SEC Form 17A - December 31, 2018
SEC Form 17A - December 31, 2018
SEC Form 17A - December 31, 2018
3 6 0 7 3
S.E.C. Registration Number
U N I O N B A N K O F T H E P H I L I P P I N E S
U N I O N B A N K P L A Z A M E R A L C O A V E N U E
C O R O N Y X A N D S A P P H I R E S T R E E T S
O R T I G A S C E N T E R , P A S I G C I T Y
( Business Address : No. Street City / Town / Province )
UNDERWRITER OF SECURITIES
Secondary License Type, If Applicable
C F D
Dept. Requiring this Doc. Amended Articles Number/Section
STAMPS
7. UnionBank Plaza, Meralco Ave. cor. Onyx and Sapphire Streets, 1605
Ortigas Center, Pasig City Postal Code
Address of Principal Office
8. (632) 667-6388
Registrant’s telephone number, including area code
9. Not applicable
Former name, former address, and former fiscal year, if changed since last report.
(a) Has filed all reports required to be filed by Section 17 of the SRC and SRC Rule 17 thereunder or Section
11 of the RSA and RSA Rule 11(a)-1 thereunder, and Sections 26 and 141 of the Corporation Code of the
Philippines during the preceding twelve (12) months (or for such shorter period that the registrant was
required to file such reports);
Yes [ X ] No [ ]
(b) - Has been subject to such filing requirements for the past ninety (90) days.
Yes [ X ] No [ ]
13. The aggregate market value as of March 31, 2019 of the voting stock held by non-affiliates P
P74,091,541,786.85
Page
Part I - BUSINESS AND GENERAL INFORMATION
Item 1 Business 3
Item 2 Properties 19
Item 3 Legal Proceedings 21
Item 4 Submission of Matters to a Vote of Security Holders 22
Item 5 Market for Registrant's Common Equity and Related Stockholder Matters 23
Item 6 Management's Discussion and Analysis or Plan of Operation 26
Item 7 Financial Statements 32
Item 8 Changes in and Disagreements with Accountants on Accounting and Financial 32
Disclosures
SIGNATURES 62
Index to Exhibits 63
Item 1 - Business
A. Description of Business
Union Bank of the Philippines (the Bank) is a publicly-listed universal bank whose principal shareholders are
Aboitiz Equity Ventures, Inc. (AEV), Social Security System (SSS) and The Insular Life Assurance Company, Ltd.
(Insular Life). It distinguishes itself through technology and innovation, unique branch sales and service culture, and
centralised backroom operations. The Bank’s technology allows delivery of online, real-time business solutions to
meet the customers’ changing and diverse needs through innovative and customised cash management products and
service offerings. Its unique branch sales and service culture ensures efficient and quality service, as well as
mitigates operational risk. The Bank’s distinct centralised backroom operations enable it to provide responsive,
scalable, and secure transaction processing.
Aligned with its thrust of being at the forefront of technology-based banking in the Philippines, the Bank endeavours
to elevate its systems and processes to be at par with international standards and best practices. It obtained the ISO
9001:2000 quality management system (QMS) certification for its central processing services (CPS) in 2008,
making it then the first and only bank to be awarded for its entire centralised backroom operations. In 2010, the
Bank received the ISO 9001:2008 certification, an upgrade from the previous. Thereafter, the Bank obtained the ISO
27001:2005 certification for its information security management system, attesting to its commitment to become the
leader and benchmark for service quality, technological advancement, and operational excellence. The Bank also
achieved ISO 9001:2008 certifications for its customer service group in 2012 and branch operations management in
2013. In 2015, the Bank earned ISO 9001:2015 QMS certifications for its branch operations management, CPS, and
customer services groups. The Bank is the first local bank that was certified under the new ISO standard. In 2016,
the loans and trade finance operations management of the Bank also earned the ISO 9001:2015 QMS certification
and in 2017, Treasury Operations was also added as an ISO unit. In those years, 2015, 2016, and 2017 the Bank was
certified as having zero non-conformance rating during quality audits, demonstrating the Bank’s dedication to
uphold quality in its business processes. Last October 2018, the Bank has again been re-certified for the ISO
9001:2015 with zero non-conformance reaffirming the dedication of the bank's operational units in maintaining and
ensuring quality services to its stakeholders.
UnionBank’s clientele encompasses retail, middle-market, and corporate customers, as well as major government
institutions. UnionBank believes that its use of technology, marketing strategies, and operational structure have
enabled it to capture and secure a loyal customer base and achieve high levels of efficiency and productivity.
Historical Background
The Bank, originally known as “Union Savings and Mortgage Bank”, was incorporated in the Philippines on August
16, 1968. On January 12, 1982, it was given the license to operate as a commercial bank. The Bank’s common
shares were listed in the PSE on June 29, 1992 and shortly after, it was granted the license to operate as a universal
bank on July 15, 1992. The Bank became the 13 th and youngest universal bank in the country in only its tenth year
of operation as a commercial bank. On October 31, 2013, the Philippine Securities and Exchange Commission
(SEC) has approved the Bank’s amendment on its Articles of Incorporation the extension of the Bank’s corporate
life for another 50 years until August 16, 2068.
The Bank has undertaken two mergers, with the International Corporate Bank (Interbank) in 1994 and the
International Exchange Bank (iBank) in 2006.
On April 26, 2007, UnionBank embarked on a primary offering of 90 million new common shares in order to
strengthen its capital adequacy ratio in anticipation of Basel II requirements, thereby enhancing its financial
flexibility. The offering expanded the shareholder base by 16.3% and raised additional equity worth over ₱5.1
billion. The new shares were listed in the PSE on May 10, 2007.
On October 20, 2013, UnionBank raised a total of ₱3.0 billion from its initial offering of Long-Term Negotiable
Certificates of Deposits (LTNCDs). The LTNCDs carry a coupon rate of 3.50% per annum, which is payable
quarterly beginning January 18, 2014 maturing on April 17, 2019. Proceeds of the issuance were utilized to improve
the bank’s deposit maturity profile and support business expansion plans.
On October 16, 2014, an amendment to UnionBank’s Articles of Incorporation was approved by the BSP, whereby
the authorized capital stock increased from ₱6.7 billion to ₱23.1 billion, divided into approximately 1.3 billion
common shares at par value of ₱10.00 and 100 million preferred shares at par value of ₱100.00. UnionBank,
likewise, obtained BSP approval for the payment of 65% stock dividends, which would be used to fund the 25%
subscription relating to the increase in capital stock. Record date and payment dates for the aforesaid dividend
declaration were set for November 18 and December 4, 2014, respectively.
On November 20, 2014, UnionBank issued ₱7.2 billion of Basel III-compliant Tier 2 Unsecured Subordinated Notes
with a coupon rate of 5.375% per annum due February 20, 2025, callable on February 20, 2020.
On August 16, 2016, the Bank signed a Cooperation Agreement with Lombard Odier, a Swiss global wealth and
asset manager, to expand wealth and asset management businesses. The Bank and Lombard Odier plan to offer
estate planning solutions and launch a global and diversified multi-asset fund customized to UnionBank’s high-net-
worth and ultra-high-net-worth clients’ requirements. In July 2017, the Capital Accumulation Global Fund of Funds,
a US dollar-denominated fund of funds that is invested in various mutual funds and exchange traded funds in the
global markets, was launched.
On December 15, 2016, UnionBank’s subsidiaries Union Properties Inc. (UPI) and CitySavings received Monetary
Board approval to finalize its joint-acquisition of a majority stake in First-Agro Industrial Rural Bank (FAIRBank),
a rural bank that provides banking and microfinance services and loan products to micro, small, and medium
enterprises, and micro housing institutions.
On January 27, 2017, UnionBank and CitySavings entered into a bancassurance partnership with Insular Life
Assurance Company, Ltd. (Insular Life) for the sale and distribution of Insular Life insurance products across the
Bank’s and City Savings’ respective networks.
On November 22, 2017, UnionBank announced the issuance of $400 million in Fixed Rate Senior Notes, as the
debut drawdown under the Bank’s Medium Term Note Programme. On November 27, 2017, the Bank launched an
upsize of $100 million. This brings its total Senior Notes issuance to $500 million, issued at par with a yield of
3.369% per annum, maturing November 29, 2022. The said bonds were rated Baa2 by Moody’s, identical to the
issuer rating given to UnionBank, and were listed in the Singapore Stock Exchange.
On December 29, 2017, CitySavings announced that it has signed a Share Purchase Agreement (SPA) with the
ROPALI Group to acquire 100% of the common shares of Philippine Resources Savings Bank (PR Savings), an
Isabela-based bank engaged in extending motorcycle, agri-machinery, and teachers’ salary loans. The transaction
was approved by the BSP on June 19, 2018. On December 27, 2018, the Bank also received BSP’s approval for the
merger between CitySavings and PR Savings, with CitySavings as the surviving entity.
In February 2018, CitySavings and UPI signed an SPA with Aboitiz Equity Ventures (AEV) to purchase 51% of the
common shares of PETNET, Inc. The transaction was approved by the BSP on November 23, 2018. PETNET, more
widely known by its retail brand name PeraHub, has over 2,800 outlets nationwide which offers a variety of cash-
based services including remittance, currency exchange, and bills payment.
On February 21, 2018, UnionBank issued ₱3.0 billion LTNCDs due in August 2023 with a fixed rate of 4.375% per
annum. This is the initial tranche of the Parent Bank’s ₱20.0 billion LTNCD program as approved by BSP. The net
On September 28, 2018, the Bank announced the completion of its ₱10.0 billion Stock Rights Offer (SRO)
following the end of the offer period on September 21, 2018. The bank issued 158,805,583 common shares or 15%
of UnionBank’s outstanding shares prior the Offer and was priced at ₱62.97 each. The rights shares were listed at
the Philippine Stock Exchange on the same day.
On December 7, 2018, UnionBank issued and listed on the Philippine Dealing Exchange (PDEx) ₱11 billion in
senior fixed rate bonds. The two-year fixed rate bonds have a coupon rate of 7.061% per annum due 2020.
B. Business of Issuer
UnionBank offers a broad range of products and services, which include deposit and related services, corporate and
middle market lending, consumer finance loans such as mortgage, auto loans and credit card; investment, treasury
and capital market, trust and fund management, wealth management, remittance, cash management and electronic
banking, as well as bancassurance.
The Bank continues to reinvent itself from a traditional two-product bank (deposit-taking and lending) to a multi-
product financial services company that leverages on technology.
Savings Accounts: Personal Savings Account ∙ US Dollar Savings Account ∙ Third Currency Accounts
SME Banking Solutions: BusinessLine Classic ∙ MD Line ∙ Quickpay ∙ Retail Supplier’s Financing ∙
EmployeeLine Loan Program
Debit Cards
Personal: Easy Access ∙ Business Class Platinum Visa Debit ∙ US Dollar Visa Debit ∙ GetGo Debit Card ∙
EON
Credit Cards
Travel: Miles+ Platinum ∙ Ceb GetGo Credit Card ∙ Ceb GetGo Platinum Credit Card
Co-brand and Affinity Cards: in partnership with companies that are involved in retail business; home-
Prepaid Cards
Investment Products
Intermediate Term: Intermediate-Term Fixed Income Portfolio ∙ Infinity Prime Portfolio ∙ High Net Worth
Intermediate-Term Peso Fixed Income Portfolio
Medium Term: Peso Fixed Income Portfolio ∙ Dollar Bond Portfolio ∙ High Net Worth Medium-Term Fixed
Income Portfolio
Long Term: Long-Term Fixed Income Portfolio ∙ Large Capitalization Philippine Equity Portfolio ∙
Dividend Play Equity Portfolio ∙ Philippine Equity Index Tracker Portfolio ∙ Capital Accumulation Global
Fund of Funds Portfolio
Corporate Collections: Bills Payment ∙ Checkhouse ∙ Cash Pick-up and Delivery ∙ Road Runner ∙ Auto
Debit Arrangement (ADA) ∙ Batch Bills Payment ∙ Partnerpay ∙ Business Partner Advantage ∙
Corporate Payouts: Checkwriter ∙ Government Service Insurance System (GSIS) UMID/E-Card ∙ SSS
UMID/QuickCard ∙ Payroll Solutions (ePaycard, eCrediting, ePayroll, ePay Online,) ∙ Corporate eBanking ∙
eGobyerno ∙ Business Check Online ∙ Business Check ∙ Voucher Payout ∙ Electronic Fund Transfer
Electronic Settlements: PSE Trade/Securities Clearing Corporation of the Philippines (SCCP) ∙ Electronic
Invoice Presentment and Payment (EIPP)
Bank to Bank Remittance ∙ Visa Personal Payments ∙ Paypal transfers to bank account ∙ Western Union
Account-Based Money Transfer
Bancassurance
The Group’s main operating businesses are organized and managed separately according to the nature of products
and services provided and the different markets served, with each segment representing a strategic business unit.
These are also the basis of the Group in reporting to its chief operating decision-maker for its strategic decision-
making activities. The Group’s main business segments are as follows:
Consumer Banking – principally handles individual customers’ deposits and provides consumer type loans, such as
automobiles and mortgage financing, credit card facilities and funds transfer facilities. This segment contributes
50% of net revenues.
Corporate and Commercial Banking – principally handles loans and other credit facilities and deposit and current
accounts for corporate, institutional, small and medium enterprises, and middle market customers. This segment
contributes 22% of net revenues.
Treasury – principally responsible for managing the Bank’s liquidity and funding requirements, and handling
transactions in financial markets covering foreign exchange, fixed income trading and investments and derivatives.
This segment contributes 19% of net revenues.
Headquarters – includes corporate management, support and administrative units not specifically identified with
Consumer Banking, Corporate and Commercial Banking or Treasury. This segment contributes 9% net of revenues
There are no revenues of the Bank which come from foreign sales.
These segments are the basis on which the Group reports its primary segment information. Transactions between
segments are conducted at estimated market rates on an arm’s length basis.
Segment resources and liabilities comprise operating resources and liabilities including items such as taxation and
borrowings. Revenues and expenses that are directly attributable to a particular business segment and the relevant
portions of the Group’s revenues and expenses that can be allocated to that business segment are accordingly
reflected as revenues and expenses of that business segment.
The Parent Company’s subsidiaries and the effective percentage of ownership follow:
Percentage
Name of Subsidiary of Ownership Nature of Business
* Newly acquired subsidiary in 2018, 100% of PRSB through CSB and 51% of PETNET through CSB and UPI
with 40% and 11% share in ownership, respectively.
** Acquired subsidiary in 2017 through CSB and UPI with 49% and 38.53% share in ownership, respectively.
***FUDC, FUPI and FUIFAI are wholly-owned subsidiaries of UPI.
****Dissolved in 2018.
(a) CSB was incorporated and registered with the SEC on December 9, 1965. On December 9, 2014 the SEC
approved the amendment extending CSB’s corporate term for another 50 years from December 9, 2015. It is a
thrift bank specializing in granting teacher’s loans under the Department of Education’s Automatic Payroll
Deduction System.
On January 23, 2015, the Board of Directors (BOD) approved the proposal to purchase the remaining 894
common shares of CSB held by some 41 minority shareholders. The Bank purchased additional 68 shares, 38
shares and 36 shares in 2016, 2017 and 2018, respectively, thereby, further increasing the Bank’s percentage
ownership to 99.76%, 99.77% and 99.78% as of December 31of those respective years.
(b) In December 2017, CSB and the registered holders and beneficial owners of Philippine Resources Savings
Banking Corp. (PR Savings Bank) from the Ropali Group signed a share purchase agreement (‘SPA”), whereby
the former shall acquire 127.72 million common stock of PR Savings Bank with par value of ₱10 per share or a
total value of ₱1,277.23 million. The shares represent 66.28% of the total outstanding capital stock of PR
Savings Bank.
As part of the conditions precedent to the obligation of CSB to purchase the common stock, CSB and
International Finance Corporation (IFC) entered into a Share Purchase Agreement (“Agreement”) on February
23, 2018, whereby the former shall acquire the 65.00 million preferred shares of PR Savings Bank owned by
IFC, with par value of P10.00 per share or a total par value of P650.00 million. The shares represent 33.72% of
the total issued and outstanding capital stock.
On April 5, 2018, the Philippine Competition Commission (PCC) approved the acquisition of PR Savings Bank
by CSB. The acquisition was also approved by the Monetary Board (MB) of the BSP under MB Resolution No.
1003 dated June 14, 2018.
On July 5, 2018 and July 10, 2018, the BOD and the stockholders, respectively, of CSB approved the plan of
merger with PR Savings Bank, with CSB as the surviving entity. On December 20, 2018, the MB of the BSP
approved the merger subject to certain conditions, including completion of the merger within one year from the
date of receipt of the BSP approval and that the merger should be effective on the date the SEC issues the
certificate of merger. Subsequent to the BSP approval, CSB has applied for merger with the SEC. The SEC
approved on February 28, 2019 the Articles and Plan of Merger between CSB and PR Savings Bank.
PR Savings is the 14th largest thrift bank in the country. Most of its 102 offices are located in Luzon offering
motorcycle, agri-machinery, and salary loans to over 131,000 borrowers, mostly from the mass market segment.
The transaction will enable CSB to expand its reach in Luzon, and enter into new market segments, such as
motorcycle and agri-machinery financing.
(c) In February 2018, CSB and UPI signed an SPA with AEVI for the purchase of 2,461,338 common shares
representing 51% ownership of AEVI on PETNET, Inc. (PETNET). On May 8, 2018, PCC approved the
acquisition of PETNET, Inc. by CSB and UPI. The agreement was approved by the BSP on November 23,
2018. On December 17, 2018, the parties closed the transaction by settling the purchase price and confirming
that all closing conditions have been fulfilled.
PETNET, more widely-known by its retail brand name PERA HUB, has the largest network of Western Union
outlets in the Philippines. PETNET has over 2,800 outlets nationwide. It offers a variety of cash-based services
including remittance, currency exchange and bills payment.
(d) FAIR Bank was registered with the SEC on September 15, 1998 primarily to engage in the business of
extending rural credit to small farmers and tenants and to deserving rural industries or enterprises. FAIR Bank
has one (1) banking office and ten (10) branches located all over Cebu. On December 21, 2015, CSB, UPI and
the major stockholders of FAIR Bank signed a Memorandum of Agreement which provided for the terms of the
acquisition of a total of 77.78% of the issued and outstanding capital stock of FAIR Bank by CSB and UPI. On
On March 17, 2017, CSB and UPI subscribed to 294,000 and 306,000 new common shares, respectively, of
FAIR Bank at par value of P100 per share. As a result of the subscription, the percentage of ownership of UPI
in FAIR Bank increased to 37.67% while CSB’s ownership interest stood at 49%.
To meet the minimum requirements of capital adequacy under the Manual of Regulations for Banks (MORB),
additional subscription was made by CSB and UPI on November 13, 2018 of 50,960 and 53,040 common
shares, respectively, of FAIR Bank at par value of P100 per share. As a result of the additional subscription, the
percentage of ownership of CSB’s ownership interest in FAIR Bank remained at 49% while UPI’s ownership
interest in FAIR Bank increased to 38.53%.
(e) UPI was incorporated and registered with the SEC on December 20, 1993. It is presently engaged in the
administration and management of the Parent Bank’s premises and other properties such as buildings,
condominium units and other real estate, wholly or partially owned by the Group. Pursuant to the action of the
BOD of UPI approving the amendment of its Articles of Incorporation on May 13, 2004, the primary purpose of
UPI was changed from a real estate developer to a real estate administrator. The SEC approved such
amendment on December 13, 2004. Through its wholly-owned subsidiaries, FUPI, FUDC and FUIFAI, UPI is
also engaged in the sale of pre-need plans, marketing of financial products and being an agent for life and non-
life insurance products.
Non-operating subsidiaries
(a) UBPSI was incorporated and registered with the SEC on March 2, 1993. It was organized to engage in the
business of buying, selling or dealing in stocks and other securities. In January 1995, as approved by UBPSI’s
stockholders and BOD, UBPSI sold its stock exchange seat in the PSE. Accordingly, UBPSI ceased its stock
brokerage activities.
(b) UCBC was registered in the SEC on June 14, 1994. It was organized to engage in the foreign currency
brokerage business. On March 23, 2001, the BOD of UCBC approved the cessation of its business operations
effective on April 16, 2001. Since then, UCBC’s activities were significantly limited to the settlement of its
liabilities. The BOD and the stockholders of UCBC have approved to shorten the company’s corporate term to
December 31, 2016. UCBC has secured a tax clearance from the Bureau of Internal Revenue (BIR) in 2018.
(c) UDC was registered with the SEC on September 8, 1998. It was organized to handle the centralized branch
accounting services as well as the processing of credit card application forms of the Parent Bank and the entire
backroom operations of FUPI. On July 1, 2003, the BOD of UDC approved the cessation of its business
operations effective on August 30, 2003, and subsequently shortened its corporate term to December 31, 2017
by amending its Articles of Incorporation. The services previously handled by UDC are now undertaken by the
Centralized Processing Service Unit of the Parent Bank. UDC is still in process of securing the tax clearance
from the BIR.
(d) IVCC was incorporated and registered with the SEC on October 10, 1980. It was organized to develop,
promote, aid and assist financially any small or medium scale enterprises and to purchase, receive, take or grant,
hold, convey, sell, lease, pledge, mortgage and otherwise deal with such real and personal property, including
securities and bonds of other corporations as the transaction of the lawful business of the corporation may
reasonably and necessarily require, subject to the limitations prescribed by law and the constitution. IVCC has
ceased operations since 1992.
The total assets, liabilities and capital funds of these non-operating subsidiaries amount to ₱5,211, ₱3,158 and
₱2,053, respectively, as of December 31, 2018 and ₱5,245, ₱3,155 and ₱2,090, respectively, as of December 31,
2017.
The Bank’s registered address, which is also its principal place of business, is at UnionBank Plaza, Meralco Avenue
corner Onyx Street and Sapphire Road, Ortigas Center, Pasig City. AEVI’s registered address is located at NAC
Tower, 32nd Street, Bonifacio Global City, Taguig City, Metro Manila
UnionBank provides its customers with relevant information and transaction needs through its well-trained
relationship managers, strategically located branch networks, and automated teller machines (ATMs), supplemented
by a call center under its ISO-certified Customer Service Group. Moreover, UnionBank’s brick-and-mortar presence
is complemented by its strong digital footprint, exhibited by its website (www.unionbankph.com), online banking
portal and mobile application (UnionBank Online), customer service chatbot, as well as its own digital bank, EON.
Relationship Managers. UnionBank’s sales force is equipped with the right competencies and tools to bring about
solutions-based financial services to customers nationwide. Relationship Managers (RMs) undergo rigorous sales
trainings, are experts on the Bank’s products and service offerings, and are enabled to manage a healthy pipeline of
customers and call reports through a mobile-based sales and productivity platform. UnionBank’s RMs and financial
advisors are also licensed by the Insurance Commission to provide customers with bancassurance products.
Branch Network. UnionBank and its subsidiaries ended December 2018 with 433 branches nationwide. Select
branches are located in strategic areas within and outside of Metro Manila to maximize visibility and expand
customer reach. Customers can do over-the-counter (OTC) cash deposit and withdrawals and check deposit and
encashment at any of the Bank’s branches. High-volume transaction branches are provided with Transaction
Assistant Portal, an in-house developed self-service innovation, which aims to facilitate faster processing time
through paperless transactions and use of a card that stores bills payment and account information. UnionBank’s
check verification system utilizes Philippine Clearing House Corporation's check images, which is instrumental in
enabling fast and reliable check clearing. In 2017, the Bank also launched its concept branch called The Ark. It is a
completely digital and paperless branch which allows for straight-thru processing of transactions, and at the same
time, houses branch ambassadors for product discovery and advisory services. It will be UnionBank’s platform for
innovative development and customer experiences as it shifts utilizing branches from transactional spaces to
interactional spaces.
ATM Network. UnionBank and its subsidiaries' network of 389 ATMs as of end of December 2018 supplements its
branch network in providing 24-hour banking services to customers. Customers are given access to ATM facilities
through ATM cards, which are issued to checking and savings account holders. The Bank is also a member of
Bancnet and Expressnet, which are ATM networks that allow its customers to use ATM terminals operated by other
banks in the same network. Through these networks, customers have access to approximately 13,000 additional
ATMs nationwide.
Call Center. UnionBank’s 24-hour call center handles retail customer relationship and care, catering to deposit and
card product queries, among others. The call center utilizes a mix of phone, postal mail, email, fax and internet as
customer touch points. In handling customer complaints, it adheres to certain service level agreements, such as
feedback or resolution of ATM-related concerns within five banking days and redelivery of card within Metro
Manila after five days. Customer complaint handling is continuously improved through resolution tracking.
Customer Service Chatbot. UnionBank’s Rafa is the country’s first banking chatbot that delivers instant 24/7
customer service. Rafa is accessible through Facebook messenger. It is capable of answering customer queries on
nearest ATM, nearest branch, provides the latest foreign exchange rate of up to ten currencies, assists customers who
Mobile and E-Banking. UnionBank Online, launched in August 2017, is the new online and mobile banking
platform for the Bank’s customers. It is designed with an omni-channel user experience wherein the same look and
feel applies to different touchpoints (website and mobile app), operating systems (Android or IOS) and device types.
UnionBank Online enables the Bank’s customers to sign up, transact, view their account information, and update
their details online without visiting a branch or ATM, or messaging or calling the Bank’s call center. UnionBank
Online also allows customers to customize account viewing, manage transaction limits, transfer funds to other banks
via PESONet and Instapay, and many more.
EON. The EON cyber account, the Philippine’s first online payment card, was launched in 1999. In 2017, the Bank
re-launched its EON brand and introduced the first bank account specially designed for digital commerce. It is the
only electronic money product in the Philippines with modern application security features including a “selfie
banking” feature which employs facial recognition in authorizing transactions through a smart phone. In addition to
the EON cyber account, the Bank also offers the following products under the EON brand: (1) the EON electronic
money account; (2) EON Zero, a virtual lending platform where loan underwriting, application processing, and
releasing of proceeds are all completed digitally; and (3) EON Duo, a virtual credit card.
Competition
The Bank faces competition from both domestic and foreign banks, in part, as a result of the liberalization of the
banking industry by the Government. Since 1994, a number of foreign banks, which have greater financial resources
than the Bank, have been granted licences to operate in the Philippines. Foreign banks have not only increased
competition in the corporate market but have caused more domestic banks to focus on the commercial middle-
market, placing pressure on margins in both markets. On January 21, 2016, the Monetary Board approved the
phased lifting of the moratorium on the grant of new banking licence or establishment of new domestic banks. The
moratorium on the establishment of new domestic banks and locational restrictions shall be fully liberalised
beginning on January 1, 2018.
Since September 1998, the BSP has been encouraging consolidation among banks in order to strengthen the
Philippine banking system. Mergers and consolidation result in greater competition, as a smaller group of “top tier”
banks compete for business.
Certain factors arising from the 1997 Asian crisis and the 2008 global financial crisis also resulted in greater
competition and exert downward pressure on margins. Banks instituted more restrictive lending policies as they
focused on asset quality and reduction of their NPLs, which resulted in increasing liquidity. As the Philippine’s
economic growth further accelerates, and banks apply such liquidity in the lending market, greater competition for
corporate, commercial, and consumer loans is expected.
Amidst this operating environment, UnionBank leverages on its competitive advantages anchored on its superior
technology, unique branch sales and service culture, and centralized backroom operations. As a result, UnionBank
has been acknowledged as a leader in developing innovative products and services. It is recognized as among the
industry’s lowest cost producers, measured by revenue-to-expense ratio, which is a result of its wholesale customer
acquisition strategy of providing cash management solutions to principals’ ecosystems, having automated and
centralized operations, and establishing a full-blown digital strategy rather than the traditional brick-and-mortar
expansion. Lastly, the Bank is one of the most profitable in terms of return on equity, return on assets, and absolute
income.
UnionBank ensures that its products, services and systems have the necessary regulatory approvals and are in
compliance with existing rules prior to launch.
Since June 2015, the Bank has put in place a new AML System equipped with monitoring tools and reporting
capabilities. Beginning last September 2016, the Bank has likewise implemented a real-time sanctions screening
system to screen transactions that pass through the SWIFT network. Since last year, the Bank has also implemented
monitoring processes for transactions within a certain threshold. KYC and customer due diligence process remains
robust through documentation of client information, review of customer risk rating and identification of ultimate
beneficial owners and senior management approval, where warranted.
Finally, on an annual basis, UnionBank, through its Compliance and Corporate Governance Office, provides annual
formal AML trainings to the members of the Board of Directors, Senior Management and its Branches. Senior
Management, branches and other units are also required to take the AML e-learning refresher module regularly in
coordination with HR Group and the Compliance and Corporate Governance Office.
Capital Adequacy
Per existing BSP regulations, the combined capital accounts of each commercial bank should not be less than an
amount equal to 10% of its risk assets. Risk assets consist of total resources after exclusion of cash on hand, due
from BSP, loans covered by holdout on or assignment of deposits, loans or acceptances under letters of credit to the
extent covered by margin deposits and other non-risk items as determined by the Monetary Board of the BSP.
Under BSP Circular No. 538, Series of August 4, 2006, the Bank’s capital-to-risk assets ratio (CAR) as of December
2017, 2016 and 2015 were 14.4%, 15.7% and 16.15% respectively. As of 31 December 2018, the Bank’s CAR was
pegged at 15.18%
The amount spent on research and development activities (in thousand pesos) and its percentage to revenues for the
last three years has been as follows:
Employees
As of December 31, 2018, the Bank employed 3,600 people, 219 as Executives, 2,584 as Officers, 797 as Clerical
Staff and covered by CBA. Of these, 1,799 are in Operations, 735 are in Non-Operations, and 1066 are in
Sales/Marketing. The Bank does not foresee an increase in the number of headcount within the ensuing twelve (12)
months.
The Collective Bargaining agreement started on June 01, 2015 and will expire on May 31, 2020.
Risks are inherent in the business activities of the Group. Among its identified risks are credit risk, liquidity risk,
market risk, interest rate risk, foreign exchange risk, operational risk, legal risk, and regulatory risk. These are
managed through a risk management framework and governance structure that provides comprehensive controls and
management of major risks on an ongoing basis.
Risk management is the process by which the Group identifies its key risks, obtains consistent and understandable
risk measures, decides which risks to take on or reduce and how this will be done, and establishes procedures for
monitoring the resulting risk positions. The objective of risk management is to ensure that the Group conducts its
business within the risk levels set by the BOD while business units pursue their objective of maximizing returns.
Although the BOD is primarily responsible for the overall risk management of the Group’s activities, the
responsibility rests at all levels of the organization. The risk appetite is defined and communicated through an
enterprise-wide risk policy framework.
On the other hand, the risk management processes of its subsidiaries are handled separately by their respective
BODs.
The Parent Bank’s BOD is primarily responsible for setting the risk appetite, approving risk parameters, credit
policies, and investment guidelines, as well as establishing the overall risk-taking capacity of the Parent Bank. To
fulfill its responsibilities in risk management, the BOD has established the following committees, whose functions
are described below.
(a) The Executive Committee (EXCOM), composed of seven (7) members of the BOD, exercises certain functions
as delegated by the BOD including, among others, the approval of credit proposals, asset recovery and real and
other properties acquired (ROPA) sales within its delegated limits.
(b) The Risk Management Committee (RMC) is composed of seven (7) members of the BOD, majority of whom
are independent directors, including the Chairman. The RMC shall advise the BOD of the Parent Bank’s overall
current and future risk appetite, oversee Senior Management’s adherence to the risk appetite statement, and
report on the state of risk culture of the Parent Bank. The RMC shall oversee the risk management framework,
adherence to the risk appetite of the Parent Bank and the risk management function.
(c) The Market Risk Committee (MRC) is composed of nine (9) members of the BOD, majority of whom are
independent directors, including the Chairman. The MRC is primarily responsible for reviewing the risk
management policies and practices relating to market risk including interest rate risk in the banking book and
liquidity risk.
(e) The Audit Committee is a committee of the BOD that is composed of seven (7) members, most of whom are
with accounting, auditing, or related financial management expertise or experience. The skills, qualifications,
and experience of the committee members are appropriate for them to perform their duties as laid down by the
BOD. Four of the seven members are independent directors, including the Chairman.
The Audit Committee serves as principal agent of the BOD in ensuring independence of the Parent Bank’s
external auditors and the internal audit function, the integrity of management, and the adequacy of disclosures
and reporting to stockholders. It also oversees the Parent Bank’s financial reporting process on behalf of the
BOD. It assists the BOD in fulfilling its fiduciary responsibilities as to accounting policies, reporting practices
and the sufficiency of auditing relative thereto, and regulatory compliance.
(f) The Corporate Governance Committee (CGC) is primarily responsible for helping the BOD fulfill its corporate
governance responsibilities. It is responsible in ensuring the BOD’s effectiveness and due observance of
corporate governance principles and of oversight over the compliance risk management.
The CGC is composed of at least six (6) members of the BOD, majority of whom, including its Chairman, shall
be independent directors, and one (1) of whom shall be from the Parent Bank’s Senior Management.
CGC’s specific duties include, among others, making recommendations to the BOD regarding continuing
education of directors, overseeing the periodic performance evaluation of the BOD, its committees, senior
management, and the function of the Chief Compliance and Corporate Governance Officer. It also performs
oversight functions over the Compliance and Corporate Governance Office (CCGO) and the Anti-Money
Laundering Committee of the Parent Bank
(g) The Nominations Committee (NOMCOM) is comprised of six (6) voting members of the BOD, one of whom is
an independent director, and one non-voting member in the person of the Human Resources Director. The
NOMCOM is responsible for reviewing the qualifications of and screening candidates for the BOD, key officers
of the Parent Bank and nominees for independent directors. It oversees the implementation of programs for
identifying, retaining and developing critical officers and the succession plan for various units in the
organization.
(h) The Compensation and Remuneration Committee (COMPREM) is composed of seven (7) members of the
BOD, two (2) of whom are independent directors, including its Chairman. It is responsible for overseeing
implementation of the programs for salaries and benefits of directors and senior management. It monitors
adequacy, effectiveness and consistency of the Parent Bank’s compensation program vis-à-vis corporate
philosophy and strategy.
(i) The Related Party Transaction Committee is a board-level committee composed of five (5) members, three (3)
of whom are independent directors including its Chairman. The other two (2) members are the Head of Internal
Audit Division and the Chief Compliance and Corporate Governance Officer who are both non-voting
members. The Committee assists the BOD in the fulfillment of its corporate governance responsibilities on
related party transactions by ensuring that these are transacted at arm’s length terms. Where applicable, the
Committee reviews and approves related party transactions or endorses them to the BOD for approval or
confirmation.
The major risk types identified by the Group are discussed in the following sections:
Credit Risk
Credit risk is the risk of loss resulting from the failure of a borrower or counterparty to honor its financial or
contractual obligation to the Group. The risk may arise from lending, trade finance, treasury, investments,
derivatives and other activities undertaken by the Group. Credit risk is managed through strategies, policies and
limits that are approved by the respective BOD of the various companies within the Group. With respect to the
The RMU undertakes several functions with respect to credit risk management. The RMU independently performs
credit risk assessment, evaluation and review for its retail, commercial and corporate financial products to ensure
consistency in the Parent Bank’s risk assessment process. It also ensures that the Parent Bank’s credit policies and
procedures are adequate and are constantly updated to meet the changing demands or risk profiles of the business
units.
The Parent Bank’s commercial banking activities are undertaken by its Commercial Banking Center (ComBank).
These consist of banking products and services rendered to customers which are entities that are predominantly
small and medium scale enterprises (SMEs). These products and services are similar to those provided to large
corporate customers, with the predominance of trade finance-related products and services.
The Parent Bank transitioned to a new internal rating system in 2018 and currently utilizes a single rating system
for both Corporate and Commercial accounts.
The new rating system assesses default risk based on financial profile, management capacity, industry
performance, and other factors deemed relevant. Significant changes in the credit risk considering movements in
credit rating, among other account-level profile and performance factors, define whether the accounts are
classified in either Stage 1, Stage 2, or Stage 3 per PFRS 9 loan impairment standards.
Exposure to credit risk is managed through regular analysis of the ability of borrowers and potential borrowers to
meet interest and capital repayment obligations and by changing these lending limits when appropriate.
The Retail products’ respective masterscale is defined by the credit scoring models, which consider demographic
variables and behavioral performance, to segment the portfolio according to risk masterscale per product. The
stages are defined by the approved Significant Increase in Credit Risk (SICR) for Retail which takes into account
the following: NPL status, months on books, and credit score rating for Application score (point of application)
and Behavior Score (monthly credit performance).
Liquidity Risk
Liquidity risk is the risk that there are insufficient funds available to adequately meet the credit demands of the
Group’s customers and repay deposits on maturity. The ALCO and the Treasurer of the Group ensure that sufficient
liquid assets are available to meet short-term funding and regulatory requirements. Liquidity is monitored by the
Group on a daily basis and under stressed situations. A contingency plan is formulated to set out the amount and the
The Group also manages its liquidity risks through the use of a Maximum Cumulative Outflow (MCO) limit which
regulates the outflow of cash on a cumulative basis and on a tenor basis. To maintain sufficient liquidity in foreign
currencies, the Group has also set an MCO limit for certain designated foreign currencies. The MCO limits are
endorsed by the MRC and approved by the BOD.
Market Risk
Market risk is the risk that the fair value or future cash flows of financial instruments will fluctuate due to changes in
market variables such as interest rate, foreign exchange rates and equity prices. The Group classifies exposures to
market risk into either trading book or banking book. The market risk for the trading portfolio is managed and
monitored based on a Value-at-Risk (VaR) methodology. Meanwhile, the market risk for the non-trading positions
are managed and monitored using other sensitivity analyses.
The Group applies a VaR methodology to assess the market risk of positions held and to estimate the potential
economic loss based upon a number of parameters and assumptions for various changes in market conditions. VaR
is a method used in measuring financial risk by estimating the potential negative change in the market value of a
portfolio at a given confidence level and over a specified time horizon.
The Group uses the historical VaR approach in assessing the possible changes in the market value of investment
securities based on historical data for a rolling one-year period. The VaR models are designed to measure market
risk in a normal market environment. The models assume that any changes occurring in the risk factors affecting the
normal market environment will have the same distribution as they had in the past. This involves running the
portfolio across a set of historical price changes, thus creating a distribution of changes in portfolio value which may
or may not be normal. The historical approach does not make any assumptions regarding the distribution of the risk
factors and therefore can accommodate any type of distribution.
The Group employs “gap analysis” to measure the interest rate sensitivity of its assets and liabilities, also known as
Earnings-at-Risk (EaR). This sensitivity analysis is performed at least every month. The EaR measures the impact
on the net interest income for any mismatch between the amounts of interest-earning assets and interest-bearing
liabilities within a one-year period. The EaR is calculated by first distributing the interest sensitive assets and
liabilities into tenor buckets based on time remaining to the next repricing date or the time remaining to maturity if
there is no repricing and then subtracting the liabilities from the assets to obtain the repricing gap. The repricing gap
per tenor bucket is then multiplied by the assumed interest rate movement and appropriate time factor to derive the
EaR per tenor. The total EaR is computed as the sum of the EaR per tenor within one year. To manage the interest
rate risk exposure, BOD-approved EaR limits were established.
Non-maturing or repricing assets or liabilities are considered to be non-interest rate sensitive and are not included in
the measurement.
The Group’s net foreign exchange exposure, taking into account any spot or forward exchange contracts, is
computed as foreign currency assets less foreign currency liabilities. The foreign exchange exposure is limited to
the day-to-day, over-the-counter buying and selling of foreign exchange in the Group’s branches, as well as foreign
exchange trading with corporate accounts and other financial institutions. The Group is permitted to engage in
proprietary trading to take advantage of foreign exchange fluctuations.
Each specific unit of the Parent Bank has its roles and responsibilities in the management of operational risk and
these are clearly stated in the operational risk management framework. At the BOD level, an ORMC was formed to
provide overall direction in the management of operational risk, aligned with the overall business objectives.
Regulatory compliance risk refers to the potential risk for the Parent Bank to suffer financial loss due to changes in
the laws, monetary, tax or other governmental regulations of the country. The monitoring of the Parent Bank’s
compliance with these regulations, as well as the study of the potential impact of new laws and regulations, is the
primary responsibility of the Parent Bank’s Chief Compliance and Corporate Governance Officer. The Chief
Compliance and Corporate Governance Officer is responsible for communicating and disseminating new rules and
regulations to all units, analyzing and addressing compliance issues, performing periodic compliance testing and
regularly reporting to the CGC and the BOD.
Item 2 - Properties
The UnionBank Plaza, which is a bank-owned property, is now the Union Bank of the Philippines' Head Office. It is
located at Meralco Avenue corner Onyx Street and Sapphire Road, Ortigas Center, Pasig City. It is a 50-storey
office condominium building with an estimated usable area of 50,888.24 square meters. It is one of the most
modern intelligent buildings in the Ortigas Business Center with electronically equipped building utility systems. It
is also a PEZA proclaimed "IT Building" under Presidential Proclamation No. 900 dated Aug. 25, 2005 where the
Bank occupies around 22,924.87 square meters. The Bank’s leased area including those units for lease, cover an
estimated total area of 19,692.99 square meters.
As of December 31, 2018 and 2017, the Bank and its subsidiaries paid ₱664.3 million and ₱571.3 million in rentals,
respectively, mainly for its branches.
Ayala Integrated-CAR DISPLAY #138 Gen. Luis Along Nagkaisang Nayon, Cor. Pasacola St.
WAREHOUSE (from ROPA - ARG) Novaliches Quezon City
ILOILO BUSINESS PARK Brgy. Tabucan Airport, District of Mandurriao, Iloilo City
FAIR Bank
FAIRBANK-STA. FE BRANCH Brgy. Talisay, Sta. Fe
FAIRBANK-DAANBANTAYAN
Osmena, Daanbantayan, Cebu
BRANCH
FAIRBANK-BOGO BRANCH Dela Vina cor. J Lequin Gairan, Bogo City, Cebu (2 properties)
PR Savings Bank
Aurora National Highway San Jose Aurora Isabela
Cabatuan Purok 2 Centro Cabatuan, Isabela
PetNet Inc.
