888 Fax No.: (032) 239-8654 Minglanilla, Cebu Fax No.: (033) 501-6078 Fax No.: (055) 560 9938 Richard Alexander T. Lim Tel. Nos.: (032) 239-7234; 490-6025 Severo Y. Pison IV Paul C. Oliva Fax No.: (032) 239-7235 CEBU-GUADALUPE BRANCH Christine T. Obiña ILOILO-RIZAL BRANCH CATARMAN BRANCH CBC Building, M. Velez Street, cor. CBC Building, Rizal cor. Gomez Streets Cor. Rizal & Quirino Sts. V. Rama Ave., Guadalupe, Cebu City CEBU- NAGA BRANCH Brgy. Ortiz, Iloilo City Jose P. Rizal St., Catarman Tel. Nos.: (032) 254-7964; 254-8495 Leah’s Square, National South Tel. Nos.: (033) 336-0947; 338-2136 Northern, Samar 254-1916 Highway, East Poblacion 509-8838 Tel. Nos.: (055)251-8802/8821 Fax No.: (032) 032-416-5988 Naga City, Cebu Fax No.: (033) 338-2144 500-9921 Angie G. Divinagracia Tel. Nos.: (032) 238-7623 Nilda Marie C. Bautista Fax No.: (055) 500-9921 Telefax: (032) 489-8218 Victorino T. Caparroso, Jr. CEBU- IT PARK BRANCH Sheila R. Pastor KALIBO BRANCH G/F The Link, Cebu IT Park Waldolf Garcia Building CATBALOGAN BRANCH Apas, Cebu City, Cebu CEBU-SM CITY BRANCH Osmeña Avenue, Kalibo, Aklan CBC Bldg. Del Rosario St. cor. Telefax: (032) 266-2559 Upper G/F, SM City Cebu, Juan Luna Tel. Nos.: (036) 500-8088; 500-8188 Taft Avenue, Catbalogan City, Samar Odelon C. Logarta cor. A. Soriano Avenue, Cebu City Fax No.: (036) 500-8188 Tel. Nos.: (055) 251-2897/98 Tel. Nos.: (032) 232-0754/55 Marylen T. Gerardo 543-8121 CEBU – LAHUG BRANCH 231-9140; 412-9699 Fax No.: (055) 543-8279 JY Square Mall, No. 1 Salinas Dr. Fax No.: (032) 232-1448 MAASIN CITY BRANCH Teresita Angelica U. Marquez Lahug, Cebu City Alex M. Campilan G/F SJC Bldg., Tomas Oppus St. Tel. Nos.: (032) 417-2122; 233-0977 Brgy. Tunga-Tunga, Maasin City CEBU BUSINESS CENTER 234-2062 CEBU- SUBANGDAKU BRANCH Southern Leyte CBC Bldg., Samar Loop corner Panay Fax No.: (032) 234-2062 Unit 1 & 2 G/F Alpa Centrum Tel. Nos.: (053) 381-2287; 381-2288 Road, Cebu Business Park, Cebu City Zephyrus C. Celis Subangdaku, Mandaue City, Cebu 570-8488 Tel. Nos.: (032) 239-3760 Tel. Nos.: (032) 344-6561; 422-3664 Fax No.: (053) 570-8488 to 239-3764 CEBU-LAPU LAPU BRANCH 344-6621 Maria Luisa V. Gonzales Fax No.: (032) 238-1438 G/F Goldberry Suites Fax No.: (032) 344-6621 Victor P. Mayol President Quezon National Highway Sharon Rose L. Onrejas NEGROS OCC.- SAN CARLOS Pusok, Lapu-Lapu City BRANCH CEBU-BANILAD BRANCH Tel. Nos.: (032) 340-2098; 494-0631 CEBU- TALAMBAN BRANCH Rizal corner Carmona Streets CBC Bldg., AS Fortuna St. 340-2099 Unit UG-7 Gaisano Grand Mall, San Carlos, Negros Occidental Banilad, Cebu City Fax No.: (032) 340-2098/ 494-0631 Brgy. Talamban, Cebu City Tel. Nos.: (034) 312-5818; 312-5819 Tel. Nos.: (032) 346-5870/81 Mary Faith R. Alvez Tel. Nos.: (032) 236-8944; 418-0796 729-3276 416-1001 Fax No.: (032) 236-8944 Fax No.: (034) 729-3276 Fax No.: (032) 344-0087 CEBU- MAGALLANES BRANCH Ronnie A. Aguilar Mercedita C. Cortez Jouzl Marie C. Roña CBC Bldg., Magallanes corner Jakosalem Sts., Cebu City CEBU-TALISAY BRANCH ORMOC CITY BRANCH CEBU - BOGO BRANCH Tel. Nos.: (032) 255-0022/23/25/28 CBC Bldg., 1055 Cebu South National CBC Building, Real cor. Lopez Jaena P. Rodriguez Street, Bogo City, Cebu 253-0348;255-6093 Road, Bulacao, Talisay City, Cebu Sts., Ormoc City, Leyte Tel. Nos. (032) 434-7119, 266-3251 255-0266; 412-1877 Tel. Nos.: (032) 272-3342/48 Tel. Nos.: (053) 255-3651 to 53 Mylen D. Comahig Fax No.: (032) 255-0026 491-8200 Fax No.: (053) 561-8348 Susan Y. Tang Fax No.: (032) 272-3346 Warren Noel M. Del Valle CEBU- CARCAR BRANCH Rosie T. Faytone Dr. Jose Rizal St., Poblacion I CEBU-MANDAUE BRANCH PUERTO PRINCESA CITY BRANCH Carcar, Cebu SV Cabahug Building 155-B SB DUMAGUETE CITY BRANCH Malvar Street near corner Valencia Tel. Nos.: (032)487-8103; 487-8209 Cabahug Street, Brgy. Centro CBC Bldg., Real Street Street, Puerto Princesa City, Palawan 266-7093 Mandaue City, Cebu Dumaguete City, Negros Oriental Tel. Nos.: (048) 434-9891-93 Fax No.: (032) 487-8103 Tel. Nos.: (032) 346-5636/37 Tel. Nos.: (035) 422-8058; 225-5442 Fax No.: (048) 434-9892 Mary Ann C. Rio 346-2083; 344-4335 225-5441; 225-4284 Joselito V. Cadorna 422-8188 225-5460 CEBU- CONSOLACION BRANCH Fax No.: (032) 346-2083 Fax No.: (035) 422-5442 ROXAS CITY BRANCH G/F SM City Consolacion Marissa S. Macaraig Iris Gail C. Pantino 1063 Roxas Ave. cor. Bayot Drive Brgy. Lamac, Consolacion, Cebu Roxas City, Capiz Tel. Nos.: (032) 260-0024; 260-0025 CEBU-MANDAUE-CABANCALAN ILOILO-IZNART BRANCH Tel. Nos.: (036) 621-3203; 621-1780 Fax No.: (032) 423-9253 BRANCH G/F John A. Tan Bldg. 522-5775 Leah Liza L. Lagumbay M.L. Quezon St., Cabancalan Iznart St., Iloilo City Fax No.: (036) 621-3203 Mandaue City, Cebu Tel. Nos.: (033) 337-9477; 509-9868 Anthony V. Arguelles CEBU- ESCARIO BRANCH Tel. Nos.: (032) 421-1364; 505-9908 300-0644 Units 3 & 5 Escario Central Fax No.: (032) 421-1364 Fax No.: (033) 337-9566 SILAY CITY BRANCH Escario Road, Cebu City, Cebu Ruel G. Umbay Marjorie C. Mangilin Rizal St., Silay City, Negros Occidental Tel. Nos.: (032) 416-5860; 520-9229 Tel. Nos.: (034) 714-6400; 495-5452 Fax No.: (032) 520-9229 CEBU- MANDAUE-J CENTRE MALL ILOILO- JARO BRANCH 495-0480 Edgardo A. Olalo BRANCH CBC Building, E. Lopez St. Fax No.: (034) 495-0480 LGF J Centre Mall, A.S Fortuna Ave. Jaro, Iloilo City, Iloilo Rosemarie G. De La Paz Mandaue City, Cebu Tel. Nos.: (033) 320-3738; 320-3791 Tel. Nos.: (032) 520-2898; 421-1567 Fax No.: (033) 503-2955 Fax No.: (032) 520-2898 Joseph C. Chong Mariza O. Lim
164 TACLOBAN CITY BRANCH DAVAO-BAJADA BRANCH DIPOLOG CITY BRANCH ZAMBOANGA CITY BRANCH Uytingkoc Building, Avenida Veteranos Km. 3, J.P. Laurel Ave. CBC Building, Gen Luna corner Gonzales CBC-Building, Gov. Lim Avenue corner Tacloban City, Leyte Bajada, Davao City Streets, Dipolog City Nuñez Street, Zamboanga City Tel. Nos.: (053) 325-7706 to 08 Tel. Nos.: (082) 221-0184; 221-0319 Tel. Nos.: (065) 212-6768 to 69 Tel. Nos.: (062) 991-2978/79 523-7700/7800 Fax No.: (082) 221-0568 908-2008 991-1266 Fax No.: (053) 523-7700 Janice B. Tan Fax No.: (065) 212-6769 Fax No.: (062) 991-1266 Area Office Felina G. Reyes Ma. Jesusa Perpetua F. Recentes Tel. Nos.: 062-955-3710 DAVAO-BUHANGIN BRANCH 062-991-1266 (fax) TAGBILARAN CITY BRANCH Buhangin Road, Davao City GEN. SANTOS CITY BRANCH Jaime G. Asuncion G/F Melrose Bldg. Carlos P. Garcia Tel. Nos.: (082) 300-8335; 227-9764 CBC Bldg., I. Santiago Blvd. Avenue Tagbilaran City, Bohol 221-5970 Gen. Santos City ZAMBOANGA- GUIWAN BRANCH Tel. Nos.: (038) 501-0688; 501-0677 Fax No.: (082) 221-5970 Tel. Nos.: (083) 553-1618; 552-8288 G/F Yang’s Tower, M.C. Lobregat 411-2484 Roberto A. Alag Fax No.: (083) 553-2300 National Highway, Guiwan Fax No.: (038) 501-0677 Helen Grace L. Fernandez Zamboanga City Karen Jean T. Maslog DAVAO-LANANG BRANCH Tel. Nos.: (062) 984-1751; 984-1754 Insular Village I, Km. 8, Lanang ILIGAN CITY BRANCH Fax No.: (062) 984-1751 MINDANAO Davao City Lai Building, Quezon Avenue Extension Alexander B. Lao Tel. Nos.: (082)300-1892; 234-7166 Pala-o, Iligan City BUTUAN CITY BRANCH 234-7165 Tel. Nos.: (063) 221-5477/79; 492-3009 SOON TO OPEN CBC Building J.C. Aquino Avenue Fax No.: (082)300-1892 221-3009 Butuan City Joselito S. Crisostomo Fax No.: (063) 492-3010 ANTIPOLO - SUMULONG HIGHWAY Tel. Nos.: (085) 341-5159; 341-7445 Ronald O. Lua BRANCH (085) 815-3454/55 DAVAO-MATINA BRANCH No. 219 Sumulong Highway 225-2081 Km. 4 McArthur Highway KIDAPAWAN CITY BRANCH Brgy. Mambugan Fax No.: (085) 815-3455 Matina, Davao City G/F EVA Building, Quezon Blvd. Anitpolo City, Rizal Sheelah A. Kho Tel. Nos.: (082) 297-4288; 297-4455 cor. Tomas Claudio Street, National 297-5880/81 Highway Kidapawan City KALOOKAN - 8TH AVE. BRANCH CAGAYAN DE ORO-BORJA BRANCH Fax No.: (082) 297-5880 Tel. Nos.: (064) 278-3509; 278-3510 No. 279 Rizal Avenue cor. 8th Ave. J. R. Borja Street, Cagayan de Oro City Petronila G. Narvaez Fax No.: (064) 278-3509 Grace Park, Kalookan City Tel. Nos.: (08822) 724-832/33 Wilbert R. Baus 726-076; (088) 857-3742 DAVAO-PANABO CITY BRANCH MEYCAUAYAN BRANCH Fax No.: (088) 857-2212 PJ Realty, Barangay New Pandan KORONADAL CITY BRANCH CBC Building (for construction) Janet G. Tan Panabo City, Davao del Norte Gen. Santos Drive corner Aquino St. Malhacan Road, Meycauyan, Bulacan Tel. Nos.: (084)628-4057; 628-4065 Koronadal City, South Cotabato CAGAYAN DE ORO-CARMEN Fax No.: (084)628-4053 Tel. Nos.: (083) 228-7838; 228-7839 OCC. MINDORO - SAN JOSE BRANCH Abigail O. Sintos 520-1788 BRANCH G/F GT Realty Building, Max Suniel St. Fax No.: (083) 228-7839 Liboro cor. Rizal Street corner Yakal St., Carmen DAVAO-RECTO BRANCH Riskie E. Zaragoza San Jose, Occidental Mindoro Cagayan de Oro City CBC