ANNUAL REPORT 2015 D AnnualAnAnnunualal ReportRepporort 2015202015 to come. strive tobe the best bank for our customers—now and for more many years businesses, deepen existing relationships, start new ones, and continue to as the Bank endeavors tosustain its growth, expand its reach, diversify its On the horizon, the emerging sunrise heralds anew day fullofpromise, in 2020. forges ahead towards its centennial year enduring partnerships—as theBank strength, rich heritage, and alegacy of the foundations ofits solid financial transformation—set of upon journey a pillars Bank’s China ofstrength anchoring This Annual year’s Report cover illustrates About TheCover 58 10 64 32 57 36 34 26 CONTENTS 4 2 andRecognition Awards Management Committee Board ofDirectors Corporate Governance Consumer Protection Corporate SocialResponsibility Human Resources Operating Highlights Message toStockholders Performance Highlights Vision Drawing strength from our rich history, we will be the best, most admired, and innovative financial services institution, partnering with our customers, employees, and shareholders in wealth creation. Mission We will be a leading provider of quality services consistently delivered to institutions, entrepreneurs, and individuals, here and abroad, to meet their financial needs and exceed rising expectations. 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. Core Values • Integrity • High Performance Standards 1 67 • Commitment to Quality Senior Officers 70 Management Directory • Customer Service Focus Annual Report 2015 72 95th Anniversary and Timeline • Concern for People 74 Financial Statements • Efficiency 178 China Bank Branches • Resourcefulness/Initiative 188 China Bank Savings Branches 192 China Bank Off-Branch ATMs 196 Business Offices 197 Subsidiaries and Affiliates 199 Products and Services 200 Investors Information PERFORMANCE HIGHLIGHTS NET INCOME RETURNR ON EQUITY TOTAL RESOURCES TOTALT DEPOSITS In Billion Pesos InI % In Billion Pesos InI Billion Pesos Annual Report 2015 600 6 15 500 2 5 5.6 12 527 5.1 5.1 5.1 13.81 5.0 400 4 471 12.22 439 11.31 9 414 399 9.91 300 3 9.62 354 6 324 200 2 272 263 216 1 3 100 0 0 0 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 STOCKHOLDERS’ EQUITY TOTALT CAR EARNINGS PER SHARE In Billion Pesos InI % In Pesos 60 20 3 50 59.2 56.6 15 3.02 40 2 2.76 45.4 2.75 2.74 2.71 16.34 16.00 42.7 15.39 14.88 30 39.6 10 13.50 40 16.00 1 20 5 10 0 0 0 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 CASH DIVIDENDS PAID STOCKSTS DIVIDENDS PAID BRANCHES ATMA In Billion Pesos InI Billion Pesos 1.6 700 1.7 740 1.6 1.4 1.6 600 661 1.4 1.2 1.4 500 1.3 1.3 1.3 1.0 561 517 1.2 400 511 475 1.1 0.8 470 40 16.00 300 0.6 367 316 0.4 200 293 0.2 2012 100 0 0 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 2013 2014 2015 For the Year (In Thousand Pesos) Net Interest Income 9,935,991 14,088,747 15,085,184 Non-Interest Income 5,160,592 4,759,277 4,487,142 Operating Income 15,096,583 18,848,024 19,572,326 Provision for Impairment & Credit Losses 414,336 440,901 966,574 Operating Expenses 8,907,264 11,727,211 12,193,207 Net Income Attributable to Equity Holders of the Parent Bank 5,103,258 5,117,832 5,606,666 At Year End (In Thousand Pesos) Total Resources 413,697,923 471,220,813 526,826,963 Loan Portfolio(Net) 220,540,903 290,418,730 309,761,777 Investment Securities 66,921,227 59,026,895 71,209,973 Total Deposits 354,268,203 399,301,544 439,265,686 Stockholders’ Equity 45,399,699 56,567,483 59,170,904 Number of Branches 367 470 517 Number of ATMs 561 661 740 Number of Employees 5,594 7,245 7,540 Key Performance Indicators (in %) Profitability Return on Average Equity 11.31 9.91 9.62 Return on Average Assets 1.45 1.12 1.17 Net Interest Margin 2.98 3.30 3.37 Cost to Income Ratio 59.00 62.22 62.30 Liquidity Liquid Assets to Total Assets 42.80 32.89 36.09 Loans to Deposit Ratio 62.25 72.73 70.52 Asset Quality Non-Performing Loans Ratio 1.99 2.24 2.52 NPL Cover 146.62 101.25 87.73 Capitalization Capital Adequacy Ratio (CET 1/Tier 1) 14.50 13.95 12.58 Capital Adequacy Ratio (Total CAR) 15.39 14.88 13.50 Shareholder Information Market Value Market Price Per Share (In Pesos) 49.591/ 43.521/ 37.20 Market Capitalization (In Thousand Pesos) 84,232,038 80,671,473 68,958,700 Valuation Earnings Per Share (In Pesos) 2.751/ 2.761/ 3.02 Book Value Per Share (In Pesos) 24.491/ 30.511/ 31.92 Price to Book Ratio (x) 2.03 1.43 1.17 Dividends 3 Cash Dividends Paid (In Thousand Pesos) 1,557,449 1,589,272 1,716,414 Cash Dividends Per Share (In Pesos) 1.2 1.0 1.0 Annual Report 2015 Cash Payout Ratio (In %) 31.04 31.14 33.54 Cash Dividend Yield (In %) 2.42 2.30 2.69 Stock Dividends Paid (In Thousand Pesos) 1,297,874 1,271,428 1,373,131 Stock Dividends Per Share (in %) 10 8 8 1/ Restated to show the cumulative effects of stock dividends. 