J.Catolico Sr Avenue. corner Mateo Rd, Brgy Lagao, Gen. Santos
PETNET BUILDING
City
0029 Spratley Island St, Betterliving Subd, Don Bosco,
PARAÑAQUE WAREHOUSE MM/ Petnet Inc, 003-BL-011C swaziland St. Brgy Don Bosco,
Betterliving Subd. Paranaque (2 LOTS)
There are also Bank premises which are being leased as per attached report (Annex 3).
All the facilities are in good condition. Likewise, there are no properties owned by the Bank that are mortgaged to
third parties nor are there adverse claims on such properties. The Bank has plans of purchasing properties for
branch locations, if possible. However, there are no concrete steps taken to date regarding actual land purchase for
branches in the next 12 months.
The Bank is not aware of any of the following events wherein any of its directors, nominees for election as director,
executive officers, underwriter or control person were involved during the past five (5) years:
• any bankruptcy petition filed by or against any business of which a director, person nominated to
become a director, executive officer, or control person of the Corporation was a general partner or
executive officer either at the time of the bankruptcy or within two years prior to that time;
• any conviction by final judgment in a criminal proceeding or being subject to a pending criminal
proceeding of any director, person nominated to become a director, executive officer, or control person
of the Bank;
• any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of
competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise
limiting the involvement of any director, person nominated to become a director, executive officer, or
control person of the Corporation in any type of business or banking activities.
There were no matters submitted to a vote of security holders during the fourth quarter covered by this report.
The Bank has only Common shares with foreign equity ownership of 19,240,391 shares or 1.58% of the total
subscribed capital stock. (as of March 31, 2019)
Number of Common Shares as of March 31, 2019 (Issued and Outstanding Shares) – 1,217,609,561 shares
Item 5 - Market for Registrant’s Common Equity and Related Stockholder Matters
UnionBank’s shares were officially listed and first traded at the Philippine Stock Exchange on May 21, 1992.
The Bank has 4,897 shareholders of record as of March 31, 2019. The number of common shares outstanding as of
said date stood at 1,217,609,561.
Level of the Bank’s Public Float Pursuant to the Minimum Public Ownership (MPO) Rule of the PSE
As of March 31, 2019, the public ownership percentage representing the total number of shares owned by public in
the Bank’s shareholdings, computed based on the MPO Rule of the PSE is 31.73%.
The following is a summary of the dividends declared and distributed by the Group in 2018, 2017 and 2016:
January 26, 2018 February 12, 2018 N/A February 27, 2018 ₱1.90 1,058,343,929 ₱2,010,853
January 27, 2017 February 10, 2017 N/A February 24, 2017 ₱1.90 1,058,343,929 ₱2,010,853
January 22, 2016 February 9, 2016 N/A February 19, 2016 ₱1.50 1,058,343,929 ₱1,587,516
On January 25, 2019, the Parent Bank’s BOD approved the declaration of cash dividends at ₱1.90 per share or for a
total of ₱2,312,584 based on the outstanding common stock of 1,217,149,512 shares as of December 31, 2018.
Record date for stockholders entitled to said cash dividend is February 11, 2019 while payment is expected to be
made on February 28, 2019.
In compliance with BSP regulations, the Parent Bank ensures that adequate reserves are in place for future bank
expansion requirements. The foregoing cash dividend declarations were made within the BSP’s allowable limit of
dividends.
On December 7, 2018, the Bank issued and listed on the Philippine Dealing and Exchange Corporation (“PDEx”) its
Php11 billion Fixed Rate Bonds Due 2020 under the Bank’s Php20 billion multi-tranche bond and commercial paper
program.
On February 21, 2018, the Bank issued and listed on PDEx Php3.0 billion worth of Long-Term Negotiable
Certificates of Time Deposit. The offering of LTNCD was to improve the Bank’s deposit maturity profile and
support business expansion plans.
On November 29, 2017, the Bank issued USD500 million in Fixed Rate Senior Notes under the Bank’s Medium
Term Note Programme which was established on November 14, 2017. Proceeds of the Notes was used to refinance
the Bank’s existing liabilities, expand its funding base and for other general corporate purposes.
On September 28, 2018, the Bank issued and listed on The Philippine Stock Exchange, Inc. a total of 158,805,583
common shares following the completion of its ₱10 billion stock rights offering. The offer period ended on
September 21, 2018. Eligible shareholders of the Bank were entitled to a ratio of 1:6.6644 common shares as of
record date of September 3, 2018 at a price of ₱62.97 each. Total gross proceeds is ₱9,999,987,561.51.
Statement of Income for the Year Ended December 31, 2018 vs December 31, 2017
Union Bank of the Philippines registered a net income of Php7.3 billion for the year ended December 31,
2018. The 13.1% decline from previous year’s net income was due to the ff: the lower income contribution of our
subsidiary, City Savings Bank, attributed to the delay in the renewal of its automatic payroll deduction system
(APDS) memorandum of agreement with the Department of Education by seven months; margin compression from
the higher interest rate environment in 2018; and compliance to new liquidity regulations which prompted the Bank
to issue long-term liabilities starting last quarter of 2017.
The Bank’s total equity grew by Php17.6 billion to Php91.0 billion driven by the net proceeds from the
Bank’s stock rights offering in September 2018 and growth in retained earnings arising from the Bank’s net income
for the year, expected credit loss (ECL) adjustments from PFRS9 adoption, other comprehensive income, and non-
controlling interest in PETNET.
Total interest income increased by 14.1% to Php31.6 billion from Php27.7 billion recorded in the
comparable period a year ago. Interest income on loans and other receivables and interest income on investment
securities at amortized cost and fair value through other comprehensive income (FVOCI) were up by 13.2%
and 17.7% to Php23.4 billion and Php7.8 billion, respectively due to higher average volume levels and yields.
Interest income on interbank loans receivable was also higher by 15.6% to Php107.3 million due to higher
average yields. Interest income on cash and cash equivalents and interest income on trading securities at fair
value through profit or loss (FVTPL), on the other hand, were down by 6.7% and 30.1% to Php207.5 million and
Php36.6 million, respectively, driven by lower average volumes.
Total interest expense was up by 67.4% to Php11.6 billion from Php6.9 billion in the same period a year
ago. This resulted from the higher interest expense on deposit liabilities on account of higher average rates of
deposits, as well as higher interest expense on bills payable and other liabilities attributed to the USD500 million
medium term notes issued in November 2017.
As a result of the foregoing, net interest income amounted to Php20.0 billion, 3.8% lower from the
Php20.8 billion earned in 2017.
The Bank also set aside Php856.0 million for impairment losses for 2018.
Total other income amounted to Php5.7 billion for the year, 25.2% higher from the Php4.5 billion earned in
the same period a year ago. Gain on trading and investment securities at FVTPL and FVOCI was recorded at
Php1.4 billion, as the Bank recognized gains from sale of securities portfolio as allowed under the amended PFRS 9.
The Bank also recognized gains on sale of investment securities at amortized cost amounting to Php152.2 million
from the Bank’s participation in a bond exchange offering initiated by the issuer during the first quarter of the year.
Meanwhile, service charges, fees, and commissions increased by 10.7% to Php1.6 billion driven by higher
transaction fees and commissions from the Bank’s bancassurance business. Service charges, fees, and commission
for years 2017 and 2016 were restated to reflect the change CitySavings’ accounting for certain upfront fees from
outright income recognition as services charges, fees and commissions to amortizing the fees to interest income over
the expected life of the loans using the effective interest rate method. Miscellaneous income, on the other hand, was
lower by 10.1% to Php2.6 billion mainly driven by lower gain on sale of investment properties and lower trust fund
income of a subsidiary.
Tax expense amounted to Php1.2 billion, 47.8% lower from Php2.3 billion in the same period last year, in
view of lower taxable income of the Bank’s subsidiary.
Income attributable to non-controlling interests was at Php1.1 million loss from Php8.7 million income
due to lower income from subsidiaries.
Statement of Comprehensive Income for the Year Ended December 31, 2018 vs December 31, 2017
The Bank posted a total comprehensive income of Php7.6 billion for 2018, 9.6% lower than the Php8.4
billion recorded in the same period last year. The lower amount of total comprehensive income was driven by the
lower net income for the year. The Bank had mark-to-market gains on reclassified investment securities at
Php1.4 billion and unrealized mark-to-market gains on investment securities at FVOCI at Php218.9 million.
Remeasurement of retirement obligation, net of tax, also increased to Php189.8 million on actuarial adjustments.
UnionBank’s total resources as of December 31, 2018 amounted to Php673.8 billion, 8.4% higher
compared to the Php621.4 billion reported as of December 31, 2017 primarily driven by increases in loans and other
receivables and investment securities at amortized cost.
Cash and other cash items increased to Php10.9 billion from Php6.6 billion due to higher cash
requirements vs. end-December 2017. Due from Bangko Sentral ng Pilipinas (BSP) declined to Php56.5 billion
from Php66.3 billion due to the deployment of funds to higher yielding securities and loans, as well as the lower
reserve requirements prescribed by the BSP compared to last year. Due from other banks also decreased to
Php14.9 billion from lower working balances with foreign correspondent banks, while excess liquidity was fully
deployed to other asset classes which is why interbank loans receivable did not have any balance as of December
31, 2018.
Holdings of trading and investment securities was up by 28.6% to Php218.3 billion from Php169.7 billion
as the Bank continued to build-up its financial assets at amortized cost, which increased by 20.2% to Php200.2
billion. Financial assets at FVOCI rose to Php9.8 billion from Php43.8 million as a portion of investment securities
at amortized cost was reclassified to the said category, following the adoption of the full version of PFRS 9.
Financial assets at FVTPL also increased to Php8.3 billion from Php3.2 billion due to the purchase of such
securities.
Loans and other receivables grew by 16.4% to Php326.2 billion anchored on the growth across customer
loan businesses to include corporate loans (up 15% YoY), commercial (up 39% YoY), mortgage loans (up 32%
YoY) and credit cards (up 37% YoY). As a result, the Bank’s loan-to-deposit ratio increased to 77.5% in 2018
from 62.6% in 2017.
Investment properties inched up by 7.8% to Php15.3 billion while bank premises, furniture, fixtures
and equipment increased by 35.7% to Php5.1 billion primarily due to the consolidation of assets from the
acquisition of Philippine Resources (PR) Savings Bank and PETNET. Goodwill and Investment in Subsidiaries
and Associates also rose to Php15.7 billion and Php29.6 million from Php11.3 billion and Php2.5 million,
Total capital funds were up by 24.0% to Php91.0 billion as of December 31, 2018 from Php73.3 billion as
of end-December 2017, primarily attributed to the additional capital raised by the Bank in its stock rights offering in
September 2018, as well as the higher surplus free/retained earnings which increased by 9.6% to Php61.5 billion.
Surplus reserves were also up by 78.7% to Php3.5 billion on account of the appropriation for the difference
between BSP’s required 1% expected credit loss (ECL) on stage 1 accounts over the Bank’s computed ECL for
stage 1 accounts. Net unrealized fair value gains on investment securities was recorded at Php75.2 million
coming from the Bank’s investments at FVOCI. Accumulated remeasurements of defined benefit plan, on the
other hand, narrowed at Php985.5 million on actuarial adjustments.
2018 2017
Return on Average Assets 1.2% 1.5%
Return on Average Equity 9.0% 12.0%
Cost-to-Income Ratio 63.6% 54.3%
2018 2017
Net Non-Performing Loan Ratio 2.3% 1.3%
Capital Adequacy Ratio 15.2% 14.4%
The manner by which the Bank calculates the above indicators is as follows:
Return on Average Assets: Net income divided by average total resources for the period indicated
Return on Average Equity: Net income divided by average total capital funds for the period
indicated
Cost-to-Income Ratio: Total operating expenses divided by the sum of net interest income and
other income
Net Non-Performing Loan Ratio: (Total non-performing loans less specific loan loss reserves for NPL)
divided by (total loans inclusive of interbank loans receivables)
Capital Adequacy Ratio: Total qualifying capital divided by total risk-weighted assets (inclusive
of credit, market and operational risk charge)
As to material event/s and uncertainties, the Bank has nothing to disclose on the following apart from those
already disclosed elsewhere or presented in the accompanying audited financial statements:
• Any known trends, demands, commitments, events or uncertainties that will have a material impact on
the issuer’s liquidity.
• Any events that will trigger direct or contingent financial obligation, including any default or
acceleration of an obligation.
• Any material off-balance sheet transactions, arrangements, obligations (including contingent
obligations), and other relationships of the company.
• Any material commitments for capital expenditures, the general purpose of such commitments and the
expected sources of funds for such expenditures.
• Any known trends, events or uncertainties that have had or that are reasonably expected` to have a
material favorable or unfavorable impact on net sales/revenues/income from continuing operations.
Statement of Income for the Year Ended December 31, 2017 vs December 31, 2016
Union Bank of the Philippines and its subsidiaries recorded Php8.4 billion in net income for the year ended
December 31, 2017, 16.4% lower than the prior year’s result of Php10.1 billion primarily due to one-off trading
gains recorded last year. Excluding the trading gains booked in 2016, the Bank’s core income was up by 30.4%
year-on-year (YoY) to Php8.2 billion from Php6.3 billion a year ago.
Total interest income was up by 17.5% to Php27.7 billion in 2017 from Php23.6 billion earned last year.
Higher average level of loans and receivables led to a 13.5% jump in interest income to Php20.7 billion. Interest
income on investment securities at amortized cost and FVOCI and trading securities at FVTPL also rose by
40.4% to Php6.7 billion on higher average volume levels and yields. These more than offset the lower interest
income on cash and cash equivalents, which declined by 54.6% to Php222.3 million on reduced average yields.
On one hand, interest income on interbank loans receivable went up by 15.3% to Php92.8 million on higher
average yields notwithstanding contraction in average volume.
Total interest expense increased by 31.7% to Php6.9 billion from Php5.3 billion last year, primarily on
account of the 38.5% hike in interest expense on deposit liabilities to Php5.9 billion resulting from higher deposit
level.
As a result of the foregoing, net interest income rose by 13.4% to Php20.8 billion compared to the
Php18.3 billion earned a year ago.
Impairment losses amounting to Php875.6 million was set aside for this year, 45.1% lower than the
Php1.6 billion set aside the preceding year, mainly driven by CitySavings’ implementation of its own loan loss
methodology which warranted lower reserve setup.
Total other income was at Php4.5 billion, down by 37.2% from Php7.2 billion in the previous year, mainly
attributed to one-off trading gains in 2016. Gain on sale of investment securities at amortized cost declined to
Php272.8 million in 2017 from Php4.0 billion a year ago. Miscellaneous income increased to Php2.8 billion, 37.0%
higher than last year’s Php2.1 billion on account of higher fair value of investment properties, bancassurance fees,
and income from trust fund investments.
Total other expenses increased by 15.0% to Php13.8 billion from the Php12.0 billion incurred a year ago.
Taxes and licenses amounted to Php2.1 billion, 45.7% higher YoY from higher gross receipt taxes attributed to
higher recurring income as well as increased documentary stamp taxes from growth of time deposits. Occupancy
was up by 7.1% to Php735.1 million on higher rent expenses. Depreciation and amortization declined by 11.4% to
Php634.9 million principally due to reduced depreciation of bank premises as well as amortization on leasehold
rights and improvements. Miscellaneous expenses climbed by 23.5% to Php5.0 billion on higher business-volume
related costs such as PDIC insurance, third party sales commission, and credit card fees.
Tax expense was at Php2.3 billion, an increase of 18.7% from the Php1.9 billion incurred last year in view
of higher final taxes and deferred taxes due to temporary differences.
Income attributable to non-controlling interests was at Php8.7 million, a 7.5% increase YoY mainly
coming from the share in income contribution of FAIRBank, which was acquired by the Bank in the 1 st quarter of
2017.
Statement of Comprehensive Income for the Year Ended December 31, 2017 vs December 31, 2016
The Bank posted a total comprehensive income of Php8.38 billion for the year-ended December 31, 2017,
13.5% lower than the Php9.7 billion registered a year earlier due to lower earnings performance. Accumulated losses
in remeasurements of defined benefit plan, net of tax, narrowed to Php35.8 million as a result of actuarial
The Bank’s total resources reached Php621.4 billion as of end-2017, 18.6% higher compared to the
Php523.8 billion as of end-2016.
Cash and other cash items went up by 10.2% to Php6.6 billion largely due to increased levels of cash in
vault. Due from Bangko Sentral ng Pilipinas (BSP) rose by 18.0% to Php66.3 billion from higher levels of deposit
liabilities, while due from other banks climbed by 28.5% to Php54.5 billion on higher working balances with
foreign correspondent banks. Interbank loans receivable shrunk to Php4.8 billion from Php24.4 billion as these
funds were deployed to higher yielding assets.
Trading and investment securities portfolio surged 39.5% to Php169.7 billion, predominantly due to the
build-up of financial assets at amortized cost, which grew by 41.3% to Php166.5 billion.
Driven by the double-digit growth across major customer loan segments, loans and other receivables–net
expanded by 19.5% to Php280.2 billion from Php234.5 billion booked in the prior year. As such, the Bank’s loan-
to-deposit ratio improved to 62.6%
Bank premises, furniture, fixtures and equipment increased by 6.9% to Php3.8 billion, driven by
investments in information technology infrastructure and branch network.
Total liabilities grew by 20.0% to Php548.1 billion as of end-December 2017 from last year’s Php456.8
billion. Total deposit liabilities similarly increased by 18.9% to Php447.6 billion. Low cost demand and savings
deposits went up by 5.2% and 17.1% to Php127.4 billion and Php57.7 billion, respectively. Time deposits, on the
other hand, increased by 27.8% to Php259.4 billion. Bills payable declined by 10.5% to Php43.1 billion on lower
short-term funding requirements, while notes and bonds payable surged by 4.5x to Php32.1 billion mainly
attributed to the USD500 million bond issuance completed by the Bank in November 2017 under its Medium Term
Note Programme.
Total capital funds rose by 9.6% YoY to Php73.3 billion, mainly driven by the 12.4% increase in retained
earnings to Php56.1 billion from Php49.9 billion. Surplus reserves, likewise, expanded by 13.0% on increased
appropriations for FUPI for the current period. Non-controlling interest posted a balance of Php53.3 million as of
December 31, 2017.
2017 2016
The manner by which the Bank calculates the above indicators is as follows:
Return on Average Assets: Net income divided by average total resources for the period indicated
Return on Average Equity: Net income divided by average total capital funds for the period indicated
Cost-to-Income Ratio: Total operating expenses divided by the sum of net interest income and other
income
Net Non-Performing Loan Ratio:1 (Total non-performing loans less specific loan loss reserves for NPL) divided by
(total loans inclusive of interbank loans receivables)
As to material event/s and uncertainties, the Bank has nothing to disclose on the following apart from those
already disclosed elsewhere or presented in the accompanying audited financial statements:
• Any known trends, demands, commitments, events or uncertainties that will have a material impact on
the issuer’s liquidity.
• Any events that will trigger direct or contingent financial obligation, including any default or
acceleration of an obligation.
• Any material off-balance sheet transactions, arrangements, obligations (including contingent
obligations), and other relationships of the company.
• Any material commitments for capital expenditures, the general purpose of such commitments and the
expected sources of funds for such expenditures.
• Any known trends, events or uncertainties that have had or that are reasonably expected` to have a
material favorable or unfavorable impact on net sales/revenues/income from continuing operations.
• Any significant elements of income or loss that did not arise from the issuer’s continuing operations.
• Any seasonal aspects that had a material effect on the financial condition or results of operations.
The consolidated financial statements and schedules listed in the accompanying Index to Financial Statements and
Supplementary Schedules are filed as part of this Form 17-A. Said statements were audited by the accounting firm
of Sycip Gorres Velayo & Co. and signed by partner Ms. Janet A. Paraiso.
Item 8 - Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
In the Annual Meeting of May 25, 2018, the Stockholders of Union Bank of the Philippines decided not to re-
appoint Punongbayan & Araullo (P&A) as external auditor of the Bank. In the same meeting, Sycip Gorres Velayo
& Co. (SGV) was appointed as the new external auditors of UnionBank and Subsidiaries (the Group) for the year
ending December 31, 2018. The change in external auditor is due to the rotation of external auditor in compliance
with the corporate governance standards of UnionBank.
There were no disagreements with the Bank’s present external auditors, SGV, on accounting principles or practices,
financial statement disclosures or scope of audit or procedure for the current year ended December 31, 2018.
For the regular and statutory audit for the year 2018, audit fees billed by SGV amounted to P9,548,000 exclusive of
VAT and out-of-pocket expenses.
For the regular and statutory audit for the year 2017, audit fees billed by P&A amounted to P10,958,000 exclusive
of VAT and out-of-pocket expenses.
Fees for other special audit, assurance and related services rendered by SGV for 2018 were as follows:
1. P9,542,218 for the issuance of comfort letter related to the Bank’s Stock Rights Offering and review of the
interim consolidated financial statements of the Group as of June 30, 2018 and for the six months ended
June 30, 2018 and 2017.
2. P2,392,159 for the issuance of comfort letter related to the offering of Two (2)-year Senior Fixed Rate
Bonds.
3. P1,250,000 (exclusive of VAT and out-of-pocket expenses) for short period audit of City Savings
Bank, Inc. (CSB)* as of June 30, 2018.
4. P1,830,000 (exclusive of VAT and out-of-pocket expenses) for short period audit of Philippine Resources
Savings Banking Corp.** as of June 30, 2018.
* UnionBank Subsidiary
** CSB Subsidiary
Fees for other special audit, assurance and related services rendered by P&A for 2018 amounted to P1,210,756,
representing payment for the review of the Offering Circular and issuance of comfort letter in connection with the
Bank’s issuance of Long-term Negotiable Certificates of Deposit (LTNCD).
Fees for other special audit, assurance and related services rendered by P&A for 2017 amounted to P4,209,085,
representing payment for the review of the unaudited interim consolidated financial statements of the Group as of
September 30, 2017 and for the six months ended September 30, 2017 and 2016, review of Offering Circular and
issuance of comfort letter in connection with the issuance of senior debt notes.
No tax service fees were paid by the Bank to SGV and P&A for the years 2018 and 2017, respectively.
Other fees billed by P&A in 2017 in relation to review of accounts as of December 31, 2016 amounted to
P200,000.00.
The following practices were agreed to and adopted by and between Management and the external auditor:
1. Before the start of each year’s audit, the external auditor presents to the Audit Committee for approval its
proposed audit plan, describing the areas of focus for the audit, as well as any new accounting standards,
laws and new regulatory rules that need to be taken into account in the course of the audit. The audit
schedule is also presented.
2. The audit fees are agreed with the external auditor by Management.
3. When the audit is substantially completed and before the Bank’s Board meeting in January of the following
year, the external auditor presents an initial report of its audit to the Audit Committee. The complete set of
audited financial statements and accompanying notes are submitted to the Board for notation in its February
meeting.
The following are the names of the nominee Directors of the Bank who have been pre-screened and certified
qualified by the Corporate Governance Committee of the Board pursuant to SRC Rule No. 38, the BSP’s Manual of
Regulations for Banks, SEC Code of Corporate Governance and the Bank’s Revised Manual on Corporate
Governance, at the special meeting held on March 27, 2019 by the following Corporate Governance Committee
Members:
UnionBank’s Independent Directors, namely, Messrs. Mr. Carlos B. Raymond, Jr., retired Supreme Court Chief
Justice Reynato S. Puno, Dr. Francisco S.A. Sandejas, Mr. Erwin M. Elechicon and Mr. Roberto G. Manabat
possess the qualifications and none of the disqualifications of an independent director. They have complied with all
the requirements of the Bangko Sentral ng Pilipinas (BSP), the Securities and Exchange Commission (SEC), and the
Bank’s Manual on Corporate Governance for their respective positions. They were nominated by the nominees to
the Board of Directors of Aboitiz Equity Ventures, Inc. (AEV) thru Mr. Erramon I. Aboitiz, The Insular Life
Assurance Company Ltd. (IL) thru Ms. Nina D. Aguas, and Social Security System (SSS) thru President and CEO,
Mr. Emmanuel F. Dooc. They are not related to the nominees. They are eligible for election as Independent
Directors at the forthcoming Annual Stockholders’ meeting on May 24, 2019.
BUSINESS EXPERIENCE:
The following is a brief description of the business experience of each of the directors/nominees of the
Bank:
Justo A. Ortiz, serves as Chairman of the Bank. He is currently the Chairman of Union Properties, Inc., Philippine
Payments Management, Inc., Blockchain Association of the Philippines, PETNET, Inc.; Director of City Savings
Bank, Inc., a subsidiary of the Bank; Board of Trustee of Insular Life Assurance Company, Ltd. and Philippine
Trade Foundation, Inc.; Board of Governor of the Management Association of the Philippines; Member of the
Makati Business Club, Rotary Club of Manila and World Presidents Organization. He was the Chief Executive
Officer of UnionBank from 1993 to 2017. Prior to his stint in UnionBank, he was Managing Partner for Global
Finance and Country Executive for Investment Banking at Citibank N.A. He graduated Magna Cum Laude with a
degree in Economics Honors Program from Ateneo de Manila University.
Member: Executive Committee, Risk Management Committee, Trust Committee, Market Risk Committee,
Operations Risk Management Committee, Corporate Governance Committee
Erramon I. Aboitiz, serves as Vice Chairman of the Bank. He is the Vice Chairman of City Savings Bank, Inc., a
subsidiary of the Bank. He also serves as President & Chief Executive Officer of Aboitiz Equity Ventures, Inc.* and
Aboitiz Power Corporation*, both publicly listed companies. Mr. Aboitiz is also the President & Chief Executive
Officer of Aboitiz and Company, Inc.; Chairman of the Board of Directors of the following companies: Aboitiz
Infracapital, AboitizLand, San Fernando Electric Light and Power Co., the SN Aboitiz Power Group, Pilmico Foods
Corporation, Therma Power, Inc., CRH Aboitiz, and Aboitiz Renewables, Inc. He is Vice Chairman of Republic
Cement and Building Materials, Inc. Lastly, he is Chairman of the Board of Trustees of Aboitiz Foundation, and is a
director of the Philippine Disaster Recovery Foundation.
Mr. Aboitiz was awarded the Management Association of the Philippines Management Man of the Year and Ernst &
Young's Entrepreneur of the Year both in 2011.
Mr. Aboitiz earned a Bachelor of Science degree in Business Administration, Major in Accounting and Finance,
from Gonzaga University, Spokane, Washington, U.S.A. He was also conferred an Honorary Doctorate Degree in
Management by the Asian Institute of Management. He is not connected with any government agency or
instrumentality.
Sabin M. Aboitiz, serves as Director of the Bank. He is the President and Chief Executive Officer of Pilmico Foods
Corporation, Pilmico Animal Nutrition Corporation, and FilAgri Holdings, Inc. He is also the President of Aboitiz
InfraCapital, Inc., AEV Aviation, Inc., and AEV-CRH Holdings, Inc., wholly-owned subsidiaries of Aboitiz Equity
Ventures (AEV). He is also the Executive Vice President and Chief Operating Officer of Aboitiz Equity Ventures,
Inc.* Concurrently, he is the President of Philippine Flour Millers Association, Inc. (PAFMIL).
He sits as Director of Aboitiz Land, Inc., Republic Cement & Building Materials, Inc., Republic Cement Services,
Inc., CRH Aboitiz Holdings, Inc., AP Renewables, Inc., Apo Agua Infrastructura, Inc., Neptune Hydro, Inc., Petnet
Inc., Filagri Inc, Filagri Holdings, Inc., Pilmico Bioenergy, Inc., Pilmico International Pte Ltd, Pilmico Foods
Corporation, Pilmico VHF Joint Stock Company, Aboitiz InfraCapital, Inc., AEV Aviation, Inc., Aboitiz
Construction International Inc., Aboitiz Construction Inc., Metaphil, Inc., and AEV-CRH Holdings, Inc., and
Weather Philippines Foundation Inc. as Chairman of the Board of Trustees.
He spent much of his professional life with Aboitiz Transport, Inc. and his last position was as President and Chief
Executive Officer of one of its subsidiaries, Aboitiz One, Inc. (owner of the 2GO brand) which is now called 2GO
Group, Inc. He graduated from Gonzaga University in the USA with a B.S. Business Administration Degree
majoring in Finance.
Luis Miguel O. Aboitiz, serves as Director of the Bank. He is currently Chief Strategy Officer of Aboitiz Power
Corporation*. He also held various positions for several Aboitiz subsidiaries including Pilmico Animal Nutrition
Corporation, Aboitiz Foundation Inc.,Aboitiz Power Renewables, Inc., HEDCOR, Inc., SN Aboitiz Power Magat,
Inc., SN Aboitiz Power Benguet, Inc., Manila-Oslo Renewable Enterprise, Inc., and STEAG State Power Inc. Mr.
Aboitiz earned a BS Computer Engineering degree from Santa Clara University, California, USA and obtained his
Master’s Degree in Business Administration from University of California at Berkeley, California, USA.
Mr. Lozano graduated with a Bachelor of Science degree in Business Administration from the University of the
Philippines (Diliman) and holds an MBA degree from The Wharton School of the University of Pennsylvania.
Juan Alejandro A. Aboitiz, serves as Director of the Bank. He holds the position of First Vice President for Energy
Trading and Sales of Aboitiz Power Corporation*. He is currently the Chairman and Chief Financial
Officer/Treasurer of Aboitiz Energy Solutions, Inc. and Adventergy, Inc. and Prism Energy, Inc.; Chairman of AP
Renewables, Inc. and Therma Luzon, Inc.; and Director of SN Aboitiz Power – Res, Inc. and Mazzaraty Energy
Corporation. He was an Assistant Vice President for Corporate Finance of Aboitiz Equity Ventures, Inc.* from
January 2016 to June 2017. He was also the Department Head for Billing and Collection of Visayan Electric
Company, Inc. from March 2012 to June 2013, and Regulatory Affairs Manager of APC from July 2013 to June
2014. He started his career with the Aboitiz Group as a Management Trainee for the Strategy and Corporate Finance
Department of AEV. Prior to joining the Aboitiz Group, he held various positions in SyCip Gorres Velayo & Co.
from 2008 to 2011.
Mr. Aboitiz graduated from Loyola Marymount University in Los Angeles, California, U.S.A. with a degree in
Bachelor of Science in Accounting and Masters of Business Administration from The Hong Kong University of
Science and Technology.
Nina Perpetua D. Aguas, serves as Director of the Bank. She also sits as Director of City Savings Bank, Inc. She is
currently the Executive Chairman of the Board of Trustees of The Insular Life Assurance Co., Ltd. She was the
President and Chief Executive Officer of Philippine Bank of Communications* from August 2012 to March 2015.
Prior to this, she was the Managing Director for Private Banking, Asia-Pacific at ANZ Banking Group Ltd.,
Singapore. She also held various positions with Citigroup Inc. - Managing Director for Corporate Center
Compliance, New York; Country Business Manager, Global Consumer Group, Philippines; Head of Sales &
Distribution, Global Consumer Group, Philippines; and Regional Audit Director, Citigroup, Asia-Pacific. She is
currently the Chairman of the Board of the following Insular Life Subsidiaries - Insular Health Care, Inc.; Insular
Investment Corporation, Home Credit Mutual Building & Loan Association, Inc.; Insular Foundation, Inc.; Insular
Life Management and Development Corporation (ILMADECO); and Insular Life Property Holdings, Inc. where she
also serves as President. She also sits as Director of Insurance Institute for Asia and the Pacific, Inc.; and as member
of the World Bank Group’s Advisory Council on Gender and Development.
Member: Executive Committee, Audit Committee, Market Risk Committee, Corporate Governance Committee
During her stint as Focal Person, Ms. Ignacio oversaw the active participation of the ICAD Member-Agencies in
Rehabinasyon, or the government’s all-encompassing campaign against illegal drugs. She has also initiated the
institution of Substance Abuse Helpline 155, where drugs dependents and their families can call for assistance with
complete confidentiality. This helpline has been active since September 2018. In addition, she was a council
member of the National Food Authority and helped steer the agency through its policies on food security. She also
held various positions in Bank of the Philippine Islands from 2000 to 2016.
Ms. Ignacio obtained her Bachelor of Science degree in Commerce, Banking and Finance from the Centro Escolar
University.
Michael G. Regino, serves as Director of the Bank. He is presently a Member of the Board of the Social Security
Commission (SSC) and since February 28, 2017, a Director of Philex Mining Corporation*. Preceding from his
appointment as Commissioner of the SSC on October 27, 2016, he engaged in multifarious activities which marked
the significant milestones in his career.
He served as the President and member of the Board of Directors of San Agustin Services, Inc., Agata Mining
Ventures, Inc. and Exploration Drilling Corp.; as the Senior Vice President and Chief Operating Officer of St.
Augustine Gold and Copper Ltd.; and as the Executive Director of TVI Resources Development Phils., Inc. He also
became one of the members of the Board of Directors of Nationwide Development Corporation and KingKing
Mining Corp., where he took charge of the Davao operations.
He also gained expertise in the field of real estate development and property management when he served as the
President of Golden Haven Memorial Parks, Inc., Camella Homes, and MGS Group of Companies. He also once
shared his competence in other industries such as Northern Foods, Corp., Kilusang Kabuhayan at Kaunlaran, and the
Ateneo de Zamboanga University, where he served as Finance and Treasury Manager, Chief Financial Specialist,
and Instructor in Economics, respectively.
Mr. Regino graduated Cum Laude and Salutatorian from the Ateneo de Zamboanga University in 1981, with a
degree of Bachelor of Science, Major in Economics. He later obtained his Masters in Business Administration in
1985 from the Ateneo de Manila University.
Member: Risk Management Committee, Audit Committee, Operations Risk Management Committee, Technology
Steering Committee
Alternate Member: Executive Committee, Market Risk Committee, Corporate Governance Committee
Reynato S. Puno, serves as Independent Director of the Bank. He was Chief Justice of the Supreme Court of the
Philippines from 2006 to 2010. He also serves as an Independent Director of San Miguel Corporation* and San
Miguel Brewery Hongkong, Ltd.; Commissioner, PT Delta DJakarta Tbk.; and Board Member of Manila Standard.
He also held various positions in the government, including Assistant Solicitor General in the Office of the Solicitor
General from 1971 to 1982; Associate Justice in the Intermediate Appellate Court from 1983 to 1984; Deputy
Minister in the Ministry of Justice from 1984 to 1986; Associate Justice of the Court of Appeals from 1986 to 1993;
and Associate Justice of the Supreme Court from 1993 to 2007.
Dr. Francisco “Paco” S.A. Sandejas, serves as Independent Director of the Bank. He is Managing Founder at Narra
Ventures, a boutique early-stage investment group that has invested in over 35 high-technology companies, with
some notable companies being Inphi (NYSE: IPHI), SiRF (NASDAQ: QCOM), Amulaire, Quintic (NASDAQ:
NXPI), Calypto (NASDAQ: MENT) and Sandbridge. He is also the Founder and CEO of Xepto Digital Education, a
system developer and integrator of the most innovative platform for the delivery of Digital Education content and
tools for schools of the developing world. He co-founded and chairs Stratpoint Technologies, Inc. one of SouthEast
Asia’s leading software consulting firms for Digital Transformation. He is a Director of Quintic Corporation and
Colixo Incorporated, and a member of Board of Trustees of Phil. S & T Development Foundation. He also serves as
Independent Director of Sun Life of Canada (Philippines), Inc., Sun Life Financial Plans, Inc., Sun Life Asset
Management Company, Inc. and Grepalife Asset Management Corporation.
At Stanford where he completed his Ph.D. and M.S. in Electrical Engineering, he co-invented the Grating Light
Valve (GLV), one of Stanford’s top IP money-makers. He was the first summa cum laude of University of the
Philippines-Diliman’s Applied Physics program and was awarded Ten Outstanding Students of the Philippines. Paco
holds 5 international patents in nanotechnology and optoelectronics.
An active trustee of the Philippine Development Foundation and co-founder of the Brain Gain Network
(www.BGN.org), Paco advices various agencies of the Philippine Government, De La Salle University and the
University of the Philippines. He has worked at H&Q Asia Pacific, Applied Materials and Siliscape.
He graduated with a degree in Economics, Cum Laude, from Ateneo de Manila University. He also attended courses
in Finance and Marketing at Columbia University and at Kellogg School of Management, respectively.
Roberto G. Manabat, serves as Independent Director of the Bank. He is a Certified Public Accountant. He is also a
member of the Board of Trustees of the Institute of Corporate Directors and an Adviser on Corporate Governance of
SM Investments Corporation*. As the first General Accountant of the Securities and Exchange Commission (SEC)
from 2003-2005, he set up the mechanism for effective financial reviews of the financial reports submitted by listed
and other public companies being regulated by the SEC. His past experience involves: Chairman and Chief
Executive Officer of KPMG R.G. Manabat & Co.; a member of the Global Council of KPMG International; a
member of the Asia-Pacific Board of KPMG International; Chairman of Auditing & Assurance Standards Council;
Consultant of the SEC; and Partner of SyCip Gorres Velayo & Co., among others. Mr. Manabat has more than 40
years of track record in the field of accountancy and has been a prominent advisor to many corporate and
government agencies on good governance principles and practices.
In 2018, he received The Outstanding Professional Award in the Field of Accountancy given by the Professional
Regulation Commission. And in 2019, he was honored by The Federation of Asian Institute of Management Alumni
Associations, Inc. (FAIM) with an AIM Alumni Achievement (Triple A) Award, the most prestigious recognition to
be given to AIM graduates.
Mr. Manabat graduated from the University of the East with a degree in Business Administration. He obtained his
Master in Business Management from Asian Institute of Management.
The Executive Officers of the Bank, and their respective age, citizenship and position as of March 31, 2019, are as
follows:
Vice President –
Business Head, Credit November 1, 2014 to June 30,
Card Business 2017
Alan Jay C. Avila 45 Filipino Vice President – Trust December 1, 2018 to present
Officer
BUSINESS EXPERIENCE:
The following is a brief description of the business experience of each of the Executive Officers of the
Bank:
Edwin R. Bautista, serves as Director and President & Chief Executive Officer of the Bank. He is also the
Chairman of First Union Plans, Inc., a subsidiary of the Bank. He is also a Director of the following companies:
Aboitiz Equity Ventures, Inc.*, PETNET, Inc. and Union Properties, Inc. He was the President and Chief Operating
Officer of the Bank from January 1, 2016 to December 31, 2017. He also served as International Exchange Bank in
2006 until its merger with UnionBank. He was Senior Vice-President of UnionBank from 1997 to 2001 and
Executive Vice President from 2001 to 2011. He previously worked as Senior Brand Manager at Procter and
Gamble, Marketing and Sales Director of the Philippines and Guam at American Express International and Vice
President/Group Head of Transaction Banking at Citibank.
Member: Executive Committee, Trust Committee, Technology Steering Committee
Jose Emmanuel U. Hilado, holds the position of Senior Executive Vice President, Chief Financial Officer and
Treasurer of the Bank. He has more than 30 years of banking experience behind him and has held various positions
in Treasury, Trading, Investments, Correspondent Banking, Bank Operations, Human Resources, and Purchasing.
Prior to joining UnionBank, he was the Senior Executive Vice President and Chief Operating Officer of East West
Bank Corporation*. He was also the Treasurer of Rizal Commercial Banking Corporation* for 6 years and Chief
Trader at Banco De Oro Unibank* (“BDO”) for 4 years. He also held positions in International Business
Development of Far East Bank & Trust Company and in Treasury Trading of Equitable PCI Bank.
While at BDO, he was also the Treasurer of BDO Private Bank for 3 years. He is currently a member of various
industry-related associations such as the Bankers Association of the Philippines’ Open Market Committee, Financial
Executive Institute of the Philippines (FINEX), Money Market Association and ACI Philippines and the Philippine
Interpretations Committee (PIC) representing industry. He was President of ACI Philippines from 2002 to 2006, and
was its Director in 2004. ACI Philippines is a business organization for financial market professionals involved in
foreign exchange, fixed income, and derivatives markets.
He obtained his Bachelor of Science degree in Business Economics at the University of the Philippines, and his
MBA degree at Kellogg-Hong Kong University of Science and Technology. He is also a Certified Treasury
Professional from the BAP- Ateneo Graduate School.
Mary Joyce S. Gonzalez, holds the position of Executive Vice President and Center Head of Retail Banking of the
Bank. She is also the Chairman of First Union Insurance and Financial Agencies, Inc. She started her career in
Unionbank as Branch Manager of the Main Office Branch in 1994. After a few months, she was given an expanded
role as Sales Director of the Makati 1 Region. Her stint as Sales Director over the years saw major growth in the
deposit and fund generation business, and the development of a very capable sales management team. In recognition
of her contribution to the business, Joyce was promoted to Senior Vice President and was given an additional task to
develop and lead Customer Segment Management and bring greater customer centricity in UnionBank's pursuit in
delighting its customers, given her seasoned abilities, and exposure in the business of Retail Banking.
Angelo Dennis L. Matutina, holds the position of Executive Vice President and Center Head of Channel
Management of the Bank. He is also the Chief Operations Officer of City Savings Bank, Inc., a subsidiary of the
Bank. As Channel Management Head, he led several projects in six sigma and certification to the International
Organization for Standards relating to quality management and is responsible to the operations of all business
processes including branches, treasury & trust, loans & trade, cash management & card operations, call center,
shared services and business proces transformation. Prior to this assignment, he was head of Branch Operations
Management from 2011-2014, responsible for operations of all Unionbank branches; head of Business Network
Management from 2002-2011, responsible for various head office operating units handling cash management,
electronic banking, central processing services, admin & general services, accounting, reconcilement & financial
services, among others. He was hired in Unionbank on March 2002 as First Vice President; previously he was
Assistant Vice President in Citibank.
John Cary L. Ong, holds the position of Executive Vice President and Center Head of Transaction Banking of the
Bank. He is also currently the Chairman of the Steering Committee of PESONet, the first Automated Clearing
House established under the National Retail Payments System framework of the Bangko Sentral ng Pilipinas. He has
over 20 years of experience in banking and banking-related institutions such as Citibank, Deutsche Bank and Misys
International Banking Systems where he held various positions in different areas – transaction banking, cash
management, trade finance, trust, asset management, fixed-income brokerage, treasury operations and treasury
systems. He was also an Assistant Instructor at Ateneo de Manila University teaching Managerial Accounting,
Business Statistics and Operations Management from 1995-1999.