Bldg., C.M. Recto Ave. Tel. Nos.: (08822) 723-091; 724-372 cor. J. Rizal St., Davao City MALAYBALAY CITY BRANCH PANGASINAN - BAYAMBANG (088) 858-3902/03 Tel. Nos.: (082) 221-4481/7028 Bethelda Building, Sayre Highway BRANCH Fax No.: (088) 858-3903/ (08822) 6021/6921/4163 Malaybalay City, Bukidnon CBC Building (for construction) 724-372 226-3851; 226-2103 Tel. No.: (088) 813-3372 Poblacion Sur, Bayambang, Pangasinan Cresencio Al C. Co Untian Fax No.: (082) 221-8814 Fax No.: 813-3373 Carlos C. Tan Randolf M. Corrales TANAUAN CITY BRANCH CAGAYAN DE ORO-DIVISORIA J. P. Laurel Highway BRANCH DAVAO-SM LANANG BRANCH OZAMIZ CITY BRANCH Tanauan City, Batangas RN Abejuela St., South Divisoria G/F SM Lanang Premier Gomez corner Burgos Streets Cagayan de Oro City J. P. Laurel Avenue, Davao City Ozamiz City TARLAC-CONCEPCION BRANCH Tel. Nos.: (08822) 722-641 Tel. Nos.: (082) 285-1064; 285 1053 Tel. Nos.: (088) 521-2658 to 60 Descanzo Building, Calle Timbol (088) 857-5759 Fax No.: (082) 285-1520 Fax No.: (088) 521-2659 Concepcion, Tarlac Fax No.: (088) 857-4200 Marieglis O. Pagaduan Ariel F. Ilagan Agnes O. Adviento THE DISTRICT IMUS BRANCH DAVAO-STA. ANA BRANCH PAGADIAN CITY BRANCH G/F The District Imus CAGAYAN DE ORO-LAPASAN R. Magsaysay Avenue corner Marasigan Building Anabu II, Imus, Cavite BRANCH F. Bangoy Street, Sta. Ana District F.S. Pajares Avenue, Pagadian City CBC Building, Claro M. Recto Avenue Davao City Tel. Nos.: (062) 215-2781/82 Lapasan, Cagayan de Oro City Tel. Nos.: (082) 227-9501/51 925-1116 Tel. Nos.: (08822) 722-240; 724-540 227-9601; 221-1054/55 Fax No.: (062) 214-3877 726-242 221-6672 Dennis T. Wong Yat (088) 856-1325/1326 Fax No.: (082) 226-4902 Fax No.: (088) 856-1325/1326 Felipe D. Lim SURIGAO CITY BRANCH 856-5063 (area office) CBC Building, Amat St. James M. Bomediano DAVAO-TAGUM BRANCH Barrio Washington, Surigao City 153 Pioneer Avenue, Tagum Surigao del Norte CDO-GAISANO CITY MALL BRANCH Davao del Norte Tel. Nos.: (086) 826-3958, 826-3968 G/F Gaisano City Mall, C. M. Recto Tel. Nos.: (084) 655-6307/08 Fax No.: (086) 826-3958 corner Corrales Extension 400-2289/90 Domilyn S. Villareal Cagayan de Oro City Fax No.: (084) 400-2289 Tel. Nos.: (08822)745-877; 745-880 Ernesto A. Santiago, Jr. VALENCIA BRANCH (088) 880-1051; 880-1052 A. Mabini Street, Valencia, Bukidnon Fax No.: (08822)745-880 DAVAO-TORIL BRANCH Tel. Nos.: (088) 828-2048/49 Samuel L. Reymundo McArthur Highway corner 222-2356; 222-2417 St. Peter Street Crossing Bayabas Fax No.: (088) 828-2048 COTABATO CITY BRANCH Toril, Davao City Gilmar L. Villaruel No. 76 S.K. Pendatun Avenue Tel. Nos.: (082) 303-3068; 295-2334 Cotabato City Maguindanao 295-2332 Tel. Nos.: (064) 421-4685/4653 Fax No.: (082) 295-2332 Fax No.: (064) 421-4686 Janice S. Laburada Ariel Cesar O. Romero
Annual Report 2013 165 CHINA BANK OFF-BRANCH ATMS
METRO MANILA EASTWOOD CYBERMALL MEDICAL CITY ROBINSONS GALLERIA 2/F Eastwood CyberMall Medical City, Ortigas Avenue L1-181 Robinsons Galleria 168 MALL Eastwood Avenue, Eastwood City Pasig City EDSA cor. Ortigas Ave., Pasig City 3/F Food Court, 168 Mall CyberPark, Bagumbayan, Quezon City Sta. Elena Street, Binondo, Manila METRO POINT MALL ROBINSONS GALLERIA 2 EASTWOOD MALL 3/F, Metro Point Mall L1-181 Robinsons Galleria 999 MALL 2 Level 1 ATM 2 Phase 2 EDSA cor. Taft Ave., Pasay City EDSA cor. Ortigas Ave., Pasig City Basement, 999 Shopping Mall Eastwood Mall, E. Rodriguez Jr. Ave. Bldg. 2, Recto - Soler Sts. C-5 Bagumbayan, Quezon City METROWALK ROBINSONS GALLERIA 3 Binondo, Manila ATM 1 Building C, G/F Metrowalk L1 West Wing, Robinsons Galleria GATEWAY MALL Commercial Complex, Meralco EDSA cor. Ortigas Ave., Pasig City 999 SHOPPING MALL Booth 4, Level 2 Gateway Mall Avenue, Pasig City Basement Lobby, Soler St. Cubao, Quezon City ROBINSONS PLACE - MANILA Brgy. 293, Binondo, Manila MIDAS HOTEL G/F Padre Faura Entrance GLORIETTA 4 previously Hyatt Hotel Robinsons Place Manila, Pedro Gil AEGIS PEOPLE SUPPORT 2 - Glorietta 4, Ayala Center, Makati City 2702 Roxas Blvd., Pasay City cor. Adriatico St., Ermita, Manila MAKATI G/F People Support Center GLORIETTA 5 MRT - BONI ROCKWELL - P1 (CONCOURSE) Ayala Avenue, cor. Sen. Gil Puyat Ave. Ground Floor, Glorietta 5 MRT - Boni Station Stall No. 060, Ground Level Makati City Ayala Center, Makati City EDSA, Mandaluyong City Power Plant Mall, Makati City
ALABANG MALL GREENBELT 3 MRT - CUBAO SAVERS CENTER Alabang Town Center Greenbelt 3, Makati Avenue MRT – Cubao Station Ground Floor, Right Side of Main Alabang - Zapote Road Drop-off Area, Makati City EDSA, Quezon City Entrance, along EDSA near corner Muntinlupa City Taft Avenue, Pasay City GREENHILLS THEATER MALL MRT - NORTH AVE. ALI MALL Main Entrance MRT - North Avenue Station SHOP AND RIDE ATM Booth # 1 Upper G/F Ali Mall Greenhills Theater Mall EDSA, Quezon City #248 Gen. Luis Street, Novaliches P. Tuazon Boulevard, Araneta Center San Juan, Metro Manila Quezon City Quezon City MRT - SHAW JACKMAN EMPORIUM MRT - Shaw Station SHOP AND RIDE 2 ALI MALL 2 Jackman Emporium Department EDSA, Mandaluyong City ATM 2, Gen. Luis St. Lower G/F, Times Square Entrance Store Building (beside LRT Station and Brgy. Nova Proper, Novaliches Ali Mall, P. Tuazon Blvd. Gotesco Grand Central) NORTHEAST SQUARE Quezon City Araneta Center, Quezon City Grace Park, Kalookan City #47 Connecticut St. Northeast Greenhills, San Juan City SHOPWISE - ANTIPOLO ATENEO DE MANILA UNIVERSITY JACKMAN PLAZA - MUÑOZ ML. Quezon Street corner G/F Kostka Hall along EDSA near corner NOVA SQUARE Circumferential Road, San Roque Ateneo De Manila University Congressional Ave. G/F Nova Square, 689 Quirino Highway Antipolo City Katipunan Avenue, Loyola Heights Muñoz, Quezon City cor. P. Dela Cruz Brgy. San Bartolome Quezon City Novaliches, Quezon City SHOPWISE COMMONWEALTH JGC ALABANG Blk. 17, Commonwealth Ave. CALTEX - SLEX 1 JGC PHILS. Building, Prime Street ONE E-COM CENTER Don Antonio, Quezon City South Luzon Expressway - Northbound Madrigal Business Park-Phase III G/F One E-Com Center Brgy. San Antonio, San Pedro, Laguna Ayala Alabang, Muntinlupa City Harbor Drive, SM Mall of Asia Complex SM HYPERMARKET Pasay City Ground Floor, SM Hypermarket CASH & CARRY KIMSTON PLAZA SM Mall of Asia, Pasay City 2nd Floor, Cash and Carry Mall P. Victor St. cor. P. Burgos St. PEOPLE SUPPORT - ROCKWELL Located bet. South Super Highway & Guadalupe, Nuevo, Makati City BUSINESS CENTER SM HYPERMARKET - Filmore near corner Buendia Rockwell Business Center MANDALUYONG Makati City LANDMARK - TRINOMA Ortigas Avenue, Pasig City 121 Shaw Boulevard ATM Slot #4, 3rd floor, Landmark - cor. E. Magalona St., Mandaluyong City CHIANG-KAI-SHEK Trinoma EDSA cor. Mindanao Ave. PEOPLE SUPPORT CENTER Chiang Kai Shek College Extension, Pagasa, Quezon City G/F People Support Center SM MANILA 1274 P. Algue, Manila Ayala Avenue cor. Sen. Gil Puyat Ave. ATM-3 UG/F Main Entrance LANDMARK MAKATI Makati City Arroceros Side, SM City Manila CHINA BANK ONLINE CENTER The Landmark Building Starbucks, China Bank Building Makati Avenue, Ayala Center PUREGOLD - BLUMENTRITT SM MEGAMALL BLDG. B 8745 Paseo de Roxas cor. Villar St. Makati City 286 Blumentritt St., Sta. Cruz Manila Level 2, Building B, SM Megamall Makati City EDSA cor. Julia Vargas St. MALABON CITISQUARE PUREGOLD - E. RODRIGUEZ Mandaluyong City COMEMBO COMMERCIAL Malabon Citisquare C4 Road ATM # 1 - Cosco Building COMPLEX corner Dagat-Dagatan Avenue E. Rodriguez Avenue cor. SM MUNTINLUPA J.P. Rizal Ext. cor. Sampaguita St. Malabon City G. Araneta Ave., Quezon City G/F ATM 2 (beside Rear Entrance) Comembo, Makati City Bgy. Tunasan, National Road MARKET! MARKET! 1 PUREGOLD - LAKEFRONT SM Muntinlupa, Muntinlupa City DASMARIÑAS VILLAGE Market! Market! Bonifacio Global City Presidio Sudvision, Lakefront ASSOCIATION OFFICE Taguig, Metro Manila Muntinlupa City SM TAYTAY 1417 Campanilla Street 2nd Floor Bldg. A, SM City Taytay Dasmariñas Village, Makati City MARKET! MARKET! 2 PUREGOLD - PASO DE BLAS Manila East Road, Brgy. Dolores 2/F, Market! Market! cor. Gen. Luis St., Malinta Exit. Taytay, Rizal EASTWOOD CITY WALK 2 Bonifacio Global City Valenzuela City G/F ATM 1 (Fronting Adidas) Taguig, Metro Manila SOLAIRE RESORT & CASINO Eastwood City Walk Phase 2 PUREGOLD JR. - PANDACAN Entertainment City, Aseana Avenue Eastwood City Cyberpark MARKET! MARKET! 3 West J. Zamora St. Parañaque City 188 E. Rodriguez Jr. Ave. (C-5 Road) G/F ATM Center in Fiesta Market Brgy. 851 Zone 093 Pandacan, Manila Bagumbayan, Quezon City Market! Market! Bonifacio Global City SOUTHGATE MALL Taguig, Metro Manila Southgate Mall, EDSA cor. Pasong Tamo Extension Makati City
