ABOUT THE COVER Staying true to its mandate of bringing progress to the nation, the Development Bank of the Philippines (DBP) is steadfast in spearheading projects that aid in our country’s growth. On this cover, progress is reflected on the solar panels, conveying an imagery of DBP’s continuing pursuit of finding innovative ways of uplifting the life of every Filipino. The solar panels reflect some of DBP’s development projects — a school building to show the Bank’s unwavering efforts in the field of education, a progressive cityscape and ultimately, a Filipino family enjoying the fruits of progress. 05 07 19 MESSAGE FROM THE CHAIRMAN REPORT TO THE PRESIDENT INFRASTRUCTURE DEVELOPMENT 21 23 25 ENVIRONMENTAL RESPONSIBILITY MSME DEVELOPMENT SOCIAL SERVICES 01-07 08-25 26-45 46-57 58-64 MISSION/VISION OPERATIONAL HIGHLIGHTS RISK MANAGEMENT CORPORATE GOVERNANCE PRODUCTS AND SERVICES FINANCIAL HIGHLIGHTS INFRASTRUCTURE DEVELOPMENT DBP SUBSIDIARIES INDEPENDENT AUDITOR’S REPORT BRANCH NETWORK MESSAGE FROM HIS EXCELLENCY ENVIRONMENTAL RESPONSIBILITY BOARD OF DIRECTORS STATEMENT OF FINANCIAL POSITION ANNUAL REPORT COMMITTEE MESSAGE FROM THE CHAIRMAN MICRO, SMALL AND MEDIUM MANAGEMENT COMMITTEE STATEMENT OF PROFIT OR LOSS TECHNICAL WORKING GROUP REPORT TO THE PRESIDENT ENTERPRISE DEVELOPMENT SENIOR OFFICERS STATEMENT OF PROFIT OR LOSS AND OTHER SOCIAL SERVICES COMPREHENSIVE INCOME STATEMENT OF CHANGES IN CAPITAL FUNDS STATEMENT OF CASH FLOWS VISION STATEMENT By 2020, a regionally-recognized development financial institution, serving as a catalyst for a progressive and more prosperous Philippines. MISSION STATEMENT To raise the level of competitiveness of the economy for sustainable growth. To support infrastructure development, responsible entrepreneurship, efficient social services and protection of the environment. To promote and maintain the highest standards of service and corporate governance among its customer constituencies. 2014 ANNUAL REPORT Development Bank of the Philippines A nation’s progress is determined by its people and institutions. The banking sector has the MESSAGE FROM potential to effect great change in Philippine society, and I am heartened to see the Development Bank of the Philippines rise to this challenge. By instilling the principles of good governance in HIS EXCELLENCY development financing and including extending assistance to key areas such as infrastructure and logistics, environment, and social services, you have attained sustainable growth for your investors amounting to a net income of -P-4.60 Billion in 2014, with a total development loan portfolio of -P- 146.58 Billion. I commend your intensified focus on SMEs, as well as your Corporate Social Responsibility initiatives such as DBP Forest, DBP Endowment for Education Program, and your emergency assistance to regions affected by calamities. May you keep upholding the standards that have led you to achieve Compliance Status under the Performance Governance System, win the 2014 Silver Trailblazer Award, and achieve your breakthrough goals of loans to your core mandate sectors for countryside enrichment. As we advance on the straight path, it is my hope that DBP continues to serve as a testament to the positive effects of the balance between profitability and inclusiveness, and I look forward to what you will achieve this coming year. BENIGNO S. AQUINO III PRESIDENT REPUBLIC OF THE PHILIPPINES Manila, May 14, 2015 2 FINANCIAL HIGHLIGHTS DBP continued to deliver good shareholder value in 2014 despite challenges in the global economy. The Bank’s total resources grew by 9.40% to -P-467.51 Billion on account of increases in total loans and total deposits. Capital adequacy ratio of 20.91% was more than double the BSP’s 10% minimum requirement based on Basel III standards. Gross Revenues Dividend Payment to NG Net Income (in P Bn) (in P Bn) (in P Bn) 19.25 19.63 2.95 20 3.00 17.09 6 5.28 2.50 2.54 15 4.60 4.5 4.21 2.25 10 3 1.50 5 1.5 0.75 0 0 0.00 2012 2013 2014 2012 2013 2014 2012 2013 2014 Total Resources Total Loans Total Deposits (in P Bn) (in P Bn) (in P Bn) 480 467.51 210 204.56 300 293.53 427.35 251.08 172.38 166.40 351.73 360 157.5 225 176.92 240 105 150 120 52.5 75 0 0 0 2012 2013 2014 2012 2013 2014 2012 2013 2014 Net Interest Margin (in Percentage) Total Capital Capital Adequacy Ratio (in Percentage) 2.40 2.35 2.34 (in P Bn) 2.15 50 30 24.05 24.33 1.80 40 20.91 6.52 6.52 6.52 20 30 1.20 20 35.81 34.23 36.30 10 10 0.60 0 2012 2013 2014 0 Hybrid Tier 1 was derecognized as capital for 2012 2013 2014* CAR computation effective January 2014. 