Manuel G. Santiago, Jr., holds the position of Executive Vice President and Chief Mass Market and Financial
Inclusion Executive leading the banks efforts to serve the unbanked and underbanked markets. Prior to this he was
the Senior Vice President and Head of the Consumer Finance Center managing the Home Loans, Auto Loans,
Personal Loans and Credit Card businesses. He previously worked as Director of Operations in American Express
Bank in Indonesia and as Director of Operations in American Express International, Manila. He also held various
positions in Citibank N.A., Manila.
Roberto F. Abastillas, holds the position of Senior Vice President and Center Head of Commercial Banking of the
Bank. He was previously Senior Vice President and Head of the Account Management Center I at International
Exchange Bank. From 1987 to 1995, he was Vice President and Head of the Account Management Group for United
Coconut Planters Bank.
Atty. Arlene Joan Roxas Tanjuaquio-Agustin, holds the position of Senior Vice President and Head of Private
Banking Group of the Bank. Atty. Agustin brought with her more than two decades of experience and expertise in
Treasury and Trust. She started her career in banking in 1990 as a Trader in Asiatrust Bank, then moved to China
Banking Corp.* as an Assistant Manager for Treasury. In 1997, she transferred to Jade Progressive Savings and
Mortgage Bank where she became the Senior Assistant Vice President-Treasurer. After her two-year stint, she went
to join Robinsons Bank and became its First Vice President, Head of Treasury and concurrent Head of Legal &
Credit Administration. From 2007 to 2009, she worked for GE Money Bank where she was appointed as First Vice
President and Treasurer. When GE Money Bank was acquired by BDO Unibank, Inc.*, she was appointed as the
Customer Solutions Desk Head of the Treasury Capital Markets and Derivatives Division and at the same time
served as the First Vice President and Treasurer of BDO Elite Savings Bank until 2011. In the same year, she joined
Maybank Philippines, Inc. where she became the Senior Vice President, Treasurer and Head of Global Markets.
Atty. Agustin completed her bachelor’s degree in Political Science and Economics from the University of the
Philippines, Diliman. She earned her Juris Doctor Law degree at the Ateneo De Manila University and later took her
Master’s Degree in Business Administration at De La Salle University. She is a member of the Integrated Bar of the
Philippines.
Admiral Feliciano A. Angue, AFP (Ret.)**, holds the Corporate Rank of Senior Vice President and is the Head of
Business Services Group and concurrent Chief Security Officer of the Bank. He has over 37 years of dedicated,
professional and distinguished military service in the Armed Forces of the Philippines (AFP). Earned the reputation
of being an effective leader and efficient manager in various positions of major responsibility, ultimately rising to a
three-star General (Vice Admiral) Command Position in the AFP. He has since successfully transitioned into the
private sector, particularly the banking business for nearly eight years. From his entry point as Chief Security
Officer, he was gradually given additional duties and responsibilities which involved handling ten different Groups
and Divisions in the main structure of the Bank now known as the Business Services Group.
Paolo Eugenio J. Baltao, holds the position of Senior Vice President and Head of EON Banking Group of the
Bank. Prior to joining the Bank, he was the Head of M-Commerce/President of G-Xchange, Inc. (GXI), a wholly
owned subsidiary of Globe Telecom*, handling the mobile commerce business. He was also the Category Manager
of Rizal Commercial Banking Corporation* from June 2000 to December 2004; Electronic Products Officer of
Equitable PCI Bank from November 1996 to May 2000; and Associate Brand Manager of United Laboratories from
May 1992 to October 1994.
Atty. Joselito V. Banaag, holds the position of Senior Vice President, Corporate Secretary, and General Counsel of
the Bank. He was the former Head of the Legal and Compliance Division and Corporate Governance of GT Capital
Holdings, Inc.* from 2012 to 2015. He also previously worked at the Philippine Stock Exchange* (PSE) as the
General Counsel and concurrently, as Chief Legal Counsel of the Securities Clearing Corporation of the Philippines
(SCCP). He was also Officer-in-Charge of the Exchange’s Issuer Regulation Division. Prior to that, he held various
positions in SGV & Co., Cayetano Sebastian Ata Dado & Cruz Law Offices, PNOC Exploration Corporation, and
Padilla Jimenez Kintanar & Asuncion Law Offices.
He earned his Bachelor of Arts in Political Science minoring in Japanese Studies from the Ateneo de Manila
University and his Bachelor of Laws from the University of the Philippines.
Antonio Sebastian T. Corro, holds the position of Senior Vice President and Head of Cards Business of the Bank.
Prior to joining the Bank, he held various positions from 2001 to 2017 in MasterCard Asia/Pacific Pte. Limited such
as Country Manager in Thailand & Myanmar, leading the execution of business development strategies to expand
MasterCard products and services throughout Thailand and Myanmar; Country Manager and Chief Representative
in Indochina Region, guiding the member banks across the Indochina region Vietnam, Cambodia, Laos and
Myanmar, through the execution of franchise related activities, among others; and Vice President for Operations and
Member Relations in the Philippines. He also held various positions in Standard Chartered Bank from 1999-2001.
Mr. Corro earned his Admistracion de Recurcos Fisicos Y Financieros from Colegio Universitario Fermin Toro,
Venezuela.
Ramon Vicente V. De Vera II, holds the position of Senior Vice President and Head of Fintech Business Group of
the Bank. He joined the Bank in 2010 as Business Development Director and was tasked to fan the innovation
flames in the Bank. He also led Corporate Product Management which handles the bank’s core transaction banking
services. He is a founding member and Vice Chairman of the Blockchain Association of the Philippines whose
primary purpose is to educate, regulate and innovate on blockchain technology. He is also a co-founder and director
of Tech-Up Pilipinas – a movement that seeks to help small and medium enterprises, individuals, and large
corporates benefit from technological advancements in order to “tech-up” the Philippines and pave way for inclusive
prosperity; and founding member and board director of the Fintech Association of the Philippines which is part of
the ASEAN Fintech Association. He has an extensive 20-year work experience covering banking (Citibank),
telecommunications (Globel/Singtel), and broadcast/digital media (TV5/ABC), with roles spanning product
*Listed in the Philippine Stock Exchange
**Retired from the Bank effective March 30, 2019
Ana Maria A. Delgado, holds the position of Senior Vice President, Center Head of Consumer Finance and Chief
User Experience Officer of the Bank. She is also a Director of Aboitiz Equity Ventures, Inc.* She is the Treasurer of
the Weather Philippines Foundation from 2016 to present. She started her career with the Bank as a Product
Manager under the Retail Banking Center. Prior to joining the Bank, she was an Assistant Vice President for
Product Management at Citibank, N.A. from 2006 to 2008. She graduated with a Bachelor of Arts in Art
History/Painting from Boston College and obtained her Master’s Degree in Business Administration from New
York University Stern School of Business in 2010.
Ramon G. Duarte, holds the position of Senior Vice President and Head of Platform Development Group of the
Bank. He was previously Chief Technology Officer of Dotenable, Inc. from 2000-2001; Head of Electronic
Banking Transaction Services at ABN AMRO Philippines from 1999 to 2000; and Assistant Vice President of
Product Management under Global Transaction Services at Citibank from 1996 to 1999.
Antonino Agustin S. Fajardo, holds the position of Senior Vice President and Center Head of Corporate Banking of
the Bank. He is also a Senior Credit Officer and has had broad experience in the corporate and consumer sectors of
the Bank in various leadership roles. He headed the Mortgage Business from 2013 to 2017, and in the early years of
the Bank from 1994 to 1998, also played key roles in the Specialized Lending Group, which was involved in general
project finance and the on-lending of official development funds to key accounts. Prior to joining the Bank, he was
Project Officer for the Private Development Corporation of the Philippines. He is a graduate of the University of the
Philippines with a Bachelor’s Degree in Business Management.
Ronaldo Francisco B. Peralta, holds the position of Senior Vice President and Chief Risk Officer of the Bank. He
started his banking career with Citibank, N.A. (Manila, Philippines) in 1985, holding various positions in
Correspondent Banking, Operations, Financial Control, Credit Risk and Relationship Management, with his last role
being the Chief of Staff of the Citi Country Head in 2007. In November 2007, he joined the Australia and New
Zealand Banking Group Limited, taking on different Risk roles such as Head of Wholesale Credit Decisioning
(Manila Hub), Head of Wholesale Portfolio Management (Manila Hub/ Hong Kong), Senior Manager-Lending
Services Asia (Hong Kong), Head of Early Alerts Team (Melbourne, Australia) and Risk Executive-Asia Pacific
Risk (Melbourne, Australia). He also worked as Vice President/Team Head in the Corporate Banking Group of the
Bank of the Philippine Islands, from June to October 2014.
Michaela Sophia E. Rubio, holds the position of Senior Vice President, HR and Corporate Social Responsibility
Director of the Bank. She joined the Bank in 2004 as Vice President and handled the Human Resource Services,
Training and Organization Development divisions. Subsequently, she became the Deputy HR Director. Prior to
joining the Bank, she was the Vice President and Country Human Resource, Quality and Corporate Communications
Head in the Philippines of the global electrical and power company, Asea Brown Boveri (ABB) from 1999 - 2001.
She worked from 2001 - 2003 as a Senior Consultant in OTi Consulting Singapore working with government owned
and private organizations on Singapore Quality Class/Award, People Developer, Industry Capability Upgrading
(ICAP) and Work Life and Work Redesign of which she was certified by SPRING Singapore. Before a career in
Human Resource, she worked for ten years in the semiconductor and electronics manufacturing industry handling
engineering and managerial functions in Statistical Process Control and Quality.
Myrna E. Amahan, holds the position of First Vice President and Internal Auditor of the Bank. She is a Certified
Public Accountant (CPA), Certified Internal Auditor (CIA), Certified Information Systems Auditor (CISA) and has
the designation of Certification in the Governance of Enterprise Information Technology (CGEIT). On top of
these certifications in the field of internal audit and information technology, Mrs. Amahan is a qualified internal
audit external validator, having undertaken the necessary training as well as passing the required
exams. As qualified external validator, Mrs. Amahan is certified to conduct quality assessment of internal audit units
as required under the International Standards for the Professional Practice of Internal Auditing.
Joselynn B. Torres, holds the position of First Vice President and Chief Compliance and Corporate Governance
Officer of the Bank. With over thirty years of experience in the financial and compliance services industries,
working in the areas of business development and mergers and acquisitions, audit, compliance and quality
assurance, most of which were spent in the banking sector. She was the Business Development Head of City
Savings Bank, Inc. (a UnionBank subsidiary), heading the product development function and assisted in the
microfinance business acquisitions. As Senior Vice President, previously handled Business Development, in charge
of mergers & acquisitions, for Philippine Bank of Communications* (PBCOM); and Compliance and Audit
responsibilities for Citibank N.A. Philippines, responsible for the promotion of control and compliance awareness
among the employees of the organization.
Alan Jay C. Avila, holds the position of Vice President and Trust Officer of the Bank. He was the Head of Business
Development and Marketing of the Bank from March 7, 2018 to November 30, 2018. He was previously the
Assistant Vice President and Front Office Management Head of Global Markets, Maybank Philippines, Inc. and also
served as its Trust Officer from September 2011 to March 2016. He started his career with Keppel IVI Investment,
Inc. as Senior Associate from August 1995 to June 2001. He later joined GE Money Bank and held positions such as
Senior Manager for Treasury Department and Acting Trust Officer from June 2001 to February 2010. He was also
Business Development Officer (Corporate Group) of Banco De Oro Unibank, Inc.* Trust Department from February
2010 to September 2011. Mr. Avila graduated from Ateneo De Manila University with a degree in A.B. Economics.
Atty. Buenaventura S. Sanguyo, Jr., holds the position of Vice President, Deputy Head of the Legal Division and
Assistant Corporate Secretary of the Bank. Prior to joining the Bank, he was the Assistant Vice President and
General Counsel of The Philippine Stock Exchange, Inc. from 2012 to 2015. He was previously a Partner at Castro
Sanguyo Margarejo and Rosas Law Office. He was also engaged as an Associate of Reyes Francisco & Associates
Law Office and Senior Tax Consultant at Isla Lipana & Co./ Pricewaterhouse Coopers. He graduated Cum Laude
from the University of Santo Tomas with a degree in Bachelor of Arts in Political Science and obtained his Law
degree from the University of the Philippines."
c) Significant employee
No person who is not an executive officer of the Bank is expected to make a significant contribution to the Bank.
Messrs. Erramon I. Aboitiz and Sabin M. Aboitiz are siblings; thus, they are related within the 4 th degree of
consanguinity.
Other than the foregoing, there are no directors or officers related within the 4th degree either by consanguinity or
affinity.
The Bank is not aware of any of the following events wherein any of its directors, nominees for election as director,
executive officers, underwriter or control person were involved during the past five (5) years:
➢ any bankruptcy petition filed by or against any business of which a director, person nominated to become a
director, executive officer, or control person of the Corporation was a general partner or executive officer
either at the time of the bankruptcy or within two years prior to that time;
➢ any conviction by final judgment in a criminal proceeding or being subject to a pending criminal proceeding
of any director, person nominated to become a director, executive officer, or control person of the Bank;
➢ any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent
jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting the involvement
of any director, person nominated to become a director, executive officer, or control person of the
Corporation in any type of business or banking activities.
The Bank is a defendant/respondent in various legal actions, most of which are claims for damages arising in the
ordinary course of business. The results of these actions, however, will not have a material effect on the Bank’s
financial position.
Information as to the aggregate compensation paid or accrued during the last two calendar years and to be paid in
the ensuing calendar year to the Bank’s Chief Executive Officer and four other most highly compensated executive
officers are as follows:
The non-executive directors receive per diems of P120,000.00 for each attendance in meeting of the Board except
for the Chairman of the Board who receive P150,000.00, while the executive director who is the President and Chief
Executive Officer receive per diem of P1,500.00 for each attendance in Board meetings and P3,000.00 for each
committee meetings.
The Chairman of each committee is paid a per diem of P85,000.00 per meeting actually attended and a committee
member attending a committee meeting receives per diem of P60,000.00. Per diem and bonuses of some directors
who represent institutional shareholders are received for and on behalf of their institution.
The executive officers receive salaries, bonuses, and other standard bank benefits that are already included in the
amounts stated above. There is no contract covering their employment.
The UnionBank Employee Stock Plan (“ESP”) allows selected employees of the Bank stock ownership of shares to
align the interest of management and shareholders for the long-term success of the Bank. A total of five million
(5,000,000) common shares of the Bank shall be granted once per annum, over a 5-year period, to eligible
employees of the Bank with the rank of First Vice President and Up. The ESP shall also be issued in the form of
stock certificates and shall be kept under the Bank’s custody for a period of 3 years.
The following are known to the registrant to be directly or indirectly the record or beneficial owners of more than 5
percent of registrant’s voting securities (registrant has only one class of voting security, i.e. common shares) as of
March 31, 2019:
Name, address of Beneficial
Title of Name, address of Record Owner No. of Percent
Owner & Relationship with Citizenship
Class & Relationship with Issuer Shares Held of Class
Record Owner
Common Aboitiz Equity Ventures, Inc.** Aboitiz Equity Ventures, Inc.** Filipino 591,173,027 48.55%
NAC Tower, 32nd Street NAC Tower, 32nd Street
Bonifacio Global City Bonifacio Global City
Taguig City Taguig City
Principal Shareholders
Common The Insular Life Ass. Co., Ltd.** The Insular Life Ass. Co., Ltd.** Filipino 198,274,189 16.28%
IL Corporate Center IL Corporate Center
Insular Life Drive Insular Life Drive
Filinvest, Alabang, Muntinlupa Filinvest, Alabang, Muntinlupa
Principal Shareholders
Common PCD Nominee Corporation* PCD Nominee Corporation* Filipino 249,535,658 20.49%
37/F Tower I Enterprise Center 37/F Tower I Enterprise Center
6766 Ayala Avenue, Makati City 6766 Ayala Avenue, Makati City
Minority Shareholders
NOTE: Social Security System (SSS) is the only entityperson which holds more than 5% of the copany's outstanding
capital shares under the PCD Nominee Corporation with 82,388,919 shares (6.77%)
Common Social Security System** Social Security System** Filipino 115,132,534 9.46%
East Avenue, Diliman East Avenue, Diliman
Quezon City Quezon City
Principal Shareholders
**The respective proxies of these corporate shareholders are appointed by their respective Board of Directors and
the Company becomes aware of the identity of such proxies only when the corresponding proxy appointments are
received by the Company. Based on previous meetings, Mr. Erramon I. Aboitiz have been appointed proxy for the
Aboitiz Group, Ms. Mona Lisa B. Dela Cruz has been appointed proxy for The Insular Life Assurance, Co., Ltd.,
and Mr. Emmanuel F. Dooc has been appointed proxy for the SSS Group.
*The PCD, represented by its Associate Directors, Theresa Ravalo and Josephine F. dela Cruz, only holds legal
title, and not beneficial ownership over, the lodged shares.
The following are the number of shares comprising the Bank’s capital stock (all of which are voting shares) owned
of record by the directors, Chief Executive Officer, key officers of the Bank, and nominees for election as director as
of March 31, 2019:
Raquel P. Palang 973 (b) Filipino c/o Union Bank of the 0.00%
P9,730.00 Philippines
Ramon Vicente V. De 33,586 (r) Filipino c/o Union Bank of the 0.00%
Vera II P335,860.00 Philippines
Ramon Vicente V. De 84 (b) Filipino c/o Union Bank of the 0.00%
Vera II P840.00 Philippines
Julie C. Go 265,969 (r) Filipino c/o Union Bank of the 0.02%
P2,659,690.00 Philippines
Catherine Anne B. 6,334 (r) Filipino c/o Union Bank of the 0.00%
Casas P63,340.00 Philippines
Ma. Cecilia Teresa S. 42,202 (r) Filipino c/o Union Bank of the 0.00%
Bernad P422,020.00 Philippines
Gerard D. Darvin 28,941 (r) Filipino c/o Union Bank of the 0.00%
P289,410.00 Philippines
Rebecca M. Dela Cruz 39,151 (r) Filipino c/o Union Bank of the 0.00%
P391,510.00 Philippines
Joy Valerie B. Gatdula 75,431 (r) Filipino c/o Union Bank of the 0.01%
P754,310.00 Philippines
Marie Aimee S. Tumao 539,019 (r) Filipino c/o Union Bank of the 0.04%
P5,390,190.00 Philippines
Derrick J. Nicdao 3,684 (r) Filipino c/o Union Bank of the 0.00%
P36,840.00 Philippines
The aggregate number of shares owned of record by the Chief Executive Officer, key officers and directors as a
group as of March 31, 2019 is 25,314,478 shares equivalent P253,144,780.00 @ P10.00/share which is
approximately 2.08% of the Bank’s outstanding capital stock.
“r” represents record ownership
“b” represents beneficial ownership at par value of P10.00/share
There was no change in control that occurred in the Bank since the beginning of the last fiscal year.
There were no transactions during the last two (2) years with any director, officers or any principal stockholders
(owning at least 10% of the total outstanding shares of the company) which were not in the ordinary course of
business. All related transactions, pursuant to the Bank’s Revised Manual on Corporate Governance, are all entered
into on arm’s length standard. These transactions shall only be made and entered into substantially on the same
terms and conditions as transactions with other individuals and businesses of comparable risks.
The Bank has no parent company as no stockholder owns more than 51% of the shares of the Bank.
Bank’s significant transactions with its related parties are enumerated in Note 31 on Related Party Transactions of
the Audited Financial Statements, pages 135-140.
The Bank undertakes to provide without charge to any stockholder who makes a written request for a copy of the
Bank’s annual report on SEC Form 17-A. Requests may be sent to Ms. Lalaine L. Batac 18th Floor, UnionBank
Plaza, Meralco Avenue corner Onyx and Sapphire Streets, Ortigas Center, Pasig City.
The Bank likewise undertakes to provide without charge to any stockholder, during the Annual Stockholder’s
Meeting, a copy of SEC Form 17Q containing UnionBank’s Interim Financial Statements, Management Discussion
and Analysis of Financial Condition and Results of Operation.
The other exhibits, as indicated in the Exhibit Table of Securities Regulation Code Forms are either not applicable to
the Bank or require no answer.
The following reports on SEC Form 17-C (Current Reports) were filed during last six months of 2018 and 1st quarter
of 2019. (June 2018-March 2019)
Additional Exhibits
Percentage Ownership
Subsidiaries:
La Union Branch Ground Floor Kenny Plaza, Quezon Avenue, Catbangen, San
21 Fernando (City/Capital), La Union
Legazpi Branch Ground Floor Tower Mall Building 4, Landco Business Park,
22 Legazpi (City/Capital), Albay
Ground Floor 1NK Centre, General Luna St., Sabang, Lipa (City),
Lipa Branch
23 Batangas
Ground Floor Building 2 One People Square Business Center, M.L.
Lucena Branch Tagarao cor Granja St., Barangay 3, Lucena (City/Capital),
24 Quezon
Caloocan Branch Ground Floor Dianne Building, 746 Rizal Ave. Ext., Grace Park,
25 Barangay 86, Caloocan City, 3rd District Metro Manila
26 Tagbilaran Branch C.P. Garcia Ave., Poblacion II, Tagbilaran (City/Capital), Bohol
Tuguegarao Branch Units 11-13 Red Square Building, No. 1 Rizal St. corner College
27 Avenue, Tuguegarao City, Cagayan
Davao Branch Door 1-4 PNRC Building, Roxas Avenue, Barangay 34-D (Pob.),
28 Davao (City), Davao Del Sur
Ismael Ellosos St. cor. Jc Aquino Avenue, Imadejas Subdivision,
Butuan Branch
29 Butuan City,
Calapan Branch Unit 5 & 6 Pure Gold - Calapan, J.P. Rizal St., Camilmil, Calapan
30 (City/Capital), Oriental Mindoro
31 Taguig Branch #48 Gen. Alfredo Santos Avenue, Taguig City
Alabang - Zapote Road, cor Crispina Avenue Pamplona, Las Pinas
Las Piñas Branch
32 City
Santiago Boulevard, Dadiangas South, General Santos City, South
General Santos Branch
33 Cotabato
Mandaue Branch Unit 3 & 4 Citybridge Plaza, A.C. Cortes Avenue cor. P. Burgos
34 St., Alang-Alang, Mandaue (City), Cebu
Catarman Branch 1305 Camara Building, Bonifacio cor. Garcia St., Mabolo (Pob.),
35 Catarman (Capital), Northern Samar
San Jose Branch Lebrilla Ang Building, Burgos St., corner Rizal St., Barangay
36 Poblacion I, San Jose, Occidental Mindoro
Dipolog Branch Bulosan Building, Sergio Osmeña Street, Central Barangay (Pob.),
37 Dipolog (City/Capital), Zamboanga Del Norte
Sta. Cruz Branch Ground Floor Ehome Corporate Center, P. Guevarra St., Barangay
38 Pasawitan, Sta Cruz, Laguna
39 Alaminos Branch Quezon Avenue, Poblacion, Alaminos City, Pangasinan
40 Lemery Branch Brgy. Malinis, Lemery, Batangas
Laoag Branch Trece Grande Bldng. No. 187, J.P. Rizal cor. Samonte Sts., Bgy.
41 No. 19, Santa Marcela (Pob.), Laoag (City/Capital), Ilocos Norte
42 Bogo Branch P. Rodriguez St., Cogon, Bogo City, Cebu
PR Savings Bank
FAIR Bank
PR Savings Bank
March 1, 2021 -
February 28,
February 28,
61,036.90 2022
2022
March 1, 2022 -
February 28,
February 28,
64,088.74 2023
2023
Naga City, Door No. 44 & 45, CBD II May 01, 2018 -
April 30, 2019
Camarines Sur Terminal, Triangulo, Naga City 62,233.92 April 30, 2019
May 01, 2019 -
April 30, 2020
62,233.92 April 30, 2020
May 01, 2020 -
April 30, 2021
65,345.61 April 30, 2021
May 01, 2021 -
April 30, 2022
68,612.89 April 30, 2022
May 01, 2022 -
April 30, 2023
72,043.53 April 30, 2023
Unit No. 6,7 & 8 USPD Bldg.
Digos City, Davao May 01, 2018 -
Rizal Avenue Zone III Digos April 30, 2019
del Sur 93,767.63 April 30, 2019
City, Davao Del Sur
May 01, 2019 -
April 30, 2020
93,767.63 April 30, 2020
May 01, 2020 -
April 30, 2021
98,456.02 April 30, 2021
May 01, 2021 -
April 30, 2022
103,378.82 April 30, 2022
May 01, 2022 -
April 30, 2023
108,547.77 April 30, 2023
Unit 18 & 19 Honaco
Urdaneta City, March 31, April 01, 2019 -
Commercial Bldg. Nancayasan
Pangasinan 77,262.79 2020 March 31, 2020
Urdaneta City, Pangasinan
March 31, April 01, 2020 -
81,125.92 2021 March 31, 2021
March 31, April 01, 2021 -
85,182.22 2022 March 31, 2022
March 31, April 01, 2022 -
89,441.33 2023 March 31, 2023
September 01,
Sitio Ilog Pugad, National August 31,
Taytay 2018 - August
Road,San Juan,Taytay,Rizal 94,150.74 2019
31, 2019
September 01,
August 31,
2019 - August
98,858.28 2020
31, 2020
September 01,
August 31,
2020 - August
108,744.10 2021
31, 2021
Units 11-13 No. 1 Rizal St. September 01,
Tuguegarao City, August 31,
corner College Avenue, 2018 - August
Cagayan 77,792.40 2019
Tuguegarao City, Cagayan 31, 2019
FAIR Bank
PR Savings Bank
Statements of Income
For the years ended December 31, 2018, 2017 and 2016
Supplementary Schedules
and
Other relevant information about the subsidiaries’ nature of businesses and their status of operations
are discussed in the sections that follow:
(a) CSB was incorporated and registered with the SEC on December 9, 1965. On December 9, 2014,
the SEC approved the amendment extending CSB’s corporate term for another 50 years from
December 9, 2015. It is a thrift bank specializing in granting teacher’s loans under the
Department of Education’s Automatic Payroll Deduction System.
On January 23, 2015, the Board of Directors (BOD) approved the proposal to purchase the
remaining 894 common shares of CSB held by some 41 minority shareholders. The Bank
purchased additional 68 shares, 38 shares and 36 shares in 2016, 2017 and 2018, respectively,
thereby, further increasing the Bank’s percentage ownership to 99.76%, 99.77% and 99.78% as
of December 31 of those respective years.
(b) In December 2017, CSB and the registered holders and beneficial owners of Philippine Resources
Savings Banking Corp. (PR Savings Bank) from the Ropali Group signed a share purchase
agreement (“SPA”), whereby the former shall acquire 127.72 million common stock of PR
Savings Bank with par value of P10 per share or a total par value of P1,277.23 million. The
shares represent 66.28% of the total outstanding capital stock of PR Savings Bank.
As part of the conditions precedent to the obligation of CSB to purchase the common stock, CSB
and International Finance Corporation (IFC) entered into a Share Purchase Agreement
(“Agreement”) on February 23, 2018, whereby the former shall acquire the 65.00 million
preferred shares of PR Savings Bank owned by IFC, with par value of P10.00 per share or a total
par value of P650.00 million. The shares represent 33.72% of the total issued and outstanding
capital stock.
On April 5, 2018, the Philippine Competition Commission (PCC) approved the acquisition of PR
Savings Bank by CSB. The acquisition was also approved by the Monetary Board (MB) of the
BSP under MB Resolution No. 1003 dated June 14, 2018 (see Note 15).
On July 5, 2018 and July 10, 2018, the BOD and the stockholders, respectively, of CSB approved
the plan of merger with PR Savings Bank, with CSB as the surviving entity. On December 20,
2018, the MB of the BSP approved the merger subject to certain conditions, including completion
of the merger within one year from the date of receipt of the BSP approval and that the merger
should be effective on the date the SEC issues the certificate of merger. Subsequent to the BSP
approval, CSB has applied for merger with the SEC.
PR Savings is the 14th largest thrift bank in the country. Most of its 102 offices are located in
Luzon offering motorcycle, agri-machinery, and salary loans to over 131,000 borrowers, mostly
from the mass market segment. The transaction will enable CSB to expand its reach in Luzon,
and enter into new market segments, such as motorcycle and agri-machinery financing.
(c) In February 2018, CSB and UPI signed an SPA with AEVI for the purchase of 2,461,338
common shares representing 51% ownership of AEVI on PETNET, Inc. (PETNET). On
May 8, 2018, PCC approved the acquisition of PETNET, Inc. by CSB and UPI. The agreement
was approved by the BSP on November 23, 2018. On December 17, 2018, the parties closed the
transaction by settling the purchase price and confirming that all closing conditions have been
fulfilled (see Note 15).
*SGVFS032841*
-3-
PETNET, more widely-known by its retail brand name PERA HUB, has the largest network of
Western Union outlets in the Philippines. PETNET has over 2,800 outlets nationwide. It offers a
variety of cash-based services including remittance, currency exchange and bills payment.
(d) FAIR Bank was registered with the SEC on September 15, 1998 primarily to engage in the
business of extending rural credit to small farmers and tenants and to deserving rural industries or
enterprises. FAIR Bank has one (1) banking office and ten (10) branches located all over Cebu.
On December 21, 2015, CSB, UPI and the major stockholders of FAIR Bank signed a
Memorandum of Agreement which provided for the terms of the acquisition of a total of 77.78%
of the issued and outstanding capital stock of FAIR Bank by CSB and UPI (Note 3). On
December 15, 2016, the MB of the BSP approved the acquisition by CSB and UPI of FAIR
Bank’s 441,000 common shares and 259,002 common shares, respectively, from the selling
shareholders of FAIR Bank. The common shares acquired by CSB and UPI represented 49.00%
and 28.78%, respectively, of the issued and outstanding capital stock of FAIR Bank. The funds
for the payment of the acquisition were deposited in an escrow account with UnionBank Trust
and Investment Services Group (TISG) and the escrow amount were released in tranches,
subjected to the fulfillment of certain conditions necessary to fully transfer ownership over the
acquired shares to CSB and UPI.
On March 17, 2017, CSB and UPI subscribed to 294,000 and 306,000 new common shares,
respectively, of FAIR Bank at par value of P100 per share. As a result of the subscription, the
percentage of ownership of UPI in FAIR Bank increased to 37.67% while CSB’s ownership
interest stood at 49%.
To meet the minimum requirements of capital adequacy under the Manual of Regulations for
Banks (MORB), additional subscription was made by CSB and UPI on November 13, 2018 of
50,960 and 53,040 common shares, respectively, of FAIR Bank at par value of P100 per share.
As a result of the additional subscription, the percentage of ownership of CSB’s ownership
interest in FAIR Bank remained at 49% while UPI’s ownership interest in FAIR Bank increased
to 38.53%.
(e) UPI was incorporated and registered with the SEC on December 20, 1993. It is presently
engaged in the administration and management of the Parent Bank’s premises and other
properties such as buildings, condominium units and other real estate, wholly or partially owned
by the Group. Pursuant to the action of the BOD of UPI approving the amendment of its Articles
of Incorporation on May 13, 2004, the primary purpose of UPI was changed from a real estate
developer to a real estate administrator. The SEC approved such amendment on December 13,
2004. Through its wholly-owned subsidiaries, FUPI, FUDC and FUIFAI, UPI is also engaged in
the sale of pre-need plans, marketing of financial products and being an agent for life and non-life
insurance products.
Non-operating subsidiaries
(a) UBPSI was incorporated and registered with the SEC on March 2, 1993. It was organized to
engage in the business of buying, selling or dealing in stocks and other securities. In January
1995, as approved by UBPSI’s stockholders and BOD, UBPSI sold its stock exchange seat in the
PSE. Accordingly, UBPSI ceased its stock brokerage activities.
(b) UCBC was registered in the SEC on June 14, 1994. It was organized to engage in the foreign
currency brokerage business. On March 23, 2001, the BOD of UCBC approved the cessation of
its business operations effective on April 16, 2001. Since then, UCBC’s activities were
significantly limited to the settlement of its liabilities. The BOD and the stockholders of UCBC
*SGVFS032841*
-4-
have approved to shorten the company’s corporate term to December 31, 2016. UCBC has
secured a tax clearance from the Bureau of Internal Revenue (BIR) in 2018.
(c) UDC was registered with the SEC on September 8, 1998. It was organized to handle the
centralized branch accounting services as well as the processing of credit card application forms
of the Parent Bank and the entire backroom operations of FUPI. On July 1, 2003, the BOD of
UDC approved the cessation of its business operations effective on August 30, 2003, and
subsequently shortened its corporate term to December 31, 2017 by amending its Articles of
Incorporation. The services previously handled by UDC are now undertaken by the Centralized
Processing Service Unit of the Parent Bank. UDC is still in process of securing the tax clearance
from the BIR.
(d) IVCC was incorporated and registered with the SEC on October 10, 1980. It was organized to
develop, promote, aid and assist financially any small or medium scale enterprises and to
purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage and otherwise deal
with such real and personal property, including securities and bonds of other corporations as the
transaction of the lawful business of the corporation may reasonably and necessarily require,
subject to the limitations prescribed by law and the constitution. IVCC has ceased operations
since 1992.
(e) UBPIBI was organized to engage in the insurance brokerage business. It was incorporated and
registered with the SEC on February 27, 1992. In 1995, the BOD of UBPIBI approved the
cessation of its operations. On November 15, 2018, the SEC approved the dissolution of UBPIBI
after it has secured a tax clearance from the Bureau of Internal Revenue (BIR) for the dissolution
in 2017.
The total assets, liabilities and capital funds of these non-operating subsidiaries amount to P
=5,211,
=3,158 and =
P P2,053, respectively, as of December 31, 2018 and P =5,245, =
P3,155 and P=2,090,
respectively, as of December 31, 2017.
The Bank’s registered address, which is also its principal place of business, is at UnionBank Plaza,
Meralco Avenue corner Onyx Street and Sapphire Road, Ortigas Center, Pasig City. AEVI’s
registered address is located at NAC Tower, 32nd Street, Bonifacio Global City, Taguig City, Metro
Manila.
The significant accounting policies that have been used in the preparation of these financial
statements are summarized below. These policies have been consistently applied to all the years
presented, unless otherwise stated.
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The consolidated financial statements of the Group and the financial statements of the Bank have
been prepared in accordance with Philippine Financial Reporting Standards (PFRS). PFRSs are
adopted by the Financial Reporting Standards Council (FRSC) from the pronouncements issued
by the International Accounting Standards Board (IASB), and approved by the Philippine Board
of Accountancy.
The financial statements have been prepared using the measurement bases specified by PFRS for
each type of resource, liability, income and expense.
The measurement bases are more fully described in the accounting policies that follow.
The financial statements are presented in accordance with Philippine Accounting Standards
(PAS 1), Presentation of Financial Statements. The Group presents statement of comprehensive
income separate from the statement of income.
The Group presents a third statement of financial position as at the beginning of the preceding
period when it applies an accounting policy retrospectively, or makes a retrospective restatement
or reclassification of items that have a material effect on the information in the statement of
financial position at the beginning of the preceding period. The related notes to the third
statement of financial position are not required to be disclosed.
These financial statements are presented in Philippine pesos, the Group’s functional and
presentation currency, and all values are presented in thousands of Philippine Pesos except when
otherwise indicated.
Items included in the financial statements of the Group are measured using its functional
currency, the currency of the primary economic environment in which the Group operates.
Unless otherwise stated, the following new accounting standards, amendments and annual
improvements have no material impact to the Group’s annual consolidated financial statements as
at and for the year ended December 31, 2018:
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∂ PFRS 9 (2014), Financial Instruments. This standard replaces PAS 39, Financial
Instruments: Recognition and Measurement and PFRS 9 (2009, 2010 and 2013 versions),
herein referred to as PFRS 9. In addition to the principal classification categories for
financial assets and financial liabilities, which were early adopted by the Group on January 1,
2014, PFRS 9 (2014) includes the following major provisions:
- an expected credit loss model in determining impairment of all financial assets that are
not measured at fair value through profit or loss (FVTPL), including irrevocable loan
commitments and financial guarantee contracts which generally depends on whether
there has been a significant increase in credit risk since initial recognition of a financial
asset.
The significant increase/improvement in credit risk (SICR) model is used to classify accounts
into PFRS 9 ECL’s three stages. A set of defined empirical-based rules and expert judgment
that discriminate good and bad credit make up the SICR. Accounts that do not demonstrate
significant increase in credit risk are classified under Stage 1, while accounts that
demonstrate significant increase in credit risk since origination but does not have objective
evidence of impairment as of reporting date are classified under Stage 2. On the other hand,
accounts with objective evidence of impairment are classified under Stage 3.
*SGVFS032841*
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The 12-month ECL is computed for Stage 1 accounts, while the lifetime ECL is calculated
for Stage 2 and Stage 3 accounts. Stage 1 and Stage 2 accounts shall use future values derived
from the term structures of the PD, LGD, and CCF. These future values also take into
consideration prospective business environment conditions through the inclusion of
macroeconomic forecasts.
Altogether, the resulting value is called the baseline ECL. In order to compute for the
probability-weighted ECL, calibration factors and scenario weights are embedded into the
baseline model. Finally, risk management policies complement the application of
probability-weighted ECL models. Together, ECL models and their corresponding policies,
shall enhance the assessment and monitoring of accounts.
At January 1, 2018, the Group determined the amount of provisions required under the ECL
model, in accordance with its existing governance framework relevant to the implementation
of PFRS 9. The Group continues to refine its processes to enhance its implementation of
PFRS 9.
The Group applied the modified retrospective application in adopting PFRS 9, which allowed
the Group not to restate comparative periods for the effect of the adoption. The effect of
adopting PFRS 9 is as follows:
Group
Allowance for
impairment ECL under
Under PAS 39 PFRS 9
as at as at
December 31, January 1,
Amounts in thousands 2017 Remeasurement 2018
Due from other banks =–
P =9,082
P =9,082
P
Interbank loans and receivables – 600 600
Investment securities:
At amortized cost – 16,519 16,519
At fair value through other
comprehensive income 40 (40) −
Loans and other receivables - net 10,822,982 (2,369,381) 8,453,601
=10,823,022
P (P
=2,343,220) =8,479,802
P
As of January 1, 2018, the adoption of ECL under PFRS 9 resulted in net reduction in total
Allowance for credit losses for the Group totaling P
=2,343.2 million and decrease in Deferred
tax asset of P
=703.0 million, which accordingly resulted in increase in Surplus free attributable
to equity holders of the Parent Bank amounting to =P1,641.1 million and decrease in the
non-controlling interest amounting to =
P0.9 million. Net increase in total equity of the Group
amounted to = P1,640.3 million.
*SGVFS032841*
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Parent Bank
Allowance for
Impairment ECL under
Under PAS 39 PFRS 9
as at as at
December 31, January 1,
Amounts in thousands 2017 Remeasurement 2018
Due from other banks =–
P =9,082
P =9,082
P
Interbank loans and receivables – 600 600
Investment securities:
At amortized cost – 16,519 16,519
At fair value through other
comprehensive income 40 (40) −
Loans and other receivables - net 9,645,340 (2,903,516) 6,741,824
=9,645,380
P (P
=2,877,355) =6,768,025
P
As of January 1, 2018, the adoption of ECL under PFRS 9 resulted in net reduction in total
Allowance for credit losses for the Parent Bank totaling =
P2,877.4 million, reduction in
Investment in subsidiaries amounting to =P373.0 million and decrease in Deferred tax asset of
=863.3 million, which accordingly resulted in increase in Surplus free amounting to
P
=
P1,641.1 million.
In addition, the Group has presented separately the interest revenue, calculated using
effective interest method, from other interest revenue. As a result, Interest income on
Investment securities at amortized cost and FVOCI is presented separately from Interest
income on trading securities at fair value through profit or loss. Previously, these interest
income items were presented together as Interest income on trading and investment securities.
PFRS 9 does not change the general principles of how an entity accounts for effective hedges.
Applying the hedging requirements of PFRS 9 did not have a significant impact on the
Group’s consolidated financial statements.
∂ PFRS 15, Revenue from Contracts with Customers. The standard supersedes PAS 11,
Construction Contracts, PAS 18, Revenue and related Interpretations and it applies to all
revenue arising from contracts with customers, unless those contracts are in the scope of other
standards. The new standard establishes a five-step model to account for revenue arising
from contracts with customers. The five-step model is as follows:
a. Identify the contract(s) with a customer
b. Identify the performance obligations in the contract
c. Determine the transaction price
d. Allocate the transaction price to the performance obligations in the contract
e. Recognize revenue when (or as) the entity satisfies a performance obligation
Under PFRS 15, revenue is recognized at an amount that reflects the consideration to which
an entity expects to be entitled in exchange for transferring goods or services to a customer.
The standard requires entities to exercise judgement, taking into consideration all of the
relevant facts and circumstances when applying each step of the model to contracts with the
customers. The standard also specifies the accounting for the incremental costs of obtaining a
contract and the costs directly related to fulfilling a contract.
*SGVFS032841*
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The Group adopted PFRS 15, Revenue from Contracts with Customers, effective
January 1, 2018. The Group operates various rewards program for its credit card business
whereby reward entitlement varies according to the type of card and available points earned
by the credit card holder.
Prior to adoption of PFRS 15, the rewards program offered by the Group resulted in
recognition of miscellaneous expense and accrued expense in relation to estimated points
issued but not yet redeemed or expired. The new standard requires the Group to allocate a
portion of the service fee (interchange fee) to the loyalty points awarded to the credit card
holders, as the loyalty points give rise to a separate performance obligation. The allocated
service fee for the loyalty points is recognized as revenue upon fulfilment of its obligation,
i.e. actual redemption of the loyalty points.