166 ST. FRANCIS SQUARE WACK - WACK GOLF AND CDO MEDICAL CENTER JENRA MALL Basement 1, Doña Julia Vargas Avenue COUNTRY CLUB CDO Medical Center Building Jenra Grand Mall, Angeles City corner Bank Drive, Ortigas Center Main Lobby Club house, Wack - Wack 2 Tiano cor. Nacalaban St. Pampanga Mandaluyong City Golf and Country Club, Shaw Blvd. Cagayan de Oro City Mandaluyong City JOLLIBEE MABALACAT ST. JUDE COLLEGE CEBU DOCTORS’ HOSPITAL McArthur Highway Dimasalang St. cor Don Quijote St. WALTERMART - NORTH EDSA Cebu Doctors’ Hospital Mabalacat, Pampanga Sampaloc, Manila Waltermart Bldg., EDSA, Quezon City Osmeña Blvd., Cebu City KCC MALL - GENSAN ST. LUKE’S - QUEZON CITY WALTERMART - MAKATI CEBU DOCTORS’ UNIVERSITY G/F KCC Mall - GenSan J. Catolico Sr. St. Luke’s Medical Center G/F Waltermart Makati #1 Potenciano Larrazabal Ave. Avenue, General Santos City Medical Arts Building, E. Rodriguez Sr. (near Mercury Drug) 790 Chino Roces North Reclamation Area, Mandaue City South Cotabato Boulevard, Quezon City Avenue cor. Antonio Arnaiz, Makati City CENTRIO MALL KMSCI ST. LUKE’S - THE FORT WALTERMART - SUCAT G/F CM Recto cor. Corrales St. Kidapawan Medical Specialist Center Basement, St. Lukes Medical Center Brgy. San Isidro, Dr. A. Santos Avenue Cagayan De Oro Inc., Sudapin, Kidapawan City 5th Ave., The Fort, Taguig City Sucat, Parañaque City CORPUS CHRISTI LA NUEVA MINGLANILLA STI - DELOS SANTOS ZABARTE TOWN CENTER Corpus Christi School La Nueva Supermarket MEDICAL CENTER 588 Camarin Road, corner Zabarte Tomas Saco Street, Macasandig Poblacion, Minglanilla, Cebu 201 E. Rodriguez Sr. Blvd. Road, North Caloocan City Cagayan de Oro City Brgy. Damayang Lagi, Quezon City LA NUEVA SUPERMART PROVINCIAL DAVAO ADVENTIST HOSPITAL La Nueva Supermart, Inc. TAFT - U.N. KM 7, McArthur Highway G.Y. Dela Serna Street, Lapu-lapu G/F Times Plaza 2 MANGO AVENUE Bangkal, Davao City Cebu City T.M. Kalaw cor. Gen. Luna St., Manila 2 Mango Avenue, Solara Building General Maxilom Avenue, Cebu City DIPOLOG CENTER MALL LAPU-LAPU CITY TARGET MALL 1 Dipolog Center Mall Gaisano Mactan Mall G/F near Star Search Sta. Rosa 268 MALL 138 Rizal Avenue, Dipolog City Pusok, Lapu-Lapu City, Cebu Commercial Complex, Brgy. Balibago 268 Mall CK Building Sta. Rosa, Laguna Plaridel Extension, Sto. Rosario DIVINE WORD COLLEGE OF VIGAN LB SUPERMARKET - ZAMBOANGA Angeles City Burgos St., Vigan City, Ilocos Sur Veteran’s Avenue Extension THE A VENUE Zamboanga City G/F Valdez Site, The A Venue ABREEZA MALL DLSU - DASMARIÑAS 7829 Makati Avenue, Makati City J.P. Laurel Avenue, Bajada, Davao City College of Engineering, De La Salle LCC SUPERMARKET University, Dasmariñas, Cavite Peñaranda corner Rizal St. THE FORT ADVENTIST UNIVERSITY Legaspi City 1st Floor Bonifacio Technology Center OF THE PHILIPPINES DLSU - HEALTH SCIENCE 31st Street cor. 2nd Avenue Adventist University of the Philippines CAMPUS LEE HYPERMARKET Bonifacio Global City, Taguig City Puting Kahoy Silang De La Salle University Health Campus, G/F Lee Hypermarket Valencia Road Sta. Rosa, Cavite City Inc., Congressional Road, Dasmariñas Bagacay, Dumaguete City TIENDESITAS Cavite Negros Oriental Frontera Verde Ortigas Avenue AEGIS PEOPLE SUPPORT - BAGUIO cor. C-5, Pasig City SM Fiesta Strip, Harrison Road ECCO BUILDING LEE SUPER PLAZA Baguio City G/F beside Unit A, Fil-Am Friendship G/F Lee Super Plaza, M. Perdices TRINOMA OFF 1 Highway, Brgy. Anunas, Angeles City cor. San Jose St., Dumaguete City Level 1 (near Landmark and Chowking) AG&P North Ave., cor. Edsa Quezon City Atlantic, Gulf and Pacific Company of EMBARCADERO DE LEGAZPI LIM KET KAI MALL Manila, Inc., San Roque Ground Level, Victory Village M4-193B Lim Ket Kai Mall TRINOMA OFF 2 Bauan, Batangas Legazpi City Cagayan de Oro City Level 1 Near X Boutique North Avenue, cor. EDSA, Quezon City ALWANA BUSINESS PARK GAISANO MALL - BAJADA DAVAO LOPUE’S EAST CENTER National Highway, Barangay Cugman Gaisano Mall of Davao, J.P. Laurel Lopue’s East Centre, Burgos St. TWO SHOPPING CENTER Cagayan De Oro City Avenue Bajada, Davao City corner Carlos Hilado National Highway Two Shopping Center Bacolod City Pasay Taft Avenue near cor. EDSA ANGELES UNIVERSITY GAISANO MALL - BULUA Pasay City FOUNDATION MEDICAL CENTER Bulua Street, Cagayan De Oro City LORMA HOSPITAL Basement, Angeles University Lorma Hospital City of San Fernando UPM - PGH Foundation Medical Center GAISANO MALL - CAGAYAN DE ORO La Union Faculty Medical Arts Building McArthur Highway, Angeles Unit # 3 2/L Atrium Gaisano Mall PGH Compound, Taft Avenue, Manila Pampanga Corrales Extension cor. CM Recto Ave. LOTUS CENTRAL MALL Cagayan de Oro City G/F Lotus Central Mall UST - DOCTOR’S CLINIC ARAULLO UNIVERSITY Nueno Avenue, Imus, Cavite UST Hospital, Vestibule and Maharlika Highway GAISANO MALL - ILIGAN New Doctor’s Clinic, España, Manila Bitas, Cabanatuan City G/F Gaisano Citi Super Mall, Iligan City MACTAN MARINA MALL Ground Floor, Mactan Marina Mall UST HOSPITAL ATENEO DE DAVAO UNIVERSITY GAISANO MALL - TALISAY MEPZ1, Lapu-lapu City University of Sto. Tomas Hospital Near Main Entrance Along Roxas G/F Gaisano Fiesta Mall España, Manila Avenue Davao City Tabunok Talisay, Cebu City MAGIC MALL G/F cor. ITTI Shoes (Entrance B) VICTORY CENTRAL MALL BUDGET WISE SUPERMARKET GALERIA VICTORIA Magic Mall, Alexander St., Poblacion G/F, ATM 2 Below Escalator Veterans Avenue, Zamboanga City Balanga, Bataan Urdaneta City, Pangasinan 717 Old Victory Compound Rizal Ave., Monumento, Caloocan City CAMAYAN BEACH RESORT & HOTEL GOOD SAMARITAN HOSPITAL MAGIC STARMALL Camayan Wharf, West Ilanin Forest Good Samaritan Compound Upper G/F, Magic Star Mall VICTORY PASAY MALL Area, Subic Bay Freeport Zone Burgos Avenue, Cabanatuan City Romulo Boulevard, Barangay Cut-Cut1 Taft Avenue corner Libertad Street Tarlac City Pasay City CB MALL URDANETA HOLY ANGEL UNIVERSITY 2 Mc Arthur Highway, Nancayasan G/F Holy Angel University Student’s Urdaneta City, Pangasinan Center, Sto. Rosario St., Angeles City Pampanga
Annual Report 2013 167 CHINA BANK OFF-BRANCH ATMS
MALOLOS-OFF BRANCH PAVILION MALL SM CITY BATANGAS STA. ROSA HOSPITAL G/F Graceland Mall, BSU Grounds G/F Building A, Pavilion Mall ATM-1 SM City Batangas RSBS Blvd., Balibago McArthur Highway, Malolos City Km. 35, Brgy. San Antonio Pallocan West, Batangas City City of Sta. Rosa, Laguna Bulacan Biñan, Laguna SM CITY CAGAYAN DE ORO SUN MALL MARIA REYNA HOSPITAL PEOPLE SUPPORT - CEBU ATM Center (2), Main Entrance Welcome Rotonda, Manila Beside Hospital Entrance/Exit. Aegis Tower I, Villa Street SM City, Cagayan de Oro Maria Reyna Hospital, T.J. Hayes St. Asia Town IT Park, Apas, Cebu City TARGET MALL 2 Cagayan De Oro City SM CITY CALAMBA ATM-04, Canopy Area Sta. Rosa PORTA VAGA Ground Floor, National Road Commercial Complex, Brgy. Balibago MARITON GROCERY along Session Road, Baguio City Brgy. Real, Calamba City, Laguna Sta. Rosa, Laguna Mariton Grocery, Buntun Tuguegarao City, Cagayan Valley PRINCE MALL - BAYBAY SM CITY CALAMBA 2 THE DISTRICT MALL - IMUS Andres Bonifacio & Second Floor, National Road Aguinaldo Hi-way cor. Daang Hari Road MARKET CITY Manuel L. Quezon St., Baybay, Leyte Brgy. Real, Calamba City, Laguna Brgy. Anabu II-D, Imus, Cavite Market City Building, Bus Terminal Agora, Cagayan De Oro PUREGOLD - ARAYAT SM CITY CALAMBA 3 UNION CHRISTIAN COLLEGE Arayat, Pampanga Near Main Entrance, National Road Widdoes Street Brgy. II MARQUEE MALL 1 Brgy. Real, Calamba City, Laguna San Fernando, La Union City G/F Activity Center Marquee Mall PUREGOLD - DAU Don Bonifacio Road, Angeles City Lot 9 Blk 19, McArthur Highway SM CITY CLARK OFF-BRANCH UNIVERSITY OF BOHOL Pampanga Dau, Mabalacat, Pampanga ATM # 1 SM City Clark (Fronting University of Bohol Transport Terminal) M. Roxas Street along M. Clara St., Tagbilaran City MINDANAO SANITARIUM PURISIMO L. TIAM COLLEGE CSEZ, Angeles City, Pampanga AND HOSPITAL PLT Building, Dumlao Blvd. UNIVERSITY OF SAN CARLOS Mindanao Sanitarium and Hospital Bayombong, Nueva Vizcaya SM CITY DASMARIÑAS University of San Carlos Tibanga Highway, Iligan City Offsite ATM 2 Main University Building ROBINSONS CALASIAO SM City, Dasmariñas, Cavite City P. del Rosario Street, Cebu City MJS HOSPITAL San Miguel, Calasiao, Pangasinan Montilla Boulevard, Butuan City SM CITY DASMARIÑAS 2 UST HOSPITAL 3 ROBINSONS GENSAN SM City Dasmariñas Ground Floor G/F UST Hospital Clinic Division NEPO MALL ANGELES G/F near Foodcourt, Robinsons Gensan near Gen. E. Aguinaldo Highway A.H. Lacson Avenue, Sampaloc, Manila Nepo Mall Angeles, Doña Teresa Ave. Jose Catolico Sr. Ave., Lagao entrance, SM Dasmariñas - cor. St. Joseph Street, Nepo Mart General Santos City Governor’s Drive, Brgy. Sampalok WALTERMART - CALAMBA Complex. Angeles City Dasmariñas, Cavite