4 4 AnnualAnnual Report Report2015 2015 MESSAGE TO STOCKHOLDERS TO OUR STOCKHOLDERS AND FRIENDS, The global economy entered a new phase of volatility and The stability of the financial system coupled with the low uncertainty, marked by the gradual tightening of US monetary inflation rate gave the Bangko Sentral ng Pilipinas (BSP) ample policy, conflict in the Middle East, and plunging oil and room to keep its policy rates unchanged even as it opened up commodity prices. Falling demand for petroleum combined the banking industry to six new foreign banks and approved with the lack of OPEC production quotas contributed to the the opening of 227 new branches. The liberalization of the oversupply in the oil markets—which adversely affected the commercial banking sector was among the policy initiatives energy, construction, and shipping sectors. Concerns over preparatory to the integration of the ASEAN banking a possible recession triggered a widespread sell-off in the community by 2020. stock markets, a flight to safer investments, and in the case of China, the voluntary suspension of market trading by over The year also saw BSP raising its standards on credit half of their listed companies and the devaluation of the management and capital adequacy. By compelling local banks Yuan. China’s move to shift its economy away from rapid to compete at a higher level — tighten lending standards, growth fueled by exports, manufacturing, and easy credit limit loan concentrations and build up their common equity has dampened the prospects for many of its trading and base to cushion against business risks — the new regulations investment partners. Given the volatility of the financial and would bring the system up to ASEAN best-in-class standards. capital markets, the US Federal Reserve carefully calibrated As of September 2015, industry CAR had improved to the timing of its policy rate hikes with the pace of the 16.40% from 16.19% in December 2014 as banks bolstered recovery in their labor and property markets. their equity base by issuing stocks and Tier 2 notes. Besides the evolving regulatory and 2015 marked a major milestone in China Bank’s 95-year competitive environment, history: continued network expansion, China Bank Savings the banking industry faced volatility in the forex, debt, and equity and Plantersbank merger, launching of our credit card, our markets as negative sentiment own investment house, first full-year on bancassurance and scarcity of investment options business with a bigger equity stake, and roll out of a new limited opportunities to generate gains from securities trading and robust core banking system. interest accruals. Net margins compressed as market rates fell close to record lows given the The sustained rebound in the US markets set off capital accommodative monetary policy and liquidity overhang. movements from emerging markets like the Philippines— Meanwhile, growth rates for the industry’s assets decelerated which saw sharp corrections in its stock market and a 5% to 8% in 2015 from 12% in the previous year while that depreciation of the peso to P47.17: US$1 by the year- for loans sharply declined to 12% from 20% in 2014. This 5 end. Despite the impact of the El Niño phenomenon on margin compression and slowdown in volume growth 5 the agricultural sector, the country’s macro-fundamentals dragged the average ROE of the universal & commercial Annual Report 2015 remained sound, with moderate inflation, manageable deficit banking industry down to 9.80% from the prior period’s Annual Report 2015 spending, and rising manufacturing output. As personal 10.96%. consumption and revenues from services remain the bedrock of the country’s economy, GDP marginally decelerated from Despite the challenging landscape, 2015 was a milestone the previous 6.1% to 5.8%—still one of the fastest in the in China Bank’s 95-year history, as key components of our ASEAN.