The Group’s recognition of this standard resulted in recognition of unearned revenue and
reversal of accrued expense, pertaining to loyalty points earned by the credit card holders but
were not yet redeemed as of reporting date. The net effect of these adjustments was not
material to the Group’s annual consolidated financial statement. The Group adopted PFRS
15 using the full retrospective method of adoption.
There are new PFRSs, amendments, interpretation and annual improvements, to existing
standards effective for annual periods subsequent to 2018, which are adopted by the FRSC.
Management will adopt the following relevant pronouncements in accordance with their
transitional provisions; and, unless otherwise stated, none of these are expected to have
significant impact on the Group’s financial statements:
*SGVFS032841*
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∂ PFRS 16, Leases. This new standard sets out the principles for the recognition, measurement,
presentation and disclosure of leases and requires lessees to account for all leases under a
single on-balance sheet model similar to the accounting for finance leases under PAS 17,
Leases. The standard includes two recognition exemptions for lessees - leases of ’low-value’
assets (e.g., personal computers) and short-term leases (i.e., leases with a lease term of 12
months or less). At the commencement date of a lease, a lessee will recognize a liability to
make lease payments (i.e., the lease liability) and an asset representing the right to use the
underlying asset during the lease term (i.e., the right-of-use asset). Lessees will be required
to separately recognize the interest expense on the lease liability and the depreciation expense
on the right-of-use asset.
Leesees will be also required to remeasure the lease liability upon the occurrence of certain
events (e.g., a change in the lease term, a change in future lease payments resulting from a
change in an index or rate used to determine those payments). The lessee will generally
recognize the amount of the remeasurement of the lease liability as an adjustment to the
right-of-use asset.
Lessor accounting under PFRS 16 is substantially unchanged from today’s accounting under
PAS 17. Lessors will continue to classify all leases using the same classification principle as
in PAS 17 and distinguish between two types of leases: operating and finance leases.
PFRS 16 also requires lessees and lessors to make more extensive disclosures than under
PAS 17.
A lessee can choose to apply the standard using either a full retrospective or a modified
retrospective approach. The standard’s transition provisions permit certain reliefs.
Upon adoption of this standard, the Group and the Parent Bank expect to recognize a right of
use asset and lease liability for covered lease contracts. Management is currently assessing
the impact of this new standard in the consolidated and parent bank financial statements.
∂ Determine current service cost for the remainder of the period after the plan amendment,
curtailment or settlement, using the actuarial assumptions used to remeasure the net
defined benefit liability (asset) reflecting the benefits offered under the plan and the plan
assets after that event
∂ Determine net interest for the remainder of the period after the plan amendment,
curtailment or settlement using: the net defined benefit liability (asset) reflecting the
benefits offered under the plan and the plan assets after that event; and the discount rate
used to remeasure that net defined benefit liability (asset).
The amendments also clarify that an entity first determines any past service cost, or a gain or
loss on settlement, without considering the effect of the asset ceiling. This amount is
recognized in the statements of income. An entity then determines the effect of the asset
ceiling after the plan amendment, curtailment or settlement. Any change in that effect,
excluding amounts included in the net interest, is recognized in other comprehensive income.
*SGVFS032841*
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The amendments also clarified that, in applying PFRS 9, an entity does not take account of
any losses of the associate or joint venture, or any impairment losses on the net investment,
recognized as adjustments to the net investment in the associate or joint venture that arise
from applying PAS 28, Investments in Associates and Joint Ventures.
The amendments should be applied retrospectively and are effective from January 1, 2019,
with early application permitted. Since the Group does not have such long-term interests in
its associate and joint venture, the amendments will not have an impact on its consolidated
financial statements.
∂ IFRIC 23, Uncertainty over Income Tax Treatments. The interpretation addresses the
accounting for income taxes when tax treatments involve uncertainty that affects the
application of PAS 12, Income Taxes, and does not apply to taxes or levies outside the scope
of PAS 12, nor does it specifically include requirements relating to interest and penalties
associated with uncertain tax treatments.
An entity must determine whether to consider each uncertain tax treatment separately or
together with one or more other uncertain tax treatments. The approach that better predicts
the resolution of the uncertainty should be followed.
This interpretation is not relevant to the Group because there is no uncertainty involved in the
tax treatments made by management in connection with the calculation of current and
deferred taxes as of December 31, 2018 and 2017.
*SGVFS032841*
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interests in the assets and liabilities of the joint operation at fair value. In doing so, the
acquirer remeasures its entire previously held interest in the joint operation.
A party that participates in, but does not have joint control of, a joint operation might
obtain joint control of the joint operation in which the activity of the joint operation
constitutes a business as defined in PFRS 3. The amendments clarify that the previously
held interests in that joint operation are not remeasured.
An entity applies those amendments to business combinations for which the acquisition
date is on or after the beginning of the first annual reporting period beginning on or after
January 1, 2019 and to transactions in which it obtains joint control on or after the
beginning of the first annual reporting period beginning on or after January 1, 2019, with
early application permitted. These amendments are currently not applicable to the Group
but may apply to future transactions.
∂ Amendments to PAS 23, Borrowing Costs, Borrowing Costs Eligible for Capitalization.
The amendments clarify that an entity treats as part of general borrowings any borrowing
originally made to develop a qualifying asset when substantially all of the activities
necessary to prepare that asset for its intended use or sale are complete.
An entity applies those amendments to borrowing costs incurred on or after the beginning
of the annual reporting period in which the entity first applies those amendments. An
entity applies those amendments for annual reporting periods beginning on or after
January 1, 2019, with early application permitted.
Since the Group’s current practice is in line with these amendments, the Group does not
expect any effect on its consolidated financial statements upon adoption.
An entity applies those amendments prospectively for annual reporting periods beginning on
or after January 1, 2020, with earlier application permitted.
*SGVFS032841*
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An entity applies those amendments prospectively for annual reporting periods beginning on
or after January 1, 2020, with earlier application permitted.
∂ PFRS 17, Insurance Contracts. The standard is a comprehensive new accounting standard
for insurance contracts covering recognition and measurement, presentation and disclosure.
Once effective, PFRS 17 will replace PFRS 4, Insurance Contracts. This new standard on
insurance contracts applies to all types of insurance contracts (i.e., life, non-life, direct
insurance and re-insurance), regardless of the type of entities that issue them, as well as to
certain guarantees and financial instruments with discretionary participation features. A few
scope exceptions will apply.
The overall objective of PFRS 17 is to provide an accounting model for insurance contracts
that is more useful and consistent for insurers. In contrast to the requirements in PFRS 4,
which are largely based on grandfathering previous local accounting policies, PFRS 17
provides a comprehensive model for insurance contracts, covering all relevant accounting
aspects. The core of PFRS 17 is the general model, supplemented by:
∂ A specific adaptation for contracts with direct participation features (the variable fee
approach)
∂ A simplified approach (the premium allocation approach) mainly for short-duration
contracts
PFRS 17 is effective for reporting periods beginning on or after January 1, 2021, with
comparative figures required. Early application is permitted.
Deferred effectivity
∂ Amendments to PFRS 10, Consolidated Financial Statements, and PAS 28, Sale or
Contribution of Assets between an Investor and its Associate or Joint Venture. The
amendments address the conflict between PFRS 10 and PAS 28 in dealing with the loss of
control of a subsidiary that is sold or contributed to an associate or joint venture. The
amendments clarify that a full gain or loss is recognized when a transfer to an associate or
joint venture involves a business as defined in PFRS 3. Any gain or loss resulting from the
sale or contribution of assets that does not constitute a business, however, is recognized only
to the extent of unrelated investors’ interests in the associate or joint venture.
On January 13, 2016, the Financial Reporting Standards Council deferred the original effective
date of January 1, 2016 of the said amendments until the International Accounting Standards
Board (IASB) completes its broader review of the research project on equity accounting that may
result in the simplification of accounting for such transactions and of other aspects of accounting
for associates and joint ventures.
*SGVFS032841*
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Prior-Period Adjustments
In 2018, a subsidiary has changed the accounting for certain upfront fees on Loans and discounts
from outright income recognition as Services charges, fees and commissions to amortizing the fees to
Interest income over the expected life of the loans using the effective interest rate method. In
addition, the subsidiary adjusted the deferred tax asset recognized in previous years.
The changes have been accounted for retroactively and resulted in the following for the Group’s
consolidated statements of financial position: (i) reduction in Surplus free amounting to
=0.64 billion as of both December 31, 2017 and December 31, 2016/January 1, 2017 (ii) decrease in
P
Loans and discounts amounting to = P0.86 billion as of both December 31, 2017 and
December 31, 2016/January 1, 2017, (iii) increase in Deferred tax asset amounting to = P0.21 billion as
of both December 31, 2017 and December 31, 2016/January 1, 2017, and (iv) reduction in
Non-controlling interest amounting to P =0.01 billion as of both December 31, 2017 and
December 31, 2016/January 1, 2017. For the Group’s comparative consolidated statements of
income, the changes resulted in the following: (i) increases in Interest income amounting to
=3.1 billion and =
P P3.4 billion for the years ended December 31, 2017 and 2016, respectively,
(ii) decreases in Service charges, fees and commissions amounting to = P2.9 billion and =
P3.2 billion for
the years ended December 31, 2017 and 2016, respectively, and (iii) increases in Miscellaneous
expenses amounting to P =0.2 billion for both the years ended December 31, 2017 and 2016.
The changes also resulted in decreases in the Investment in subsidiaries and Surplus free accounts
amounting to =
P0.64 billion as of both December 31, 2017 and December 31, 2016/January 1, 2017 in
the Parent Bank’s financial statements.
There is no material impact on net income of the Group and the Parent Bank for the years ended
December 31, 2017 and 2016.
The financial statements of the subsidiaries are prepared in the same reporting period as
the Parent Bank using consistent accounting policies.
Non-controlling Interests
Non-controlling interest represents the portion of profit or loss and net assets not owned, directly or
indirectly, by the Parent Bank.
The Group’s transactions with non-controlling interests that do not result in loss of control are
accounted for as equity transactions - that is, as transaction with the owners of the Group in their
capacity as owners. The difference between the fair value of any consideration paid and the relevant
share acquired of the carrying value of the net assets of the subsidiary is recognized in capital funds.
Disposals of equity investments to non-controlling interests may result in gains and losses for the
Group that are also recognized in capital funds.
*SGVFS032841*
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When the Group ceases to have control over a subsidiary, any retained interest in the entity is
remeasured to its fair value at the date when control is lost, with the change in carrying amount
recognized in the statements of income. The fair value is the initial carrying amount for the purposes
of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In
addition, any amounts previously recognized in other comprehensive income in respect of that entity
are accounted for as if the Group had directly disposed of the related resources or liabilities. This
may mean that amounts previously recognized in other comprehensive income are reclassified to
profit or loss.
Investment in Subsidiaries
Subsidiaries are entities (including structured entities) over which the Group has control. The Group
controls an entity when it has the power over the entity, it is exposed, or has rights to, variable returns
from its involvement with the entity, and it has the ability to affect those returns through its power
over the entity. Subsidiaries are consolidated from the date the Group obtains control.
The Group reassesses whether or not it controls an entity if facts and circumstances indicate that there
are changes to one or more of the three elements of controls indicated above. Accordingly, entities
are deconsolidated from the date that control ceases.
In the Parent Bank’s separate financial statements, investments in subsidiaries are initially recognized
at cost and subsequently accounted for using the equity method (see Note 15).
All subsequent changes to the share in the equity of the subsidiaries are recognized in the carrying
amount of the Parent Bank’s investment. Changes resulting from the profit or loss generated by the
subsidiaries are reported as Share in net profit of subsidiaries under Miscellaneous income account in
the Parent Bank’s separate statements of income.
Changes resulting from other comprehensive income of the subsidiaries are recognized in other
comprehensive income of the Parent Bank. Any distributions received from the subsidiaries
(e.g., dividends) are recognized as reduction in the carrying amount of investment in subsidiaries.
However, when the Parent Bank’s share of losses in a subsidiary equals or exceeds its interest in the
subsidiary, including any other unsecured receivables, the Parent Bank does not recognize further
losses, unless it has incurred obligations or made payments on behalf of the subsidiary. If the
subsidiary subsequently reports profits, the Parent Bank recognizes its share on those profits only
after its share of the profits exceeds the accumulated share of losses that has previously not been
recognized.
In computing the Parent Bank’s share in net profit or loss of subsidiaries, unrealized gains or losses
on transactions between the Parent Bank and its subsidiaries are eliminated to the extent of
the Parent Bank’s interest in the subsidiaries. Where unrealized losses are eliminated, the underlying
asset is also tested for impairment from a group perspective.
The Parent Bank holds interests in various subsidiaries as presented in Notes 1 and 15.
*SGVFS032841*
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Acquisition-related costs are expensed as incurred and subsequent change in the fair value of
contingent consideration is recognized directly in the statements of income.
Identifiable assets acquired and liabilities and contingent liabilities assumed in a business
combination are measured initially at their fair values at the acquisition date. On an acquisition-by-
acquisition basis, the Group recognizes any non-controlling interest in the acquiree, either at fair
value or at the non-controlling interest’s proportionate share of the recognized amounts of acquiree’s
identifiable net assets.
Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of
the net identifiable assets of the acquired subsidiary at the date of acquisition. Subsequent to initial
recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is tested
annually for impairment. Impairment losses on goodwill are not reversed.
Gain on bargain purchase which is the excess of the Group’s interest in the net fair value of net
identifiable assets acquired over acquisition cost is recognized directly to profit.
For the purpose of impairment testing, goodwill is allocated to cash-generating units or groups of
cash-generating units that are expected to benefit from the business combination in which the
goodwill arose. The cash-generating units or groups of cash-generating units are identified according
to operating segment.
Gains and losses on the disposal of an interest in a subsidiary include the carrying amount of
goodwill relating to it.
If the business combination is achieved in stages, the acquirer is required to remeasure its previously
held equity interest in the acquiree at its acquisition-date fair value and recognize the resulting gain or
loss, if any, in the statements of income, as appropriate.
Any contingent consideration to be transferred by the Group is recognized at fair value at the
acquisition date. Subsequent changes to the fair value of the contingent consideration that is deemed
to be an asset or liability is recognized in accordance with PAS 37, Provisions, Contingent Liabilities
and Contingent Assets, either in the statements of income or as a charge to other comprehensive
income. Contingent consideration that is classified as capital funds is not remeasured, and its
subsequent settlement is accounted for within capital funds.
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 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.
*SGVFS032841*
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If an asset or a liability measured at fair value has a bid price and ask price, the price within the bid-
ask spread is the most representative of fair value in the circumstance shall be used to measure fair
value regardless of where the input is categorized within the fair value hierarchy. The fair value
measurement of a nonfinancial asset takes into account the 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.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are
categorized within the fair value hierarchy, described in Note 7, based on the lowest level input that is
significant to the fair value measurement as a whole.
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.
‘Day 1’ difference
Where the transaction price in a non-active market is different from the fair value based on other
observable current market transactions in the same instrument or based on a valuation technique
whose variables include only data from observable market, the Group recognizes the difference
between the transaction price and the fair value (a ‘Day 1’difference) in the statements of income
unless it qualifies for recognition as some other type of asset. In cases where transaction price used is
made of data which is not observable, the difference between the transaction price and model value is
only recognized in the statements of income when the inputs become observable or when the
instrument is derecognized. For each transaction, the Group determines the appropriate method of
recognizing the ‘Day 1’ difference amount.
*SGVFS032841*
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The Group classifies and measures its derivative and trading portfolio at FVTPL. The Group may
designate financial instruments at FVTPL, if so doing eliminates or significantly reduces
measurement or recognition inconsistencies.
Before 1 January 2018, the Group classified its financial assets as amortized cost and FVPL.
Financial liabilities, other than loan commitments and financial guarantees, are measured at amortised
cost or at FVPL when they are held for trading, derivative instruments or the fair value designation is
applied.
Financial Assets
Financial assets are recognized when the Group becomes a party to the contractual terms of the financial
instrument. For purposes of classifying financial assets, an instrument is considered as an equity
instrument if it is non-derivative and meets the definition of equity for the issuer in accordance with
the criteria under PAS 32, Financial Instruments: Presentation. All other non-derivative financial
instruments are treated as debt instruments.
Under PFRS 9, the classification and measurement of financial assets is driven by the entity’s
contractual cash flow characteristics of the financial assets and business model for managing the
financial assets.
As part of its classification process, the Group assesses the contractual terms of financial assets to
identify whether they meet the ‘solely payments of principal and interest’ (SPPI) test. ‘Principal’
for the purpose of this test is defined as the fair value of the financial asset at initial recognition
and may change over the life of the financial asset (e.g. if there are repayments of principal or
amortization of the premium or discount).
The most significant elements of interest within a lending arrangement are typically the
consideration for the time value of money and credit risk. To make the SPPI assessment, the
Bank applies judgement and considers relevant factors such as the currency in which the financial
asset is denominated, and the period for which the interest rate is set.
In contrast, contractual terms that introduce a more than de minimis exposure to risks or volatility
in the contractual cash flows that are unrelated to a basic lending arrangement do not give rise to
contractual cash flows that are solely payments of principal and interest on the amount
outstanding. In such cases, the financial asset is required to be measured at FVTPL.
The Group determines its business model at the level that best reflects how it manages groups of
financial assets to achieve its business objective.
The Bank's business model is not assessed on an instrument-by-instrument basis, but at a higher
level of aggregated portfolios and is based on observable factors such as:
∂ how the performance of the business model and the financial assets held within that business
model are evaluated and reported to the entity's key management personnel
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∂ the risks that affect the performance of the business model (and the financial assets held
within that business model) and, in particular, the way those risks are managed
∂ how managers of the business are compensated (for example, whether the compensation is
based on the fair value of the assets managed or on the contractual cash flows collected)
∂ the expected frequency, value and timing of sales are also important aspects of
the Group’s assessment.
The business model assessment is based on reasonably expected scenarios without taking 'worst
case' or 'stress case’ scenarios into account. If cash flows after initial recognition are realized in a
way that is different from the Group's original expectations, the Group does not change the
classification of the remaining financial assets held in that business model, but incorporates such
information when assessing newly originated or newly purchased financial assets going forward.
Financial assets are measured at amortized cost if both of the following conditions are met:
∂ the asset is held within the Group’s business model whose objective is to hold financial assets
in order to collect contractual cash flows; and,
∂ the contractual terms of the instrument give rise, on specified dates, to cash flows that are
SPPI on the principal amount outstanding.
Financial assets meeting these criteria are measured initially at fair value plus transaction costs.
They are subsequently measured at amortized cost using the effective interest method, less any
impairment in value.
The Group’s financial assets at amortized cost are presented in the statement of financial position
as Due from BSP, Due from other banks, Interbank loans receivable, Financial assets at
amortized cost under Trading and investment securities, Loans and other receivables and certain
accounts under Other resources.
For purposes of cash flows reporting and presentation, cash and cash equivalents comprise
accounts with original maturities of three months or less, including Cash and other cash items,
non-restricted balances of Due from BSP, Due from other banks, Interbank loans receivable and
Securities purchased under repurchase agreements included in Loans and other receivables.
These generally include cash on hand, demand deposits and short-term, highly liquid investments
readily convertible to known amounts of cash and which are subject to insignificant risk of
changes in value.
The Group may irrevocably elect at initial recognition to classify a financial asset that meets the
amortized cost criteria above as at FVTPL if that designation eliminates or significantly reduces
an accounting mismatch had the financial asset been measured at amortized cost. In 2017 and
2016, the Group has not made such designation.
Debt instruments that do not meet the amortized cost criteria, or that meet the criteria but the
Group has chosen to designate as at FVTPL at initial recognition, are classified as financial assets
at FVTPL. Equity investments are classified as financial assets at FVTPL, unless the Group
*SGVFS032841*
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designates an equity investment that is not held for trading as at FVOCI at initial recognition.
The Group’s financial assets at FVTPL include government securities, corporate bonds and
equity securities which are held for trading purposes.
∂ it has been acquired principally for the purpose of selling it in the near term;
∂ on initial recognition, it is part of a portfolio of identified financial instruments that the Group
manages together and has evidence of a recent actual pattern of short-term profit-taking; or,
∂ it is a derivative that is not designated and effective as a hedging instrument or financial
guarantee.
Financial assets at FVTPL are measured at fair value. Related transaction costs are recognized
directly as expense in the statements of income. Unrealized gains and losses arising from
changes (mark-to-market) in the fair value of the financial assets at FVTPL category and realized
gains or losses arising from disposals of these instruments are included in Gains (losses) on
trading and investment securities at FVTPL and FVOCI account in the statements of income.
Interest earned on these investments is reported in the statements of income under Interest
income account while dividend income is reported in the statements of income under
Miscellaneous income account when the right of payment has been established.
Financial assets at FVOCI are initially measured at fair value plus transaction costs.
Subsequently, they are measured at fair value, with no deduction for any disposal costs. Gains
and losses arising from changes in fair value are recognized in other comprehensive income and
accumulated in Net unrealized fair value gains (losses) on investment securities in the statements
of financial position. When the asset is disposed of, the cumulative gain or loss previously
recognized in the Net unrealized fair value gains (losses) on investment securities account is not
reclassified to profit or loss, but is reclassified directly to Surplus free account.
Any dividends earned on holding these equity instruments are recognized in the statements of
income under Miscellaneous income account.
FVOCI debt instruments are subsequently measured at fair value with gains and losses arising
due to changes in fair value being recognized in OCI. Interest income and foreign exchange
gains and losses are recognized in the statements of income in the same manner as for financial
assets measured at amortized cost. The ECL calculation for financial assets at FVOCI is
explained in the ‘Impairment of Financial Assets’ section.
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On derecognition, cumulative gains or losses previously recognized in OCI are reclassified from
OCI to the statements of income.
The Group can only reclassify financial assets if the objective of its business model for managing
those financial assets changes. Accordingly, the Group is required to reclassify financial assets:
(i) from amortized cost to FVTPL, if the objective of the business model changes so that the
amortized cost criteria are no longer met; and, (ii) from FVTPL to amortized cost, if the objective
of the business model changes so that the amortized cost criteria start to be met and the
characteristic of the instrument’s contractual cash flows meet the amortized cost criteria.
A change in the objective of the Group’s business model will be effected only at the beginning of
the next reporting period following the change in the business model.
Objective evidence that a financial asset or group of assets is impaired includes observable data
that comes to the attention of the Group about certain loss events, including, among others: (i)
significant financial difficulty of the issuer or debtor; (ii) a breach of contract, such as a default or
delinquency in interest or principal payments; (iii) the Group granting the borrower, for economic
or legal reasons relating to the borrower’s financial difficulty, a concession that the lender would
not otherwise consider; (iv) it is probable that the borrower will enter bankruptcy or other
financial reorganization; (v) the disappearance of an active market for that financial asset because
of financial difficulties; or, (vi) observable data indicating that there is a measurable decrease in
the estimated future cash flows from a group of financial assets since the initial recognition of
those assets, although the decrease cannot yet be identified with the individual financial assets in
the group.
For financial assets classified and measured at amortized cost, the Group first assesses whether
objective evidence of impairment exists individually for financial assets that are individually
significant and individually or collectively for financial assets that are not individually
significant. If the Group determines that no objective evidence of impairment exists for an
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 them for
impairment.
Financial 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 of impairment.
If there is objective evidence that an impairment loss on financial assets carried at amortized cost
has been incurred, the amount of the loss is measured as the difference between the asset’s
carrying amount and the present value of estimated future cash flows (excluding future credit
losses that have not been incurred), discounted at the financial asset’s original effective interest
rate or current effective interest rate determined under the contract if the loan has a variable
interest rate. The carrying amount of the asset is reduced through the use of an allowance account
and the amount of the loss is recognized in the statements of income.
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If a financial asset carried at amortized cost has a variable interest rate, the discount rate for
measuring any impairment loss is the current effective interest rate determined under the contract.
When practicable, the Group may measure impairment on the basis of an instrument’s fair value
using an observable market price.
The calculation of the present value of the estimated future cash flows of a collateralized financial
asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling
the collateral, whether or not foreclosure is probable.
For the purpose of collective evaluation of impairment for loans and receivables, financial assets
are grouped on the basis of similar credit risk characteristics (i.e., on the basis of the Group’s
grading process that considers asset type, industry, geographical location, collateral type, past-due
status and other relevant factors). 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.
Future cash flows in a group of financial assets that are collectively evaluated for impairment are
estimated on the basis of the contractual cash flows of the assets in the group and 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 for groups of assets should reflect and be directionally
consistent with changes in related observable data from period to period (for example, changes in
unemployment rates, property prices, payment status, or other factors indicative of changes in the
probability of 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.
The Group also takes into account basic guidelines in setting up allowance for credit losses as
prescribed under BSP Circular No. 855 (Appendix 18). Financial institutions with credit
operations that may not economically justify a more sophisticated loan loss estimation
methodology or where practices fall short of expected standards shall be subject to the said
guidelines.
When possible, the Group seeks to restructure loans rather than to take possession of the
collateral. This may involve extending the payment arrangement and agreement for 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 evidencing the
good quality of the loan are met and that future payments are likely to occur. The loans continue
to be subject to an individual or collective impairment assessment, calculated using the loan’s
original effective interest rate. The difference between the recorded amount of the original loan
and the present value of the restructured cash flows, discounted at the original effective interest
rate, is recognized as part of Provision for credit losses account in the statements of income.
*SGVFS032841*
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If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be
related objectively to an event occurring after the impairment was recognized (such as an
improvement in the debtor’s credit rating), the previously recognized impairment loss is reversed
by adjusting the allowance account. The amount of the reversal is recognized in the statements of
income.
ECL represent credit losses that reflect an unbiased and probability-weighted amount which is
determined by evaluating a range of possible outcomes, the time value of money and reasonable
and supportable information about past events, current conditions and forecasts of future
economic conditions. ECL allowances are measured at amounts equal to either (i) 12-month ECL
or (ii) lifetime ECL for those financial instruments which have experienced a significant increase
in credit risk (SICR) since initial recognition (General Approach). The 12-month ECL is the
portion of lifetime ECL that results from default events on a financial instrument that are possible
within the 12 months after the reporting date. Lifetime ECL are credit losses that results from all
possible default events over the expected life of a financial instrument.
The Group has established a policy to perform an assessment, at the end of each reporting period,
of whether a financial instrument’s credit risk has increased significantly since initial recognition,
by considering the change in the risk of default occurring over the remaining life of the financial
instrument.
The Group uses internal credit assessment and approvals at various levels to determine the credit
risk of exposures at initial recognition. Assessment can be quantitative or qualitative and depends
on the materiality of the facility or the complexity of the portfolio to be assessed.
The Group defines a financial instrument as in default, which is fully aligned with the definition
of credit impaired, in all cases when the borrower becomes more than 90 days past due on its
contractual payments. As a part of a qualitative assessment of whether a customer is in default,
the Group also considers a variety of instances that may indicate unlikeliness to pay. When such
*SGVFS032841*
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events occur, the Group carefully considers whether the event should result in treating the
customer as defaulted. An instrument is considered to be no longer in default (i.e., to have cured)
when it no longer meets any of the default criteria for a consecutive period of 180 days (i.e.
consecutive payments from the borrowers for 180 days).
The criteria for determining whether credit risk has increased significantly vary by portfolio and
include quantitative changes in probabilities of default and qualitative factors such as downgrade
in the credit rating of the borrowers and a backstop based on delinquency. The credit risk of a
particular exposure is deemed to have increased significantly since initial recognition if, based on
the Group’s internal credit assessment, the borrower or counterparty is determined to require
close monitoring or with well-defined credit weaknesses. For exposures without internal credit
grades, if contractual payments are more than a specified days past due threshold (i.e. 30 days),
the credit risk is deemed to have increased significantly since initial recognition. Days past due
are determined by counting the number of days since the earliest elapsed due date in respect of
which full payment has not been received. In subsequent reporting periods, if the credit risk of
the financial instrument improves such that there is no longer a SICR since initial recognition, the
Group shall revert to recognizing a 12-month ECL.
ECL is a function of the PD, EAD and LGD, with the timing of the loss also considered, and is
estimated by incorporating forward-looking economic information and through the use of
experienced credit judgment.
The PD represents the likelihood that a credit exposure will not be repaid and will go into default
in either a 12-month horizon for Stage 1 or lifetime horizon for Stage 2. The PD for each
individual instrument is modelled based on historical data and is estimated based on current
market conditions and reasonable and supportable information about future economic conditions.
The Group segmented its credit exposures based on homogenous risk characteristics and
developed a corresponding PD methodology for each portfolio. The PD methodology for each
relevant portfolio is determined based on the underlying nature or characteristic of the portfolio,
behavior of the accounts and materiality of the segment as compared to the total portfolio.
EAD is modelled on historic data and represents an estimate of the outstanding amount of credit
exposure at the time a default may occur. For off-balance sheet and undrawn amounts, EAD
includes an estimate of any further amounts to be drawn at the time of default. LGD is the
amount that may not be recovered in the event of default and is modelled based on historical cash
flow recovery and reasonable and supportable information about future economic conditions,
where appropriate. LGD takes into consideration the amount and quality of any collateral held.
In certain circumstances, the Group modifies the original terms and conditions of a credit
exposure to form a new loan agreement or payment schedule. The modifications can be given
depending on the borrower’s or counterparty’s current or expected financial difficulty. The
modifications may include, but are not limited to, change in interest rate and terms, principal
amount, maturity date, date and amount of periodic payments and accrual of interest and charges.
Distressed restructuring with indications of unlikeliness to pay are categorized as impaired
accounts and are moved to Stage 3.
A financial asset (or where applicable, a part of a financial asset or part of a group of financial
assets) is derecognized when the contractual rights to receive cash flows from the financial
instruments expire, or when the financial assets and all substantial risks and rewards of ownership
have been transferred to another party. If the Group neither transfers nor retains substantially all
*SGVFS032841*
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the risks and rewards of ownership and continues to control the transferred asset, the Group
recognizes its retained interest in the asset and an associated liability for amounts it may have to
pay. If the Group retains substantially all the risks and rewards of ownership of a transferred
financial asset, the Group continues to recognize the financial asset and also recognizes a
collateralized borrowing for the proceeds received.
Derivatives are initially recognized at fair value on the date on which the derivative contract is
entered into and are subsequently measured at their fair values. Fair values are obtained from quoted
market prices in active markets, including recent market transactions. All derivatives are carried as
resources when fair value is positive and as liabilities when fair value is negative.
The best evidence of the fair value of a derivative at initial recognition is the transaction price (the
fair value of the consideration given or received) unless the fair value of that instrument is evidenced
by comparison with other observable current market transactions in the same instrument. When such
evidence exists, which indicates a fair value different from the transaction price, the Group recognizes
a gain or loss at initial recognition.
For more complex instruments, the Group uses proprietary models, which usually are developed from
recognized valuation models. Some or all of the inputs into these models may not be market
observable, and are derived from market prices or rates or are estimated based on assumptions. When
entering into a transaction, the financial instrument is recognized initially at the transaction price,
which is the best indicator of fair value, although the value obtained from the valuation model may
differ from the transaction price. This initial difference in fair value indicated by valuation
techniques is recognized in income depending upon the individual facts and circumstances of each
transaction and not later than when the market data becomes observable.
Changes in the fair value of derivatives are recognized in the statements of income.
Financial Liabilities
Financial liabilities which include deposit liabilities, bills payable, notes and bonds payable, and other
liabilities (except tax-related payables, pre-need reserves and post-employment defined benefit
obligation) are recognized when the Group becomes a party to the contractual terms of the
instrument.
Financial liabilities are recognized initially at their fair value and subsequently measured at amortized
cost using the effective interest method, for those with maturities beyond one year, less settlement
payments. All interest-related charges incurred on financial liabilities are recognized as an expense in
the statements of income under the caption Interest expense.
Deposit liabilities are stated at amounts in which they are to be paid. Interest is accrued periodically
and recognized in a separate liability account before recognizing as part of deposit liabilities.
Bills payable and Notes and bonds payable are recognized initially at fair value, which is the issue
proceeds (fair value of consideration received) less any issuance costs. These are subsequently
measured at amortized cost; any difference between the proceeds net of transaction costs and the
redemption value is recognized in the statements of income over the period of the borrowings using
the effective interest method.
*SGVFS032841*
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Derivative liabilities, which are included as part of Other Liabilities, are recognized initially and
subsequently measured at fair value with changes in fair value recognized in the statements of
income.
Other liabilities, apart from derivative liabilities, are recognized initially at their fair value and
subsequently measured at amortized cost, using effective interest method for maturities beyond one
year, less settlement payments.
Financial liabilities are derecognized from the statement of financial position only when the
obligations are extinguished either through discharge, cancellation or expiration. Where an existing
financial liability is replaced by another from the same lender on substantially different terms, or if
the terms of an existing liability are substantially modified, such an exchange or modification is
treated as a derecognition of the original liability and a recognition of the new liability, and the
difference in the respective carrying amounts is recognized in the statements of income.
The cost of an asset comprises its purchase price and directly attributable costs of bringing the asset
to working condition for its intended use. Expenditures for additions, major improvements and
renewals are capitalized, while expenditures for repairs and maintenance are charged to expense as
incurred.
Depreciation is computed on a straight-line basis over the estimated useful lives of the depreciable
assets as follows:
Buildings 25 - 50 years
Furniture, fixtures and equipment 5 - 10 years
Leasehold rights and improvements are amortized over the term of the lease or the estimated useful
lives of the improvements of five to ten years, whichever is shorter.
An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s
carrying amount is greater than its estimated recoverable amount.
The residual values, estimated useful lives and method of depreciation and amortization of bank
premises, furniture, fixtures and equipment (except land) are reviewed and adjusted if appropriate, at
the end of each reporting period.
If a change in use requires an item of bank premises, furniture, fixtures and equipment to be
reclassified to investment properties, the difference between the carrying amount of such asset and its
*SGVFS032841*
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fair value as of the date of change in use is recognized in other comprehensive income and
accumulated in equity under the Other reserves account. If the asset is subsequently retired or
disposed of, the related revaluation surplus is transferred directly to Surplus free account.
An item of bank premises, furniture, fixtures and equipment, including the related accumulated
depreciation, amortization and impairment losses, is derecognized upon disposal or when no future
economic benefits are expected to arise from the continued use of the asset. 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 item) is included in the statements of income in the year the item is
derecognized.
Investment Properties
Investment properties are properties held either to earn rental income or for capital appreciation or for
both, but not for sale in the ordinary course of business, use in the production or supply of goods or
services or for administrative purposes.
Investment properties are measured initially at acquisition cost which comprise its purchase price and
directly attributable cost incurred. These include parcels of land and buildings and related
improvements acquired by the Group from defaulting borrowers. Subsequently, investment
properties are accounted for under the fair value model. It is revalued and reported in the statement of
financial position at its market value as determined by independent appraisal companies acceptable to
the BSP. The carrying amounts recognized in the statement of financial position reflect the prevailing
market conditions at the reporting date.
Any gain or loss resulting from either a change in the fair value or the sale or retirement of an
investment property is immediately recognized in the statements of income as Fair value gains or
losses on investment properties under Miscellaneous income or expenses account in the statements of
income.
Investment properties are derecognized upon disposal or when permanently withdrawn from use and
no future economic benefit is expected from its disposal. Any gain or loss on the retirement or
disposal of an investment property is recognized in the statements of income in the year of retirement
or disposal.
Direct operating expenses related to investment properties, such as repairs and maintenance, and real
estate taxes are normally charged against current operations in the period in which these costs are
incurred.
Intangible Assets
Intangible assets include goodwill and acquired computer software. Goodwill represents the excess
of the acquisition cost over the fair value of the identifiable net assets (a) of the former International
Exchange Bank (iBank) in its merger with the Bank on April 30, 2006; (b) of CSB upon its
acquisition by the Bank on January 8, 2013, (c) of PR Savings Bank upon its acquisition by CSB on
June 14, 2018 and (d) of PETNET upon acquisition by the Group on December 17, 2018 (Note 1).
Goodwill has indefinite useful life and, thus, not subject to amortization but requires an annual test
for impairment. Goodwill is subsequently carried at cost less accumulated impairment losses.
Goodwill is allocated to cash-generating units for the purpose of impairment testing. Goodwill
sometimes cannot be allocated on a non-arbitrary basis to individual cash-generating units, but only
to groups of cash-generating units. As a result, the lowest level within the Parent Bank at which
goodwill is monitored for internal management purposes sometimes comprises a number of
cash-generating units. The Group’s cash-generating unit represents all the branches and segments of
*SGVFS032841*
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the Parent Bank, including the units that were integrated to the Parent Bank as a result of the
acquisitions.
Computer software used in administration is accounted for under the cost model. The cost of the
asset is the amount of cash or cash equivalents paid or the fair value of the other considerations given
up to acquire an asset at the time of its acquisition or production.
Computer software licenses are capitalized on the basis of the costs incurred to acquire, develop, and
install the specific software. These costs are amortized on a straight-line basis over the expected
useful lives ranging from five to ten years, as the lives of these intangible assets are considered finite.
These costs are recognized as part of Depreciation and amortization under the Other expenses account
in the statements of income. Costs associated with maintaining computer software are expensed as
incurred. In addition, intangible assets are subject to impairment testing.
When an intangible asset is disposed of, the gain or loss on disposal is determined as the difference
between the proceeds and the carrying amount of the asset and is recognized in the statements of
income.
Other Resources
Other resources pertain to resources controlled by the Group as a result of past events. These are
recognized in the financial statements when it is probable that the future economic benefits will flow
to the Group and the asset has a cost or value that can be measured reliably.
Provisions are measured at the estimated expenditure required to settle the present obligation, based
on the most reliable evidence available at the end of the reporting period, including the risks and
uncertainties associated with the present obligation. Any reimbursement expected to be received in
the course of settlement of the present obligation is recognized, if virtually certain as a separate asset,
at an amount not exceeding the balance of the related provision. Where there are a number of similar
obligations, the likelihood that an outflow will be required in settlement is determined by considering
the class of obligations as a whole. When time value of money is material, long-term provisions are
discounted to their present values using a pretax rate that reflects market assessment and the risks
specific to the obligation. The increase in the provision due to passage of time is recognized as
interest expense. Provisions are reviewed at the end of each reporting period and adjusted to reflect
the current best estimate.
In those cases where the possible outflow of economic resource as a result of present obligations is
considered improbable or remote, or the amount to be provided for cannot be measured reliably, no
liability is recognized in the financial statements. Similarly, possible inflows of economic benefits
that do not yet meet the recognition criteria of an asset are considered contingent assets, hence, are
not recognized in the financial statements. On the other hand, any reimbursement that the Group can
be virtually certain to collect from a third party with respect to the obligation is recognized as a
separate asset not exceeding the amount of the related provision.
*SGVFS032841*
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In the Group’s consolidated financial statements, pre-need reserves (PNR), presented as part of
Other liabilities in the consolidated statements of financial position, are recognized for all
pre-need benefits guaranteed and payable by FUPI as defined in the pre-need pension plan
contracts.
PNR for pension plans are determined using the requirements on provisioning of PAS 37 and the
specific method of computation required by the Insurance Commission (IC) as described below.
The amount recognized as a provision to cover the PNR is the best estimate of the expenditure
required to settle the present obligation at the end of the reporting period. The risks and
uncertainties that inevitably surround many events and circumstances were taken into account in
reaching the best estimate of a provision.
∂ On actively paying plans, provision is equivalent to the present value of future plan benefits
reduced by the present value of future trust fund contributions required per product model
discounted using the transitory discount rate which does not exceed the lower of the
attainable rate as certified by the Trustee, and the discount interest rate prescribed by the IC
in accordance with IC Circular Letter No. 23-2012, Valuation of Transitory Pre-need
Reserves, for old basket of plans previously approved by the SEC.
∂ On lapsed plans, provision is equivalent to the present value of future plan benefits reduced
by the present value of future trust fund contributions at lapse date, multiplied by the
reinstatement rate.
∂ On fully paid plans, provision is equivalent to the present value of future plan benefits
discounted using the transitory discount rate.
∂ Future events that may affect the foregoing amounts are reflected in the amount of the
provision for PNR where there is sufficient objective evidence that they will occur.
∂ The rates of surrender, cancellation, reinstatement, utilization and inflation, when applied,
represent the actual experience of FUPI in the last three years, or the industry, in the absence
of a reliable experience.
Any excess in the amount of the trust fund as a result of the revised reserving requirement
shall neither be released from the fund nor be credited/set-off to future required contributions.
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Insurance premium reserves for pension plans represents FUPI’s actuarially-determined liability
in accordance with PAS 37 to guarantee the benefits provided in the plan in consideration of the
insurance premium funds assigned for this purpose as determined and certified by the
IC-accredited actuary.
Capital Funds
Common stock represents the nominal value of shares that have been issued.
Additional paid-in capital includes any premiums received on the issuance of common stock. Any
transaction costs associated with the issuance of shares are deducted from additional paid-in capital,
net of any related income tax benefits.
Surplus free includes all current and prior period results as reported in the statements of income and
which are available and not restricted for use by the Group, reduced by the amounts of dividend
declared, if any.
(a) Portion of the Group’s income from trust operations set-up on a yearly basis in compliance with
BSP regulations. The surplus set-up is equal to 10% of the net profit accruing from the trust
business until the surplus shall amount to 20% of authorized capital stock. The reserve shall not
be paid out as dividends, but losses accruing in the course of the trust business may be charged
against this account.
(b) Accumulated trust fund income of FUPI that is automatically restricted to payments of benefits of
planholders and related payments in accordance with the amended Pre-need Uniform Chart of
Accounts (PNUCA).
(c) The difference of the 1% required General Loan Loss Provision on Stage 1 on-balance sheet
loans over the computed allowance for credit losses on Stage 1 accounts as required by the BSP
Circular No. 1011 - Guidelines on the Adoption of the Philippine Financial Reporting Standard
(PFRS) 9 - Financial Instruments.
Net unrealized fair value gains (losses) on investment securities pertains to cumulative mark-to-
market valuation of financial assets at FVOCI.
Remeasurements of defined benefit plan refer to accumulated actuarial losses, net of gains, as a result
of remeasurements of post-employment defined benefit plan and return on plan assets (excluding
amount included in net interest).
Other reserves pertains to the difference between the net carrying amount and fair value of certain
properties that were reclassified from owner-occupied properties to investment properties to reflect
the change in use.