G/F Waltermart Calamba Real St. ROBINSONS PLACE - TACLOBAN Brgy. Real, Calamba City, Laguna NEPO MALL DAGUPAN G/F National Highway, Tabaon SM CITY GENERAL SANTOS G/F Nepo Mall Dagupan Marasbaras, Tacloban City SM City General Santos, cor. Santiago WALTERMART - DASMARIÑAS Arellano St., Dagupan City Blvd. and San Miguel St., Brgy. Lagao G/F Barrio Burol, Aguinaldo Highway ROYAL DUTY FREE General Santos City, South Cotabato Dasmariñas, Cavite NOTRE DAME DE CHARTRES Subic Bay Freeport Zone, Zambales HOSPITAL SM CITY LIPA OFF-BRANCH WALTERMART - CARMONA Notre Dame De Chartres Hospital SAMULCO ATM 2 (near Transport Terminal) Ground Floor, Waltermart Center - No. 25 Gen. Luna Road, Baguio City Sta. Ana Multi-Purpose Cooperative SM City Lipa, Ayala Highway, Lipa City Carmona, Macaria Business Center Building 1 Monteverde St., Davao City Governor’s Drive, Mabuhay NUEVA ECIJA DOCTORS HOSPITAL SM CITY TARLAC Carmona, Cavite Maharlika Highway SAN FERNANDINO HOSPITAL G/F SM City Tarlac, McArthur Highway Cabanatuan City along McArthur Highway, Dolores San Roque, Tarlac City WALTERMART - GEN. TRIAS City of San Fernando, Pampanga Governor’s Drive, Gen. Trias, Cavite ORCHARD GOLF AND SM DAVAO COUNTRY CLUB SAVEWISE POZORRUBIO ATM Center (1), SM City Davao WALTERMART - SAN FERNANDO Gate 2 The Orchard Golf and Pozorrubio, Pangasinan Quimpo Boulevard, Ecoland Brgy. San Agustin, Mc Arthur Highway Country Club Inc., Aguinaldo Highway Subdivision, Barangay Matina San Fernando, Pampanga Dasmariñas, Cavite SHOPWISE - CEBU Davao City N. Bacalso Ave., Basak WALTERMART - STA. ROSA 1 OSPA - FMC San Nicolas, Cebu City SM LANANG OFF-BRANCH Upper G/F Waltermart Center - Carlota Hills, Brgy. Can - Adieng UGF SM Lanang Premier Sta. Rosa, National Highway Mall Ormoc City, Leyte SHOPWISE - SAN PEDRO J.P. Laurel Avenue, Davao City Entrance, San Lorenzo Village Along National Highway Balibago Road, Sta. Rosa, Laguna OUR LADY OF THE PILLAR Brgy. Landayan, Pacita, San Pedro SM MARILAO OFFSITE G/F near Emergency Room ATM-1 SM City Marilao WALTERMART - STA. ROSA 2 Tamsui Avenue, Bayan Luma SKYRISE REALTY Marilao, Bulacan Upper G/F Waltermart Center - Imus, Cavite Skyrise Realty Development Sta. Rosa, in between Goldilocks and Corporation, Lobby G/F Skyrise SM MARKET MALL Mall Exit, San Lorenzo Village PACIFIC MALL IT Building, Gorordo Avenue ATM 3, SM Market Mall Dasmariñas Balibago Road, Sta. Rosa, Laguna Landco Business Park cor. N. Escario St., Cebu City Congressional Ave., Dasmariñas F. Imperial St. cor. Circumferential Road Bagong Bayan, Dasmariñas, Cavite WALTERMART - TANAUAN Legaspi City SM BAGUIO J.P. Laurel National Highway SM Baguio Luneta Hill, Upper Session SM SUPERCENTER MOLINO Brgy. Darasa, Tanauan, Batangas PACIFIC MALL 2 Road cor. Governor Park Road G/F SM Supercenter Molino Pacific Mall Building Baguio City, Benguet SCMC, Brgy. Molino 4, Molino Road WESLEYAN UNIVERSITY Landco Business Park Bacoor, Cavite Wesleyan University of the Philippines F. Imperial St., Legazpi City SM CITY BACOLOD Mabini Extension, Cabanatuan City G/F Building A, ATM # 3 SOCSARGEN COUNTY HOSPITAL PANGASINAN MEDICAL CENTER SM City Bacolod Reclamation Area Socsargen County Hospital XAVIER UNIVERSITY Nable Street, Dagupan City Bacolod City Bula-Iagao Road cor. L. Arradaza St. G/F Library Annex, Xavier University General Santos City Corrales Ave., Cagayan De Oro City SM CITY BALIWAG 1/F near Hypermarket SM City SOUTHWAY MALL YUBENGCO STARMALL Baliwag, DRT Highway, Brgy. Pagala Southway Square Mall MCLL Highway, Putik, Zamboanga City Baliwag, Bulacan cor. Gov. Lim Purisima and Magno Sts., Zamboanga City 168 CHINA BANK BUSINESS CENTERS
CONSUMER BANKING CENTERS
CBG BACOLOD CENTER CBG CAGAYAN DE ORO CENTER CBG DAVAO CENTER China Bank - Bacolod Araneta Branch China Bank - Cagayan de Oro-Lapasan Branch China Bank - Davao Main Branch CBC Bldg., Araneta corner 2/F CBC Bldg., C.M. Recto Avenue 2/F CBC Bldg., C.M. Recto San Sebastian Streets, Bacolod City Lapasan, Cagayan de Oro corner J. Rizal Streets, Davao City Tel. No. (034) 433-0647 Tel. No. (08822) 72-81-95 Tel. Nos. (082) 226-2103/ (082) 221-4163 Fax No. (034) 433-0250 Fax No. (088) 856-2409 (082) 222-5761 Email: [email protected] Email: [email protected] Fax No. (082) 222-5021 Center head: Jasmin Mae de Las Alas Center head: Evelyn E. Dalaguit Email: [email protected] Center head: Renato C. Sanchez II CBG BATANGAS CENTER CBG CEBU CENTER China Bank - Batangas City Branch China Bank - Cebu Banilad Branch CBG ILOILO CENTER 2/F CBC Bldg., P. Burgos Street, Batangas City 2/F CBC Bldg., A.S. Fortuna Street China Bank - Iloilo-Rizal Branch Tel. No. (043) 723-7127; (02) 520-6161 Banilad, Cebu City 2/F CBC Bldg., Rizal corner Gomez Streets Fax No. (02) 520-6161 Tel. Nos. (032) 416-1606; (032) 346-4448 Brgy. Ortiz, Iloilo City Email: [email protected] Fax No. (032) 346-4450 Tel. No. (033) 336-7918 / (033) 503-2845 Center head: Evelyn G. Ricardo Email: [email protected] Fax No. (033) 336-7909 Center head: James Frances V. Paraon Email: [email protected] CBG CABANATUAN CENTER Center head: Marvin D. Celajes China Bank – Cabanatuan, Maharlika Branch CBG DAGUPAN CENTER 2/F CBC Bldg., Brgy. Dicarma, Maharlika Highway China Bank - Dagupan - Perez Branch CBG PAMPANGA CENTER Cabanatuan City 3100, Nueva Ecija Siapno Bldg., Perez Boulevard China Bank - San Fernando Branch Tel. No. (044) 463-1063 / 600-1575 Dagupan City 2/F CBC Bldg., V. Tiomico Street, Sto. Rosario Fax No. (044) 464-0099 Tel. No. (075) 522-8471 Poblacion, City of San Fernando, Pampanga Email: [email protected] Fax No. (075) 522-8472 Tel. Nos. (045) 961-5344; (045) 961-0467 Center head: Anthony C. Vilar Email: [email protected] (045) 961-8351 Center head: Alvin M. Calalo Fax No. (045) 961-8351 Email: [email protected] Center head: Verna G. Guintu
PRIVATE BANKING GROUP MAKATI
15/F China Bank Building, 8745 Paseo de Roxas Therese G. Escolin Karen W. Tua corner Villar Street, Makati City, Philippines (632) 885-5693 (632) 885-5643 [email protected] [email protected] Angela D. Cruz (632) 885-5641 Grace C. Santos Yvette O. Chua [email protected] (632) 885-5697 (632) 885-5691 [email protected] [email protected] Cesare Edwin M. Garcia (632) 812-5320 Eric Von D. Baviera Hazel Marianne Antolin-Rosero [email protected] (632) 885-5688 (632) 885-5644 [email protected] [email protected]
PRIVATE BANKING OFFSITE OFFICES
GREENHILLS OFFICE Sheryl Ann C. Hokia CEBU OFFICE 14 Ortigas Avenue, Greenhills (632) 352-3789 / [email protected] CBC Building, Samar Loop cor. Panay Road San Juan, Metro Manila Cebu Business Park, Cebu City QUEZON CITY OFFICE Ma. Victoria G. Pantaleon 82 West Avenue, Quezon City Eleanor D. Rosales (632) 7277884 / [email protected] (6332) 415-5881 / (6332) 238-0017 Jaydee Cheng-Tan [email protected] Glynn Hazel C. Yap (632) 426-6980 / [email protected] (632) 727-7645 / [email protected] Claire Lorraine L. Co Christopher U. Liao (6332) 238-0017 / [email protected] Dianne Mae A. Cardenas (632) 441-4685 / [email protected] (632) 724-0413 / [email protected] DAVAO OFFICE ALABANG OFFICE Km. 4 McArthur Highway, Matina, Davao City BINONDO OFFICE G/F CBC Building, Acacia Ave. 6/F ChinaBank, Dasmariñas corner Juan Luna Madrigal Business Park, Ayala Alabang Mc Queen Benigno-Jamora Binondo, Manila Muntinlupa City (6382) 297-6268 / [email protected]
Irene C. Tanlimco Sheila V. Sarmenta-Dayao DAGUPAN OFFICE (632) 241-1452 / [email protected] (632) 659-2463 Carried Realty Bldg., No. 28 M. H. Del Pilar St. [email protected] Dagupan City Genelin U. Yu (632) 247-8341 / [email protected] SAN FERNANDO OFFICE Cherry Ann V. Heath 2/F V. Tiomico St., San Fernando City, Pampanga (075) 529-2712 / c KALOOKAN OFFICE [email protected] 167 Rizal Avenue Extension, Caloocan City Ma. Cristina D. Puno (6345) 961-0486 / [email protected] Jennifer Y. Macariola (632) 366-8669 / [email protected]
Annual Report 2013 169 SUBSIDIARIES AND AFFILIATES
VGP Center, 6772 Ayala Avenue Makati City 1226, Philippines Tel. No.: (632) 988-9555 www.cbs.com.ph China Bank Savings, Inc. (CBS) began operations on September 8, 2008, following China Bank’s acquisition of Manila Bank in late 2007. China Bank owns 95.25% of the total outstanding capital stock of CBS. In 2012, China Bank acquired Pampanga-based Unity Bank, A Rural Bank, Inc. (Unity Bank), and on January 20, 2014, Unity Bank was merged with CBS, with CBS as the surviving bank. CBS now has a bigger and stronger banking franchise to serve the banking needs of retail customers and small- to medium-scale businesses. It aims to operate and grow as a profitable community-oriented institution, focusing on three product lines: deposits, consumer loans, and trust services.