0.00 2012 2013 2014 Return on Assets Return on Equity (In Percentage) (In Percentage) 1.36 12.71 1.40 13.00 1.22 11.01 10.02 1.03 9.75 1.05 6.50 0.70 3.25 0.35 0.00 2012 2013 2014 0.00 2012 2013 2014 3 2014 ANNUAL REPORT Development Bank of the Philippines 4 MESSAGE FROM THE CHAIRMAN HIS EXCELLENCY PRESIDENT BENIGNO S. AQUINO III Malacañang, Manila Mr. President: It is my honor to give an account on the gains that the Development DBP’s financial exposure to these critical sectors is in response to the Bank of the Philippines made in 2014, particularly in supporting the President’s call, and in support of the National Government’s pursuit key development programs of your Administration. of inclusive growth. After all, these sectors have the most immediate and biggest impact to the people’s well-being. Heeding your call, we have adopted and implemented good governance policies in order to ensure that the culture of ethics, In pursuit of the Bank’s development mandate, we in DBP have put accountability, compliance, and social responsibility is sustained in in place a good governance program that we hope, like the reforms all levels of the Bank’s operations and practices. in Government that the President initiated, will be irreversible. Good governance serves as the guidepost for the DBP Board of DBP is proud to be the first government financial institution to have Directors. It underpins the Bank’s development portfolio. been certified Proficient under the Performance Governance System (PGS) by the Institute for Solidarity in Asia, the country’s leading 2014 was full of challenges for the local banking sector in general. advocate and certifying agency for good governance. The PGS is an These challenges included compliance with the Basel III regulatory important tool of good governance reform, promoting the efficient framework on bank capital adequacy and market liquidity risk. delivery of services, economic growth, and the establishment of Market liquidity and low interest rate regime affected the earning a positive climate for market institutions. The Bank is on track to potentials of most banks which typically rely on trading gains as a becoming certified as an Island of Good Governance that would major revenue source. be showcased during the Asia-Pacific Economic Cooperation (APEC) meeting that the Philippines will host in November 2015. Yet, DBP performed as well as, and in some measures, better than other private banks. This is despite the fact that DBP has more We in DBP are confident that by making good governance the pillar hurdles and risks to overcome in financing development projects. of the Bank’s policies and programs, the institution will continue to These are projects that we believe are critical for the Government’s remain a vital partner of government in attaining inclusive growth, development agenda and the country’s sustainable progress. and improving the lives of the Filipino people. DBP’s net profit in 2014 amounted to- P-4.60 Billion. We are pleased to highlight that the Bank’s income from loans and investments increased significantly. More importantly, it marked a shift to more recurring sources of income in line with our strategic direction to re-focus on its core lending and investing businesses. With 83 percent of its loan portfolio comprising developmental loans, DBP continues to live up to its name as the country’s leading JOSE A. NUÑEZ, JR. development bank. These include loans to Local Government Units Chairman (LGUs) for their farm-to-market roads, post-harvest facilities, public markets, transport terminals, hospitals, schools as well as IT and system enhancements. In 2014, DBP realized one of its goals of increasing its loans to its core mandate sectors consisting not only of LGUs, but also Water Districts, Electric Cooperatives, and Micro, Small and Medium Enterprises throughout the country. 5 2014 ANNUAL REPORT Development Bank of the Philippines 6 REPORT TO THE PRESIDENT In 2014,HIS EXCELLENCYDBP celebrated its 67th year in development banking with BeyondUpholding reaping ourfinancial Corporate returns, Social the ResponsibilityBank has also (CSR).built social We continued gains soundPresident profitability Benigno and S. a Aquino strong IIIbalance sheet. Amidst challenging over toits 67advocate years of goodexploring corporate new horizons citizenship of progress. through In our our efforts enduring to market conditions, the Bank moved forward with solid confidence and make economic gains felt by more Filipinos, we continued to reach out steadfastMalacañang, commitment Manila to attain its vision. and servecommitment the wider tospectrum programs of population, promoting especially the welfare the ofdisadvantaged our people. and underserved sectors. Thus, our natural ecosystem comprised Local ContributingDear Mr. President:to inclusive and sustainable growth. DBP remained GovernmentWe are onUnits the tasked seventh with year building of implementing the infrastructure the DBP for Endowment social focused on the administration’s priority sectors with our loan portfolio servicesfor Educationin our communities: Program (DEEP), public markets,our 10-year hospitals, -P- 1-billion schools, CSR roads, program dedicated to development projects.