Non-controlling interests represent the portion of the net resources and profit or loss not attributable
to the Group which are presented separately in the Group’s statements of income and within the
capital funds in the Group’s statements of financial position and changes in capital funds.
*SGVFS032841*
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(a) Interest income recognized using the effective interest rate method - Interest income is recognized
in the statements of income for all instruments measured at amortized cost and debt instruments
classified as financial assets at FVOCI using the effective interest method.
The effective interest method is a method of calculating the amortized cost of a financial asset or
a financial liability and of allocating the interest income or interest expense over the relevant
period. The effective interest rate is the rate that exactly discounts estimated future cash
payments or receipts through the expected life of the financial instrument or, when appropriate, a
shorter period to the net carrying amount of the financial asset or financial liability. When
calculating the effective interest rate, the Group estimates cash flows considering all contractual
terms of the financial instrument but does not consider future credit losses. The calculation
includes all fees paid or received between parties to the contract that are an integral part of the
effective interest rate, transaction costs and all other premiums or discounts.
When financial asset becomes credit-impaired and is, therefore, regarded as ‘Stage 3’, the Group
calculates interest income by applying the effective interest rate to the net amortized cost of the
financial asset. If the financial assets cures and is no longer credit-impaired, the Group reverts to
calculating interest income on a gross basis.
(b) Other interest income - Interest income on all trading assets and financial assets mandatorily
required to be measured at FVTPL is recognized using the contractual interest rate and is
included under Interest Income on financial assets at fair value through profit or loss.
(c) Service charges, fees and commissions - Service charges, fees and commissions are generally
recognized when the service has been provided. Loan commitment fees are earned as services are
provided, recognized as other income on a time proportion basis over the commitment period.
The Group has a loyalty points programme as part of its credit cards business which allows
customers to accumulate points that can be redeemed for free products. The loyalty points give
rise to a separate performance obligation as they provide a material right to the customer.
A portion of the interchange fee is allocated to the loyalty points awarded to customers based on
relative stand-alone selling price and recognised as a contract liability until the points are
redeemed. Revenue is recognised upon redemption of products by the customer.
(d) Gain (loss) on trading and investment securities - Gain (loss) on trading and investment securities
is recognized when the risk and rewards of the securities is transferred to the buyer (at an amount
equal to the difference of the selling price and the carrying amount of securities) and as a result of
the mark-to market valuation of outstanding securities classified as FVTPL at year-end.
(e) Premium revenues - Premiums from sale of pre-need plans are recognized as earned when
collected inclusive of advance premium payments. When premiums are recognized as income,
the related cost of contracts is computed and recognized, with the result that the benefits and
expenses are matched with such revenue.
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∂ Gain (loss) from sale of assets - Profit or loss from assets sold or exchanged is recognized
when the control of the assets is transferred to the buyer or when the collectibility of the
entire sales price is reasonably assured.
∂ Rental - Rental income arising from leased properties is accounted for on a straight-line basis
over the lease terms on ongoing leases.
∂ Income from bancassurance business - Exclusive access fee (EAF) related to the
bancassurance partnership is recognized as revenue by reference to the completion rate of the
target cumulative annualized premium earned.
∂ Dividend - Dividend income is recognized when the Group’s right to receive payment is
established.
∂ Income from trust operations - Trust fees related to investment funds are recognized in
reference to the net asset value of the funds. The same principle is applied for wealth
management, financial planning and custody services that are continuously provided over an
extended period of time.
Leases
The Group accounts for its leases as follows:
The Group determines whether an arrangement is, or contains a lease based on the substance of
the arrangement. It makes an assessment of whether the fulfilment of the arrangement is
dependent on the use of a specific asset or assets and the arrangement conveys a right to use the
asset.
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dollars. Foreign currency transactions during the period are translated into the functional currency at
exchange rates which approximate those prevailing on transaction dates.
For financial reporting purposes, the accounts of the FCDU are translated into their equivalents in
Philippine pesos based on the Philippine Dealing System closing rates (PDSCR) prevailing at the end
of the period (for resources and liabilities) and at the average PDSCR for the period (for income and
expenses).
Foreign exchange gains and losses resulting from the settlement of foreign currency transactions and
from the translation at period-end exchange rates of monetary assets and liabilities denominated in
foreign currencies are recognized in the statements of income.
Changes in the fair value of monetary financial assets denominated in foreign currency are analyzed
between translation differences resulting from changes in the amortized cost of the security and other
changes in the carrying amount of the security. Translation differences related to changes in
amortized cost are recognized in the statements of income, and other changes in the carrying amount
are recognized in other comprehensive income.
For purposes of assessing impairment, assets are grouped at the lowest levels for which there are
separately identifiable cash flows (cash-generating units). As a result, some assets are tested
individually for impairment and some are tested at cash-generating unit level.
Impairment loss is recognized in the statements of income for the amount by which the asset’s or
cash-generating unit’s carrying amount exceeds its recoverable amount, which is the higher of fair
value, reflecting market conditions, less costs to sell and value in use. In determining value in use,
management estimates the expected future cash flows from each cash-generating unit and determines
the suitable interest rate in order to calculate the present value of those cash flows. The data used for
impairment testing procedures are directly linked to the Group’s latest approved budget, adjusted as
necessary to exclude the effects of asset enhancements. Discount factors are determined individually
for each cash-generating unit and reflect management’s assessment of respective risk profiles, such as
market and asset-specific risk factors.
All assets are subsequently reassessed for indications that an impairment loss previously recognized
may no longer exist and the carrying amount of the asset is adjusted to the recoverable amount
resulting in the reversal of the impairment loss, except for goodwill.
Employee Benefits
The Group’s employment benefits to employees are as follows:
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plan have been acquired. Plan assets may include assets specifically designated to a long-term
benefit fund, as well as qualifying insurance policies. The Group’s defined benefit post-
employment plan covers all regular full-time employees. The pension plan is tax-qualified,
noncontributory and administered by a trustee.
The liability recognized in the statement of financial position for a defined benefit plan (included
as part of Other Liabilities) is the present value of the defined benefit obligation (DBO) at the end
of the reporting period less the fair value of plan assets. The DBO is calculated annually by
independent actuaries using the projected unit credit method. The present value of the DBO is
determined by discounting the estimated future cash outflows arising from expended benefit
payments using a discount rate derived from the interest rates of a zero coupon government bond
as published by Philippine Dealing & Exchange Corp., that are denominated in the currency in
which the benefits will be paid and that have terms to maturity approximating to the terms of the
related post-employment liability.
Remeasurements, comprising of actuarial gains and losses arising from experience adjustments
and changes in actuarial assumptions and the return on plan assets (excluding amount included in
net interest) are reflected immediately in the statement of financial position with a charge or
credit recognized in other comprehensive income in the period in which they arise. Net interest is
calculated by applying the discount rate at the beginning of the period to the net defined benefit
liability or asset and is included as part of Interest expense or Interest income in the statements of
income.
Past-service costs are recognized immediately in the statements of income in the period of a plan
amendment or curtailment.
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They are included as part of Accrued taxes and other expenses under the Other liabilities account
in the statement of financial position at the undiscounted amount that the Group expects to pay as
a result of the unused entitlement.
Income Taxes
Tax expense recognized in the statements of income comprises the sum of deferred tax and current
tax not recognized in other comprehensive income or directly in capital funds, if any.
Current tax assets or liabilities comprise those claims from, or obligations to, fiscal authorities
relating to the current or prior reporting period, that are uncollected or unpaid at the end of the
reporting period. They are calculated using the tax rates and tax laws applicable to the fiscal periods
to which they relate, based on the taxable profit for the year. All changes to current tax assets or
liabilities are recognized as a component of tax expense in the statements of income.
Deferred tax is accounted for using the liability method on temporary differences at the end of the
reporting period between the tax base of assets and liabilities and their carrying amounts for financial
reporting purposes. Under the liability method, with certain exceptions, deferred tax liabilities are
recognized for all taxable temporary differences and deferred tax assets are recognized for all
deductible temporary differences and the carryforward of unused tax losses and unused tax credits to
the extent that it is probable that taxable profit will be available against which the deferred tax assets
can be utilized. Unrecognized deferred tax assets are reassessed at the end of each reporting period
and are recognized to the extent that it has become probable that future taxable profit will be available
to allow such deferred tax assets to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply 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 end of the reporting period.
The carrying amount of deferred tax assets is reviewed at the end of each reporting period and
reduced to the extent that it is probable that sufficient taxable profit will be available to allow all or
part of the deferred tax assets to be utilized.
The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow
from the manner in which the Group expects, at the end of the reporting period, to recover or settle
the carrying amount of its assets and liabilities. For purposes of measuring deferred tax liabilities and
deferred tax assets for investment properties that are measured using the fair value model, the
carrying amounts of such properties are presumed to be recovered entirely through sale, unless the
presumption is rebutted, that is, when the investment property is depreciable and is held within the
business model whose objective is to consume substantially all of the economic benefits embodied in
the investment property over time, rather than through sale.
Most changes in deferred tax assets or liabilities are recognized as a component of tax expense in the
statements of income, except to the extent that it relates to items recognized in other comprehensive
income or directly in capital funds. In this case, the tax is also recognized in other comprehensive
income or directly in capital funds, respectively.
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Deferred tax assets and deferred tax liabilities are offset if the Group has a legally enforceable right to
set off current tax assets against current tax liabilities and the deferred taxes relate to the same entity
and the same taxation authority.
Parties are considered to be related if one party has the ability to control the other party or exercise
significant influence over the other party in making financial and operating decisions. These parties
include: (a) individuals owning, directly or indirectly through one or more intermediaries, control or
are controlled by, or under common control with the Parent Bank; (b) associates; (c) individuals
owning, directly or indirectly, an interest in the voting power of the Parent Bank that gives them
significant influence over the Parent Bank and close members of the family of any such individual;
and, (d) the Group’s funded retirement plan.
In considering each possible related party relationship, attention is directed to the substance of the
relationship and not merely on the legal form.
Diluted earnings per common share are also computed by dividing net profit by the weighted average
number of common shares subscribed and outstanding at the end of the reporting period, after making
adjustments to reflect the effects of any potentially dilutive preferred shares, stock options and
warrants.
Segment Reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the
Group’s chief operating decision-maker. The chief operating decision-maker is responsible for
allocating resources and assessing performance of the operating segments.
In identifying its operating segments, management generally follows the Group’s products and
services as disclosed in Note 6, which represent the main products and services provided by the
Group.
Each of these operating segments is managed separately as each of these services require different
technologies and other resources as well as marketing approaches. All inter-segment transfers are
carried out at arm’s length prices.
The measurement policies the Group uses for segment reporting under PFRS 8, Operating Segments,
are the same as those used in its consolidated financial statements in arriving at the operating profit of
the operating segments.
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In addition, corporate assets which are not directly attributable to the business activities of any
operating segment are not allocated to a particular segment.
There have been no changes from prior periods in the measurement methods used to determine
reported segment profit or loss.
The Group’s operations are organized according to the nature of the products and services provided.
Financial information on business segments is presented in Note 6.
The preparation of the Group’s financial statements in accordance with PFRS requires management
to make judgments and estimates that affect the amounts reported in the financial statements and
related notes. 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. Actual results may ultimately differ from these estimates.
Unless otherwise stated, below significant judgments and estimates apply as of and for the years
ended December 31, 2018, 2017 and 2016.
The Group developed business models which reflect how it manages its portfolio of financial
instruments. The Group’s business models need not be assessed at entity level or as a whole but
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applied at the level of a portfolio of financial instruments (i.e., group of financial instruments that are
managed together by the Group) and not on an instrument-by-instrument basis (i.e., not based on
intention or specific characteristics of individual financial instrument).
In determining the classification of a financial instrument under PFRS 9, the Group evaluates in
which business model a financial instrument or a portfolio of financial instruments belong to taking
into consideration the objectives of each business model established by the Group.
In 2017, the Parent Bank made certain changes in its investment policy, primarily in relation to
management’s assessment of liquidity and the risks surrounding it. The change in investment policy
triggers realignment of its strategy for managing its HTC portfolio and introduction of a new portfolio
with the objective of maximizing risk-adjusted returns, minimizing cost of liquidity and providing
alternative outlet with better returns on liquid assets. Accordingly, in October 2017,
the Parent Bank’s BOD approved the change in the Parent Bank’s business model. As such, the
Bank’s classification of financial assets now consists of amortized cost, FVOCI and FVTPL, where
certain securities at amortized cost were reclassified to the ‘Financial assets at FVOCI’ category at the
beginning of first quarter of 2018.
In addition, PFRS 9 emphasizes that if more than an infrequent and more than an insignificant sale is
made out of a portfolio of financial assets carried at amortized cost, an entity should assess whether
and how such sales are consistent with the objective of collecting contractual cash flows. In making
this judgment, the Group considers certain circumstances documented in its business model manual to
assess that an increase in the frequency or value of sales of financial instruments in a particular period
is not necessarily inconsistent with a held-to-collect business model if the Group can explain the
reasons for those sales and why those sales do not reflect a change in the Group’s objective for the
business model.
In 2018, the Bank participated in bond exchanges resulting in disposal of certain financial assets
carried at amortized cost (see Note 12). The Parent Bank has assessed that such sales are not more
than infrequent and are necessary in order to ensure that the outstanding securities remain of an
acceptable liquid quality. The disposals are considered not inconsistent with the objective of hold to
collect business model. The remaining securities in the affected portfolios continue to be measured at
amortized cost as of December 31, 2018.
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Estimation of impairment losses on Loans and other receivables, Financial assets at amortized cost
and Financial assets at FVOCI
Applicable for year ended December 31, 2017 and prior years
The Group reviews its loan and other receivables and investment portfolios to assess impairment at
least on an annual basis. In determining whether an impairment loss should be recorded in the
statements of income, the Group makes judgments as to whether there is any observable data
indicating that there is a measurable decrease in the estimated future cash flows from the portfolio
before the decrease can be identified with an individual item in that portfolio. This evidence may
include observable data indicating that there has been an adverse change in the payment status of
borrowers or issuers in a group, or national or local economic conditions that correlate with defaults
on assets in the group.
Management uses estimates based on historical loss experience for assets with credit risk
characteristics and objective evidence of impairment similar to those in the portfolio when scheduling
its future cash flows. The methodology and assumptions used for estimating both the amount and
timing of future cash flows are reviewed regularly to reduce any differences between loss estimates
and actual loss experience.
The carrying amount of loans and other receivables and the related allowance are disclosed in
Notes 14 and 20, while the carrying amount of debt financial assets and the related allowance are
disclosed in Notes 8, 9, 10, 12, 13 and 20.
The Group’s ECL calculations are outputs of complex models with a number of underlying
assumptions regarding the choice of variable inputs and their interdependencies. Significant factors
affecting the estimates on the ECL model include:
∂ The Group’s internal grading model, which assigns PDs to individual grades.
∂ The Group’s criteria for assessing if there has been a significant increase in credit risk and so
allowances for financial assets should be measured on a Lifetime Expected Credit Loss (LTECL)
basis and the qualitative assessment.
∂ The Group’s definition of default, which is consistent with regulatory requirements.
∂ The segmentation of financial assets when the ECL is assessed on a collective basis .
∂ Development of ECL models, including the various formulas and the choice of inputs.
∂ Determination of associations between macroeconomic scenarios and, economic inputs, such as
unemployment levels and collateral values, and the effect on PDs, EADs and LGDs.
∂ Definition of forward-looking macroeconomic scenario variables.
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Valuation techniques are used to determine fair values which are validated and periodically reviewed.
To the extent practicable, models use observable data, however, areas such as credit risk (both own
and counterparty), volatilities and correlations require management to make estimates. Changes in
assumptions could affect reported fair value of financial instruments. The Group uses judgment to
select a variety of methods and make assumptions that are mainly based on market conditions
existing at the end of each reporting period.
The fair value of derivatives as of December 31, 2018 and 2017 are presented and grouped into the
fair value hierarchy in Note 7.
The fair value of investment properties is determined based on valuations performed by independent
appraisal companies acceptable to the BSP at the end of each reporting period. The fair value is
determined by reference to market-based evidence, which is the amount for which the assets could be
exchanged between a knowledgeable willing buyer and seller in an arm’s length transaction as at the
valuation date. Such amount is influenced by different factors including the location and specific
characteristics of the property (e.g., size, features, and capacity), quantity of comparable properties
available in the market, and economic condition and behavior of the buying parties. The amounts of
revaluation and fair value gains recognized on certain land, buildings and land improvements are
disclosed in Note 17.
For investment properties with appraisal conducted prior to the end of the current reporting period,
management determines whether there are significant circumstances during the intervening period
that may require adjustments or changes in the fair value of those properties.
The fair value determination for investment properties is discussed in Note 7. The carrying amounts
of investment properties are disclosed in Note 17.
Based on forecast, management assessed that it is probable that future taxable income will be
available to utilize the deferred tax assets. The carrying value of recognized deferred tax assets is
disclosed in Note 29.
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Impairment of goodwill
The Group conducts an annual review for any impairment in the value of goodwill. Goodwill is
written down for impairment where the recoverable amount is insufficient to support their carrying
value. The Group determines the recoverable value of goodwill by discounting the estimated excess
earnings using the Group’s cost of capital as the discount rate. The Group estimates the discount rate
used for the computation of the net present value by reference to industry cost of capital.
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 and BOD of
the Parent Bank. The assumptions used in the calculation of value-in-use are sensitive to estimates of
future cash flows from business, interest margin, average yields and long-term growth rate used to
project cash flows. Though management believes that the assumptions used in the estimation of fair
values reflected in the financial statements are appropriate and reasonable, significant changes in
these assumptions may materially affect the assessment of recoverable values and any resulting
impairment loss could have a material adverse effect on the results of operations.
The amounts of post-employment defined benefit obligation and expense and an analysis of the
movements in the estimated present value of post-employment defined benefit obligation, as well as
significant assumptions such as salary rate increase, discount rates, and turnover rates used in
estimating such obligation are presented in Note 28.
The Group also estimates other employee benefit obligations and expenses, including the cost of paid
leaves based on historical leave availments of employees, subject to the Group and the Parent Bank
policies. These estimates may vary depending on future changes in salaries and actual experiences
during the year.
Fair value determination of assets acquired and liabilities assumed from business combinations
In June and December 2018, the Group provisionally determined the fair values of the assets acquired
and liabilities assumed from the acquisition of PR Savings Bank and PETNET, respectively.
The Group determines the provisional acquisition-date fair values of identifiable assets acquired and
liabilities assumed from the acquiree without quoted market prices based on the following:
∂ For assets and liabilities that are short term in nature, carrying values approximate fair values
∂ For financial assets and liabilities that are long-term in nature, fair values are estimated through
the discounted cash flow methodology, using the appropriate market rates (e.g., current lending
rates)
∂ For nonfinancial assets such as property and equipment and investment properties, fair values are
determined based on an appraisal which follows sales comparison approach and depreciated
replacement cost approach depending on the highest and best use of the assets
Refer to Note 15 for the provisional fair values of the identifiable assets acquired and liabilities
assumed from the business combination.
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Risks are inherent in the business activities of the Group. Among its identified risks are credit risk,
liquidity risk, market risk, interest rate risk, foreign exchange risk, operational risk, legal risk, and
regulatory risk. These are managed through a risk management framework and governance structure
that provides comprehensive controls and management of major risks on an ongoing basis.
Risk management is the process by which the Group identifies its key risks, obtains consistent and
understandable risk measures, decides which risks to take on or reduce and how this will be done, and
establishes procedures for monitoring the resulting risk positions. The objective of risk management
is to ensure that the Group conducts its business within the risk levels set by the BOD while business
units pursue their objective of maximizing returns.
Although the BOD is primarily responsible for the overall risk management of the Group’s activities,
the responsibility rests at all levels of the organization. The risk appetite is defined and
communicated through an enterprise-wide risk policy framework.
On the other hand, the risk management processes of its subsidiaries are handled separately by their
respective BODs.
The Parent Bank’s BOD is primarily responsible for setting the risk appetite, approving risk
parameters, credit policies, and investment guidelines, as well as establishing the overall risk-taking
capacity of the Parent Bank. To fulfill its responsibilities in risk management, the BOD has
established the following committees, whose functions are described below.
(a) The Executive Committee (EXCOM), composed of seven (7) members of the BOD, exercises
certain functions as delegated by the BOD including, among others, the approval of credit
proposals, asset recovery and real and other properties acquired (ROPA) sales within its
delegated limits.
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(b) The Risk Management Committee (RMC) is composed of seven (7) members of the BOD,
majority of whom are independent directors, including the Chairman. The RMC shall advise the
BOD of the Parent Bank’s overall current and future risk appetite, oversee Senior Management’s
adherence to the risk appetite statement, and report on the state of risk culture of the Parent Bank.
The RMC shall oversee the risk management framework, adherence to the risk appetite of
the Parent Bank and the risk management function.
(c) The Market Risk Committee (MRC) is composed of nine (9) members of the BOD, majority of
whom are independent directors, including the Chairman. The MRC is primarily responsible for
reviewing the risk management policies and practices relating to market risk including interest
rate risk in the banking book and liquidity risk.
(d) The Operations Risk Management Committee (ORMC), composed of seven (7) members of the
BOD, reviews various operations risk policies and practices.
(e) The Audit Committee is a committee of the BOD that is composed of seven (7) members, most of
whom are with accounting, auditing, or related financial management expertise or experience.
The skills, qualifications, and experience of the committee members are appropriate for them to
perform their duties as laid down by the BOD. Four of the seven members are independent
directors, including the Chairman.
The Audit Committee serves as principal agent of the BOD in ensuring independence of
the Parent Bank’s external auditors and the internal audit function, the integrity of management,
and the adequacy of disclosures and reporting to stockholders. It also oversees the Parent Bank’s
financial reporting process on behalf of the BOD. It assists the BOD in fulfilling its fiduciary
responsibilities as to accounting policies, reporting practices and the sufficiency of auditing
relative thereto, and regulatory compliance.
To effectively perform these functions, the Audit Committee has a good understanding of the
Parent Bank’s business including the following: Parent Bank’s structure, business, controls, and
the types of transactions or other financial reporting matters applicable to the Parent Bank as well
as to determine whether the Bank’s controls are adequate, functioning as designed, and operating
effectively. It also considers the potential effects of emerging business risks and their impact on
the Parent Bank’s financial position and results of operations.
∂ Oversight of the financial reporting process. The Audit Committee ensures that
the Parent Bank has a high-quality reporting process that provides transparent, consistent and
comparable financial statements. In this regard, the Audit Committee works closely with
management especially the Office of the Financial Controller, the Internal Audit Division
(IAD), as well as the external auditors, to effectively monitor the financial reporting process
and the existence of significant financial reporting issues and concerns.
∂ Oversight of the audit process. The Audit Committee is knowledgeable on the audit function
and the audit process. The Audit Committee maintains supportive, trusting and inquisitive
relationships with both internal and external auditors to enhance its effectiveness.
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In the performance of these functions, the Audit Committee is supported by the IAD. The IAD
Head derives authority from and is directly accountable to the Audit Committee. However,
administratively, the IAD Head reports to the President of the Bank.
The IAD is entirely independent from all the other organizational units of the Parent Bank, as
well as from the personnel and work that are to be audited. It operates under the direct control of
the Audit Committee and is given an appropriate standing within the Bank to be free from bias
and interference. The IAD is free to report its findings and appraisals internally at its own
initiative to the Audit Committee.
The IAD is authorized by the Audit Committee to have unrestricted access to all functions,
records, property, and personnel of the Bank subject to existing mandate and applicable laws.
This includes the authority to allocate resources, set audit frequencies, select subjects, determine
scope of work, and apply the techniques required to accomplish the audit engagement objectives.
The IAD is also authorized to obtain the necessary assistance from personnel within the Parent
Bank units where they perform audits, as well as other specialized services within or outside the
Parent Bank.
The IAD presents its annual audit plan at the beginning of its fiscal year for approval by the Audit
Committee.
At least once a month, the Audit Committee meets to discuss the results of the assurance and
consulting engagements and case investigations by IAD. The results of these meetings are
regularly reported by the Audit Committee Chairman to the BOD in its monthly meetings.
To align with the Bank’s direction to reshape the Bank into a “technology company with banking
utilities”, IAD has undertaken training programs to acquire the appropriate skill set to audit
emerging technologies such as Blockchain, artificial intelligence, Robotic Process Automation,
Application Programming Interface, cloud computing, etc.
Moreover, in view of increasing role of internal audit under Basel II, the IAD acquired the right
skill set and approach to fulfill its role to conduct an annual independent review of the
Parent Bank’s Internal Capital Adequacy Assessment Process (ICAAP) document and its
underlying processes and procedures.
The Parent Bank’s IAD passed and obtained the highest rating of “Generally Conforms” on the
external quality assessment conducted in January 2014. The review showed that the
Parent Bank’s IAD audit activities comply with the Institute of Internal Auditors’ International
Standards for the Professional Practice of Internal Auditing. The Parent Bank’s IAD is scheduled
to undergo an external quality assessment in the fourth quarter of 2019.
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(f) The Corporate Governance Committee (CGC) is primarily responsible for helping the BOD
fulfill its corporate governance responsibilities. It is responsible in ensuring the BOD’s
effectiveness and due observance of corporate governance principles and of oversight over the
compliance risk management.
The CGC is composed of at least six (6) members of the BOD, majority of whom, including its
Chairman, shall be independent directors, and one (1) of whom shall be from the Parent Bank’s
Senior Management.
CGC’s specific duties include, among others, making recommendations to the BOD regarding
continuing education of directors, overseeing the periodic performance evaluation of the BOD, its
committees, senior management, and the function of the Chief Compliance and Corporate
Governance Officer. It also performs oversight functions over the Compliance and Corporate
Governance Office (CCGO) and the Anti-Money Laundering Committee of the Parent Bank.
The Parent Bank’s CCGO assists the CGC in fulfilling its functions by apprising the same of
pertinent regulations and other issuances relating to compliance or corporate governance and
continuously giving updates thereon. In addition, the CCGO keeps the CGC abreast of
governance issues being brought about among private organizations and individuals advocating
good governance practices. It then makes recommendations to the CGC based on such
governance issues and practices applicable and relevant to the Parent Bank.
(g) The Nominations Committee (NOMCOM) is comprised of six (6) voting members of the BOD,
one of whom is an independent director, and one non-voting member in the person of the Human
Resources Director. The NOMCOM is responsible for reviewing the qualifications of and
screening candidates for the BOD, key officers of the Parent Bank and nominees for independent
directors. It oversees the implementation of programs for identifying, retaining and developing
critical officers and the succession plan for various units in the organization.
(h) The Compensation and Remuneration Committee (COMPREM) is composed of seven (7)
members of the BOD, two (2) of whom are independent directors, including its Chairman. It is
responsible for overseeing implementation of the programs for salaries and benefits of directors
and senior management. It monitors adequacy, effectiveness and consistency of the Parent
Bank’s compensation program vis-à-vis corporate philosophy and strategy.
(i) The Related Party Transaction Committee is a board-level committee composed of five (5)
members, three (3) of whom are independent directors including its Chairman. The other two (2)
members are the Head of Internal Audit Division and the Chief Compliance and Corporate
Governance Officer who are both non-voting members. The Committee assists the BOD in the
fulfillment of its corporate governance responsibilities on related party transactions by ensuring
that these are transacted at arm’s length terms. Where applicable, the Committee reviews and
approves related party transactions or endorses them to the BOD for approval or confirmation.
The major risk types identified by the Group are discussed in the following sections:
Credit Risk
Credit risk is the risk of loss resulting from the failure of a borrower or counterparty to honor its
financial or contractual obligation to the Group. The risk may arise from lending, trade finance,
treasury, investments, derivatives and other activities undertaken by the Group. Credit risk is
managed through strategies, policies and limits that are approved by the respective BOD of the
various companies within the Group. With respect to the Parent Bank, it has a well-structured and
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standardized credit approval process and credit scoring system for each of its business and/or product
segments.
The RMU undertakes several functions with respect to credit risk management. The RMU
independently performs credit risk assessment, evaluation and review for its retail, commercial and
corporate financial products to ensure consistency in the Parent Bank’s risk assessment process. It
also ensures that the Parent Bank’s credit policies and procedures are adequate and are constantly
updated to meet the changing demands or risk profiles of the business units.
The RMU’s portfolio management function involves the review of the Parent Bank’s loan portfolio,
including the portfolio risks associated with particular industry sectors, regions, loan size and
maturity, and the development of a strategy for the Parent Bank to achieve its desired portfolio mix
and risk profile. The RMU reviews the Parent Bank’s loan portfolio quality in line with the Parent
Bank’s policy of avoiding significant concentrations of exposure to specific industries or groups of
borrowers. 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.
Concentrations indicate the relative sensitivity of the Parent Bank’s performance to developments
affecting a particular industry or geographical location.
In order to avoid excessive concentrations of risk, the Parent Bank’s policies and procedures include
guidelines for maintaining a diversified portfolio mix (e.g., concentration limits). Identified
concentrations of credit risks are controlled and managed accordingly. The RMU also monitors
compliance to the BSP’s limit on exposures.
The following summarizes the Group’s credit risk management practices and the relevant quantitative
and qualitative financial information regarding the credit exposure according to portfolios:
Corporate Loans
Corporate lending activities are undertaken by the Parent Bank’s Corporate Banking Center. The
customer accounts under this group belong to the top tier corporations, conglomerates and large
multinational companies.
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The Parent Bank undertakes a comprehensive procedure for the credit evaluation and risk assessment
of large corporate borrowers based on its obligor risk rating master scale.
The Parent Bank transitioned to a new internal rating system in 2018 and currently utilizes a single
rating system for both Corporate and Commercial accounts.
The new rating system assesses default risk based on financial profile, management capacity, industry
performance, and other factors deemed relevant. Significant changes in the credit risk considering
movements in credit rating, among other account-level profile and performance factors, define
whether the accounts are classified in either Stage 1, Stage 2, or Stage 3 per PFRS 9 loan impairment
standards.
Based on foregoing factors, each borrower is assigned a Borrower Risk Rating (BRR), from AAA to
D. In addition to the BRR, the Parent Bank assigns a loan exposure rating (LER), a 100-point system
which is comprised of a Facility Tenor Rating (FTR) and a Security Risk Rating (SRR). The FTR
measures the maturity risk based on the length of loan exposure, while the SRR measures the quality
of the collateral and risk of its potential deterioration over the term of the loan. The FTR and the
SRR, each a 100-point scoring system, are given equal weight in determining the LER.
Once the BRR and the LER have been determined, the credit limit to a borrower is determined under
the Risk Asset Acceptance Criteria (RAAC) which is a range of acceptable combinations of the BRR
and the LER. Under the RAAC system, a borrower with a high BRR will have a broader range of
acceptable LERs.
The credit rating for each borrower is reviewed monthly or earlier when there are extraordinary or
adverse developments affecting the borrower, the industry and/or the Philippine economy. Any
major change in the credit scoring system, the RAAC range and/or the risk-adjusted pricing system is
presented to and approved by the RMC.
The description of each credit quality grouping for the credit scores is explained further as follows:
Investment Grade - These accounts are of the highest quality and are likely to meet financial
obligations.
Standard Grade - These accounts may be vulnerable to adverse business, financial and economic
conditions but are expected to meet financial obligations.
Substandard Grade - These accounts are vulnerable to non-payment but for which default has not yet
occurred.
Non-Performing - These refer to accounts which are in default or those that demonstrate objective
evidence of impairment.
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Below is the breakdown of the Parent Bank’s corporate loans exposure (outstanding balance and
accrued interest receivable) by masterscale rating as of December 31, 2018:
Amount
Credit Score Masterscale Stage 1 Stage 2 Stage 3 Total
Investment Grade
AAA to A- 1 P−
= P−
= P−
= P−
=
BBB+ 2 − − − −
BBB 3 23,058,039 − − 23,058,039
Standard Grade
BBB- to BB+ 4 49,352,486 − − 49,352,486
BB to BB- 5 13,356,771 − − 13,356,771
B+ 6 25,909,875 − − 25,909,875
B to B- 7 5,196,673 − − 5,196,673
CCC+ to CCC 8 10,936,341 − − 10,936,341
Substandard Grade
Lower than
CCC 9 1,172,921 − − 1,172,921
Non-Performing
Default 10 − − 80,945 80,945
=128,983,106
P P−
= P80,945
= =129,064,051
P
Commercial Loans
The Parent Bank’s commercial banking activities are undertaken by its Commercial Banking Center
(ComBank). These consist of banking products and services rendered to customers which are entities
that are predominantly small and medium scale enterprises (SMEs). These products and services are
similar to those provided to large corporate customers, with the predominance of trade finance-related
products and services.
Upon the adoption of a new internal rating system in 2018, ComBank currently uses the same obligor
masterscale of corporate loans, and follows the same RAAC framework.
Below is the breakdown of the Parent Bank’s commercial loans exposure (outstanding balance and
accrued interest receivable) by masterscale rating as of December 31, 2018:
Amount
Credit Score Masterscale Stage 1 Stage 2 Stage 3 Total
Investment Grade
AAA to A- 1 P–
= P–
= P–
= =−
P
BBB+ 2 – – – −
BBB 3 1,149,059 – – 1,149,059
Standard Grade
BBB- to BB+ 4 5,954,268 – – 5,954,268
BB to BB- 5 11,134,892 8,222 – 11,143,114
B+ 6 6,091,270 4,348 – 6,095,618
B to B- 7 15,440,687 − – 15,440,687
Substandard Grade
CCC+ to CCC 8 5,450,233 − – 5,450,233
Lower than CCC 9 2,711,796 1,361 – 2,713,157
Non-Performing
Default 10 – – 2,323,891 2,323,891
=47,932,205
P =13,931
P P2,323,891
= =50,270,027
P
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On the other hand, CSB, an accredited lending institution of the Department of Education (DepEd),
provides salary loans to teachers under an agreement with DepEd for payroll deductions.
Exposure to credit risk is managed through regular analysis of the ability of borrowers and potential
borrowers to meet interest and capital repayment obligations and by changing these lending limits
when appropriate.
The Retail products’ respective masterscale is defined by the credit scoring models, which consider
demographic variables and behavioral performance, to segment the portfolio according to risk
masterscale per product. The stages are defined by the approved Significant Increase in Credit Risk
(SICR) for Retail which takes into account the following: NPL status, months on books, and credit
score rating for Application score (point of application) and Behavior Score (monthly credit
performance).
Each borrower is assigned a credit score with 1 as the highest quality and 7 as default.
Below is the breakdown of the Parent Bank’s major retail portfolio loans exposure (outstanding
balance and accrued interest receivable) by masterscale rating as of December 31, 2018:
Home Loans
Amount
Masterscale Stage 1 Stage 2 Stage 3 Total
1 =8,695,257
P =–
P =–
P P8,695,257
=
2 17,523,071 – – 17,523,071
3 813,094 13,409 – 826,503
4 8,288,335 358,815 – 8,647,150
5 276,668 23,574 – 300,242
6 128,949 – – 128,949
7 − − 918,712 918,712
=35,725,374
P =395,798
P =918,712
P =37,039,884
P
Amount
Masterscale Stage 1 Stage 2 Stage 3 Total
1 =4,074,079
P =1,298
P =−
P =4,075,377
P
2 530,576 1,406 − 531,982
3 2,337,962 3,069 − 2,341,031
4 1,981,767 8,856 − 1,990,623
5 643,088 1,731 − 644,819
6 5,575,088 40,885 − 5,615,973
7 − − 2,786,167 2,786,167
=15,142,560
P =57,245
P =2,786,167
P =17,985,972
P
*Consist of auto loans, credit cards and business lines, which are combined for disclosure purposes.
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Salary Loans
For salary loans, each borrower is assigned a credit score with E as minimal risk, D as low risk, C as
moderate risk, B as average risk and A as high risk.
The description of each credit quality grouping for the credit scores is explained further as follows:
High grade (minimal to low risk) - These are receivables which have a high probability of collection.
The counterparty has the apparent ability to satisfy its obligation and the security on the receivables is
readily enforceable.
Standard grade (moderate to average risk) - These are receivables where collections are probable due
to the reputation and the financial ability of the counterparty to pay but with experience of default.
Substandard (high risk) - Accounts classified as “Substandard” are individual credits or portions
thereof which appear to involve a substantial and unreasonable degree of risk to the Bank because of
unfavorable record or unsatisfactory characteristics. There exists in such accounts the possibility of
future loss to the Bank unless given closer supervision. Those classified as “Substandard” must have
a well-defined weakness or weaknesses that jeopardize their liquidation. Such well-defined
weaknesses may include adverse trends or development of financial, managerial, economic or
political nature, or a significant weakness in collateral.
Below is the breakdown of CSB’s salary loans exposure (outstanding balance and accrued interest
receivable) by credit score as of December 31, 2018:
Amount
Credit Score Stage 1 Stage 2 Stage 3 Total
D to E =44,980,585
P =−
P =−
P =44,980,585
P
B to C 79,300 48,665 − 127,965
A ‒ 196,721 − 196,721
Default − − 1,620,327 1,620,327
=45,059,885
P =245,386
P =1,620,327
P =46,925,598
P
Exposure to credit risk is managed through regular analysis of the ability of borrowers and potential
borrowers to meet interest and capital repayment obligations and by changing these lending limits
when appropriate.
Each product was risk rated using techniques appropriate to the Group’s and Parent Bank’s credit
experience. Such methods consider the payment history that are reflected in aging, delinquency,
and/or change in rating. These provide the bases for the ECL stage determination.
Stage 1 - those that are considered current and up to 30 days past due, and based on change in rating,
delinquencies and payment history, does not demonstrate significant increase in credit risk.
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Stage 2 - those that are considered more 30 days past due but does not demonstrate objective
evidence of impairment as of reporting date, and, based on change in rating, delinquencies and
payment history, demonstrates significant increase in credit risk.
Stage 3 - Those that are considered default or demonstrates objective evidence of impairment as of
reporting date.
Below is a summary as of December 31, 2018 of the Group’s and Parent Bank’s other receivables
from customers.
Amount
Stage 1 Stage 2 Stage 3 Total
Group =21,621,870
P =522,472
P =4,168,971
P =26,313,313
P
Parent Bank 12,883,798 42,477 2,536,566 15,462,841
Below is a breakdown of the Parent Bank’s investments and placement (outstanding balance and
accrued interest receivable) by masterscale rating as of December 31, 2018:
Amount
Masterscale Stage 1 Stage 2 Stage 3 Total
1 =241,253,745
P =−
P =–
P =241,253,745
P
2 19,231,715 − − 19,231,715
3 − − − −
4 139,811 747,721 − 887,532
5 13,212,059 − − 13,212,059
6 2,457,192 − − 2,457,192
7 − − − −
8 45,434 − − 45,434
9 − − − −
10 − − − −
=276,339,956
P =747,721
P =−
P =277,087,677
P
2018
Stage 1 Stage 2 Stage 3 Total
Balance at beginning of year =259,607,532
P =1,718,411
P =10,479,027
P =271,804,970
P
Due to consolidation 7,393,104 475,695 637,412 8,506,211
Newly originated assets that
remained in Stage 1 as at
December 31, 2018 154,566,141 − − 154,566,141
Newly originated assets that moved to
Stage 2 and Stage 3 as at
December 31, 2018 − 323,678 770,097 1,093,775
(Forward)
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2018
Stage 1 Stage 2 Stage 3 Total
Movements in receivable balance
(excluding write-offs) (P
=124,993,207) (P
=808,783) (P
=1,359,369) (P
=127,161,359)
Amounts written-off − − (1,210,893) (1,210,893)
Transfers to Stage 1 1,256,425 (667,775) (588,650) −
Transfers to Stage 2 (882,016) 906,153 (24,137) −
Transfers to Stage 3 (2,482,980) (712,547) 3,195,527 −
Balance at end of year =294,464,999
P =1,234,832
P =11,899,014 P
P =307,598,845
The breakdown of movements in 2018 for total receivables from customers follow:
In 2018, there were no transfers between stages and write-offs of corporate loans.
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*SGVFS032841*
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Group
2018
Stage 1 Stage 2 Stage 3 Total
Balance at beginning of year =10,989,980
P =98,452
P =2,927,182
P =14,015,614
P
Due to consolidation 7,393,104 475,695 637,412 8,506,211
Newly originated assets that remained in
Stage 1 as at December 31, 2018 12,004,958 − − 12,004,958
Newly originated assets that moved to
Stage 2 and Stage 3 as at
December 31, 2018 − 25,091 68,852 93,943
Movements in receivable balance
(excluding write-offs) (7,847,919) (163,657) (211,084) (8,222,660)
Amounts written-off − − (84,753) (84,753)
Transfers to Stage 1 217,096 (66,814) (150,282) −
Transfers to Stage 2 (485,084) 501,890 (16,806) −
Transfers to Stage 3 (650,265) (348,185) 998,450 −
Balance at end of year =21,621,870
P =522,472
P =4,168,971
P =26,313,313
P
Parent Bank
2018
Stage 1 Stage 2 Stage 3 Total
Balance at beginning of year =6,931,864
P =33,321
P =2,581,898
P =9,547,083
P
Newly originated assets that remained in
Stage 1 as at December 31, 2018 9,853,577 − − 9,853,577
Newly originated assets that moved to
Stage 2 and Stage 3 as at
December 31, 2018 − 25,070 68,821 93,891
Movements in receivable balance
(excluding write-offs) (3,883,555) (8,517) (102,556) (3,994,628)
Amounts written-off − − (37,082) (37,082)
Transfers to Stage 1 16,572 (14,509) (2,063) −
Transfers to Stage 2 (14,177) 14,668 (491) −
Transfers to Stage 3 (20,483) (7,556) 28,039 −
Balance at end of year =12,883,798
P =42,477
P =2,536,566
P =15,462,841
P
Movements in 2018 for investments and placements follow. The balances presented include accrued
interest receivables:
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In 2018, there were no transfers to Stage 1 and Stage 3 and write-offs of investments and
placements.