BOARD OF DIRECTORS
CHAIRMAN DIRECTORS INDEPENDENT DIRECTORS CORPORATE SECRETARY Ricardo R. Chua Ramon R. Zamora Alberto S. Yao Edgar D. Dumlao Antonio S. Espedido, Jr. Roberto F. Kuan VICE CHAIRMAN Rene J. Sarmiento Margarita L. San Juan ASSISTANT CORPORATE Nancy D. Yang Alberto Emilio V. Ramos SECRETARY Alexander C. Escucha Bea Carla C. Redoblado Rosemarie C. Gan
BOARD-LEVEL COMMITTEES
EXECUTIVE COMMITTEE RISK MANAGEMENT COMMITTEE AUDIT COMMITTEE Chairman Ricardo R. Chua Roberto F. Kuan Roberto F. Kuan Vice Chairman Nancy D. Yang Members Alberto Emilio V. Ramos Margarita L. San Juan Margarita L. San Juan Rosemarie C. Gan Nancy D. Yang Alberto S. Yao Margarita L. San Juan Ramon R. Zamora Alexander C. Escucha
CORPORATE GOVERNANCE COMPENSATION/ COMMITTEE / NOMINATION AND TRUST COMMITTEE REMUNERATION COMMITTEE PERSONNEL COMMITTEE Chairman Alberto S. Yao Antonio S. Espedido, Jr. Ricardo R. Chua Members Ricardo R. Chua Alexander C. Escucha Alberto Emilio V. Ramos Roberto F. Kuan Anna Maria P. Ylagan Maria Rosanna L. Testa Antonio S. Espedido, Jr. Alberto Emilio V. Ramos Alexander C. Escucha Ramon R. Zamora
MANAGEMENT-LEVEL COMMITTEES
MANAGEMENT COMMITTEE IT STEERING COMMITTEE CREDIT COMMITTEE Chairman Alberto Emilio V. Ramos Alberto Emilio V. Ramos Alberto Emilio V. Ramos Vice Chairman Jaime Valentin L. Araneta Jaime Valentin L. Araneta Jaime Valentin L. Araneta Members Emmanuel C. Geronimo Emmanuel C. Geronimo Jezreel R. Pimentel James Christian T. Dee Edralin G. Agbayani Edralin G. Agbayani Ma. Edralin G. Agbayani Rosalinda T. Munsayac Ma. Consuelo S. Ruffy** Anna Maria P. Ylagan Ma. Consuelo S. Ruffy Jan Nikolai M. Lim** Ma. Consuelo S. Ruffy Jan Nikolai M. Lim Jose Ramon O. Santamaria** Jan Nikolai M. Lim Jose Ramon O. Santamaria Consolacion R. Saur* Jose Ramon O. Santamaria Non-Voting Members Rosalinda T. Munsayac Maria Consuelo A. Babas Restituto B. Bayudan Consolacion R. Saur* Consolacion R. Saur*
* Adviser Consultant ** Participation limited to their speci c business area only
170 ASSET LIABILITY MANAGEMENT ANTI-MONEY LAUNDERING RETIREMENT COMMITTEE COMMITTEE COMMITTEE Chairman Alberto Emilio V. Ramos Rex P. Bautista Vice Chairman Jaime Valentin L. Araneta Members Emmanuel C. Geronimo Ricardo R. Chua Jaime Valentin L. Araneta Ma. Consuelo S. Ruffy Alberto Emilio V. Ramos Edgar D. Dumlao Jan Nikolai M. Lim Antonio S. Espedido, Jr. Rosalinda T. Munsayac Jose Ramon O. Santamaria James Christian T. Dee Edralin G. Agbayani Consolacion R. Saur* * Adviser Consultant
OFFICERS
PRESIDENT SENIOR ASSISTANT Reynaldo A. Dones MANAGERS VICE PRESIDENT Project Manager Alberto Emilio V. Ramos ** Information Technology Arnold A. Alcala James Christian T. Dee ** Head, Branch Support Services Treasurer Grace Z. Floresca EXECUTIVE VICE PRESIDENT Head, Credit Policy and Meynard Jowell F. Bitas Supervision Head, Business Process Jaime Valentin L. Araneta ASSISTANT VICE PRESIDENTS Management Julio Joel C. Garcia Maria Consuelo A. Babas Head, Branch Network Claro M. Eustaquio FIRST VICE PRESIDENTS Head, Marketing Development Division Head, Credit Intelligence Analytics Jan Nikolai M. Lim Restituto B. Bayudan ** Irene S. Mariano Head, Real Estate and Personal Head, Information Teachnology Head, Human Resources Cecilia H. Katipunan Loans Department Head, Personal Loans Credit Kristine Michele M. Chavez Evaluation Jose Ramon O. Santamaria Real Estate Loans Enrico Luis D. Rojas Head, Auto Loans Account Of cer Gil D. Nolada Marilou M. De Guzman Personal Loans Head, Financial Planning and Head, Alternative Channels Tax Management VICE PRESIDENTS Raymond Martin C. Rosas Emmanuelito M. Gomez Account Of cer Oscar L. Samonte Edralin G. Agbayani Unit Head, Acquired Assets Commercial/SME Loans Head, Appraisal Head, Credit & Collections Management Melecio C. Labalan, Jr.** Michael V. Sabandal Jose G. Ramos, Jr.** Chief Security Of cer Account Of cer Head, Administrative Services Edgar D. Dumlao Real Estate Loans Department Corporate Secretary and Jezreel R. Pimentel Head, Legal Department Head, Credit Services Jimmy John C. Santos Cecilia R. Villaluz Head, Branch Sales Division Head, Head Of ce Audit Emmanuel C. Geronimo Winifredo G. Solis Head, Controllership Group Head, Business Intelligence Jacqueline T. Tomacruz ** Head, Customer Service Rosalinda T. Munsayac Division Head, Operations Group SENIOR MANAGERS
Maria Consuelo S. Ruffy Raymond C. Apo DEPUTY SENIOR MANAGERS Head, Commercial /SME Loans Head, Risk Management Unit Jinkee C. Rejuso Maria Rosanna L. Testa ** Rolando Rohel R. Briones Head, Loans Operations Head, Human Resources Group Account Of cer Commercial/SME Loans Rosalie S. Salaysay Anna Maria P. Ylagan Head, Auto Credit Evaluation Trust Banking Group Roberto A. Domingo, Jr. Project Manager Moises Germel S. Santos, Jr. ** with interlocking of cership with Information Technology Head, Branch Operations China Banking Corporation
Annual Report 2013 171 NOTESSUBSIDIARIES TO FINANCIAL AND AFFILIATES STATEMENTS
BRANCHES
METRO MANILA SAVEMORE JACKMAN ORTIGAS BACOOR Lower G/F, Jackman Plaza Ground floor, Hanston Square FRC Mall, Gen. Evangelista St. ALABANG HILLS Edsa-Muñoz, Quezon City San Miguel Avenue Talaba V, Bacoor, Cavite G/F Alabang Commercial Citi Arcade Jeanette Michelle M. Belino Ortigas Center, Pasig City Tel. Nos.: (046) 417-4504 Don Jesus Blvd., Alabang Tel. Nos.: 654-1912; 477-3439 Local 4842, 4843 Muntinlupa City J.P. RIZAL Domingo V. Ortiz Telefax: (046) 417-4710 Tel. No.: 403- 2801 882 J.P Rizal St. May G. Tan Telefax: 828-4854 Poblacion, Makati City PASIG-PADRE BURGOS BAGUIO Quennie V. Umil Tel. Nos.: 890-1027; 89010-26 114 Padre Burgos St. Upper G/F KDC Building Amapola A. Guina Kapasigan, Pasig City 91 Marcos Highway, Baguio City SAVEMORE AMANG RODRIGUEZ Tel. Nos.: 650-3362; 650-3356 Tel. Nos.: (074) 442-1245 Amang Rodriguez Ave. corner JUAN LUNA 650-3361 Local 4816-17 Evangelista St., Brgy. Santolan 694-696 Juan Luna Street Telefax: 650-3354 Telefax: (074) 424-6415 Pasig City Binondo, Manila Rolando B. Ordoño Demetrio D. Madayag, Jr. Tel. Nos.: 964-1323; 654-4710 Tel. No.: 964-1327; 254-0371 Shane Michelle G. Gueco Erlinda C. Sia PATEROS BALANGA 500 Elisco Rd. Capitol Drive, Balanga City SAVEMORE ANONAS KALOOKAN Sto. Rosario, Pateros City Bataan Maamo St. Road Lot 30, V. Luna St. Augusto Bldg., Rizal Ave. Tel. Nos.: 738-3529; 641-8537 Tel. No.: (047) 237-3828 corner Anonas extension Grace Park, Kalookan City Telefax: 641-9556 Susan Limson Songco Sikatuna Village, Quezon City Tel. No.: 365-7593 Ma. Aurora C. Eugeni Vishia Prima B. Baoayan Telefax: 363-2752 BATANGAS CITY Ronaldo M. Centeno SAVEMORE PEDRO GIL Miriel’s Place, National Road SAVEMORE ARANETA CENTER COD Pedro Gil cor Singalong Sts. Pallocan West, Batangas City Gen. Romulo St., Araneta Center LAS PIÑAS Manila Tel. Nos.: (043) 980-0544 Cubao, Quezon City G/F Parco Supermarket Tel. Nos.: 521-4056; 354-3117 Local 4846 Tel. Nos.: 921-3147; 921-3149 J. Aguilar Ave., Pulang Lupa Dos Kathleen D. Fabro Telefax: (043) 980-0545 Alejandro Tanawag, Jr. Las Piñas City Edwin R. Guevara Tel. Nos.: 548-0368; 474-6842 QUEZON AVENUE SAVEMORE AVENIDA Telefax: 548-0367 G/F GJ Bldg., 385 Quezon Ave. CABANATUAN 665 Rizal Avenue, Jennet and Geraldine R. Diwa Quezon City Km. 115 Cagayan Valley Rd. Lord Theater, Sta. Cruz, Manila Tel. Nos.: 332-2638; 966-7493 Maharlika Highway near corner Tel. Nos.: 734-0534; 734-0543 LAS PIÑAS - ALMANZA UNO Telefax: 332-2639 Sanciangco St., Cabanatuan City Michael N. Calderon Aurora Center, Alabang Zapote Road Michelle Marie S. Fornesa Tel. Nos.: (044) 940-6942 Almanza Uno, Las Piñas City (044) 940-6944 AYALA Tel. Nos.: 966-9001; 551-4724 SAVEMORE TAFT-MASAGANA Local 4800 6772 Ayala Avenue Telefax: 551-4051 Parkview Plaza, Trida bldg. Telefax: (044) 940-6943 Makati City Eleanor B. Montemayor Taft Avenue corner T.M. Kalaw St. Ma. Theresa R. Padiernos Tel. Nos.: 864-5011, 864-5017 Ermita, Manila Local 8100 to 8104 MARIKINA Tel. Nos.: 554-0617;554-0697 CALAMBA Lani D. Larion 33 Bayan-Bayanan Ave. Abigail D. R. Manahan HK Bldg II, National Highway Bgy. Concepcion 1, Marikina City Brgy. Halang, Calamba, Laguna BF HOMES Tel. Nos.: 934-6037; 477-2445 SAVEMORE TAGUIG-ACACIA Tel. No.: (049) 306-0238 284 Aguirre Avenue Telefax: 477-2443 ESTATES Telefax: (049) 306-0234 B.F Homes, Parañaque Bernard M. San Jose Acacia Town Center Eva R. Limbo Tel. Nos.: 964-1292 Acacia Estates, Barangay Ususan 553-5412; 553-5414 MCKINLEY HILL (THE FORT) Taguig City DAGUPAN Maria Dolores S. Regala GF Unit-B Commerce & Industry Plaza Tel. No.: 964-1318 G/F Lyceum-Northwestern University (CIP), 1030 Campos Ave. corner January Anne C. Tapeño Tapuac District, Dagupan City CHINO ROCES Park Ave., McKinley Towncenter Tel. Nos.: (075) 523-3637 2176 Chino Roces Avenue Fort Bonifacio, Taguig City VALENZUELA (075) 515-8278 Makati City Tel. Nos.: 798-0357; 403-0425 385 McArthur Highway Telefax: (075) 523-2568 Tel. Nos.: 831-0477; 964-1322 Telefax: 403-9413 Malinta, Valenzuela City Gingin T. Aquino Cristina B. Sanchez Oleeve R. Lim Tel. Nos.: 709-4641; 709-4642 Telefax: 709-4644 DARAGA FILINVEST CORPORATE CITY SAVEMORE NEPA-Q-MART Jobel B. Araña Rizal St., Brgy. San Roque BC Group Bldg., East Asia Drive near G/F & 2/F, 770 St. Rose Bldg. Daraga, Albay, Bicol corner Commerce Ave. Filinvest EDSA and K-G, St. LUZON Tel. Nos.: (052) 204-0024 Corporate City, Alabang West Kamias, Quezon City (052) 204-0025 Muntinlupa City Tel. Nos.: 351-4883; 502-7135 ANGELES Local 4822 Tel. Nos.: 511-1152; 217-3069 Rowena R. Arcangel Miranda Ext. corner Telefax: (052) 483-0706 Telefax: 511-1145 Asuncion St., Angeles City Timoteo D. De Villa, Jr. Marites B. Nubla SAVEMORE NOVA PLAZA MALL Tel. Nos.: (045) 458-0297 Novaliches Plaza Mall (045) 286-6586 DAU GREENHILLS-WILSON Quirino Highway cor. Ramirez St. Local 4833 MacArthur Highway 219 Wilson St. Novaliches Proper, Quezon City Telefax: (045) 458-0298 Dau, Mabalacat, Pampanga Greenhills, San Juan City Tel. Nos.: 983-1512; 983-1511 Maria Beata P. Larin Tel. Nos.: (045) 624-0167 Tel. Nos.: 748-7625; 584-5946 Michelle Ann P. Borjal 892-2215; 892-2216 Telefax: 584-5947 ARAYAT Ronnie Z. Pineda Josephine Joy T. Rillera Cacutud, Arayat, Pampanga Tel. Nos.: (045) 409-9559 (045) 885-2390 Ma. Rowena C. Cura