Applicable for the year ended December 31, 2017 and prior years
The following summarizes the Group’s credit risk management practices and the relevant quantitative
and qualitative financial information regarding the credit exposure according to portfolios:
Corporate Loans
The Parent Bank utilized two separate Internal Credit Risk Rating Systems (ICRRS) which were
designed for Corporate and Commercial borrowers. For Corporate accounts, the rating system
assessed risks on a three-dimensional level: Borrower Risk, Facility Risk and Security Risk. It also
has established concentration limits depending on the Borrower Risk Rating and overall credit
quality. Each borrower is assigned a Borrower Risk Rating (BRR) which ranged from AAA to D,
under a 10-grade scoring system.
The description of each credit quality groupings for the credit scores is explained further as follows:
High Quality - These borrowers have a comfortable degree of stability, substance and diversity. They
have access to a substantial amount of funds through the public market under normal conditions.
These are normally the quality multinationals or local corporations which are well capitalized.
Satisfactory Quality - These borrowers have strong cash flows and acceptable degree of stability and
substance under normal market conditions. However, they may be susceptible to cyclical changes or
concentrations of business risk may be present.
Average - These borrowers have adequate cash flows to meet its commitments and can withstand
normal business cycles. However, any prolonged unfavorable economic period would create
deterioration beyond acceptable levels as clear risk elements exist, reflecting volatility of earnings
and performance.
Fair - These borrowers have adequate cash flows to meet its commitments but face on-going
uncertainties and exposure to adverse business, financial or economic conditions.
Low - Although these borrowers currently have adequate cash flows to meet their commitments,
their performance has already been weakened and any continuation of adverse business, financial or
economic conditions or further downturns are already expected to impair their capacity or willingness
to meet their financial commitments.
Substandard - These borrowers have inadequate cash flows and are exposed to a real risk of non-
payment of principal. The probability of default increases as the credit score goes down to CCC and
lower.
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Below is a summary as of December 31, 2017 of the Parent Bank’s corporate loans that are subject to
the Corporate ICRRS (gross of the related allowance for impairment and excluding accrued interest
receivables) with their respective credit scores:
Commercial Loans
The Parent Bank utilized two separate Internal Credit Risk Rating Systems (ICRRS) which were
designed for Corporate and Commercial borrowers. For Commercial accounts, the Parent Bank used
a separate 10-grade credit scoring system comprised of an Obligor Risk Rating (ORR), a Facility Risk
Adjustment (FRA) and a Final Risk Rating (FRR). Each borrower is assigned an ORR that ranged
from 1 to 10 with 1 to 3 defined as High Grade, 4 to 6 as Standard Grade and 7 and lower as
Substandard Grade.
The description of each credit quality grouping for the credit scores is explained further as follows:
Substantially Risk-free - These borrowers have high degree of stability, substance and diversity. They
are expected to remain of high quality in virtually all economic conditions and have access to a
substantial amount of funds through the public market at any time.
Minimal Risk - These borrowers have strong market and financial position with history of successful
performance. The overall debt service capacity as measured by cash flow to total debt service, as
well as their ability to meet their financial commitments, is very strong.
Moderate Risk - These borrowers have strong cash flows and acceptable degree of stability and
substance under normal market conditions. However, they may be susceptible to cyclical changes or
concentrations of business risk may be present.
Average Risk - These borrowers have adequate cash flows to meet its commitments and can withstand
normal business cycles. However, any prolonged unfavorable economic period would create
deterioration beyond acceptable levels as clear risk elements exist, reflecting volatility of earnings
and performance.
Above Average Risk - These borrowers have adequate cash flows to meet its commitments but face
on-going uncertainties and exposure to adverse business, financial or economic conditions.
High Risk - Although these borrowers currently have adequate cash flows to meet their commitments,
their performance has already been weakened and any continuation of adverse business, financial or
economic conditions or further downturns are already expected to impair their capacity or willingness
to meet their financial commitments.
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Substandard - These borrowers have inadequate cash flows and are exposed to a real risk of non-
payment of principal. The probability of default increases as credit rating goes down to seven.
Below is a summary as of December 31, 2017 of the Parent Bank’s commercial loans that are subject
to the Corporate ICRRS (gross of the related allowance for impairment and excluding accrued interest
receivables) with their respective credit scores:
Amount
Credit Score Description 2017
High grade
1 Substantially risk-free =–
P
2 Minimal risk 7,309,526
3 Moderate risk 15,395,067
Standard grade
4 Average risk 8,337,772
5 Above average risk 5,921,403
6 High risk 1,414,847
Substandard grade
7 and below Past due and C rated 2,975,667
Non-rated 2,209,528
=43,563,810
P
Retail Loans
The consumer loan portfolio of the Parent Bank is composed of four main product lines, namely:
Home Loans, Credit Cards, Auto Loans, and Salary Loans. Each of these products has an established
credit risk guidelines and systems for managing credit risk across all businesses. Scoring models have
been revised and fine-tuned while data analytics has been enhanced to improve portfolio quality and
product offers.
On the other hand, CSB, an accredited lending institution with the Department of Education (DepEd),
provides salary loans to teachers under an agreement with DepEd for payroll deductions.
Exposure to credit risk is managed through regular analysis of the ability of borrowers and potential
borrowers to meet interest and capital repayment obligations and by changing these lending limits
when appropriate.
As of December 31, 2017, the credit quality of loans and other receivables as well as investment
securities are summarized below.
Group
2017 (As Restated - Note 2)
Loans and Other Investment
Receivables Securities Total
Neither past due nor impaired =273,580,925
P =166,837,609
P =440,418,534
P
Past due but not impaired 6,299,072 – 6,299,072
Impaired 11,121,860 – 11,121,860
291,001,857 166,837,609 457,839,466
Allowance for impairment (10,822,982) − (10,822,982)
=280,178,875
P =166,837,609
P =447,016,484
P
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Parent Bank
2017
Loans and Other Investment
Receivables Securities Total
Neither past due nor impaired =207,291,620
P =166,837,609
P =374,129,229
P
Past due but not impaired 4,275,920 – 4,275,920
Impaired 10,053,832 – 10,053,832
221,621,372 166,837,609 388,485,981
Allowance for impairment (9,645,340) – (9,645,340)
=211,976,032
P =166,837,609
P =378,813,641
P
The table below shows the credit quality per class of financial assets that are neither past due nor
impaired, based on the Bank’s rating system as of December 31, 2017.
Group
2017
Standard Substandard
High Grade Grade Grade Total
Due from BSP =66,276,960
P =
P– =
P– P66,276,960
=
Due from other banks 53,655,721 864,761 – 54,520,482
Interbank loans receivable 4,793,280 – – 4,793,280
124,725,961 864,761 – 125,590,722
Financial assets at FVTPL
Derivative assets (Note 11) 281,314 84,636 – 365,950
Debt securities – – – –
281,314 84,636 – 365,950
Financial assets at amortized cost 136,967,485 26,687,430 – 163,654,915
Government bonds and other debt
securities – – – –
Other debt securities - Private bonds
and commercial papers 2,816,744 – – 2,816,744
139,784,229 26,687,430 – 166,471,659
Loans and other receivables
Receivables from customers
Corporate 54,685,093 56,352,686 6,582,943 117,620,722
Commercial 22,641,030 24,072,062 30,500 46,743,592
Consumer – 84,615,713 – 84,615,713
Bills purchased – 3,463,370 – 3,463,370
Accrued interest receivable – 1,766,776 – 1,766,776
Others – 645,633 – 645,633
SPURRA 13,572,371 – – 13,572,371
UDSCL 56,686 348,012 – 404,698
AIR - other receivables 3,143 2,133,725 – 2,136,868
Accounts receivable – 175,731 1,670,793 1,846,524
Sales contract receivable – 764,658 – 764,658
90,958,323 174,338,366 8,284,236 273,580,925
=355,749,827
P =201,975,193
P =8,284,236
P =566,009,256
P
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Parent Bank
2017
Standard Substandard
High Grade Grade Grade Total
Due from BSP =60,350,126
P =
P– =
P– P60,350,126
=
Due from other banks 53,655,579 34,654 – 53,690,233
Interbank loans receivable 4,793,280 – – 4,793,280
118,798,985 34,654 – 118,833,639
Financial assets at FVTPL
Derivative assets 281,314 84,636 – 365,950
Debt securities – – – –
281,314 84,636 – 365,950
Financial assets at amortized cost
Government bonds and other debt
securities 136,967,485 26,687,430 – 163,654,915
Other debt securities - Private bonds
and commercial papers 2,816,744 – – 2,816,744
139,784,229 26,687,430 – 166,471,659
Loans and other receivables
Receivables from customers
Corporate 54,685,093 56,352,686 6,582,943 117,620,722
Commercial 22,641,030 24,013,036 30,500 46,684,566
Consumer – 30,587,343 – 30,587,343
Bills purchased – 3,463,370 – 3,463,370
Accrued interest receivable – 1,250,114 – 1,250,114
Others 497,126 – 497,126
SPURRA 4,130,362 – – 4,130,362
AIR - other receivables – 2,133,724 – 2,133,724
Accounts receivable – 169,077 – 169,077
Sales contract receivable – 755,216 – 755,216
81,456,485 119,221,692 6,613,443 207,291,620
=340,321,013
P =146,028,412
P =6,613,443
P =492,962,868
P
The tables below show the aging analysis of past due but not impaired financial assets per class of the
Group and the Parent Bank as of December 31, 2017:
Group
2017
Less than
31 days 31 to 90 days 91 to 180 days More than180 days Total
Loans
Commercial P
=1,425,691 P
=1,108,943 P
=347,124 P
=1,294,613 P
=4,176,371
Consumer 111,326 52,968 11,112 16,534 191,940
Corporate 903 9,672 14,509 486,289 511,373
Accrued interest receivable 17,270 7,400 – – 24,670
Others 13,477 10,321 – – 23,798
1,568,667 1,189,304 372,745 1,797,436 4,928,152
Sales contracts receivable 256,931 110,063 52,655 12,560 432,209
1,825,598 1,299,367 425,400 1,809,996 5,360,361
Other receivables - Accounts
receivable =202,033
P =134,515
P =101,656
P =500,507
P =938,711
P
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Parent Bank
2017
Less than
31 days 31 to 90 days 91 to 180 days More than180 days Total
Loans
Consumer P
=110,993 P
=52,379 P
=11,112 P
=16,534 P
=191,018
Commercial 1,154,609 633,106 40,478 698,561 2,526,754
Corporate 903 9,672 14,509 486,289 511,373
Accrued interest receivable 17,270 7,400 – – 24,670
Others 9,439 4,320 – – 13,759
1,293,214 706,877 66,099 1,201,384 3,267,574
Sales contracts receivable 256,931 110,002 52,567 11,960 431,460
1,550,145 816,879 118,666 1,213,344 3,699,034
Other receivables - Accounts
receivable =–
P =121,966
P =92,298
P =362,592
P =576,886
P
For 2017, the maximum exposure to credit risk without taking into account any collateral held or
other credit enhancements for on-books financial assets and off-books items, net of allowance, are
shown below.
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The credit risk for cash and cash equivalents is considered negligible, since the counterparties are
reputable banks with high quality external credit ratings. Included in the cash and cash
equivalents are Due from BSP, Due from other banks and Interbank loans receivable.
(b) Investments
The Group continuously monitors defaults of borrowers and other counterparties, identified either
individually or by group, and incorporates this information into its credit risk controls. The
Group’s policy is to deal only with creditworthy counterparties. All investments held by the
Group are considered as either as high grade or standard grade that is neither past due nor
specifically impaired.
The RMU reviews the Parent Bank’s loan portfolio quality in line with the Parent Bank’s policy
of avoiding significant concentrations of exposure to specific industries or groups of borrowers.
In order to avoid excessive concentrations of risk, the Parent Bank’s policies and procedures
include guidelines for maintaining a diversified portfolio (e.g., concentration limits). Identified
concentrations of credit risks are controlled and managed accordingly. The RMU also monitors
compliance to the BSP’s limit on exposure to any single person or group of connected persons to
an amount not exceeding 25% of the Parent Bank’s adjusted capital accounts.
*SGVFS032841*
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Group
2018
Loans and Other Receivables
Trading and
Investment
Amount % Securities* Total
Concentration by industry
Real estate activities P
=54,175,125 16.13 P
=2,518,418 P
=56,693,543
Financial and insurance activities 49,709,176 14.80 171,571,585 221,280,761
Information and communication 31,377,131 9.34 804,521 32,181,652
Wholesale and retail trade, repair of motor
vehicles 27,711,422 8.25 424 27,711,846
Electricity, gas steam and air conditioning
supply 23,179,406 6.90 37,776,215 60,955,621
Manufacturing 18,153,915 5.41 2,826,502 20,980,417
Accommodation and food service activities 11,932,740 3.55 – 11,932,740
Transportation and storage 11,851,921 3.53 – 11,851,921
Activities of households as employers and
undifferentiated goods and services 9,256,381 2.76 – 9,256,381
Construction 5,836,312 1.74 – 5,836,312
Other service activities 3,805,692 1.13 3,532 3,809,224
Agriculture, forestry and fishing 2,266,941 0.68 – 2,266,941
Professional, scientific and technical
activities 431,161 0.13 – 431,161
Arts, entertainment and Recreation 106,928 0.03 – 106,928
Others 86,008,050 25.62 45,370 86,053,420
P
=335,802,301 100.00 P215,546,567 P551,348,868
Concentration by location
Philippines P
=334,255,563 99.54 P
=100,196,959 P
=434,452,522
Others - Asia 846,364 0.25 75,903,425 76,749,789
South America 342,098 0.10 22,161,154 22,503,252
North America 216,422 0.06 9,728,961 9,945,383
Russia 110,650 0.04 4,890,490 5,001,140
United States 22,343 0.01 2,656,717 2,679,060
Europe 8,861 0.00 8,861 17,722
P
=335,802,301 100.00 P
=215,546,567 P
=551,348,868
*SGVFS032841*
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Group
2017
Trading and
Loans and Other Receivables Investment
Amount % Securities Total
Concentration by industry
Real estate activities P46,910,394
= 16.02 =2,641,001
P P49,551,395
=
Financial and insurance activities 43,289,049 14.79 138,346,287 181,635,336
Information and communication 30,842,229 10.53 7,577 30,849,806
Electricity, gas steam and air conditioning
supply 25,744,226 8.79 25,794,080 51,538,306
Wholesale and retail trade, repair of motor
vehicles 19,832,471 6.77 508 19,832,979
Manufacturing 13,064,296 4.46 2,787 13,067,083
Transportation and storage 9,454,975 3.23 – 9,454,975
Accommodation and food service activities 8,543,498 2.92 – 8,543,498
Other service activities 4,538,525 1.55 – 4,538,525
Construction 4,312,242 1.47 – 4,312,242
Activities of households as employers and
undifferentiated goods and services 1,924,257 0.66 – 1,924,257
Agriculture, forestry and fishing 1,315,692 0.45 – 1,315,692
Arts, entertainment and Recreation 1,174,569 0.40 – 1,174,569
Professional, scientific and technical
activities 290,146 0.10 – 290,146
Others 81,551,398 27.86 45,369 81,596,767
=292,787,967
P 100.00 =166,837,609
P =459,625,576
P
Concentration by location
Philippines =291,725,048
P 99.64 P92,408,663
= =384,133,711
P
Others - Asia 706,602 0.24 53,243,125 53,949,727
North America 110,132 0.04 4,749,146 4,859,278
South America 131,489 0.04 9,847,069 9,978,558
Russia 91,427 0.03 4,062,066 4,153,493
United States 21,217 0.01 2,525,581 2,546,798
Europe 2,052 – 1,959 4,011
=292,787,967
P 100.00 =166,837,609
P =459,625,576
P
Parent Bank
2018
Trading and
Loans and Other Receivables Investment
Amount % Securities Total
Concentration by industry
Real estate activities P
=54,174,341 20.39 P
=2,518,418 P
=56,692,759
Financial and insurance activities 39,747,749 14.95 171,571,585 211,319,334
Information and communication 31,376,526 11.81 804,521 32,181,047
Wholesale and retail trade, repair of motor
vehicles 27,093,681 10.19 424 27,094,105
Electricity, gas steam and air conditioning
supply 23,179,406 8.72 37,776,215 60,955,621
Manufacturing 18,148,319 6.83 2,826,502 20,974,821
Accommodation and food service activities 11,866,239 4.47 – 11,866,239
Transportation and storage 11,209,175 4.22 − 11,209,175
Activities of households as employers and
undifferentiated goods and services 9,256,381 3.48 – 9,256,381
Construction 5,835,706 2.20 – 5,835,706
Other service activities 3,507,739 1.32 3,532 3,511,271
Agriculture, forestry and fishing 788,735 0.30 – 788,735
(Forward)
*SGVFS032841*
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Parent Bank
2018
Trading and
Loans and Other Receivables Investment
Amount % Securities Total
Professional, scientific and technical
activities P
=430,218 0.16 P
=– P
=430,218
Arts, entertainment and Recreation 105,694 0.04 – 105,694
Others 29,012,375 10.92 45,370 29,057,745
P
=265,732,284 100.00 P
=215,546,567 P
=481,278,851
Concentration by location
Philippines P
=264,185,546 99.42 P
=100,196,959 P
=364,382,505
Others - Asia 846,364 0.32 75,903,425 76,749,789
South America 342,098 0.13 22,161,154 22,503,252
North America 216,422 0.08 9,728,961 9,945,383
Russia 110,650 0.04 4,890,490 5,001,140
United States 22,343 0.01 2,656,717 2,679,060
Europe 8,861 – 8,861 17,722
P
=265,732,284 100.00 P
=215,546,567 P
=481,278,851
Parent Bank
2017
Loans and Other Receivables
Investment
Amount % Securities Total
Concentration by industry
Real estate activities P46,812,854
= 21.11 =2,641,001
P P49,453,855
=
Financial and insurance activities 33,196,029 14.97 138,346,287 171,542,316
Information and communication 30,842,230 13.91 7,577 30,849,807
Electricity, gas steam and air conditioning
supply 25,692,121 11.59 25,794,080 51,486,201
Manufacturing 13,064,296 5.89 2,787 13,067,083
Transportation, storage 9,454,975 4.26 – 9,454,975
Wholesale and retail trade, repair of motor
vehicles 19,829,137 8.94 508 19,829,645
Other service activities 4,525,322 2.04 – 4,525,322
Accommodation and food service activities 8,543,498 3.85 – 8,543,498
Construction 4,302,415 1.94 – 4,302,415
Activities of households as employers and
undifferentiated goods and services 1,731,586 0.78 – 1,731,586
Arts, entertainment and Recreation 1,174,569 0.53 – 1,174,569
Agriculture, forestry and fishing 636,018 0.29 – 636,018
Professional, scientific and technical
activities 290,146 0.13 – 290,146
Others 21,670,384 9.77 45,369 21,715,753
=221,765,580
P 100.00 =166,837,609
P =388,603,189
P
Concentration by location
Philippines =220,702,661
P 99.52 P92,408,663
= =313,111,324
P
Others - Asia 706,602 0.32 53,243,125 53,949,727
Europe 2,052 – 1,959 4,011
North America 110,132 0.05 4,749,146 4,859,278
South America 131,489 0.06 9,847,069 9,978,558
Russia 91,427 0.04 4,062,066 4,153,493
United States 21,217 0.01 2,525,581 2,546,798
=221,765,580
P 100.00 =166,837,609
P =388,603,189
P
*SGVFS032841*
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An estimate of the fair value of collateral and other security enhancements held by the Group and
the Parent Bank against loans and other receivables as of December 31, 2018 and 2017 is shown
below:
Group
Exposure after
Exposure before financial effect of
collateral Property Deposits Others collateral
As of December 31, 2018 =335,802,301
P P31,702,972
= =
P595,409 P11,506,779
= =291,997,141
P
As of December 31, 2017 292,787,967 49,580,386 140,435 35,429,507 207,637,639
Parent Bank
Exposure after
Exposure before financial effect of
collateral Property Deposits Others collateral
As of December 31, 2018 =265,732,284
P P30,797,902
= P507,031
= P11,506,779
= =222,920,572
P
As of December 31, 2017 221,765,580 49,429,711 89,155 35,429,507 136,817,207
The Group’s manner of disposing the collateral for impaired loans and receivables is normally
through sale of the assets after foreclosure proceedings have taken place.
Liquidity Risk
Liquidity risk is the risk that there are insufficient funds available to adequately meet the credit
demands of the Group’s customers and repay deposits on maturity. The ALCO and the Treasurer of
the Group ensure that sufficient liquid assets are available to meet short-term funding and regulatory
requirements. Liquidity is monitored by the Group on a daily basis and under stressed situations. A
contingency plan is formulated to set out the amount and the sources of funds (such as unused credit
facilities) that are available to the Group and the circumstances under which the Group may use such
funds.
The Group also manages its liquidity risks through the use of a Maximum Cumulative Outflow
(MCO) limit which regulates the outflow of cash on a cumulative basis and on a tenor basis. To
maintain sufficient liquidity in foreign currencies, the Group has also set an MCO limit for certain
designated foreign currencies. The MCO limits are endorsed by the MRC and approved by the BOD.
*SGVFS032841*
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The table below shows the financial assets and financial liabilities’ liquidty information which
includes coupon cash flows categorized based on the contractual date on which the asset will be
realized and the liability will be settled. For financial assets at FVTPL, the analysis into maturity
grouping is based on the remaining period from the end of the reporting period to the expected date
the assets will be realized (amounts in millions).
Group
2018
On Up to 1 to 3 3 to 6 6 to 12 Beyond
Demand 1 month Months Months Months 1 year Total
Financial assets
Cash and other cash items P
= 10,917 =
P− =
P− =
P− =
P− =
P− P
= 10,917
Due from BSP 56,511 − − − − − 56,511
Due from other banks 14,942 − − − − − 14,942
Interbank loans receivable − − − − − − −
82,370 − − − − − 82,370
Financial assets at FVTPL
Derivative assets 9 196 89 18 16 50 378
Debt securities − 5,219 − − − − 5,219
Equity securities − 2,690 − − − − 2,690
Financial assets at FVOCI
Debt securities − 9 41 390 1,431 9,883 11,754
Equity securities − − − − − 53 53
Financial assets at amortized
cost
Debt securities − 1,243 1,570 4,611 5,904 378,690 392,018
9 9,357 1,700 5,019 7,351 388,676 412,112
Loans and other receivables 43 42,266 30,217 24,223 26,641 240,761 364,151
Other receivables
Accounts receivable − – – – – 4,711 4,711
Accrued interest receivable − 5,081 – – – – 5,081
Sales contract receivable − 24 46 68 135 1,248 1,521
43 47,371 30,263 24,291 26,776 246,720 375,464
Other financial assets
Returned checks and other
cash items − 509 − − − − 509
Sundry debits − 145 − − − − 145
− 654 − − − − 654
Total assets P
= 82,422 P
= 57,382 P
= 31,963 P
= 29,310 P
= 34,127 P
= 635,396 P
= 870,600
Non-derivative liabilities
Deposit liabilities
Demand P
= 119,253 =
P– =
P– =
P– =
P– =
P– P
= 119,253
Savings 67,348 – – – – – 67,348
Time and LTNCD 341 130,740 61,218 9,644 6,160 33,053 241,156
186,942 130,740 61,218 9,644 6,160 33,053 427,757
Bills payable – 58,326 13,483 970 15,844 4,275 92,898
Notes and bonds payable – 37 291 738 1,029 48,089 50,184
Manager’s checks 9,417 – – – – – 9,417
Accrued interest payable – 1,369 – – – – 1,369
Accounts payable – 3,956 – – – – 3,956
Other liabilities – 4,308 – – – 234 4,542
196,359 198,736 74,992 11,352 23,033 85,651 590,123
Derivative liabilities
Outflow – 16,627 4,549 1,547 922 – 23,645
Inflow – (16,292) (4,518) (1,526) (899) – (23,235)
− 335 31 21 23 − 410
Total liabilities =196,359
P =199,071
P P
= 75,023 P
= 11,373 =23,056
P =85,651
P =590,533
P
*SGVFS032841*
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Group
2017
On Up to 1 to 3 3 to 6 6 to 12 Beyond
Demand 1 month Months Months Months 1 year Total
Financial assets
Cash and other cash items P6,633
= P−
= P−
= P−
= P−
= P−
= P6,633
=
Due from BSP 66,277 − − − − − 66,277
Due from other banks 54,520 − − − − − 54,520
Interbank loans receivable − 4,799 − − − − 4,799
127,430 4,799 − − − − 132,229
Financial assets at FVTPL
Derivative assets − 252 67 − − 49 368
Debt securities − − − − − − −
Equity securities − 2,816 − − − − 2,816
Financial assets at FVOCI
Debt securities − − − − − − −
Equity securities − − − − − 44 44
Financial assets at amortized
cost
Debt securities − 1,052 1,919 2,011 4,160 314,730 323,872
− 4,120 1,986 2,011 4,160 314,823 327,100
Loans and other receivables 178 36,495 25,808 17,049 20,197 218,330 318,057
Other receivables
Accounts receivable − − − − − 3,668 3,668
Accrued interest receivable − 4,025 − − − − 4,025
Sales contract receivable − 21 40 59 116 952 1,188
178 40,541 25,848 17,108 20,313 222,950 326,938
Other financial assets
Returned checks and other
cash items − 260,780 − − − − 260,780
Sundry debits − 160,650 − − − − 160,650
− 421,430 − − − − 421,430
Total assets =127,608
P =470,890
P =27,834
P =19,119
P =24,473
P =537,773
P =1,207,697
P
Non-derivative liabilities
Deposit liabilities
Demand =127,424
P P–
= P–
= P–
= P–
= P–
= =127,424
P
Savings 57,745 – – – – – 57,745
Time and LTNCD 117 159,980 71,771 9,329 7,505 18,371 267,073
185,286 159,980 71,771 9,329 7,505 18,371 452,242
Bills payable 1 30,769 2,301 1,226 7,359 1,855 43,511
Notes and bonds payable – – 97 518 615 36,013 37,243
Manager’s checks 8,677 – – – – – 8,677
Accrued interest payable – 941 – – – – 941
Accounts payable – 2,854 – – – – 2,854
Other liabilities – 4,085 – – – 189 4,274
193,964 198,629 74,169 11,073 15,479 56,428 549,742
Derivative liabilities
Outflow – 3,934 32 13 8 – 3,987
Inflow – (3,911) (32) (12) (8) – (3,963)
− 23 − 1 − − 24
Total liabilities =193,964
P =198,652
P =74,169
P =11,074
P =15,479
P =56,428
P =549,766
P
Parent Bank
2018
On Up to 1 to 3 3 to 6 6 to 12 Beyond
Demand 1 month Months Months Months 1 year Total
Financial assets
Cash and other cash items P
= 10,335 =
P− =
P− =
P− =
P− =
P− P
= 10,335
Due from BSP 52,961 − − − − − 52,961
Due from other banks 11,550 − − − − − 11,550
Interbank loans receivable − − − − − − −
74,846 − − − − − 74,846
Financial assets at FVTPL
Derivative assets 9 196 89 18 16 50 378
Debt securities − 5,219 − − − − 5,219
Equity securities − 2,632 − − − − 2,632
Financial assets at FVOCI
Debt securities − − 41 390 1,431 9,883 11,745
Equity securities − − − − − 44 44
Financial assets at amortized
cost
Debt securities − 1,243 1,570 4,611 5,904 378,690 392,018
9 9,290 1,700 5,019 7,351 388,667 412,036
(Forward)
*SGVFS032841*
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Parent Bank
2018
On Up to 1 to 3 3 to 6 6 to 12 Beyond
Demand 1 month Months Months Months 1 year Total
Loans and other receivables =
P− P
= 41,405 P
= 28,618 P
= 21,448 P
= 20,108 P
= 183,347 P
= 294,926
Other receivables
Accounts receivable − − − − − 1,761 1,761
Accrued interest receivable − 4,459 − − − − 4,459
Sales contract receivable − 24 46 68 135 1,171 1,444
− 45,888 28,664 21,516 20,243 186,279 302,590
Other financial assets
Returned checks and other − 508,709 − − − − 508,709
cash items
Sundry debits − 145,438 − − − − 145,438
− 654,147 − − − − 654,147
Total assets P
= 74,855 P
= 709,325 P
= 30,364 P
= 26,535 P
= 27,594 P
= 574,946 P
= 1,443,619
Non-derivative liabilities
Deposit liabilities
Demand P
= 119,847 =
P– =
P– =
P– =
P– P–
= P
= 119,847
Savings 64,080 – – – – – 64,080
Time and LTNCD 279 110,834 57,969 7,742 3,367 20,562 200,753
184,206 110,834 57,969 7,742 3,367 20,562 384,680
Bills payable – 49,702 12,512 5 1,362 1,866 65,447
Notes and bonds payable – – 291 734 1,025 47,922 49,972
Manager’s checks 9,417 – – – – – 9,417
Accrued interest payable – 1,108 – – – – 1,108
Accounts payable – 3,256 – – – – 3,256
Other liabilities – 4,303 – – – 234 4,537
193,623 169,203 70,772 8,481 5,754 70,584 518,417
Derivative liabilities
Outflow – 16,627 4,549 1,547 922 – 23,645
Inflow – (16,292) (4,518) (1,526) (899) – (23,235)
− 335 31 21 23 − 410
Total liabilities P
= 193,623 P
= 169,538 P
= 70,803 P
= 8,502 P
= 5,777 P
= 70,584 P
= 518,827
Parent Bank
2017
On Up to 1 to 3 3 to 6 6 to 12 Beyond
Demand 1 month Months Months Months 1 year Total
Financial assets
Cash and other cash items P6,249
= P−
= P−
= P−
= P−
= P−
= P6,249
=
Due from BSP 60,350 − − − − − 60,350
Due from other banks 53,690 − − − − − 53,690
Interbank loans receivable − 4,799 − − − − 4,799
120,289 4,799 − − − − 125,088
Financial assets at FVTPL
Derivative assets − 252 67 − − 49 368
Debt securities − − − − − − −
Equity securities − 2,764 − − − − 2,764
Financial assets at FVOCI −
Debt securities − − − − − − −
Equity securities − − − − − 44 44
Financial assets at amortized
cost
Debt securities − 1,052 1,919 2,011 4,160 314,730 323,872
− 4,068 1,986 2,011 4,160 314,823 327,048
Loans and other receivables =−
P =34,901
P =24,504
P =16,078
P =17,715
P =156,241
P =249,439
P
Other receivables −
Accounts receivable − − − − − 1,498 1,498
Accrued interest receivable − 3,505 − − − − 3,505
Sales contract receivable − 21 40 59 116 952 1,188
− 38,427 24,544 16,137 17,831 158,691 255,630
Other financial assets
Returned checks and other − 261 − − − − 261
cash items
Sundry debits − 161 − − − − 161
− 422 − − − − 422
Total assets =120,289
P =47,716
P =26,530
P =18,148
P =21,991
P =473,514
P =708,188
P
(Forward)
*SGVFS032841*
- 69 -
Parent Bank
2017
On Up to 1 to 3 3 to 6 6 to 12 Beyond
Demand 1 month Months Months Months 1 year Total
Non-derivative liabilities
Deposit liabilities
Demand =128,049
P P–
= P–
= P–
= P–
= P–
= =128,049
P
Savings 55,738 – – – – – 55,738
Time and LTNCD 64 128,491 66,569 7,820 6,498 8,670 218,112
183,851 128,491 66,569 7,820 6,498 8,670 401,899
Bills payable 26,577 2,301 7 161 49 29,095
Notes and bonds payable – – 97 518 615 36,013 37,243
Manager’s checks 8,677 – – – – – 8,677
Accrued interest payable – 793 – – – – 793
Accounts payable – 2,367 – – – – 2,367
Other liabilities 4,084 187 4,271
192,528 162,312 68,967 8,345 7,274 44,919 484,345
Derivative liabilities -
Outflow – 3,934 32 13 8 – 3,987
Inflow – (3,911) (32) (12) (8) – (3,963)
− 23 − 1 − − 24
Total liabilities =192,528
P =162,335
P =68,967
P =8,346
P =7,274
P =44,919
P =484,369
P
Market Risk
Market risk is the risk that the fair value or future cash flows of financial instruments will fluctuate
due to changes in market variables such as interest rate, foreign exchange rates and equity prices.
The Group classifies exposures to market risk into either trading book or banking book. The market
risk for the trading portfolio is managed and monitored based on a Value-at-Risk (VaR)
methodology. Meanwhile, the market risk for the non-trading positions are managed and monitored
using other sensitivity analyses.
The Group applies a VaR methodology to assess the market risk of positions held and to estimate the
potential economic loss based upon a number of parameters and assumptions for various changes in
market conditions. VaR is a method used in measuring financial risk by estimating the potential
negative change in the market value of a portfolio at a given confidence level and over a specified
time horizon.
The Group uses the historical VaR approach in assessing the possible changes in the market value of
investment securities based on historical data for a rolling one-year period. The VaR models are
designed to measure market risk in a normal market environment. The models assume that any
changes occurring in the risk factors affecting the normal market environment will have the same
distribution as they had in the past. This involves running the portfolio across a set of historical price
changes, thus creating a distribution of changes in portfolio value which may or may not be normal.
The historical approach does not make any assumptions regarding the distribution of the risk factors
and therefore can accommodate any type of distribution.
VaR may also be underestimated or overestimated 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.
The VaR figures are backtested daily against actual and hypothetical profit and loss of the trading
book to validate the robustness of the VaR model. To supplement the VaR, the Group performs
stress tests wherein the trading portfolios are valued under extreme market scenarios not covered by
the confidence interval of the Group’s VaR model.
Since VaR is an integral part of the Group’s market risk management, VaR limits are established
annually for all financial trading activities and exposures against the VaR limits and are monitored on
a daily basis. Limits are based on the tolerable risk appetite of the Group.
*SGVFS032841*
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A summary of the Group’s VaR position at December 31, 2018 and 2017 follows (amounts in
millions of Philippine pesos):
Foreign
Exchange Interest Rate Equity Total VaR
2018 P
=15.9 P
=377.9 P
=198.4 P
=592.2
Average daily 13.1 129.4 198.8 341.2
Highest 86.5 990.0 206.1 1,282.6
Lowest 1.9 – 187.6 189.5
2017 P13.2
= P–
= P196.0
= P209.2
=
Average daily 15.9 3.3 204.0 223.2
Highest 39.9 16.3 215.4 256.5
Lowest 3.8 – 152.5 161.7
The high and low of the total portfolio may not equal to the sum of the individual components as the
highs and lows of the individual portfolios may have occurred on different trading days. The VaR for
foreign exchange is the foreign exchange risk throughout the Parent Bank.
The Group employs “gap analysis” to measure the interest rate sensitivity of its assets and liabilities,
also known as Earnings-at-Risk (EaR). This sensitivity analysis is performed at least every month.
The EaR measures the impact on the net interest income for any mismatch between the amounts of
interest-earning assets and interest-bearing liabilities within a one-year period. The EaR is calculated
by first distributing the interest sensitive assets and liabilities into tenor buckets based on time
remaining to the next repricing date or the time remaining to maturity if there is no repricing and then
subtracting the liabilities from the assets to obtain the repricing gap. The repricing gap per tenor
bucket is then multiplied by the assumed interest rate movement and appropriate time factor to derive
the EaR per tenor. The total EaR is computed as the sum of the EaR per tenor within one year.
To manage the interest rate risk exposure, BOD-approved EaR limits were established.
Non-maturing or repricing assets or liabilities are considered to be non-interest rate sensitive and are
not included in the measurement.
A positive gap occurs when the amount of interest rate sensitive assets exceeds the amount of interest
rate sensitive liabilities while a negative gap occurs when the amount of interest rate sensitive
liabilities exceeds the amount of interest rate sensitive assets. Accordingly, during a period of rising
interest rates, an entity with a positive gap will have more interest rate sensitive assets repricing at a
higher interest rate than interest rate sensitive liabilities which will be favorable to it. During a period
of falling interest rates, an entity with a positive gap will have more interest rate sensitive assets
repricing at a lower interest rate than interest rate sensitive liabilities, which will be unfavorable to it.
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The asset-liability gap position of the Group and Parent Bank at carrying amounts follows (amounts
in millions of Philippine pesos):
Group
2018
Beyond
Up to Six Months Beyond
Six Months To One Year One Year Total
Resources
Loans P
=102,018 P
=17,300 P
=206,881 P
=326,199
Placements 14,942 – 56,511 71,453
Investments 3,821 949 213,502 218,272
120,781 18,249 476,894 615,924
Liabilities
Deposit liabilities 200,442 5,782 214,479 420,703
Bills payable 72,467 14,972 3,525 90,964
Notes and bonds payable 37 150 44,335 44,522
272,946 20,904 262,339 556,189
Asset-Liability Gap (P
= 152,165) (P
= 2,655) P
=214,555 P
=59,735
Group
2017
Beyond
Up to Six Months Beyond
Six Months To One Year One Year Total
Resources
Loans =102,288
P =26,362
P =151,529
P P280,179
=
Placements 61,425 – 64,165 125,590
Investments 801 – 168,897 169,698
Other financial assets 289 63 52 404
164,803 26,425 385,095 576,323
Liabilities
Deposit liabilities 239,684 7,188 200,744 447,616
Bills payable 33,180 7,161 2,730 43,071
Notes and bonds payable – – 32,128 32,128
272,864 14,349 235,602 522,815
Asset-Liability Gap (P
=108,061) =12,076
P =149,493
P =53,508
P
Parent Bank
2018
Beyond
Up to Six Months Beyond
Six Months To One Year One Year Total
Resources
Loans P
=85,622 P
=6,558 P
=166,231 P
=258,411
Placements 11,550 − 52,961 64,511
Investments 3,812 949 213,445 218,206
100,984 7,507 432,637 541,128
Liabilities
Deposit liabilities 175,699 3,233 201,778 380,710
Bills payable 61,955 1,315 1,454 64,724
Notes and bonds payable − − 44,335 44,335
237,654 4,548 247,567 489,769
Asset-Liability Gap (P
= 136,670) P
=2,959 P
=185,070 P
=51,359
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Parent Bank
2017
Beyond
Up to Six Months Beyond
Six Months To One Year One Year Total
Resources
Loans P81,963
= =15,952
P =114,061
P P211,976
=
Placements 58,586 – 60,248 118,834
Investments 801 – 168,845 169,646
141,350 15,952 343,154 500,456
Liabilities
Deposit liabilities 201,984 6,317 191,673 399,974
Bills payable 28,799 162 49 29,010
Notes and bonds payable – – 32,128 32,128
230,783 6,479 223,850 461,112
Asset-Liability Gap (P
=89,433) =9,473
P =119,304
P =39,344
P
The Parent Bank’s maturing financial liabilities within the one to six month period pertain to time
deposits as well as bills payable due to banks and other financial institutions. Maturing bills payable
are usually settled through repayments. When maturing financial assets are not sufficient to cover the
related maturing financial liabilities, the bills payable and other currently maturing financial liabilities
are rolled over/refinanced or are settled by entering into new borrowing arrangements with other
counterparties.
The following table sets out the impact of changes in interest rates on the Group’s and Parent Bank’s
net interest income (amounts in millions of Philippine pesos):
2017
Change in annualized net interest income (P
=1,244) =1,244
P (P
=993) P993
=
As a percentage of net interest income (7.1%) 7.1% (7.4%) 7.4%
This sensitivity analysis is performed for risk management purposes and assumes no other changes in
the repricing structure. Actual changes in net interest income may vary from the Bank’s internal
model.
The Group’s net foreign exchange exposure, taking into account any spot or forward exchange
contracts, is computed as foreign currency assets less foreign currency liabilities. The foreign
exchange exposure is limited to the day-to-day, over-the-counter buying and selling of foreign
exchange in the Group’s branches, as well as foreign exchange trading with corporate accounts and
other financial institutions. The Group is permitted to engage in proprietary trading to take advantage
of foreign exchange fluctuations.
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The breakdown of the financial resources and financial liabilities of the Group and the Parent Bank as
to foreign currency-denominated balances, translated to Philippine pesos as of December 31, 2018
and 2017 is shown below.
2018
Other
Foreign
U.S. Dollars Currencies Total
Resources:
Cash and other cash items P
=2,684,743 P
=757,251 P
=3,441,994
Due from other banks 8,711,992 1,819,838 10,531,830
Financial assets at FVTPL 1,911,742 – 1,911,742
Financial assets at FVOCI 5,123,978 – 5,123,978
Financial assets at amortized cost 138,214,218 1,873,269 140,087,487
Loans and other receivables 12,603,289 63,554 12,666,843
P
=169,249,962 P
=4,513,912 P
=173,763,874
Liabilities:
Deposit liabilities P
=99,109,399 P
=3,371,657 P
=102,481,056
Bills payable 46,692,300 8,003 46,700,303
Notes and bonds payable 26,233,746 – 26,233,746
Derivative liabilities 10,499 – 10,499
Accrued interest and other expenses 483,756 489 484,245
Other liabilities 1,134,354 158,461 1,292,815
173,664,054 3,538,610 177,202,664
Currency swaps and forwards 5,229,482 (1,058,691) 4,170,791
Net exposure P
=815,390 (P
= 83,389) P
=732,001
2017
Other
Foreign
U.S. Dollars Currencies Total
Resources:
Cash and other cash items =551,642
P =163,435
P =715,077
P
Due from other banks 50,579,934 2,449,693 53,029,627
Interbank loans receivables 4,793,280 – 4,793,280
Financial assets at FVTPL 52,917 – 52,917
Financial assets at amortized cost 106,618,631 421,183 107,039,814
Loans and other receivables 10,829,857 12,829 10,842,686
=173,426,261
P =3,047,140
P =176,473,401
P
Liabilities:
Deposit liabilities =105,604,603
P =2,848,048
P =108,452,651
P
Bills payable 28,953,460 6,951 28,960,411
Notes payable 24,928,177 – 24,928,177
Derivative liabilities 6,742 – 6,742
Accrued interest and other expenses 355,778 495 356,273
Other liabilities 365,901 72,563 438,464
160,214,661 2,928,057 163,142,718
Currency swaps and forwards (12,640,760) (115,203) (12,755,963)
Net exposure =570,840
P =3,880
P =574,720
P
The Parent Bank’s foreign currency position for BSP reporting purposes also includes sundry debits,
due from head office and branches, sundry credits and other dormant credits that are also
denominated in foreign currencies. The Parent Bank’s net foreign currency exposure for BSP
reporting, which is required to be presented in aggregate net U.S. dollar amounts and translated to
Philippine pesos, as of December 31, 2018 and 2017 follows:
2018 2017
In U.S. dollars $11,332 $11,315
In Philippine pesos P
=595,837 =564,958
P
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The Parent Bank’s policy is to maintain foreign currency exposure within acceptable limits and
within existing regulatory guidelines. The Parent Bank believes that its profile of foreign currency
exposure on its assets and liabilities is within conservative limits for a financial institution engaged in
the type of business in which the Parent Bank is involved.