172 FILOIL TANAUAN - SUPLANG PORAC SAN RAFAEL CEBU - MANDAUE FilOil Gas Station Cangatba, Porac, Pampanga Cagayan Valley cor. Cruz na Daan A. Del Rosario Ave., Mantuyong Brgy. Suplang, Tanauan Tel. Nos.: (045) 329-3188 Roads, San Rafael, Bulacan Mandaue City, Cebu Batangas 329-3177 Tel. No.: (044) 815-8915 Mirabel T. Mendoza Janrynel T. Gonzales Mariano V. Garcia, Jr. Nancy L. Santiago CEBU-LAHUG GUAGUA SAN FERNANDO SANTIAGO G/F Skyrise IT Bldg., Brgy. Apas Plaza Burgos, Guagua KHY Trading Bldg. City Road, Centro East Lahug, Cebu City Pampanga San Fernando-Gapan Rd. Santiago City, Isabela Tel. Nos.: (032) 236-0809 Tel. Nos.: (045) 901-0640 San Fernando City, Pampanga Tel. Nos.: (078) 305-0580 236-0810 901-0966 Tel. Nos.: (045) 961-1416 Local 4824-25 Telefax: (032) 236-0869 Betty L. Bacani (045) 300-0426 Telefax: (078) 305-0532 Mark Ryan E. Sy Local 4812-13 Elizabeth K. Chua IMUS Telefax: (045) 961-1415 ILOILO-QUEZON Gen. Emilio Aguinaldo Highway Mary Ann Jaquelyn S. Tiongson STA. ANA Ground Floor, 132 Quezon St. Anabu II, Imus, Cavite Poblacion, Sta. Ana, Pampanga Iloilo City Tel. Nos.: (046) 471-0177 SAN FERNANDO - BAYAN Tel. Nos.: (045) 409-0335 Tel. Nos.: (033) 321-0940 (046) 471-0179 V. Tiomico St., City of San Fernando (045) 409-9818 335-0213 Local 4820-21 Pampanga Lita P. Lopez John Michael L. Denate Telefax: (046)471-0178 Tel. Nos.: (045) 961-3246 Rosewedi T. Baltero Cruz 861-0894 STA. RITA ILOILO-JARO Editha C. Gomez San Vicente, Sta. Rita, Pampanga Lopez Jaena corner LIPA Tel. Nos.: (045) 434-0131 EL 98 streets, Jaro, Iloilo City G/F Tibayan Bldg. SAN ILDEFONSO 900 - 0658 Tel. Nos.: (033) 320-0370 1705 CM Recto Ave. Rose Vic Bldg. Gloria S. Cunanan 320-0426 cor. Rizal St., Lipa City Cagayan Valley Road, Poblacion Anmosel B. Pastrano III Tel. Nos.: (043)757-5107 San Ildefonso, Bulacan STA. ROSA LAGUNA (043)981-3602 Tel. Nos.: (044) 762-1075 Lot 2 Block 5 Phase 2A Avida MINDANAO Telefax: (043)757-5253 (044) 677-1610 Commercial, Sta. Rosa-Tagaytay Road Rolando E. Castillo Ledwina D.C. Villafuerte Barangay Sto. Domingo CAGAYAN DE ORO Sta. Rosa, Laguna Sergio Osmeña St., Cogon District, MACABEBE SAN JOSE-ANGELES Tel. No.: (049) 307-2259 Cagayan de Oro City Poblacion, Macabebe Sto. Rosario St., San Jose Amor F. Cajucom Tel. Nos.: (088) 323-1507 Pampanga Angeles City 323-1508 Tel. Nos.: (045) 921-0594 Tel. Nos.: (045) 887-6433 SUBIC Local 4807/4807 (045) 434-0258 (045) 626-1416 Baraca, Subic, Zambales Ma. Socorro D. Cosme Christopher G. Benitez Tel. Nos.: (047) 232-6105 SAN JOSE DEL MONTE 232-6104 DAVAO MALOLOS Ground Floor, Giron Building Cheryl E. Comandante G/F 8990 Corporate Center Quirino Canlapan Street, Sto. Rosario Gov. Halili Avenue, Tungkong Mangga Ave., Davao City Malolos City, Bulacan San Jose Del Monte, Bulacan TARLAC Tel. Nos.: (082) 321-0273 Tel. No.: (044) 794-2830 Tel. Nos.: (044) 815-8396 RIC Bldg., Bypass Road 321-0274 Telefax: (044) 794-2793 (044) 233-6501 San Sebastian, Tarlac City Liza L. Ricabo Rosanna L. Martinez Local 4851, 4850 Tel. Nos.: (045) 628-0761 4001 (045) 628-0755 ZAMBOANGA NAGA Telefax: (044) 815-6616 Local 4826-27 Nuñez Extension, Camino RL Building, Panganiban St. Othello C. Mendoza Telefax: 628-0754 Nuevo, Zamboanga City Lerma, Naga City Everett B. Lim Tel. Nos.: (062) 955-0563 Tel. No.: (054) 472-1947 SAN NARCISO 310-0900 Telefax: (054) 472-5424 Brgy. Libertad, San Narciso TAYTAY Jennifer Marie R. De Leon Loc 4830/4831 Zambales C Gonzaga Building 2 Timoteo D. De Villa, Jr. Telefax: (047) 913-2288 Manila East Road, Taytay, Rizal 913-2245 Tel. Nos.: 650-3368; 650-3367 OLONGAPO CITY Johnest N. Monsalud Mary Joy D.L Surla GF City View Hotel 25 Magsaysay Drive, New Asinan SAN PABLO VISAYAS Olongapo City P. Zamora St., Brgy. VII - B Tel. Nos.: (047) 222-2504 San Pablo City BACOLOD (047) 271-5251 Tel. Nos.: (049) 503-2890 SKT Saturn Bldg. Telefax: (047) 222-1891 Local 4834, 4835 Lacson cor. Rizal Sts. Jessie A. Chua Grace Asuncion O. Averion Bacolod City Tel. Nos.: (034) 435-7143 ORANI SAN PEDRO 435-6983 Brgy. Balut, Orani, Bataan Gen - Ber Bldg. Local 4810/4811 Tel. Nos.: (047) 638-1281 National Highway, Landayan Telefax: (034) 708-2041 638-1282 San Pedro, Laguna Ronnie A. Vinco, Jr. Elsie B. Dimalanta Tel. Nos.: 869-8220; 869-8221 Local 4836 Telefax: 847-0585 Ma. Corazon G. Leung
Annual Report 2013 173 SUBSIDIARIES AND AFFILIATES
Plantersbank Building 314 Sen. Gil Puyat Avenue Makati City Tel. No. : (632) 884-7600; 884-7800 E-mail : [email protected] Customer Relations: [email protected] www.plantersbank.com.ph
Planters Development Bank (Plantersbank) is the newest member of the China Bank Group, following the approval in principle of the Monetary Board of the Bangko Sentral ng Pilipinas (BSP) on December 13, 2013. China Bank now owns 84.77% of Plantersbank’s capital stock. A tender offer will be made to acquire the remaining 15.23% shares owned by minority shareholders. Integration activities have commenced to merge Plantersbank with either China Bank or CBS within three years from the date of the BSP approval.
Plantersbank is a development-oriented finance institution nationally acclaimed as the country’s lead bank for small and medium enterprises (SMEs).
BOARD OF DIRECTORS
CHAIRMAN DIRECTORS INDEPENDENT DIRECTORS CORPORATE SECRETARY Amb. Jesus P. Tambunting Nancy D. Yang Antonio S. Espedido, Jr. Roberto F. Kuan Edgar D. Dumlao Alberto Emilio V. Ramos Ramon R. Zamora Alberto S. Yao VICE CHAIRMAN Alexander C. Escucha Carlos M. Borromeo Margarita L. San Juan ASSISTANT CORPORATE Ricardo R. Chua SECRETARY Odel S. Janda BOARD-LEVEL COMMITTEES
NOMINATION AND EXECUTIVE COMMITTEE RISK OVERSIGHT COMMITTEE COMPENSATION COMMITTEE Chairman Ricardo R. Chua Ricardo R. Chua Alberto S. Yao Vice Chairman Nancy D. Yang Members Alberto Emilio V. Ramos Carlos M. Borromeo Nancy D. Yang Carlos M. Borromeo Alberto Emilio V. Ramos Ramon R. Zamora Antonio S. Espedido, Jr. Maria Victoria T. Alfonso Alexander C. Escucha Maria Rosanna L. Testa Ananias S. Cornelio III* *Ex-of cio
CORPORATE GOVERNANCE TRUST AND INVESTMENT AUDIT COMMITTEE COMMITTEE COMMITTEE Chairman Roberto F. Kuan Alberto S. Yao Members Margarita L. San Juan Ricardo R. Chua Alexander C. Escucha Alberto S. Yao Roberto F. Kuan Carlos M. Borromeo Antonio S. Espedido, Jr. Marilen E. Sarmiento Alexander C. Escucha Ramon R. Zamora
MANAGEMENT-LEVEL COMMITEES
MANAGEMENT COMMITTEE ASSET AND LIABILITY CREDIT COMMITTEE (CRECOM) (MANCOM) COMMITTEE (ALCO) Chairman Carlos M. Borromeo Carlos M. Borromeo Carlos M. Borromeo Vice Chairman Alberto Emilio V. Ramos Consolacion R. Saur James Christian T. Dee Members Ma. Agnes J. Angeles Juanita Margarita O. Umali Ma. Agnes J. Angeles Juanita Margarita O. Umali Jose F. Acetre Gary A. Vargas Gary A. Vargas Alesandra E. Tiaoqui Liberty S. Basilio Liberty S. Basilio Jose F. Acetre Jose F. Acetre Alesandra E. Tiaoqui Eleanor R. Recaña Luis Bernardo A. Puhawan Alesandra E. Tiaoqui Jeffrey Jose DL. Bognot Neliza M. Oñate Neliza M. Oñate Luis Bernardo A. Puhawan Rosana B. Amoranto Jeffrey Jose DL Bognot Allan E. Borreo Maria Victoria T. Alfonso
174 COLLECTION AND ASSET HR/RETIREMENT COMMITTEE IT STEERING COMMITTEE (ITSC) RECOVERY (CARCOM) (HR/RETCOM) Chairman Carlos M. Borromeo Carlos M. Borromeo Vice Chairman Maria Luz B. Favis Editha N. Young Members Jose F. Acetre Ricardo R. Chua Juanita Margarita O. Umali Juanita Margarita O. Umali Carlos M. Borromeo Eleanor R. Recaña Alesandra E. Tiaoqui Antonio S. Espedido, Jr. Luis Bernardo A. Puhawan Luis Bernardo A. Puhawan Maria Victoria T. Alfonso Adonis C. Yap Odel S. Janda
OPERATIONS COMMITTEE INTERNAL AFFAIRS AMLA COMMITTEE (AMLACOM) (OPSCOM) COMMITTEE (IAC) Chairman Juanita Margarita O. Umali Ma. Chimene C. Alvarez Juanita Margarita O. Umali Vice Chairman Jaime Valentin L. Araneta Marissa B. Espino Maria Rosanna L. Testa Members Eleanor R. Recana Odel S. Janda Odel S. Janda Neliza M. Oñate Alesandra E. Tiaoqui Alesandra E. Tiaoqui Renato O. Janairo Maribel M. Dimayuga Luis Bernardo A. Puhawan Ma. Cristina M. Farol Ma. Cristina M. Farol Jay Araceli L. Suria Matilde M. Ramoso Renato O. Janairo
OFFICERS
CHAIRMAN DEPARTMENT HEADS Matilde M. Ramoso SENIOR MANAGERS Branch Operations and Training Amb. Jesus P. Tambunting FIRST VICE PRESIDENTS Bernardino G. Lagarde John Benedict S. Santos Credit Investigation Rosana B. Amoranto Business Process Management PRESIDENT Treasury Ivan Rey B. Tagpis Jose C. Santos, Jr. Credit Appraisal Carlos M. Borromeo Roberto F. Banaag Auditing Corporate Communications MANAGER GROUP HEADS SENIOR ASSISTANT Odel S. Janda Beverly M. Guevarra VICE PRESIDENTS EXECUTIVE VICE PRESIDENT Legal Support Services OIC - Customer Service Virgilio I. Libunao, Jr. Ma. Agnes J. Angeles Adonis C. Yap SME North Luzon Lending II BRANCH AREA HEADS SME Banking Group II Transaction Banking Josefina G. Mayor Cynthia D. Altiche SENIOR VICE PRESIDENTS VICE PRESIDENTS SME Metro Manila Lending II Assistant Vice President BBG - Metro Manila Area I Jose F. Acetre Victoria T. Alfonso Alfredo C. Mojica, Jr. Collection And Assets Recovery Human Resources SME South Luzon Lending I Manuel Antonio S. Garcia and Premises Assistant Vice President Liberty S. Basilio Joseph Nestor T. Reyes BBG - Metro Manila Area II SME Banking Group I Neilo U. Altre, Jr. Acquired Assets SME Metro Manila Lending I Angel Maria P. Ingalla III Juanita Margarita O. Umali Edmundo D. Sinag Senior Assistant Vice President Operations Manolo F. Chan Accounting and Regulatory Report BBG - North Luzon Area I Loans Administration Gary A. Vargas Jay Araceli L. Suria Elizabeth G. Buencamino Consumer Banking Marissa B. Espino Human Resources Vice President Compliance Office BBG - North Luzon Area II FIRST VICE PRESIDENTS Maria Joyce G. Zarate Ma. Cristina M. Farol Product Development Carlo Magno L. Olmos Jeffrey Jose DL. Bognot Risk Management and Management Senior Manager Branch Banking BBG - South Luzon Area I Emmanuel Antonio R. Gomez ASSISTANT VICE PRESIDENTS Neliza M. Oñate SME Plus Emmanuel C. Formeloza SME Banking Group III Assistant Vice President Eugene John M. Daga Jose Renato O. Janairo BBG - South Luzon Area II Business Continuity and Operations Luis Bernardo A. Puhawan Branch Operations Controllership Marlene M. Camat Evangeline DC. Dayrit Gerardo V. Munda Assistant Vice President Credit Control and Administration Eleanor R. Recaña SME Mindanao Lending BBG - Visayas Area Information Technology and Marjorie T. Esplana Communications Sonia B. Ostrea Maria Theresa S. Pacheco Housing Finance Central Operations and Support Assistant Vice President Alesandra E. Tiaoqui BBG - Mindanao Area Annabelle G. Gagarra Credit Supervision and Services Christian Eugene S. Quiros SME Visayas Lending Collection Services Rusela G. Maranan Management Reporting