The following table illustrates the sensitivity of the net results and capital funds to the changes in
foreign exchange rates on the Group’s financial assets and financial liabilities. The percentages
change (increase and decrease) have been determined based on the average market volatility in
exchange rates in the previous 12 months, using a confidence level of 99%. The sensitivity analysis
is based on the Group’s and the Parent Bank’s foreign currency-denominated financial instruments
held at each reporting date, including currency swaps and forwards.
2018 2017
Effect on Effect on
Net Profit Net Profit
% Change For the Year % Change For the Year
U.S. dollars 1.0% 7,591 0.5% 2,670
Japanese yen 1.5% 1 1.5% 28
Euros 1.5% (428) 1.5% 357
Others 1.3% (637) 1.3% (745)
Operational Risk
To standardize the practice and to conform to international standards, the Parent Bank has adopted the
Basel Committee’s definition of operational risk. This is formalized in the Parent Bank’s approved
Operational Risk Management Framework. Operational risk is the risk of loss arising from
inadequate or failed internal processes, people, and systems or from external events. This definition
also covers legal risk, as well as, the risk arising from dealings with Outsourced Service Providers
(OSPs) and the use of technology-related products, services, delivery channels, and processes. This
definition excludes strategic and reputational risk.
Each specific unit of the Parent Bank has its roles and responsibilities in the management of
operational risk and these are clearly stated in the operational risk management framework. At the
BOD level, an ORMC was formed to provide overall direction in the management of operational risk,
aligned with the overall business objectives.
(a) The adequacy of the Parent Bank’s policies, procedures, organization and resources for
preventing, or limiting the damage from unexpected loss due to deficiencies in information
systems, business, operational and management processes, employee skills and supervision,
equipment and internal controls.
(b) Results of periodic or special risk assessments conducted in various businesses, operating units,
products and information systems of the Parent Bank, to proactively uncover operational and
information technology risks that may result to actual loss or damage to the Parent Bank.
(c) Summarized results of internal audits, BSP examinations and investigation of administrative
cases that highlight trends indicative of present or emerging exposures to specific operational
risks.
*SGVFS032841*
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(d) Regulatory compliance issues, whether currently existing, or anticipated to arise as a result of
new laws or regulations.
An Operational Risk Management Unit (ORMU) was formed and given the mandate to build and lead
the roadmap in developing the foundations and systems necessary for the effective implementation of
an Operational Risk Management Framework. The ORMU, together with all other Risk Units,
reports directly to the Chief Risk Officer.
In managing products, services and systems, these are implemented only after a thorough operational
and technical risk evaluation. As part of the product and systems approval process, product managers
ensure that risks are clearly identified and adequately controlled and mitigated. For existing products,
services and systems, regular reviews are conducted and controls are assessed to determine continued
effectiveness. The Parent Bank, as part of its continuing effort to manage operational risk, has
ensured that the basic controls to manage exposure to operational risk have been embedded in its
processes.
For all technology-related activities and initiatives, the Parent Bank has a board level Technology
Steering Committee (TSC) to provide oversight function. It is composed of seven (7) members, two
(2) of whom are members of the Bank’s BOD while five (5) are Senior Management officers from
both the business and the operational units, thereby allowing a comprehensive and high-level
guidance on technology-related issues that may impact the Parent Bank. The Parent Bank has
developed and implemented a Business Continuity Plan to give assurance that Bank services will
continue in the event of disasters or unforeseen circumstances.
Regulatory compliance risk refers to the potential risk for the Parent Bank to suffer financial loss due
to changes in the laws, monetary, tax or other governmental regulations of the country. The
monitoring of the Parent Bank’s compliance with these regulations, as well as the study of the
potential impact of new laws and regulations, is the primary responsibility of the Parent Bank’s Chief
Compliance and Corporate Governance Officer. The Chief Compliance and Corporate Governance
Officer is responsible for communicating and disseminating new rules and regulations to all units,
analyzing and addressing compliance issues, performing periodic compliance testing and regularly
reporting to the CGC and the BOD.
*SGVFS032841*
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5. Capital Management
Regulatory Capital
As the Parent Bank’s lead regulator, the BSP sets and monitors capital requirements of the Parent
Bank.
In implementing current capital requirements, the BSP requires the Parent Bank to maintain a
minimum capital amount and a prescribed ratio of qualifying capital to risk-weighted assets, known
as the “capital adequacy ratio” (CAR). Risk-weighted assets is the aggregate value of assets weighted
by credit risk, market risk, and operational risk, based on BSP-prescribed formula provided under
BSP Circular No. 360 and BSP Circular No. 538 which contain the implementing guidelines for the
revised risk-based capital adequacy framework to conform to Basel II recommendations.
Effective January 1, 2014, the BSP has adopted the new risk-based capital adequacy framework
particularly on the minimum capital and disclosure requirements for the Philippine banking system in
accordance with the Basel III standards through BSP Circular No. 781. The adopted Basel III risk-
based capital adequacy framework requires the Group to maintain:
The Group’s and the Parent Bank’s regulatory capital position as of December 31, 2018 and 2017, as
reported to the BSP, follow (amounts in millions):
(Forward)
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The Group and the Parent Bank have fully complied with the CAR requirements of the BSP.
The breakdown of credit risk-weighted assets, market risk-weighted assets and operational
risk-weighted assets follow (amounts in millions):
Group Parent Bank
2018 2017 2018 2017
On-books assets P
=420,680 P371,439
= P
=354,409 =309,398
P
Off-books assets 2,628 2,917 2,628 2,917
Counterparty risk-weighted
assets in the banking books 4,563 1,542 4,563 1,542
assets in the trading books 502 247 502 247
Total Credit Risk-Weighted Assets P
=428,373 =376,145
P P
=362,102 =314,104
P
Capital Requirements P
=42,837 =37,615
P P
=36,210 =31,410
P
Interest rate exposures P
=3,272 =156
P 3,272 =156
P
Equity exposures 5,024 5,288 5,024 5,288
Foreign exchange exposures 825 2,247 825 2,247
Total Market Risk-Weighted Assets P
=9,121 =7,691
P P
=9,121 =7,691
P
Capital Requirements P
=912 =769
P P
=912 =769
P
Total Operational Risk-Weighted Assets - Basic indicator P
=38,234 =35,307
P P
=25,424 =25,563
P
Capital Requirements P
=3,823 =3,531
P P
=2,542 =2,556
P
The total credit exposure broken down by type of exposures and risk weights follow (amounts in
millions):
Group
2018
Total
Credit Risk
Credit Risk Exposure Total
Total Credit after Risk Weighted
Risk Exposure Mitigation 0%-50% 75%-100% 150% Assets
Risk-Weighted On-Books Assets
Cash on hand P
= 10,847 P
= 10,847 P
= 10,847 P
=– P
=– =
P–
Checks and other cash items 67 67 67 – – 13
Due from BSP 56,519 56,519 56,519 – – –
Due from other banks 14,925 14,925 10,899 4,026 – 9,124
Financial assets at FVTPL 1 1 − 1 – 1
Financial assets at FVOCI 9,838 9,050 5,447 3,603 – 4,007
Financial assets at amortized cost 204,463 201,515 154,395 47,120 – 83,305
Loans and receivables 299,223 299,045 7,910 284,945 6,190 295,970
SPURRA 18,882 3,776 3,776 – – –
Sales contract receivable (SCR) 1,513 1,513 – 373 1,140 2,084
(Forward)
*SGVFS032841*
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Group
2018
Total
Credit Risk
Credit Risk Exposure Total
Total Credit after Risk Weighted
Risk Exposure Mitigation 0%-50% 75%-100% 150% Assets
ROPA P
= 4,736 P
= 4,736 P
=– P
=– P
= 4,736 P
= 7,104
Other assets 17,809 17,809 160 17,649 – 17,649
Total risk-weighted on-books assets not
covered by CRM 638,823 619,803 250,020 357,717 12,066 419,257
Total risk-weighted on-books assets
covered by CRM – 19,020 19,012 8 – 1,423
P
= 638,823 P
= 638,823 P
= 269,032 P
= 357,725 P
= 12,066 P
= 420,680
Risk-Weighted Off-Books Assets
Direct credit substitutes (e.g., general
guarantee of indebtedness and
acceptances) P
= 977 P
=– P
=– P
= 977 P
=– P
= 977
Transaction-related contingencies
(e.g., performance bonds, bid
bonds, warrantees and stand-by
LCs related to particular
transactions) 1,851 – – 925 – 925
Trade-related contingencies arising
from movements of goods
(e.g., documentary credits
collateralized by the underlying
shipments) and commitments with
an original maturity of up to one
year 3,629 – – 726 – 726
P
= 6,457 P
=– P
=– P
= 2,628 P
=– P
= 2,628
Counterparty Risk-Weighted Assets
in the Banking Books
Repo-style Exposure P
= 48,182 P
= 9,543 P
= 9,543 P
=– P
=– P
= 4,563
Counterparty Risk-Weighted Assets
in the Trading Books
Interest Rate Contracts P
= 526 P
=– P
=– P
=– P
=– P
=–
Exchange Rate Contracts 44,207 761 492 269 – 502
Total P
= 738,195 P
= 649,127 P
= 279,067 P
= 360,622 P
= 12,066 P
= 428,373
Group
2017
Total
Credit Risk Total
Credit Risk Exposure
Total Credit after Risk Weighted
Risk Exposure Mitigation 0%-50% 75%-100% 150% Assets
Risk-Weighted On-Books Assets
Cash on hand P
=6,622 P
=6,622 P
=6,622 =
P– =
P– =
P–
Checks and other cash items 9 9 9 – – 2
Due from BSP 66,278 66,278 66,278 – – –
Due from other banks 54,534 54,532 53,656 8,779 – 23,840
Financial assets at FVTPL 1 1 – 1 – 1
Financial assets at FVOCI 44 44 – 44 – 44
Financial assets at amortized cost 169,992 166,769 136,880 29,889 – 61,957
UDSCL 406 406 58 348 – 348
Loans and receivables 266,462 266,229 12,631 250,517 3,081 257,702
SPURRA 13,572 10,270 10,270 – – –
Sales contract receivable (SCR) 1,097 1,097 – 245 852 1,523
ROPA 4,916 4,916 – – 4,916 7,373
Other assets 18,086 18,086 155 17,930 – 17,930
Total risk-weighted on-books assets not
covered by CRM 602,019 595,259 286,559 307,753 8,849 370,720
Total risk-weighted on-books assets
covered by CRM – 6,760 6,760 – – 719
P
=602,019 P
=602,019 P
=293,319 P
=307,753 P
=8,849 P
=371,439
(Forward)
*SGVFS032841*
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Group
2017
Total
Credit Risk Total
Credit Risk Exposure
Total Credit after Risk Weighted
Risk Exposure Mitigation 0%-50% 75%-100% 150% Assets
Risk-Weighted Off-Books Assets
Direct credit substitutes (e.g., general
guarantee of indebtedness and
acceptances) =1,199
P =–
P =−
P =1,199
P =–
P =1,199
P
Transaction-related contingencies
(e.g., performance bonds, bid
bonds, warrantees and stand-by
LCs related to particular
transactions) 2,404 – – 1,202 – 1,202
Trade-related contingencies arising
from movements of goods
(e.g., documentary credits
collateralized by the underlying
shipments) and commitments with
an original maturity of up to one
year 2,581 – – 516 – 516
=6,184
P P–
= P–
= =2,917
P P–
= =2,917
P
Counterparty Risk-Weighted Assets
in the Banking Books
Repo-style Exposure P
=25,925 P
=3,951 P
=3,951 =
P– =
P– P
=1,542
Counterparty Risk-Weighted Assets
in the Trading Books
Exchange Rate Contracts 15,531 4,634 332 132 – 247
Total =649,659
P =610,604
P =297,602
P =310,802
P =8,849
P =376,145
P
Parent Bank
2018
Total
Credit Risk Total
Credit Risk Exposure
Total Credit after Risk Weighted
Risk Exposure Mitigation 0%-50% 75%-100% 150% Assets
Risk-Weighted On-Books Assets
Cash on hand P
= 10,335 P
= 10,335 P
= 10,335 P
=– P
=– P
=–
Due from BSP 52,967 52,967 52,967 – – –
Due from other banks 11,550 11,550 10,588 962 – 5,905
Financial assets through other –
comprehensive income 9,829 9,041 5,447 3,594 3,998
Financial assets at amortized cost 204,084 201,136 154,364 46,772 – 82,957
Loans and receivables 244,090 243,912 7,910 231,496 4,506 240,205
SPURRA 10,000 2,000 2,000 – – –
SCR 1,435 1,435 – 294 1,141 2,005
ROPA 4,371 4,371 – – 4,371 6,556
Other assets 11,358 11,358 – 11,358 – 11,358
Total risk-weighted on-books assets not
covered by CRM 560,019 548,105 243,611 294,476 10,018 352,984
Total risk-weighted on-books assets
covered by CRM – 11,914 11,906 8 – 1,425
P
= 560,019 P
= 560,019 P
= 255,517 P
= 294,484 P
= 10,018 P
= 354,409
Risk-Weighted Off-Books Assets
Direct credit substitutes (e.g., general
guarantee of indebtedness and
acceptances) P
= 977 P
=– P
=– P
= 977 P
=– P
= 977
Transaction-related contingencies (e.g.,
performance bonds, bid bonds,
warrantees and stand-by LCs
related to particular transactions) 1,852 – – 925 – 925
(Forward)
*SGVFS032841*
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Parent Bank
2018
Total
Credit Risk Total
Credit Risk Exposure
Total Credit after Risk Weighted
Risk Exposure Mitigation 0%-50% 75%-100% 150% Assets
Trade-related contingencies arising
from movements of goods (e.g.,
documentary credits collateralized
by the underlying shipments) and
commitments with an original
maturity of up to one year P
= 3,629 P
=– P
=– P
= 726 P
=– P
= 726
P
= 6,458 P
=– P
=– P
= 2,628 P
=– P
= 2,628
Counterparty Risk-Weighted Assets
in the Banking Books
Repo-style Exposure P
= 48,182 P
= 9,543 P
= 9,543 P
=– P
=– P
= 4,563
Counterparty Risk-Weighted Assets
in the Trading Books
Interest Rate Contracts P
= 526 P
=– P
=– P
=– P
=– P
=–
Exchange Rate Contracts 44,207 761 492 269 – 502
Total P
= 659,392 P
= 570,323 P
= 265,552 P
= 297,381 P
= 10,018 P
= 362,102
Parent Bank
2017
Total
Credit Risk Total
Credit Risk Exposure
Total Credit after Risk Weighted
Risk Exposure Mitigation 0%-50% 75%-100% 150% Assets
Risk-Weighted On-Books Assets
Cash on hand P
=6,249 P
=6,249 P
=6,249 =
P– =
P– =
P–
Due from BSP 60,351 60,351 60,351 – – –
Due from other banks 53,690 53,690 53,656 35 – 22,995
Financial assets through other
comprehensive income 44 44 – 44 – 44
Financial assets at amortized cost 169,992 166,768 136,880 29,888 – 61,957
Loans and receivables 209,415 209,182 12,627 195,409 1,147 199,737
SPURRA 4,130 826 826 – – –
SCR 1,097 1,097 – 245 852 1,523
ROPA 4,831 4,831 – – 4,831 7,247
Other assets 15,176 15,176 – 15,176 – 15,176
Total risk-weighted on-books assets not
covered by CRM 524,975 518,214 270,589 240,797 6,830 308,679
Total risk-weighted on-books assets
covered by CRM – 6,760 6,760 – – 719
P
=524,975 P
=524,974 P
=277,349 P
=240,797 P
=6,830 P
=309,398
Risk-Weighted Off-Books Assets
Direct credit substitutes (e.g., general
guarantee of indebtedness and
acceptances) =1,199
P =–
P =–
P =1,199
P =–
P =1,199
P
Transaction-related contingencies
(e.g., performance bonds, bid
bonds, warrantees and stand-by
LCs related to particular
transactions) 2,404 – – 1,202 – 1,202
Trade-related contingencies arising
from movements of goods
(e.g., documentary credits
collateralized by the underlying
shipments) and commitments with
an original maturity of up to one
year 2,581 – – 516 – 516
P
=6,184 =
P– =
P– P
=2,917 =
P– P
=2,917
(Forward)
*SGVFS032841*
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Parent Bank
2017
Total
Credit Risk Total
Credit Risk Exposure
Total Credit after Risk Weighted
Risk Exposure Mitigation 0%-50% 75%-100% 150% Assets
Counterparty Risk-Weighted Assets
in the Banking Books
Repo-style Exposure P
=25,925 P
=3,951 P
=3,951 =
P– =
P– P
=1,542
Counterparty Risk-Weighted Assets
in the Trading Books
Exchange Rate Contracts 15,532 464 331 132 – 247
Total P
=572,616 P
=529,389 P
=281,631 P
=243,846 P
=6,830 P
=314,104
Risk weighted on-balance sheet assets covered by credit risk mitigants were based on collateralized
transactions as well as guarantees by the Philippine National Government and those guarantors and
exposures with the highest credit rating.
Standardized credit risk weights were used in the credit assessment of asset exposures. Third party
credit assessments were based on the ratings by Standard & Poor’s, Moody’s, Fitch and Philratings
on exposures to Sovereigns, Multilateral Development Banks, Banks, Local Government Units,
Government Corporations and Corporates.
Cognizant of the importance of a strong capital base to meet strategic and regulatory requirements,
the Parent Bank has adopted a robust ICAAP on a group-wide level that is consistent with its risk
philosophy and risk appetite. The ICAAP Document embodies the Bank’s risk philosophy, risk
appetite, and risk governance framework and structure, and integrates these with: (a) the Parent
Bank’s strategic objectives and long-term strategies; (b) the five-year financial and business plans;
and, (c) the capital plan and dividend policy.
The ICAAP’s objective is to ensure that the BOD and senior management actively and promptly
identify and manage the material risks arising from the general business environment, and that an
appropriate level of capital is maintained to cover these risks. To test the adequacy of its capital even
under difficult conditions, the Parent Bank conducts regular stress testing to assess the effects of
extreme but plausible events on its capital. The results are thoroughly discussed during RMC
meetings, and reported to the Board. In the course of its discussions, the BOD and senior
management may request for additional stress testing scenarios or revisions to the test assumptions in
order to better align these to current trends and forecasts.
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The Parent Bank has a cross-functional ICAAP technical team, comprised of representatives from the
core risk management units - credit, market, operational, information technology, and emerging risks;
corporate planning; financial controllership; treasury; internal audit; and compliance. This ensures a
well-coordinated approach to the development, documentation, implementation, review,
improvement, and maintenance of the various sub-processes included in the ICAAP. The key
members of the ICAAP technical team are enrolled in further training as well as various fora and
briefings to enhance their knowledge and expertise particularly on the subjects of ICAAP, Basel II
and III, and their interface with International Financial Reporting Standards.
On January 15, 2013, the BSP issued Circular No. 781, which specifies the implementing guidelines
on the revised risk-based capital adequacy framework in accordance with the Basel III standards,
applicable to universal and commercial banks as well as their subsidiary banks and quasi-banks
effective January 1, 2014. Beginning 2013, the Bank’s ICAAP Document considered the possible
impact of Basel III implementation on the eligibility of unsubordinated notes as qualifying capital and
the changes in composition of qualifying capital.
On January 8, 2013, the BOD approved the purchase of CSB, aligned with the Parent Bank’s
long-term strategy of building asset businesses based on consumers. With the materiality of
CSB’ assets in relation to the entire Group and the former’s expansion plans, the Bank’s ICAAP
Document showed the results of scenario analyses on a solo and consolidated basis.
The BSP, on October 29, 2014, issued Circular No. 856 that requires banks identified as Domestic
Systemically Important Banks (D-SIBs) to comply with a higher loss absorbency (HLA) requirement
on top of the common equity tier 1 and capital conservation buffer to increase going concern loss
absorbency and reduce extent or impact of failure on the domestic economy. The HLA requirement
will be phased-in from January 1, 2017 with full implementation by January 1, 2019. For the purpose
of the ICAAP Document submitted starting 2016, the Parent Bank included in the assessment the
implications of the circular to its capital targets.
On March 10, 2016, BSP issued Circular No. 904 that sets out the guidelines that D-SIBs should
follow in maintaining a recovery plan for future destabilizing events and/or crises. The Parent Bank’s
first recovery plan, approved by the BOD in May 2016, was submitted to the BSP in June 2016 as a
supplement to the 2016 ICAAP Document. Moving forward, the recovery plan shall form an integral
part of the annual ICAAP Document submitted to BSP on or before March 31 of each year. The
Parent Bank’s Capital Management Manual was also updated and presented to the BOD in June 2016
to align with the D-SIB recovery plan guidelines set by the Circular.
The Parent Bank’s ICAAP Document is subjected each year to an independent review by the Internal
Audit Division (IAD) to provide reasonable assurance that the Parent Bank has met the regulatory
requirements. For the 2018 ICAAP Document submission, the results of the audit assessment were
presented to the Audit Committee and the BOD in February 2018. Based on IAD’s assessment of the
ICAAP document, its related supporting documents, and existing processes and structures, IAD
reported that the Parent Bank has satisfactorily complied with the minimum requirements prescribed
in BSP Circular No. 639. Presence of a proper governance and oversight function of the ICAAP,
comprehensive risk management framework, and sound capital management process were verified in
the audit process. For 2018, the Parent Bank’s ICAAP Document was submitted to the BSP on
March 23, 2018.
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6. Segment Reporting
Business Segments
The Group’s main operating businesses are organized and managed separately according to the nature
of products and services provided and the different markets served, with each segment representing a
strategic business unit. These are also the basis of the Group in reporting to its chief operating
decision-maker for its strategic decision-making activities. The Group’s main business segments are
as presented in the succeeding pages.
(a) Consumer Banking
This segment principally handles individual customers’ deposits and provides consumer type
loans, such as automobiles and mortgage financing, credit card facilities and funds transfer
facilities.
(c) Treasury
This segment is principally responsible for managing the Bank’s liquidity and funding
requirements, and handling transactions in the financial markets covering foreign exchange, fixed
income trading and investments, and derivatives.
(d) Headquarters
This segment includes corporate management, support and administrative units not specifically
identified with Consumer Banking, Corporate and Commercial Banking or Treasury.
These segments are the basis on which the Group reports its primary segment information.
Transactions between segments are conducted at estimated market rates on an arm’s length basis.
Segment resources and liabilities comprise operating resources and liabilities including items
such as taxation and borrowings. Revenues and expenses that are directly attributable to a
particular business segment and the relevant portions of the Group’s revenues and expenses that
can be allocated to that business segment are accordingly reflected as revenues and expenses of
that business segment.
Analysis of Segment Information
Segment information of the Group as of and for the years ended December 31, 2018, 2017 and 2016
follow (amounts in millions):
Corporate and
Consumer Commercial
Banking Banking Treasury Headquarters Total
December 31, 2018
Results of operations
Net interest income and
other income P
= 12,752 P
= 5,560 P
= 4,947 P
= 2,415 P
= 25,674
Other expenses (7,221) (1,809) (1,439) (5,851) (16,320)
Income before impairment
losses and income tax P
= 5,531 P
= 3,751 P
= 3,508 P
= (3,436) 9,354
Impairment losses − − − − (856)
Tax expense − − − − (1,183)
Net income − − − − 7,315
Segment resources P
= 160,639 P
= 218,001 P
= 255,622 P
= 39,521 P
= 673,783
Segment liabilities P
= 251,495 P
= 134,105 P
= 137,054 P
= 60,168 P
= 582,822
Other information:
Depreciation and amortization P
= 269 P
= 29 P
= 12 P
= 433 ₱743
Capital expenditures 426 142 47 1,714 2,329
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Corporate and
Consumer Commercial
Banking Banking Treasury Headquarters Total
December 31, 2017
Results of operations
Net interest income and
other income P
=13,262 P
=4,897 P
=4,452 P
=2,707 P
=25,318
Other expenses (6,743) (1,475) (1,183) (4,355) (13,756)
Income before impairment
losses and income tax P
=6,519 P
=3,422 P
=3,269 (P
=1,648) 11,562
Impairment losses − − − − (876)
Tax expense − − − − (2,266)
Net income − − − − =8,420
P
Segment resources =152,942
P =190,458
P =250,591
P =27,441
P =621,432
P
Segment liabilities P
=248,330 P
=127,347 P
=123,078 P
=49,333 P
=548,088
Other information:
Depreciation and amortization P
=269 =
P34 =
P6 P
=326 P
=635
Capital expenditures 450 135 14 646 1,245
Corporate and
Consumer Commercial
Banking Banking Treasury Headquarters Total
December 31, 2016
Results of operations
Net interest income and
other income P
=12,899 P
=4,291 P
=7,059 P
=1,286 P
=25,535
Other expenses (5,715) (1,235) (683) (4,332) (11,965)
Income before impairment
losses and income tax P
=7,184 P
=3,056 P
=6,376 (P
=3,046) 13,570
Impairment losses (1,594)
Tax expense (1,910)
Net income =10,066
P
Segment resources P134,896
= =157,913
P =203,603
P =27,378
P =523,790
P
Segment liabilities P
=227,834 P
=106,232 P
=100,085 P
=22,694 P
=456,845
Other information:
Depreciation and amortization P
=341 =
P54 =
P6 P
=315 P
=716
Capital expenditures 109 11 1 253 374
Group
2018
Classes
At Amortized Carrying
Cost At Fair Value Amount Fair Value
Financial Assets
At amortized cost
Financial assets at amortized cost P
=200,173,730 P
=– P
=200,173,730 P
=179,655,178
Loans and other receivables 326,199,466 – 326,199,466 329,756,674
At fair value
Financial assets at FVTPL – 8,283,695 8,283,695 8,283,695
Financial assets at FVOCI – 9,815,040 9,815,040 9,815,040
Trust fund assets – 2,436,441 2,436,441 2,436,441
(Forward)
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Group
2018
Classes
At Amortized Carrying
Cost At Fair Value Amount Fair Value
Financial Liabilities
At amortized cost
Deposit liabilities P
=420,702,533 P
=– P
=420,702,533 P
=420,447,783
Bills payable 90,964,473 – 90,964,473 90,964,473
Notes and bonds payable 44,522,066 – 44,522,066 43,197,489
At fair value
Derivative liabilities − 407,037 407,037 407,037
Group
2017
Classes
At Amortized Carrying
Cost At Fair Value Amount Fair Value
Financial Assets
At amortized cost
Financial assets at amortized cost =166,471,659
P P–
= =166,471,659
P =161,669,316
P
Loans and other receivables 280,178,875 – 280,178,875 280,213,033
At fair value
Financial assets at FVTPL – 3,182,040 3,182,040 3,182,040
Financial assets at FVOCI – 43,783 43,783 43,783
Trust fund assets – 3,768,669 3,768,669 3,768,669
Financial Liabilities
At amortized cost
Deposit liabilities =447,616,213
P P–
= =447,616,213
P =447,599,503
P
Bills payable 43,070,825 – 43,070,825 43,070,825
Notes and bonds payable 32,128,177 – 32,128,177 32,013,570
At fair value
Derivative liabilities 23,684 23,684 23,684
Parent Bank
2018
Classes
At Amortized Carrying
Cost At Fair Value Amount Fair Value
Financial Assets
At amortized cost
Financial assets at amortized cost P
=200,173,730 P
=– P
=200,173,730 P
=179,655,178
Loans and other receivables 258,411,076 – 258,411,076 261,968,284
At fair value
Financial assets at FVTPL – 8,225,569 8,225,569 8,225,569
Financial assets at FVOCI – 9,806,226 9,806,226 9,806,226
Financial Liabilities
At amortized cost
Deposit liabilities P
=380,710,363 P
=− P
=380,710,363 P
=380,455,612
Bills payable 64,723,631 – 64,723,631 64,723,631
Notes and bonds payable 44,335,260 – 44,335,260 43,010,683
At fair value
Derivative liabilities – 407,037 407,037 407,037
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Parent Bank
2017
Classes
At Amortized Carrying
Cost At Fair Value Amount Fair Value
Financial Assets
At amortized cost
Financial assets at amortized cost =166,471,659
P =
P– =166,471,659
P =161,669,316
P
Loans and other receivables 211,976,032 – 211,976,032 212,010,190
At fair value
Financial assets at FVTPL – 3,130,421 3,130,421 3,130,421
Financial assets at FVOCI – 43,783 43,783 43,783
Financial Liabilities
At amortized cost
Deposit liabilities =399,974,200
P P–
= =399,974,200
P =399,957,489
P
Bills payable 29,009,719 – 29,009,719 29,009,719
Notes and bonds payable 32,128,177 – 32,128,177 32,013,570
At fair value
Derivative liabilities – 23,684 23,684 23,684
The methods and assumptions used by the Group in estimating the fair value of the financial
instruments are:
∂ Cash and other cash items, Due from BSP and other banks, Interbank loans receivable and
Returned checks and other cash items
The carrying amounts approximate the fair values due to the short-term nature of these accounts.
∂ Other liabilities such as Manager’s checks, Bills purchased, Accounts payable, Accrued interest
payable, Payment orders payable and Due to Treasurer of the Philippines
Due to their short duration, the carrying amounts of other liabilities in the statement of financial
position are considered to be reasonable approximation of their fair values.
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∂ Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;
∂ Level 2: inputs other than quoted prices included within Level 1 that are observable for the
resource or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and,
∂ Level 3: inputs for the asset or liability that are not based on observable market data
(unobservable inputs).
The level within which the financial asset or liability is classified is determined based on the lowest
level of significant input to the fair value measurement.
For purposes of determining the market value at Level 1, a market is regarded as active if quoted
prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing
service, or regulatory agency, and those prices represent actual and regularly occurring market
transactions on an arm’s length basis.
For investments which do not have quoted market price, the fair value is determined by using
generally acceptable pricing models and valuation techniques or by reference to the current market of
another instrument which is substantially the same after taking into account the related credit risk of
counterparties, or is calculated based on the expected cash flows of the underlying net asset base of
the instrument.
When the Group uses valuation technique, it maximizes the use of observable market data where it is
available and relies as little as possible on entity specific estimates. If all significant inputs required
to determine the fair value of an instrument are observable, the instrument is included in Level 2.
Otherwise, it is included in Level 3.
Group
Level 1 Level 2 Level 3 Total
December 31, 2018
Resources
Financial assets at FVTPL
Debt securities P
=5,218,679 P
=– P
=– = 55,218,679
P
Equity securities 2,569,908 120,490 − 2,690,398
Derivative assets − 324,840 49,688 374,528
Trust fund assets 2,436,441 − − 2,436,441
Financial assets at FVOCI
Debt securities 9,762,403 − − 9,762,403
Equity securities − − 52,637 52,637
Liabilities
Derivative liabilities − 407,037 – 407,037
(Forward)
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Group
Level 1 Level 2 Level 3 Total
December 31, 2017
Resources
Financial assets at FVTPL
Equity securities =2,695,600
P P120,490
= =–
P =2,816,090
P
Derivative assets − 318,766 47,184 365,950
Trust fund assets 3,768,669 − − 3,768,669
Financial assets at FVOCI
Equity securities − − 43,783 43,783
Liabilities
Derivative liabilities − 23,684 – 23,684
Parent Bank
Level 1 Level 2 Level 3 Total
December 31, 2018
Resources
Financial assets at FVTPL
Debt securities P
=5,218,679 P
=– P
=– P
=5,218,679
Equity securities 2,511,782 120,490 − 2,632,272
Derivative assets − 324,840 49,688 374,528
Financial assets at FVOCI
Debt securities 9,762,403 − − 9,762,403
Equity securities − − 43,823 43,823
Liabilities
Derivative liabilities − 407,037 – 407,037
There were no gains or losses recognized in 2018, 2017 and 2016 statements of income for Level 3
instruments. There were neither transfers between Levels 1 and 2 nor changes in Level 3 instruments
in both years.
Described below are the information about how the fair values of the Group and Parent Bank’s
classes of financial assets are determined.
(b) Derivatives
The fair values of derivative financial instruments that are not quoted in an active market are
determined through valuation techniques using the net present value computation (see Note 3).
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Club shares classified as financial assets at FVTPL are included in Level 2 as their prices are not
derived from market considered as active due to lack of trading activities among market
participants at the end or close to the end of the reporting period.
Financial Instruments Measured at Amortized Cost for Which Fair Value is Disclosed
The table below summarizes the fair value hierarchy of financial assets and financial liabilities which
are not measured at fair value in the 2018 and 2017 statements of financial position but for which fair
value is disclosed.
Group
2018
Level 1 Level 2 Level 3 Total
Financial Assets
Financial assets at amortized cost P
=179,655,178 P
=– P
=– P
=179,655,178
Loans and other receivables – – 329,756,674 329,756,674
Financial Liabilities
Deposit liabilities P
=420,447,783 P
=– P
=– P
=420,447,783
Bills payable – 90,964,473 – 90,964,473
Notes and bonds payable – 43,197,489 – 43,197,489
Group
2017
Level 1 Level 2 Level 3 Total
Financial Assets
Financial assets at amortized cost =161,669,316
P P–
= =–
P =161,669,316
P
Loans and other receivables − – 280,213,033 280,213,033
Financial Liabilities
Deposit liabilities =447,599,503
P =–
P P–
= =447,599,503
P
Bills payable – 43,070,825 – 43,070,825
Notes and bonds payable – 32,013,570 – 32,013,570
Parent Bank
2018
Level 1 Level 2 Level 3 Total
Financial Assets
Financial assets at amortized cost P
=179,655,178 P
=– P
=– P
=179,655,178
Loans and other receivables – – 261,968,284 261,968,284
Financial Liabilities
Deposit liabilities P
=380,455,612 P
=– P
=– P
=380,455,612
Bills payable – 64,723,631 – 64,723,631
Notes and bonds payable – 43,010,683 – 43,010,683
Parent Bank
2017
Level 1 Level 2 Level 3 Total
Financial Assets
Financial assets at amortized cost =161,669,316
P P–
= =–
P =161,669,316
P
Loans and other receivables – – 212,010,190 212,010,190
Financial Liabilities
Deposit liabilities =399,957,489
P =
P– =
P– =399,957,489
P
Bills payable – 29,009,719 – 29,009,719
Notes and bonds payable – 32,013,570 – 32,013,570
For Cash and other cash items, Due from BSP and other banks, Interbank loans receivable and
Returned checks and other cash items, and Other liabilities such as Manager’s checks, Bills
purchased, Accounts payable, Accrued interest payable, Payment orders payable and Due to
Treasurer of the Philippines, management considers that the carrying amounts approximate their fair
value due to its short-term nature. Accordingly, these are not presented in the tables above.
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The fair values of the financial assets and financial liabilities included in Level 2 and Level 3 in the
preceding pages, which are not traded in an active market, are determined by using generally
acceptable pricing models and valuation techniques or by reference to the current market value of
another instrument which is substantially the same after taking into account the related credit risk of
counterparties, or is calculated based on the expected cash flows of the underlying net asset base of
the instrument. When the Group uses valuation technique, it maximizes the use of observable market
data where it is available and rely as little as possible on entity specific estimates. If all significant
inputs required to determine the fair value of an instrument are observable, the instrument is included
in Level 2. Otherwise, it is included in Level 3.
2018
Level 1 Level 2 Level 3 Total
Group
Investment properties
Land P
=– P
=8,738,348 P
=– P
=8,738,348
Building and improvements – – 6,515,103 6,515,103
Parent Bank
Investment properties
Land P
=– P
=7,676,413 P
=– P
=7,676,413
Building and improvements – – 6,038,837 6,038,837
2017
Level 1 Level 2 Level 3 Total
Group
Investment properties
Land P–
= =7,988,116
P =–
P P7,988,116
=
Building and improvements – – 6,165,430 6,165,430
Parent Bank
Investment properties
Land P–
= =7,832,606
P =–
P P7,832,606
=
Building and improvements – – 5,690,404 5,690,404
The fair values of the Group’s and the Parent Bank’s investment properties (see Note 17) are
determined on the basis of the appraisals performed by independent appraisal companies acceptable
to the BSP, with appropriate qualifications and recent experience in the valuation of similar properties
in the relevant locations. The valuation process is conducted by the appraisers with respect to the
determination of the inputs such as the size, age, and condition of the land and buildings, and the
comparable prices in the corresponding property location. In estimating the fair value of these
properties, appraisal companies take into account the market participant’s ability to generate
economic benefits by using the assets in their highest and best use. Based on management’s
assessment, the best use of the Group’s and the Parent Bank’s non-financial assets indicated above is
their current use.
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The fair value of investment properties were determined based on the following approaches:
There has been no change to the valuation techniques used by the Group during the year for its
investment properties. The movements in the investment properties categorized under Level 3 of
the fair value hierarchy follows:
Fair value gains recognized from these investment properties are presented as part of Fair value
gains on investment properties under the Miscellaneous income account in the statements of
income (see Note 27). On the other hand, realized gains from the sale of these investment
properties recognized by the Group and the Parent Bank amounted to P =57,558 and =P46,189,
respectively, in 2018, =
P131,072 and P=125,833, respectively, in 2017, and =
P66,350 and =P66,350,
respectively, in 2016, for both the Group and the Parent Bank, and are presented as part of Gain
on sale of investment properties under the Miscellaneous income account in the statements of
income (see Note 27).
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Presented below is the financial assets and financial liabilities subject to offsetting but the related
amounts are not set-off in the statements of financial position.
Group
December 31, 2018 December 31, 2017
Related amounts not set off in the statement of Related amounts not set off in the statement of
financial position financial position
Financial Collateral Financial Collateral
Instruments Received Net Amount Instruments Received Net Amount
Financial assets at FVTPL
Currency forwards P
=324,840 =
P− P
= 324,840 =318,766
P P–
= =318,766
P
Warrants 49,688 − 49,688 47,184 – 47,184
Loans and receivables 849,441 849,441 − 753,518 753,518 –
Total financial assets 1,223,969 849,441 374,528 =1,119,468
P =753,518
P =365,950
P
Financial liabilities
Derivative liabilities P
=407,037 =
P− P
= 407,037 =23,684
P =–
P P23,684
=
Deposit liabilities 1,294,209 849,441 444,768 1,055,806 753,518 302,288
Total financial liabilities P
= 1,701,246 P
= 849,441 P
= 851,805 =1,079,490
P =753,518
P =325,972
P
Parent Bank
December 31, 2018 December 31, 2017
Related amounts not set off in the statement of Related amounts not set off in the statement of
financial position financial position
Financial Collateral Financial Collateral
Instruments Received Net Amount Instruments Received Net Amount
Financial assets at FVTPL
Currency forwards P
= 324,840 =
P− P
= 324,840 =318,766
P P–
= =318,766
P
Warrants 49,688 − 49,688 47,184 – 47,184
Loans and receivables 794,541 794,541 − 753,518 753,518 –
Total financial assets 1,169,069 794,541 374,528 =1,119,468
P =753,518
P =365,950
P
Financial liabilities
Derivative liabilities P
=407,037 =
P− P
= 407,037 =23,684
P =−
P P23,684
=
Deposit liabilities 1,208,244 794,541 413,703 1,055,631 753,518 302,113
Total financial liabilities P
= 1,615,281 P
= 794,541 P
= 820,740 =1,079,315
P =753,518
P =325,797
P
Cash consists primarily of funds in the form of Philippine currency notes and coins in the Bank’s vault
and those in the possession of tellers, including ATMs. Other cash items include cash items (other than
currency and coins on hand) such as checks drawn on other banks or other branches that were received
after the Bank’s clearing cut-off time until the close of the regular banking hours.
Mandatory reserves represent the balance of the deposit account maintained with the BSP to meet
reserve requirements and to serve as clearing account for interbank claims. Due from BSP bears
annual interest rates ranging from 2.5% to 4.9% in 2018, and from 0.0% to 3.5% in 2017 and 2016,
except for the amounts within the required reserve as determined by BSP. Total interest income
earned by the Group amounted to = P68,500, P
=187,511, and =P462,206 in 2018, 2017 and 2016
respectively, while the total interest income earned by the Parent Bank amounted to =
P40,126,
=171,583, and =
P P338,891 in 2018, 2017 and 2016, respectively. These are presented as part of Interest
income on cash and cash equivalents account in the statements of income.
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Cash and other cash items and due from BSP are included in cash and cash equivalents for cash flow
statement reporting purposes.
Under Section 254 of the MORB, a bank shall keep its required reserves in the form of deposits
placed in the bank’s demand deposit account with the BSP.
Section 254.1 of the MORB further provides that such deposit account with the BSP is not considered
as a regular current account as drawings against such deposits shall be limited to: (a) settlement of
obligation with the BSP, and (b) withdrawals to meet cash requirements.
The balance of this account consists of regular deposits with the following:
Annual interest rates on these deposits range from 0.0% to 6.8% in 2018, from 0.0% to 3.0% in 2017
and from 0.0% to 1.6% in 2016. Total interest income on Due from other banks earned by the Group
amounted to =P138,958, =P34,741, and =P26,923 in 2018, 2017, and 2016, respectively, while total
interest income earned by the Parent Bank amounted to P=108,662, =P24,068, and =P20,840 in 2018,
2017 and 2016 respectively. These are presented as part of Interest income on cash and cash
equivalents account in the statements of income.
Due from other banks are included in cash and cash equivalents for cash flow statement reporting
purposes.
Interbank loans receivable consists of loans granted to other banks. These loans have terms ranging
from 1 to 28 days in 2018 and from 1 to 37 days in 2017.
All Interbank loans receivables of both the Group and the Parent Bank amounting to nil and
=4,793,280 as of December 31, 2018 and 2017, respectively, are denominated in foreign currencies.