Annual Report 2013 175 SUBSIDIARIES AND AFFILIATES
BRANCHES
METRO MANILA KALOOKAN PARAÑAQUE VISAYAS AVENUE AJ Building Jaka Plaza Center Wilcon City Center Mall MAIN BRANCH 353 A. Mabini Street Dr. A. Santos Avenue, (Sucat Road) Visayas Avenue, Quezon City 314 Sen. Gil J. Puyat Avenue Kalookan City Brgy. San Isidro, Parañaque City Tel. No.: 990-7717 Makati City Tel No.: (02) 709-3435 Tel. No.: (02) 820-6093 Telefax No.: (02) 924-5591 Trunklines: (02) 884-7600 (02) 961-2628 Telefax No.: (02) 820-6091 Ericson A. Albano (02) 884-7800 Abner B. Aballa Roman J. Villacorta locals 3900, 3901 NORTH LUZON 3902 and 7645 KAPASIGAN PASO DE BLAS Telefax No.: (02) 812-9359 A. Mabini Street Andok’s Building BAGUIO Maridyl V. Aguirre Kapasigan, Pasig City 629 General Luis Street B108 Lopez Building Tel. No.: (02) 642-2870 Malinta Interchange-NLEX Session Road, Baguio City ALABANG Telefax No.: (02) 640-7085 Paso de Blas, Valenzuela City Tel No.: (074) 446-3993 GF / Common Goal Building Santos F. Guadines, Jr. (OIC) Tel No.: (02) 984-8258 Telefax No.: (074) 446-3994 Finance corner Industry Streets Telefax No.: (02) 443-5069 Maria. Elena F. Estira Madrigal Business Park LAGRO Carmelita D. P. Apalisoc Ayala Alabang, Muntinlupa City Bonanza Building BATAAN Tel No.: (02) 842-1016 Quirino Highway, Greater Lagro PATEROS Telefax No.: (02) 842-0761 Novaliches, Quezon City 120 Almeda Street Balanga Rudolph Lawrence F. Yance Tel. No. (02) 936-4988 Pateros, Metro Manila D.M. Banzon Street Telefax No.: (02) 461-7214 Tel No.: (02) 641-6768 Balanga City BANAWE Marcelino G. Sison Telefax No.: (02) 641-6760 Tel. No.: (047) 237-3666 Nos. 247-249 Banawe Street Santos F. Guadines, Jr. Fax No. (047) 237-3667 Sta. Mesa Heights LAS PIÑAS Mary Jane L. Sazon Brgy. Lourdes, Quezon City 459 DMR Building QUEZON AVENUE Tel. No.: (02) 412-2426 Gonzales Compound 1184-A Ben-Lor Building Orani Telefax No. (02) 412-6249 Alabang-Zapote Road Quezon Avenue, Brgy. Paligsahan Calle Real, Orani, Bataan Ann Marie D. Palac Brgy. Almanza, Las Piñas City Quezon City Tel. Nos.: (047) 638-1130 Tel No.: (02) 800-8893 Tel Nos.: (02) 376-4546 (047) 431-1275 BANGKAL Telefax No.: (02) 805-0438 (02) 376-4548 Telefax No.: (047) 638-1025 GF / Amara Building Benjamin T. Cuyos Telefax: (02) 376-4544 Maria Cristina T. Fermin 1661 Evangelista Street Antonette C. Fuentes Bangkal, Makati City MANDALUYONG BULACAN Tel Nos.: (02) 621-3459 Paterno’s Building RADA (02) 621-3461 572 New Panaderos Street HRC Center, 104 Rada Street Balagtas Francisco C. Buena or Brgy. Pag-asa, Mandaluyong City Legaspi Village, Makati City MacArthur Highway Tel. Nos.: (02) 238-3745 Tel Nos.: (02) 810-9369 Wawa, Balagtas, Bulacan CUBAO (02) 238-3744 (02) 810-9370 Tel No.: (044) 693-1849 Fernandina 88 Suites Cynthia D. Altiche (OIC) (02) 818-2368 Telefax No.: (044) 918-1425 222 P. Tuazon Boulevard Telefax No.: (02) 812-2577 Adelaida P. Dumlao Cubao, Quezon City MARIKINA Maria Francesca J. Corporal Tel No.: (02) 913-5209 CTP Building, Gil Fernando Avenue Baliuag Telefax No.: (02) 913-4903 (former A. Tuazon Avenue) UN AVENUE Plaza Naning, Poblacion Wendell M. Gaza Brgy. San Roque, Marikina City 552 U.N. Avenue Baliuag, Bulacan Tel No.: (02) 681-2810 Ermita, Manila Tel No.: (044) 766-2014 DEL MONTE Telefax No.: (02) 645-8169 Tel No.: (02) 400-5468 Telefax No.: (044) 673-1338 392 Del Monte Avenue Catherine S. Tindoy Telefax No.: (02) 400-5467 Maria Editha D. Gatmaitan Brgy. Sienna, Quezon City Elizabeth P. Munda Tel No.: (02) 741-2447 NINOY AQUINO AVENUE Hagonoy Maria Victoria I. Calderon Ground Floor Skyfreight Building TIMOG Sto. Niño Ninoy Aquino Avenue corner Jenkinsen Towers Hagonoy, Bulacan GREENHILLS Pascor Drive, Parañaque City 80 Timog Avenue Tel No.: (044) 667-1431 VAG Building, Ortigas Avenue Tel No.: (02) 851-1718 Brgy. Sacred Heart, Quezon City Telefax No.: (044) 793-0008 Greenhills, San Juan Telefax No.: (02) 851-1681 Tel. Nos.: (02) 371-8303 Samuel A. Pagsibigan Metro Manila Rafael Ma. C. Guerra III (02) 371-8305 Tel Nos.: (02) 721-0105 Telefax No.: (02) 371-8304 Malolos (02) 724-7523 ORTIGAS Randal Ignatius Z. Razo Paseo del Congreso, Catmon (02) 724-7528 OMM Citra Building City of Malolos, Bulacan Maria Jennifer V. Bondoc San Miguel Avenue VALENZUELA CITY Tel. No.: (044) 791-2461 Ortigas Center, Pasig City Ong-Juanco Building Telefax No.: (044) 662-7819 Tel. No.: (02) 637-9778 92 - J Mac-Arthur Highway Romeo G. Esteban Telefax No.: (02) 637-9824 Marulas, Valenzuela City Irmina V. Dator Tel. Nos.: (02) 291-6541 (02) 291-6542 Elizabeth G. Buencamino (OIC)
176 Meycauayan NUEVA ECIJA PANGASINAN Imus Mancon Building Tanzang Luma MacArthur Highway Cabanatuan Dagupan Aguinaldo Highway Calvario, Meycauayan, Bulacan Burgos Avenue Burgos Extension, corner Imus City, Cavite Tel No.: (044) 228-2461 Cabanatuan City, Nueva Ecija Perez Boulevard and Lingayen Highway Tel. No.: (046) 471-4715 Telefax No.: (044) 840-0099 Tel No.: (044) 600-2888 Junction, Dagupan City Telefax No.: (046) 471-4712 Roberto S.R. Evangelista Telefax No.: (044) 463-0441 Tel Nos.: (075) 515-7600 Joe Marcel M. Ponseca Imelda D. Villamor (OIC) (075) 522-9586 Plaridel Maria Suzette D. R. Ramos Dasmariñas 0226 Cagayan Valley Road PAMPANGA Veluz Plaza Building Banga 1st, Plaridel, Bulacan Urdaneta Zone I, Aguinaldo Highway Tel. No.: (044) 670-1067 Angeles MacArthur Highway, Nancayasan Dasmariñas City, Cavite Telefax No.: (044) 795-0105 639 Rizal Street, Angeles City Urdaneta City, Pangasinan Tel No.: (046) 416-0501 Rolando R. Peralta Tel No.: (045) 888-4971 Tel No.: (075) 568-8690 Joe Marcel M. Ponseca (OIC) Telefax No.: (045) 323-4303 Telefax No.: (075) 656-2331 Sta. Maria Annalyn L. Tolentino Loreto V. Muñoz, Jr. CAMARINES SUR JC De Jesus corner M. De Leon Poblacion, Sta. Maria, Bulacan Balibago TARLAC Naga Tel. Nos.: (044) 641-1150 JEV Building P. Burgos Street (044) 893-0587 MacArthur Highway Tarlac corner Gen. Luna Street Telefax No.: (044) 288-2453 Balibago, Angeles City MacArthur Highway Naga City Helen O. Cabuhat Tel Nos.: (045) 892-3325 San Nicolas, Tarlac City Tel. Nos.: (054) 473-6322 Telefax No.: (045) 332-1030 Tel. No.: (045) 982- 9652 (054) 473-6321 San Miguel Maricel E. Manalang Telefax No.: (045) 982-9653 Albert B. Tan Norberto Street, San Jose Thelma Marie C. Isais San Miguel, Bulacan Dolores LAGUNA Tel Nos.: (044) 764-0162 STCI Building ZAMBALES (044) 764-0826 MacArthur Highway, San Agustin Biñan Imelda D. Villamor City of San Fernando, Pampanga Olongapo Nepa Highway Tel. No.: (045) 963-3724 G/F R&P Guevarra Building 2 San Vicente, Biñan, Laguna CAGAYAN Telefax No.: (045) 963-3150 2043 Rizal Avenue, Olongapo City Tel No.: (049) 411-2716 Alexander Y. Liwanag Tel. No.: (047) 222-2131 Telefax No.: (02) 429-4878 Tuguegarao Telefax No.: (047) 222-2020 Lilibeth A. Carandang Metropolitan Cathedral Parish Guagua Ricardo R. Chua Rectory Complex, Rizal Street Sto Niño Calamba Tuguegarao City Guagua, Pampanga SOUTH LUZON Ground Floor, AS Building Tel. Nos.: (078) 255-1020 Tel No.: (045) 900-2326 National Highway, Barangay Uno (078) 255-1024 Fax No.: (045) 900-0779 BATANGAS Crossing, Calamba City Mario P. Allauigan Alex L. Serrano Tel. Nos.: (049) 545-5310 Batangas (049) 545-3670 ILOCOS NORTE Masantol No. 3 P. Burgos Street Telefax No.: (02) 520-8808 San Nicolas Batangas City Rodel B. Solomon Vigan Masantol, Pampanga Tel Nos.: (043) 723-1510 Agdamag Building Tel. No. (045) 981-1025 (043) 723-7652 U.P. Los Baños Quezon Avenue corner Calle Mabini Telefax No.: (045) 981-1064 Consorcia M. Gonzales Kanluran Road Vigan City, Ilocos Norte Jona C. Bernarte UPLB Campus, Los Baños, Laguna Tel. No.: (077) 674-0300 Lipa Tel. No.: (049) 536-3058 Melvin R. Aguinaldo Mount Carmel C.M. Recto Avenue, Lipa City Telefax No.: (049) 536-3682 AMB Building Tel. Nos.: (043) 756-1414 Cherry Jane O. Pamplona ISABELA Km. 78 MacArthur Highway (043) 756-1022 Brgy. Saguin, City of San Fernando Telefax No.: (043) 756-5003 LB-Crossing Santiago Pampanga Maricel C. Mercado Lopez Avenue, Batong Malaki JECO Building Tel No.: (045) 861-1066 Los Baños, Laguna Maharlika Highway corner Telefax No.: (045) 636-6055 Sto. Tomas Tel. No.: (049) 536-2596 Quezon Street, Victory Norte Regina S. Dayrit Agojo Building Telefax No.: (049) 536-0549 Santiago City Maharlika Highway Cherry Jane O. Pamplona (OIC) Tel. Nos.: (078) 305-0260 San Fernando Sto. Tomas, Batangas (078) 305-0252 JSL Building Consunji Street Tel No.: (043) 318-0582 San Pablo City Lloyd Vincent R. Binasoy City of San Fernando, Pampanga Telefax No.: (043) 778-3247 Rizal Avenue corner Lopez Jaena Street Tel Nos.: (045) 961-4575 Myla L. Mapalad San Pablo City LA UNION (045) 961-2963 Tel. No.: (049) 562-7738 Telefax No.: (045) 961-1181 CAVITE Telefax No.: (049) 562-0697 La Union Misael D. Velasquez Simplicia Elizabeth C. Kalaw AG Zambrano Building Bacoor Quezon Avenue Coastal Road corner Sta. Rosa San Fernando City, La Union Aguinaldo Highway National Highway Tel. No.: (072) 700-3800 Brgy. Talaba VII corner Lazaga Street Telefax No.: (072) 242-0414 Bacoor City, Cavite Balibago, Sta. Rosa, Laguna Eloisa B. Chan Tel. Nos.: (046) 417-5940 Tel Nos.: (049) 534-1167 (046) 417-5930 (02) 520-8448 Maria Victoria G. Baloy Sonny L. Triviño
Annual Report 2013 177 SUBSIDIARIES AND AFFILIATES
QUEZON VISAYAS MINDANAO
Lucena Bacolod Cagayan De Oro Merchan corner F. Soliman Building Tiano Brothers Street Evangelista Street Lacson Street corner Luzuriaga Street Cagayan de Oro City Lucena City Bacolod City, Negros Oriental Tel. Nos.: (08822) 727-082 Tel No.: (042) 660-6964 Tel. Nos.: (034) 704-1084 (088) 857-2879 Telefax No.: (042) 710-6964 Telefax No.: (034) 704-1089 Telefax No.: (08822) 727-083 Albert B. Tan Jaime Javier D. Torre Yolando M. Radaza
RIZAL Cebu - Mango Davao - Recto JSP Mango Plaza C. M Ville Abrille Building Angono Gen. Maxilom Avenue C. M. Recto St., Davao City M.L. Quezon Avenue corner Echavez Street Tel. Nos.: (082) 227-1802 Angono, Rizal Cebu City (082) 305-5808 Tel. No.: (02) 651-1782 Tel. No.: (032) 231-4304 Local 4344 Telefax No.: (02) 651-1779 Telefax No.: (032) 231-4736 Leah O. Lim Lourdes V. Quitoriano Maria Theresa L. Tan Davao – J.P. Laurel Antipolo Cebu - P. del Rosario Door 2, Gutierrez Building EMS Building Cebu Leesons Building J.P. Laurel Avenue, Davao City M.L. Quezon Street P. Del Rosario Street Tel. No.: (082) 305-4439 corner F. Dimanlig Street corner D. Jakosalem Street Telefax No.: (082) 222-1255 Antipolo City, Rizal Cebu City Mae D. Hipolito Tel. No.: (02) 697-1066 Tel. Nos.: (032) 253-2212 Telefax No.: (02) 697-0224 (032) 253-2213 General Santos Maria Cecilia C. Oxales Carlos M. Gonzales I. Santiago Boulevard General Santos City Taytay Iloilo Tel. No.: (083) 552-6329 East Road Arcade Cua Building Telefax No.: (083) 552-6330 Manila East corner Cabrera Road Quezon Street, Iloilo City Maria Theresa S. Pacheco Tikling, Taytay, Rizal Tel. No.: (033) 336-9752 Tel. Nos.: (02) 658-0850 Telefax No.: (033) 336-9752 Tagum (02) 658-6409 Elly Beth L. Amparo Jose Rizal Street Razelyn J. Afuang Tagum City Mandaue Davao del Norte Co Tiao King Building Tel. No.: (084) 218-8216 Cebu North Road (084) 218-8217 Basak, Mandaue City John Y. Sison Tel. No.: (032) 346-8814 Telefax No.: (032) 346-6959 Pia Monica C. Alturas
178 Manulife China Bank Life Assurance Corporation (MCBLife) is a joint venture bancassurance company of China Bank and The Manufacturers Life Insurance Company (Phils.), Inc. (Manulife Philippines), a wholly-owned domestic subsidiary of Canada-based Manulife Financial Corporation, one of the largest life insurance companies in the world. The Bank has 5% interest in MCBLife which began operations on March 23, 2007, providing a wide range of innovative insurance products and services through China Bank branches nationwide. 24/F LKG Tower, 6801 Ayala Ave. Makati City 1226 Philippines Robert D. Wyld Mark Reynan S. Antiga Tel. No. : (632) 884-5433 President and Chief Executive Officer Senior Assistant Vice President and Fax No. : (632) 845-0980 National Sales Head Customer Care Line: (632) 884-7000 E-mail : [email protected] www.manulife-chinabank.com.ph
China Bank Insurance Brokers, Inc. (CBIBI) is a wholly-owned subsidiary of the Bank established on November 3, 1998 as a full service insurance brokerage. It provides direct insurance broking for retail and corporate customers, with a wide and comprehensive range 8/F VGP Center, 6772 Ayala Ave. of plans for life and non-life insurance. The life insurance retail products include Whole Life, Makati City 1226, Philippines Endowment, Investment-Linked, Education, Term and Life Protection with Hospitalization Tel. No.: (632) 885-5555 and Critical Illness Cover. Under the Non-Life insurance category, programs for residential, VGP Center: (632) 751-6000 personal, corporate and industrial clients are available, with insurance coverages such as Property, Motor, Marine, Accident and Liability.
Julieta P. Guanlao President
Cynthia B. Nono Jacquelyn A. Yu Vice President - Bancassurance Deputy Senior Manager - Non-Life Insurance
China Bank Properties and Computer Center, Inc. (CBPCCI ) was created on April 14,1982 to provide computer-related services solely to China Bank. It manages the Bank’s electronic banking and e-commerce requirements, including sourcing, developing and maintaining software and hardware, financial systems, access devices and networks to foster the 4/F & 15/F China Bank Building safety and soundness of China Bank’s technology infrastructure and keep its processing 8745 Paseo de Roxas corner Villar St. capabilities in top shape. Makati City 1226, Philippines Tel. Nos.: (632) 885-5055; 885-5053 Gilbert U. Dee Phillip M. Tan Editha N. Young 885-5060; 885-5051; 885-5052 Chairman General Manager Chief Technology Officer Fax No.: (632) 885-5047 Peter S. Dee Augusto P. Samonte Ma. Cecilia R. Ignacio President Vice President Joseph T. Yu Belinda P. Mendoza Ricardo R. Chua Cristina D. Cristobal Rosalito C. dela Cruz Director Senior Assistant Vice President Georgia Lourdes Melissa F. Maog Senior Managers William C. Whang Joseph Jeffrey B. Javier Director/Treasurer Assistant Vice President Ricardo F. Operiano Deputy Senior Manager
Annual Report 2013 179 CHINA BANK PRODUCTS AND SERVICES
DEPOSITS & RELATED SERVICES TRUST SERVICES PAYMENT & SETTLEMENT SERVICES Peso Deposits Corporate and Institutional Trust Electronic Banking Channels • Checking • Fund Management • China Bank Automated Teller Machine • Savings – Employee Benefit Planning (ATM) • Time – Retirement Plan • China Bank TellerPhone Foreign Currency Deposits (US Dollar, – Provident/Savings Plan • China Bank Online Internet, Mobile Euro and Yuan) • Escrow Services Banking and Speed Banking • Savings • Collateral/Mortgage Trust • Cashless Shopping (POS) • Time • Loan Agency Services CASH MANAGEMENT SOLUTIONS Manager’s/Gift Check/Demand Draft Wealth Management Safety Deposit Box • Estate Planning Delivery Channel SSS Pension Accounts • Living Trust China Bank Online Payroll Servicing Facility • Life Insurance Trust Liquidity Management Direct Deposit Facility for US Pensioner • Investment Management Arrangement Account Balance & Transaction Reporting Night Depository Services – Investment Advisory Sure Sweep Armored Car Deposit Pick-up Services – Investment Agency Domestic Collections/Out-of-town Checks Unit Investment Trust Funds Disbursements • China Bank GS Fund Check Write Plus (Outsourced) LOANS & CREDIT FACILITIES • China Bank Dollar Fund Check Write Plus (Software) Corporate Loans and Commercial Loans • China Bank Money Market Fund BIR 2307 WHT Certificate Printing Loan Syndication • China Bank Balanced Fund TRACC Accounting (Software) Factoring Receivables • China Bank Equity Fund Corporate Inter-bank Fund Transfer Special Lending Programs (Corporate IBFT) TREASURY SERVICES • BSP Rediscounting TellerCard (ATM Payroll Crediting) • Industrial Guarantee Loan Fund Peso-Denominated Instruments ChinaPay (Payroll Software) • Environmental Development Program • Government and Corporate Bond Payroll Processing • Sustainable Logistics Development Issues Government Facilities • Industrial and Large Projects Dollar-Denominated Instruments • BIR eFPS Online Tax Payments Guarantee Programs • Government and Corporate Bond • SSSNet Monthly Contribution and Loan Consumer Loans Issues Repayment Facility • HomePlus Real Estate Loans Foreign Exchange • Philhealth Monthly Contribution Facility • Contract to Sell Financing • Spot, Forward, Swaps • Sickness / Maternity / Employees’ • AutoPlus Vehicle Loans Compensation (SMEC) INSURANCE PRODUCTS Automatic Credit Arrangement (ACA) INTERNATIONAL BANKING Bancassurance PRODUCTS & SERVICES Receivables • Life and Income Protection Check Depot (Post-Dated Check Import and Export Financing • Critical Illness with Life Cover Warehousing Service) Foreign and Domestic Commercial Letters • Endowment Bills Pay Plus (Multi-Channel of Credit • Retirement Bills Payment Services) Standby Letters of Credit • Education BancNet Payment System Irrevocable Reimbursement Undertaking • Investment - Linked • BancNet Debit POS Collection of Clean and Documentary Bills • Term Insurance • BancNet Bills Pay Online Bank Guaranty (Shipside Bond) Group Life Insurance • BancNet Bills Pay ATM Purchase and Sale of Foreign Exchange Non-Life Insurance • BancNet eShopping Travel Funds • Fire Insurance - Residential, Automatic Debit Arrangement (ADA) Servicing of Foreign Loans and Investments Commercial & Trust Receipts Trade Inquiry • Motor Car Insurance Bills Payment/Donations: Trust Receipt Facility • Aviation Insurance e-Gov Correspondent Banking Services • Marine Insurance - Hull/Vessel and • BIR Cargo INVESTMENT BANKING SERVICES • Philhealth • Electronic Equipment Insurance Cable TV Companies Debt Financing • Liability Insurance - Comprehensive Credit Card Companies • Bonds General Liability, Products, etc. Government Institutions • Syndicated Loan • Directors and Officers Liability • SSS Contributions (SE, VM, NWS, OFW, FF) • Corporate Loan Insurance Insurance/Pre-need Companies Equity Financing • Accident and Health Internet Companies • Initial Public Offering (Common Shares) – Medical Insurance - HMO Loan Companies • Follow on Offering (Common Shares) – Personal Accident - Individual & Telecommunication Companies • Preferred Shares Group Utility Companies Project Finance – Travel Insurance Schools Merger & Acquisition / Financial Advisory Casualty - Money Insurance, Fidelity Charitable Institutions Guarantee, Property Floater REMITTANCE SERVICES Others • All Risks Insurance - Contractor’s All Foreign and Domestic Remittances Risk (CAR) Insurance/Erector’s All Risk • China Bank On-time Remittance Insurance • Overseas Kababayan Savings Account • Bonds (Judicial/Performance/Fidelity/ (OKS) Account Surety, etc.) Specialized Insurance Programs
180 ANNUAL STOCKHOLDERS’ MEETING
May 8, 2014, Thursday, 4:00 p.m. Penthouse, China Bank Building 8745 Paseo de Roxas corner Villar Street Makati City 1226, Philippines
SHAREHOLDER SERVICES
For inquiries or concerns regarding dividend payments, account status, We welcome letters or all such communications on matters pertaining change of address or lost or damaged stock certificates, please get in to the management of the Bank, stockholders’ rights, or any other bank- touch with: related issues of importance. Stockholders who wish to communicate with any or all of the members of the China Bank Board of Directors may send letters to: Stocks and External Relations Office of the Corporate Secretary Atty. Corazon I. Morando China Banking Corporation Vice President and Corporate Secretary 11/F China Bank Building China Banking Corporation 8745 Paseo de Roxas corner Villar St. 11/F China Bank Building Makati City 1226, Philippines 8745 Paseo de Roxas corner Villar St. Makati City 1226, Philippines Contact persons: Atty. Leilani B. Elarmo Atty. Julius L. Danas INVESTOR INQUIRIES Pamela D. Pablo China Bank welcomes inquiries from investors, analysts, and the financial Tel. No.: (632) 885-5133 community. For information about the developments at China Bank, Fax No.: (632) 885-5135 please contact the Investor Relations Office: Email: [email protected] [email protected] Alexander C. Escucha [email protected] Senior Vice President and Head of Corporate Planning & Investor Relations Stock Transfer Service, Inc. China Banking Corporation Unit 34-D Rufino Pacific Tower 28/F BDO Equitable Tower 6784 Ayala Avenue 8751 Paseo de Roxas Makati City 1226, Philippines Makati City 1226, Philippines Tel. No.: (+632) 885-5601 Contact persons: Email: [email protected] Antonio M. Laviña Website: www.chinabank.ph Ricardo D. Regala, Jr.
Tel. No.: (632) 403-2410; 403-2412; 403-9853 Fax No.: (632) 403-2414
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