P
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The Group’s and Parent Bank’s financial assets at fair value through profit or loss as of December 31,
2018 and 2017 consist of the following:
Group Parent Bank
2018 2017 2018 2017
Debt securities =5,218,769
P =−
P =5,218,769
P =−
P
Equity securities 2,690,398 2,816,090 2,632,272 2,764,471
Derivative assets 374,528 365,950 374,528 365,950
=8,283,695
P P3,182,040
= =8,225,569
P =3,130,421
P
All financial assets at FVTPL are held for trading. Fair values of derivative assets were determined
through valuation technique using the net present value computation.
The Group recognized fair value losses on financial assets at FVTPL amounting to = P105,752, =
P6,260
and =
P136,186 in 2018, 2017 and 2016, respectively, while the Parent Bank recognized fair value
losses on financial assets at FVTPL amounting to =P105,782, P =6,393 and P=137,266 in 2018, 2017
and 2016, respectively, and included as part of Gains (losses) on trading and investment securities at
FVTPL and FVOCI in the statements of income.
Derivative instruments include foreign currency forwards and warrants. Foreign currency forwards
represent commitments to purchase/sell foreign currency on a future date at an agreed exchange rate.
*SGVFS032841*
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The aggregate contractual or notional amount of derivative financial instruments and the total fair
values of derivative financial assets and liabilities (see Note 24) are set out below.
The Group’s and Parent Bank’s financial assets at amortized cost as of December 31, 2018 and 2017
consist of the following:
Investment securities of both the Group and the Parent Bank with an aggregate principal amount of
=55,510,901 as of December 31, 2018 and =
P P24,216,050 as of December 31, 2017 were pledged as
collaterals for bills payable under repurchase agreements.
The breakdown of this account as to currency as of December 31, 2018 and 2017 follows:
Financial assets at amortized cost denominated in Philippine pesos have fixed interest rates ranging
from 3.375% to 18.250% per annum both in 2018 and 2017 and from 3.375% to 9.375% per annum
in 2016, while financial assets at amortized cost denominated in U.S. dollars and Euros have fixed
interest rates ranging from 2.250% to 9.50% per annum both in 2018 and 2017 and from 2.875% to
9.5% per annum in 2016. These bonds have maturities of 1 to 31 years.
*SGVFS032841*
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Interest income generated from these financial assets, including amortization of premium or discount,
amounted to =P7,539,909, = P6,658,201, and =
P4,719,560 in 2018, 2017 and 2016, respectively, and is
shown as part of Interest income on investment securities at amortized cost and FVOCI account in the
statements of income.
In January 2018, the Parent Bank participated in the Republic of the Philippines (ROP) US Dollar
bond exchange, as part of the national government’s liability management exercise, where it
redeemed several series of older debt in exchange for either (i) exchange of new securities or
(ii) tenders for cash. The Parent Bank received $87.00 million (P =4.5 billion) cash in exchange for the
outstanding securities under the HTC business model tendered with face amount of $66.40 million
(P
=3.4 billion). Also, in February 2018, the Parent Bank participated in the bond exchange offering of
a foreign issuer where the Parent Bank exchanged its outstanding securities amounting to
$40.00 million (P =2.1 billion) in face amount for new 30-year securities with face amount of
$37.10 million (P =2.0 billion). Total gain as a result of these transactions amounting to $2.94 million
(P
=151.7 million) is included as part of Gains on sale of investment securities at amortized cost
(see Note 3).
Government bonds with face value of = P550,000 and = P700,000 as of December 31, 2018, and 2017,
respectively, are deposited with BSP as security for the Bank’s faithful compliance with its fiduciary
obligations (see Note 30).
The Group’s and Parent Bank’s financial assets at FVOCI as of December 31, 2018 and 2017 consist
of the following:
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The breakdown of this account as to currency as of December 31, 2018 and 2017 follows:
The Group has designated the above local equity securities as at FVOCI because they are held for
long-term investments and are neither held-for-trading nor designated as at FVTPL. Unquoted equity
securities pertain to golf club shares and investments in non-marketable equity securities.
In 2018, annual interest rates on debt securities range from 6.0% to 8.1% and from 2.9% to 7.5% for
securities denominated in Philippine peso and U.S. dollars, respectively. Interest income, including
amortization of premium or discount, amounted to P =296,250 in 2018 and is shown as part of Interest
income on investment securities at amortized cost and FVOCI account in the statements of income.
In 2018, the Group and the Parent Bank recognized gains from the sale of investments securities at
FVOCI amounting to P =1.5 billion. The amount is included under Gains (losses) on trading and
investments securities at FVTPL and FVOCI in the statements of income.
The Group’s and Parent Bank’s loans and other receivables as of December 31, 2018 and 2017
consist of the following:
*SGVFS032841*
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Non-performing loans (NPLs) of the Bank as of December 31, 2018 and 2017 as reported to the BSP
are presented below, net of specific allowance for impairment in compliance with BSP Circular 855,
respectively.
Under BSP Circular 941, an account or exposure is considered non-performing, even without any
missed contractual payments, when it is deemed impaired under existing applicable accounting
standards, classified as doubtful or loss, in litigation, and/or there is evidence that full repayment of
principal and intrest is unlikely without foreclosure of collateral, in the case of secured accounts. All
other accounts, even if not considered impaired, shall be considered non-performing if any
contractual principal and/or interest are past due for more than ninety (90) days, or accrued interests
for more than 90 days have been capitalized, refinanced, or delayed by agreement.
Microfinance and other small loans with similar credit characteristics shall be considered non-
performing after contractual due date or after it has become past due. Restructured loans shall be
considered non-performing. However, if prior to restructuring, the loans were categorized as
performing, such classification shall be retained.
Non-performing loans, investment, receivables, or any financial asset (and/or any replacement loan)
shall remain classified as such until (a) there is a sufficient evidence to support that full collection of
principal and interests is probable and payments of interest and/or principal are received for at least
six (6) months; or (b) written-off.
Restructured loans of the Group amounted to P=1,745,092 and = P1,596,891 as of December 31, 2018,
and 2017, respectively. Interest income on these restructured loans amounted to P
=14,491, P
=15,586,
and =
P15,786 in 2018, 2017 and 2016, respectively.
As of December 31, 2018 and 2017, total loan loss reserves of the Group amounted to
=7,294,507 and =
P P10,073,718, respectively. These represent the balance of the allowance for
impairment on receivables from customers as of December 31, 2018 and 2017 less the allowance for
impairment on accrued interest receivable of P
=140,207 and P
=91,387, respectively.
The breakdown of total loans and other receivables (net of unearned discounts) as to secured, with
corresponding collateral types, and unsecured loans follows:
*SGVFS032841*
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The breakdown as to secured and unsecured of non-accruing loans of the Group, which the
Parent Bank reported to the BSP as of December 31, follows:
The maturity profile of loans and other receivables (net of unearned discounts) follows:
Loans and other receivables bear annual interest ranging from 4.00% to 17.94% in 2018, from 4.00%
to 21.00% in 2017, and from 0.95% to 17.94% in 2016.
The breakdown of loans (receivable from customers excluding accrued interest receivable) as to type
of interest rate follows:
The amounts of interest income per type of loans and receivables for each reporting period are as
follows:
Group
2017 2016
(As restated - (As restated -
2018 Note 2) Note 2)
Receivables from customers P
=22,847,102 =20,256,962
P =17,951,046
P
Other receivables:
SPURRA 390,270 301,038 139,579
Sales contracts receivable 143,700 140,282 149,084
UDSCL 7,810 5,985 7,456
Installment contracts receivable 1,042 679 649
Others 51,786 76 120
P
=23,441,710 =20,705,022
P =18,247,934
P
*SGVFS032841*
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Parent Bank
2018 2017 2016
Receivables from customers P
=14,774,556 =11,355,974
P =9,102,151
P
Other receivables:
SPURRA 126,947 155,847 101,175
Sales contracts receivable 137,003 140,282 149,084
P
=15,038,506 =11,652,103
P =9,352,410
P
This account in the Parent Bank’s financial statements pertains to investments in the following
subsidiaries, which are accounted for using the equity method:
December 31
% Interest 2018 2017
Acquisition costs:
CSB 99.78% =6,746,861
P =6,745,114
P
UPI 100% 624,861 624,861
UBPSI 100% 5,000 5,000
UDC 100% 3,125 3,125
UBPIBI 100% 2,500 2,500
UCBC 100% 1,000 1,000
=7,383,347
P =7,381,600
P
The Parent Bank’s subsidiaries are all incorporated in the Philippines. The principal place of business
of these subsidiaries is in Metro Manila, Philippines except for CSB and FAIR Bank, which have
their principal place of operations in Cebu, Philippines.
*SGVFS032841*
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In 2018, CSB acquired 100% ownership of PR Savings Bank with par value of P =10 per share or a
total par value of =
P1,277.23 million. The transaction is accounted for as a business combination.
The acquisition date, which is the final approval of the BSP, is on June 14, 2018. For convenience
purposes, CSB used June 30, 2018 as the date of the business combination (see Note 1).
The total consideration for the acquisition of PR Savings Bank amounted to P7.02 billion,
=
P300.00 million of which shall be released by CSB directly to a Joint Venture (JV) Company. As
part of the other undertakings relevant to the SPA, the sellers shall cause the relevant Ropali Group
entity to execute a joint venture agreement with CSB to form an incorporated JV Company within
one year from closing date or such longer period as the parties may agree upon in writing. The JV
Company shall engage in motorcycle dealership. The parties agree that the remaining balance of
P
=300.00 million shall be utilized exclusively to fund the capital subscription of the relevant Ropali
Group entity in the JV Company.
Other than Cash and other cash items, Due from BSP, and Due from other banks, the Group
determined the provisional fair values of identifiable assets and liabilities acquired, which shall be
adjusted once relevant information has been obtained, including the valuation of external appraisers.
The provisional fair values of the identifiable assets and liabilities acquired at the date of acquisition
are as follows (amounts in thousands):
Provisional
fair values
recognized on
acquisition date
Assets
Cash and other cash items P60,096
=
Due from Bangko Sentral ng Pilipinas 352,563
Due from other banks 518,126
Loans and receivables 8,699,868
Property and equipment 823,439
Investment properties 926,208
Deferred tax assets 100,703
Other resources 692,945
Total assets 12,173,948
Liabilities
Deposit liabilities 4,419,570
Bills payable 4,323,572
Other liabilities 196,603
Total liabilities 8,939,745
Net assets acquired =3,234,203
P
*SGVFS032841*
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The goodwill arising from the acquisition is attributed to expected synergies from combining
operations of the acquiree and the acquirer. None of the goodwill recognized is expected to be
deductible for income tax purposes.
The fair value of the loans and receivables acquired as part of the business combination amounted to
=
P8.7 billion, with gross contractual amount of =
P9.5 billion.
Net cash outflow related to the acquisition PR Savings Bank amounted to P=5.79 billion, net of cash
acquired and unpaid consideration amounting to P =300 million which shall be released by CSB
directly to the JV Company.
In 2018, PR Savings Bank reported a total operating income and net income of = P1.1 billion and
=22.6 million, respectively. Had the acquisition occurred at the beginning of 2018, the consolidated
P
net income would have decreased by = P24.2 million.
Acquisition of PETNET
In February 2018, CSB and UPI purchased of 2,461,338 common shares representing 51% ownership
of AEVI on PETNET. The transaction is accounted for as a business combination. The acquisition
date, which is the settlement of purchase price, is on December 17, 2018. For convenience purposes,
the Group used December 31, 2018 as the date of the business combination.
Other than Cash and other cash items, Due from other banks, Other resources, Notes and bonds
payable and Other liabilities, the Group determined the provisional fair values of identifiable assets
and liabilities acquired, which shall be adjusted once relevant information has been obtained,
including the valuation of external appraisers. The provisional fair values of the identifiable assets
and liabilities acquired at the date of acquisition are as follows (amounts in thousands):
Provisional fair
values
recognized on
acquisition date
Assets
Cash and other cash items =103,920
P
Due from other banks 516,883
Loans and receivables 459,982
Investment in an associate 27,098
Property and equipment 49,384
Other resources 154,393
Total assets =1,311,660
P
Liabilities
Notes and bonds payable 36,806
Other liabilities 267,436
Total liabilities 304,242
Net assets acquired =1,007,418
P
*SGVFS032841*
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In 2018, PETNET reported a total operating income and net loss of = P282.3 million and
=32.6 million, respectively. Had the acquisition occurred at the beginning of 2018, the consolidated
P
net income would have decreased by = P16.7 million.
The Group, through CSB and UPI, obtained control of FAIR Bank on March 17, 2017 after acquiring
77.78% of the issued and outstanding capital stock of FAIR Bank. The purchase is aligned with the
Bank’s long-term strategy of building asset or business based on consumers.
The following table summarizes the consideration paid for the acquisition of FAIR Bank and the
recognized amounts of the identifiable assets acquired and liabilities assumed, as well as the fair
value at the acquisition date of the non-controlling interests in FAIR Bank. For purposes of
determining the gain from purchase, the Group determined the fair value of the identified net assets as
of March 17, 2017.
The gain from purchase was caused by the fair value adjustment of FAIR Bank’s investment
properties and the branch licenses granted by the BSP.
The fair value of the loans and receivables acquired as part of the business combination amounted to
=
P163,425, with a gross contractual amount of = P195,972.
*SGVFS032841*
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The following table presents the financial information for CSB, UPI, FUPI, FUDC, FUIFAI, FAIR
Bank, PR Savings Bank and PETNET as of and for the years ended December 31, 2018 and 2017:
Net Profit
Assets Liabilities Revenues (Loss)
2018
CSB P
=75,743,466 P
=60,744,307 P
=7,538,378 P
=1,787,580
FAIR Bank 477,862 314,607 114,858 (24,477)
PR Savings Bank 10,158,401 8,270,133 1,107,293 22,608
PETNET 1,311,660 304,242 282,275 (32,597)
UPI 972,814 174,830 85,282 (720)
FUPI 2,531,768 2,755,697 43,104 (125,142)
FUDC 48,383 17,017 79,943 23,510
FUIFAI 63,318 19,246 83,446 44,684
2017
CSB =76,943,488
P =63,733,321
P =8,931,671
P =3,340,769
P
FAIR Bank 473,218 311,722 255,916 86,228
UPI 778,577 32,074 33,936 (37,523)
FUPI 4,053,478 4,203,440 262,067 30,119
FUDC 13,635 7,303 25,766 (432)
FUIFAI 70,546 25,079 119,345 55,275
The gross carrying amounts and accumulated depreciation and amortization of bank premises,
furniture, fixtures and equipment as of December 31, 2018 and 2017 are shown below.
Group
Furniture, Leasehold
Fixtures and Rights and
Land Buildings Equipment Improvements Total
December 31, 2018
Cost P
= 814,032 P
= 2,490,500 P
= 4,474,682 P
= 1,277,706 P
= 9,056,920
Accumulated depreciation and amortization − (570,302) (2,681,114) (696,661) (3,948,077)
Net carrying amount P
= 814,032 P
= 1,920,198 P
= 1,793,568 P
= 581,045 P
= 5,108,843
December 31, 2017
Cost =262,558
P =2,266,640
P P3,685,321
= P739,202
= P6,953,721
=
Accumulated depreciation and amortization – (513,804) (2,266,347) (407,774) (3,187,925)
Net carrying amount =262,558
P =1,752,836
P =1,418,974
P =331,428
P =3,765,796
P
Parent Bank
Furniture, Leasehold
Fixtures and Rights and
Land Buildings Equipment Improvements Total
December 31, 2018
Cost =289,619
P P
= 2,194,723 P
= 3,553,389 P521,294
= P
= 6,559,025
Accumulated depreciation and amortization – (477,062) (1,960,466) (164,482) (2,602,010)
Net carrying amount =289,619
P =1,717,661
P =1,592,923
P =356,812
P =3,957,015
P
December 31, 2017
Cost =250,171
P =2,107,391
P P3,060,417
= P309,005
= P5,726,984
=
Accumulated depreciation and amortization – (434,992) (1,728,743) (106,946) (2,270,681)
Net carrying amount =250,171
P =1,672,399
P =1,331,674
P =202,059
P =3,456,303
P
*SGVFS032841*
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A reconciliation of the carrying amounts at the beginning and end of 2018 and 2017 of bank
premises, furniture, fixtures and equipment is shown below:
Group
Furniture, Leasehold
Fixtures and Rights and
Land Buildings Equipment Improvements Total
Balance at January 1, 2018, net of accumulated
depreciation and amortization P
= 262,558 P
= 1,752,836 P
= 1,418,974 P
= 331,428 P
= 3,765,796
Additions 39,448 93,268 652,215 257,970 1,042,901
Disposals – – (26,624) – (26,624)
Reclassifications/ adjustments – (4,681) 1,055 (2,512) (6,138)
Depreciation and amortization charges
for the year – (56,529) (355,109) (128,277) (539,915)
Effect of business combinations (Note 15) 512,026 135,304 103,057 122,436 872,823
Balance at December 31, 2018, net of
accumulated depreciation and amortization P
= 814,032 P
= 1,920,198 P
= 1,793,568 P
= 581,045 P
= 5,108,843
Balance at January 1, 2017, net of accumulated
depreciation and amortization =255,614
P =1,768,982
P =1,173,448
P =325,229
P =3,523,273
P
Additions 6,944 36,359 587,114 105,116 735,533
Disposals – – (18,655) – (18,655)
Reclassifications/ adjustments – 797 (1,428) (1,060) (1,691)
Depreciation and amortization charges for the
year – (53,302) (321,505) (97,857) (472,664)
Balance at December 31, 2017, net of
accumulated depreciation and amortization P
=262,558 P
=1,752,836 P
=1,418,974 P
=331,428 P
=3,765,796
Parent Bank
Furniture, Leasehold
Fixtures and Rights and
Land Buildings Equipment Improvements Total
Balance at January 1, 2018, net of accumulated
depreciation and amortization =250,171
P =1,672,399
P =1,331,674
P =202,059
P =3,456,303
P
Additions 39,448 92,044 560,210 214,650 906,352
Disposals – – (20,556) – (20,556)
Reclassifications/adjustments – (4,694) 6,029 (2,361) (1,026)
Depreciation and amortization charges
for the year – (42,088) (284,434) (57,536) (384,058)
Balance at December 31, 2018 net of
accumulated depreciation and amortization P
= 289,619 P
= 1,717,661 =
P1,592,923 =
P356,812 =
P3,957,015
Balance at January 1, 2017, net of accumulated
depreciation and amortization P
=250,171 P
=1,688,319 P
=1,047,077 P
=133,584 P
=3,119,151
Additions – 26,261 540,066 91,297 657,624
Disposals – – (13,285) – (13,285)
Reclassifications/ adjustments – (545) (2,856) (932) (4,333)
Depreciation and amortization charges
for the year – (41,636) (239,328) (21,890) (302,854)
Balance at December 31, 2017, net of
accumulated depreciation and amortization =250,171
P =1,672,399
P =1,331,674
P =202,059
P =3,456,303
P
Under BSP rules, investments in bank premises, furniture, fixtures and equipment should not exceed
50% of the Parent Bank’s unimpaired capital. As of December 31, 2018 and 2017, the Parent Bank
has satisfactorily complied with this requirement.
As of December 31, 2018 and 2017, the acquisition cost of the Group’s fully-depreciated bank
premises, furniture, fixtures and equipment that are still in use is P
=1,861,570 and =
P1,584,258,
respectively, while the acquisition cost of the Parent Bank’s fully-depreciated bank premises,
furniture, fixtures and equipment that are still in use is P
=1,270,337 and =
P1,156,697, respectively.
*SGVFS032841*
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The Group’s and Parent Bank’s investment properties include several parcels of land and buildings
held for capital appreciation and are stated at fair value. The breakdown of this account as to type is
shown below.
The net fair value gains and losses from investment properties account is presented under
Miscellaneous income account in the statements of income (see Note 27). Real property taxes related
to these investment properties paid by the Group and recognized as expense for the years ended
December 31, 2018, 2017 and 2016 totaled = P23,578, =
P36,344, and =P26,561, respectively, and are
presented as part of Taxes and licenses account under Other expenses in the statements of income.
Rent income earned by the Group on its investment properties under operating leases amounted to
=154,899, =
P P184,375, and =
P181,028 in 2018, 2017 and 2016, respectively, while rent income earned
by the Parent Bank on these investment properties amounted to = P150,462, =
P180,708, and =
P166,891 in
2018, 2017 and 2016, respectively, and is included as part of Rental account under Miscellaneous
income in the statements of income (see Note 27).
Other information about the fair value measurement and disclosures related to the investment
properties are presented in Note 7.
18. Goodwill
Goodwill represents the excess of the acquisition cost over the fair value of (a) former iBank’s
identifiable net assets on its merger with the Bank in April 2006; (b) the identifiable net assets of CSB
at the date the Bank acquired ownership interest in January 2013, (c) PR Savings Bank upon
acquisition by CSB in June 2018 and (d) of PETNET upon acquisition by the Group in
December 2018 (see Note 1).
*SGVFS032841*
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Trust fund assets are maintained to cover pre-need liabilities of FUPI for pre-need plans computed
based on the provisions of PAS 37 as required by the IC and validated by a qualified actuary in
compliance with the rules and regulations of the IC based on the amended PNUCA. The trust fund
assets are managed by the Parent Bank’s Trust and Investments Services Group (TISG). The details
of FUPI’s trust fund assets as of December 31 follow:
2018 2017
Due from BSP and other banks P
=95,768 P346,977
=
Financial assets at FVTPL 1,365,738 1,886,861
Financial assets at amortized cost 988,847 1,517,322
Miscellaneous - net (13,912) 17,509
P
=2,436,441 =3,768,669
P
*SGVFS032841*
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therefrom. Fair value is derived using the Net Asset Value per unit of the funds (computed by
dividing the net asset value of the fund by the number of outstanding units at the end of the reporting
period) published by the trustee banks and the Investment Company Association of the Philippines
(see Note 7).
Miscellaneous includes foreclosed machineries and chattels with carrying amount of P=19,796 and
P45,849 as of December 31, 2018 and 2017, respectively. In 2018, the Group and the Parent Bank
=
recognized depreciation expense for these foreclosed machineries and chattel amounting to P=36,571
and =
P14,759, respectively, while in 2017 and 2016, both the Group and the Parent Bank recognized
depreciation expense amounting to = P41,281 and =
P80,679, respectively. This is included as part of
Depreciation and amortization account in the statements of income.
Investments and placements include the Parent Bank’s financial assets at amortized cost, debt
financial assets at FVOCI, and due from other banks. The ECL allowance for financial assets at
FVOCI as of December 31, 2018 amounted to = P0.49 million. Others refers to allowance for
impairment of foreclosed machineries and chattels and other resources.
With the foregoing level of allowance for impairment and credit losses, management believes that the
Group has sufficient allowance for any losses that the Group may incur from the non-collection or
nonrealization of its receivables and other risk assets.
*SGVFS032841*
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The reconciliation of allowance for the total receivables from customers follows. The balances at the
beginning of the year reflect the amounts after considering the effect of adoption of PFRS 9 on
receivables from customers (see note 2):
In 2018, there were no transfers between stages and write-offs for corporate loans.
*SGVFS032841*
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In 2018, there were no transfers to stage 2 and write-offs for commercial loans.
2018
Stage 1 Stage 2 Stage 3 Total
Balance at beginning of year =140,619
P =1,430
P =1,410,608
P =1,552,657
P
Newly originated assets that remained in
Stage 1 as at December 31, 2018 27,508 − − 27,508
Newly originated assets that moved to
Stage 2 and Stage 3 as at
December 31, 2018 − 2,037 30,233 32,270
Effect of collections and other
movements in receivable balance
(excluding write-offs) (12,842) (382) (39,316) (52,540)
Amounts written-off − − (276,693) (276,693)
Transfers to Stage 1 14,620 (763) (13,857) −
Transfers to Stage 2 (45) 52 (7) −
Transfers to Stage 3 (6,167) (243) 6,410 −
Impact on ECL of exposures transferred
between stages (14,322) 265 290,938 276,881
Balance at end of year =149,371
P =2,396
P =1,408,316
P =1,560,083
P
*SGVFS032841*
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2018
Stage 1 Stage 2 Stage 3 Total
Effect of collections and other
movements in receivable balance
(excluding write-offs) (P
=52,355) (P
=997) (P
=40,818) (P
=94,170)
Amounts written-off − − (849,447) (849,447)
Transfers to Stage 1 12,877 (133) (12,744) −
Transfers to Stage 2 (1,801) 2,075 (274) −
Transfers to Stage 3 (10,373) (2) 10,375 −
Impact on ECL of exposures transferred
between stages (11,128) (2,182) 95,237 81,927
Balance at end of year =107,943
P =117
P =204,809
P =312,869
P
Group
2018
Stage 1 Stage 2 Stage 3* Total
Balance at beginning of year =353,924
P =6,122
P =2,766,107
P =3,126,153
P
Newly originated assets that remained in
Stage 1 as at December 31, 2018 137,785 − − 137,785
Newly originated assets that moved to
Stage 2 and Stage 3 as at
December 31, 2018 − 2,224 38,622 40,846
Effect of collections and other
movements in receivable balance
(excluding write-offs) (134,687) (1,487) (127,074) (263,248)
Amounts written-off − − (84,753) (84,753)
Transfers to Stage 1 82,027 (2,740) (79,287) –
Transfers to Stage 2 (1,543) 1,844 (301) –
Transfers to Stage 3 (17,995) (1,384) 19,379 −
Impact on ECL of exposures transferred
between stages (40,126) (642) 136,576 95,808
Balance at end of year =379,385
P =3,937
P =2,669,269
P =3,052,591
P
*Includes long outstanding receivables from customers that are fully provided for allowance amounting to P
=2.18 billion and P
=2.26 billion as
of December 31, 2018 and January 1, 2018, respectively.
Parent Bank
2018
Stage 1 Stage 2 Stage 3* Total
Balance at beginning of year =64,797
P =755
P =2,500,902
P =2,566,454
P
Newly originated assets that remained in
Stage 1 as at December 31, 2018 38,769 − − 38,769
Newly originated assets that moved to
Stage 2 and Stage 3 as at
December 31, 2018 − 1,409 34,670 36,079
Effect of collections and other
movements in receivable balance
(excluding write-offs) (51,504) (168) (81,373) (133,045)
Amounts written-off − − (37,082) (37,082)
Transfers to Stage 1 629 (142) (487) –
Transfers to Stage 2 (297) 576 (279) –
Transfers to Stage 3 (1,794) (429) 2,223 −
Impact on ECL of exposures transferred
between stages (597) (313) 9,001 8,091
Balance at end of year =50,003
P =1,688
P =2,427,575
P =2,479,266
P
*Includes long outstanding receivables from customers that are fully provided for allowance amounting to P
=2.18 billion and P
=2.26 billion as
of December 31, 2018 and January 1, 2018, respectively.
*SGVFS032841*
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2018
Stage 1 Stage 2 Stage 3 Total
Balance at beginning of year =26,201
P =−
P =−
P =26,201
P
Newly originated assets that remained in
Stage 1 as at December 31, 2018 13,045 − − 13,045
Effect of collections and other
movements in receivable balance
(excluding write-offs) (34,173) − − (34,173)
Transfers to Stage 2 (92) 92 − −
Impact on ECL of exposures transferred
between stages − 12,553 − 12,553
Balance at end of year =4,981
P P12,645
= =−
P P17,626
=
In 2018, there were no transfers to Stage 1 and Stage 3. The were also no write-offs for investments
and placements during the year.
*SGVFS032841*
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Group
2017
Loans and Receivables
Sales and Assets Held
Accrued Installment Financial for Sale and
Accounts Interest Contract Other Loan Assets at Other
Corporate * Commercial Consumer Receivable Receivable Receivable Accounts Total FVOCI Resources Total
Balance at beginning of year P
=4,300,912 P
=1,009,327 P
=4,659,950 P
=722,122 P
=69,091 P
=3,850 P
=148,357 P
=10,913,609 =
P40 P
=161,715 P
=11,075,364
Provision during the year 243,026 189,290 421,036 3,501 25,269 (7,038) 503 875,587 – – 875,587
Other adjustments (81,225) 78,360 (964,547) (71,596) (2,973) 7,038 68,729 (966,214) – – (966,214)
Balance at end of year P
=4,462,713 P
=1,276,977 P
=4,116,439 P
=654,027 P
=91,387 P
=3,850 P
=217,589 P
=10,822,982 =
P40 P
=161,715 P
=10,984,737
*Corporate includes accounts under Asset Recovery Group. Other loan accounts include Bills Purchase, Branch Loans, HR Loans and Salary Loans
2017
Loans and Receivables
Sales and
Accrued Installment Financial
Accounts Interest Contract Other Loan Assets at Other
Corporate * Commercial Consumer Receivable Receivable Receivable Accounts Total FVOCI Resources Total
Individual impairment =4,317,365
P =1,181,255
P =6,072
P =645,611
P =91,387
P =3,850
P =20,605
P =6,266,145
P =40
P =161,715
P =6,427,900
P
Collective impairment 145,348 95,722 4,110,367 8,416 – – 196,984 4,556,837 – – 4,556,837
=4,462,713
P =1,276,977
P =4,116,439
P =654,027
P =91,387
P =3,850
P =217,589
P =10,822,982
P =40
P =161,715
P =10,984,737
P
Parent Bank
2017
Loans and Receivables
Sales and
Accrued Installment Financial
Accounts Interest Contract Other Loan Assets at Other
Corporate * Commercial Consumer Receivable Receivable Receivable Accounts Total FVOCI Resources Total
Balance at beginning of year =4,300,912
P =1,009,183
P =3,318,722
P =707,509
P =69,091
P =2,639
P =148,357
P =9,556,413
P =40
P =143,805
P =9,700,258
P
Provision during the year 243,026 189,098 422,157 2,194 25,269 – – 881,744 – – 881,744
Other adjustments (81,225) 73,902 (763,514) (67,634) (2,973) – 48,627 (792,817) – – (792,817)
Balance at end of year =4,462,713
P =1,272,183
P =2,977,365
P =642,069
P =91,387
P =2,639
P =196,984
P =9,645,340
P =40
P =143,805
P =9,789,185
P
*Corporate includes accounts under Asset Recovery Group. Other loan accounts include Bills Purchase, Branch Loans, HR Loans and Salary Loans.
*SGVFS032841*
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2017
Loans and Receivables
Sales and
Accrued Installment Financial
Accounts Interest Contract Other Loan Assets at Other
Corporate * Commercial Consumer Receivable Receivable Receivable Accounts Total FVOCI Resources Total
Individual impairment =4,317,365
P =1,176,606
P =–
P =642,069
P =91,387
P =2,639
P =–
P =6,230,066
P =40
P =143,805
P =6,373,911
P
Collective impairment 145,348 95,577 2,977,365 – – – 196,984 3,415,274 – – 3,415,274
=4,462,713
P =1,272,183
P =2,977,365
P =642,069
P =91,387
P =2,639
P =196,984
P =9,645,340
P =40
P =143,805
P =9,789,185
P
*SGVFS032841*
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Deposit liabilities bear annual interest at rates ranging from 0.0% to 9.0% in 2018, 2017 and 2016 in
the Group’s financial statements and from 0.0% to 7.9% in 2018, 2017 and 2016 in the Parent Bank’s
financial statements. Demand and savings deposits usually have either fixed or variable interest rates
while time deposits have fixed interest rates.
On December 12, 2017, the MB of the BSP approved the Parent Bank’s issuance of up to
=20,000,000 of Long-term Negotiable Certificate of Deposits (LTNCD). Out of the approved
P
amount, =
P3,000,000 were issued on February 21, 2018 at a coupon rate of 4.375% per annum,
payable quarterly and will mature on August 21, 2023. The net proceeds were utilized to further
improve the Parent Bank’s maturity profile and support business expansion plans.
On August 8, 2013, the MB of the BSP approved the Parent Bank’s issuance of up to =
P5,000,000 of
LTNCD. Out of the approved amount, = P3,000,000 were issued on October 18, 2013 at a coupon rate
of 3.50% per annum, payable quarterly and will mature on April 17, 2019.
*SGVFS032841*
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Under existing BSP regulations, non-FCDU deposit liabilities of the Bank are subject to unified
reserve requirement equivalent to 20.0% from May 30, 2014 to March 1, 2018 (under BSP Circular
832), 19.0% from March 2, 2018 to May 31, 2018 (under BSP Circular 997), and 18.0% from
June 1, 2018 and thereafter (under BSP Circular 1004).
LTNCDs are subject to required reserves of 4.0% if issued under BSP Circular 304, and 7% if issued
under BSP Circular 842. As of December 31, 2018 and 2017, the Group is in compliance with such
regulations.
Regular reserves as of December 31, 2018 and 2017 amounted to = P54,503,045 and =P63,279,707 of
the Group, respectively, while that of the Parent Bank’s amounted to P
=51,133,191 and P
=59,375,188,
respectively.
Bills payable to banks and other financial institutions consist mainly of amortized cost balance of
short-term borrowings. Certain bills payable to banks and other financial institutions are
collateralized by investment securities (see Note 12).
Bills payable to BSP mainly represent short-term borrowings availed of under the rediscounting
facility of the BSP. These are collateralized by eligible loans (see Note 14).
Other bills payable of the Group mainly pertain to availments of short-term loan lines from certain
related parties (see Note 31).
*SGVFS032841*
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The breakdown of interest expense on bills payable, which is presented as part of Interest expense on
bills payable and other liabilities account in the statements of income, follows:
The Group’s and the Parent Bank’s notes and bonds payable as of December 31, 2018 and 2017
consist of the following:
Coupon Principal Outstanding Balance
Interest Amount 2018 2017 Issue Date Maturity Date Redemption Date
Senior debt 3.369% =24,965,000
P P
= 26,233,746 =24,928,177 November 29, 2017 November 29, 2022 November 29, 2022
P
Senior fixed rate
bonds 7.061% 11,000,000 10,901,514 – December 7, 2018 December 7, 2020 December 7, 2020
Unsecured
subordinated notes 5.375% 7,200,000 7,200,000 7,200,000 November 20, 2014 February 20, 2025 February 20, 2020
Total for Parent Bank 43,165,000 44,335,260 32,128,177
Loans payable 5.750% 150,000 150,000 – May 31, 2018 May 31, 2023 May 31, 2023
Others 2.900% 36,806 36,806 − December 28, 2018 January 28, 2019 January 28, 2019
Total for Group =43,351,806
P P
= 44,522,066 =32,128,177
P
Senior Debt
(a) The 2017 Notes were issued on the initial issue date at 100% with face value of USD500 million;
(b) The 2017 Notes cannot be redeemed prior to their stated maturity [(other than (i) in specified
instalments, if applicable; (ii) for taxation reasons; or (iii) following an Event of Default)] or that
such Notes will be redeemable at the option of the Issuer and/or the Noteholders upon giving
notice to the Noteholders or the Issuer, as the case may be, on a date or dates specified prior to
such stated maturity and at a price or prices and on such other terms as may be agreed between
the Issuer and the relevant Dealer.
(c) The 2017 Notes constitute direct, unconditional, unsubordinated and unsecured obligations of the
Parent Bank and will rank pari passu among themselves and equally with all other unsecured
obligations of the Parent Bank from time to time outstanding; and,
(d) There are restrictions on the offer, sale and transfer of the Notes in the United States, the
European Economic Area (including the United Kingdom), the Netherlands, Japan, Hong Kong,
Singapore, the Philippines and the People’s Republic of China and such restrictions as may be
required in connection with the offering and sale of a particular Tranche of Notes.
*SGVFS032841*
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(b) The Bonds will be redeemed at their principal amount on maturity date which is on
December 7, 2020. The Bank may redeem the Bonds in whole and not only in part on the Early
Redemption Date at the face value of the Bonds, plus accrued and unpaid interest as of but
excluding the Early Redemption Date.
(c) The Bonds constitute direct, unconditional, unsecured, and unsubordinated peso-denominated
obligations of the Bank, and shall at all times rank pari passu and ratably without any preference
or priority amongst themselves, and at least pari passu with all other present and future direct,
unconditional, unsecured, and unsubordinated peso-denominated obligations of the Bank, except
for any obligation enjoying a statutory preference or priority established under Philippine laws.
(b) The 2014 Notes shall not be used as collateral for any loan made by the Parent Bank or any of its
subsidiaries and affiliates. The 2014 Noteholders or their transferees shall not be allowed, and
waive their right to set-off any amount that may be due the Parent Bank;
(c) The 2014 Notes constitute direct, unconditional, unsecured and subordinated obligations of the
Parent Bank. Claims of 2014 Noteholders in respect of the 2014 Notes shall at all times rank pari
passu and without any preference among themselves; and,
(d) The 2014 Notes shall not be redeemable or terminable at the instance of the 2014 Noteholders
before the maturity date, unless otherwise expressly provided therein.
Loans Payable
On May 31, 2018, UPI entered into an agreement to avail of a term loan in the amount of P =150,000
with a certain local bank. The loan is unsecured and carries a fixed interest rate of 5.75% per annum
payable semi-annually. The term of the loan is five (5) years and is payable in seven (7) equal semi-
annual amortization commencing at the end of the second year from availment.
Others pertain to PETNET’s various bank loans which bear annual interest rates ranging from 2.14%
to 3.50%, with terms ranging from one (1) to thirty-one (31) days. These bank loans represent
drawdowns from the PETNET’s unsecured credit line with local banks, which are used to finance
transactions during the holidays and long weekends.
The Group recognized interest expense on notes and bonds payable amounting to P =1,335,698,
=461,778 and P
P =387,000 in 2018, 2017, and 2016, respectively, while the Parent Bank recognized
interest expense on notes and bonds payable amounting to P=1,330,657, =P461,778 and =P387,000 in
2018, 2017, and 2016, respectively. These are included under Interest Expense on Bills Payable and
Other Liabilities account in the statements of income.
*SGVFS032841*
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Capital Stock
The Parent Bank’s capital stock in both 2018 and 2017 consists of the following:
Shares Amount
2018 2017 2018 2017
Common – P=10 par value
Authorized 1,311,422,420 1,311,422,420 P
=13,114,224 =13,114,224
P
Issued and outstanding 1,217,149,512 1,058,343,929 12,171,495 10,583,439
Preferred – P
=100 par value, non-voting
Authorized 100,000,000 100,000,000 P
=10,000,000 =10,000,000
P
Issued and outstanding – – – –
*SGVFS032841*
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On June 29, 1992, the Parent Bank was originally listed with the then Makati Stock Exchange, now
PSE. A total of 89.7 million shares were issued at an issue price of =
P22.50. As of December 31,
2018 and 2017, there are 1,217.1 million and 1,058.3 million shares listed at the PSE, respectively.
The number of holders and the closing price of the said shares is 4,957 and P
=63.95 per share as of
December 31, 2018, respectively, and 4,995 and = P86.65 per share as of December 31, 2017,
respectively.
On September 29, 2018, the Parent Bank issued new shares through a stock rights offering. The total
number of shares issued was 158,805,583 shares with par value of =
P10 per share, issued at a price of
=62.97 per share.
P
Surplus Free
The following is a summary of the dividends declared and distributed by the Group in 2018, 2017 and
2016:
In compliance with BSP regulations, the Parent Bank ensures that adequate reserves are in place for
future bank expansion requirements. The foregoing cash dividend declarations were made within the
BSP’s allowable limit of dividends.
Surplus Reserves
The amended PNUCA requires that the portion of retained earnings representing Trust fund income
of FUPI be automatically restricted to payments of benefits of plan holders and related payments as
allowed in the amended PNUCA. The accumulated Trust Fund income should be appropriated and
presented separately as Surplus Reserves in the statements of changes in capital funds. For the years
ended December 31, 2018, 2017 and 2016, FUPI appropriated (P =97.1 million), P
=211.1 million and
=260.3 million, respectively, representing Trust fund income (loss) earned in those years and other
P
adjustments.
In compliance with BSP regulations, a portion of the Group’s income from trust operations is setup as
Surplus Reserves. For the years ended December 31, 2018, 2017 and 2016, the Group and the Parent
Bank appropriated =
P15.7 million, =
P14.2 million and =P14.9 million, respectively.
In 2018, upon the full adoption of PFRS 9, the BSP has required the appropriation for the difference
of the 1% general loan loss provision over the computed ECL allowance for credit losses related to
Stage 1 accounts. The Parent Bank appropriated P =1.6 billion as of December 31, 2018.
*SGVFS032841*
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In 2018 and 2017, others include commissions earned from bancassurance partnership (see Note 31).
Miscellaneous Income
Group
2018 2017 2016
Fair value gains on investment properties (Notes 7 and 17) P
=632,923 =528,072
P P385,687
=
Foreign exchange gains - net 584,920 593,419 589,873
Dividend 207,456 209,762 206,245
Trust fund income (Note 25) 198,919 261,653 122,733
Rental (Notes 17 and 34) 160,713 190,025 186,796
Income from trust operations (Note 30) 156,524 141,831 148,873
Fines and penalties 131,690 79,299 73,225
EAF earned (Note 31) 100,000 166,667 –
Gain on sale of investment properties 57,558 131,072 66,350
Gain or loss on foreclosure 51,904 92,002 82,685
Gain from bargain purchase (Note 15) − 129,920 –
Others 276,018 321,990 215,410
P
=2,558,625 =2,845,712
P =2,077,877
P
Parent Bank
2018 2017 2016
Share in net profit of subsidiaries (Note 15) P
=1,775,210 =3,429,942
P =3,474,490
P
Fair value gains on investment properties (Notes 7 and 17) 632,923 518,386 385,687
Foreign exchange gains - net 584,904 593,418 589,862
Dividend 206,425 204,919 133,458
Income from trust operations (Note 30) 156,524 141,831 148,873
Rental (Notes 17 and 34) 156,276 186,357 182,613
Fines and penalties 131,690 79,299 73,225
Gain or loss on foreclosure 109,435 85,320 82,685
EAF earned (Note 31) 100,000 166,667 –
Gain on sale of investment properties 46,189 125,833 66,350
Others 312,055 278,755 198,983
P
=4,211,631 =5,810,727
P =5,336,226
P
*SGVFS032841*
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Miscellaneous Expenses
Group
2017 2016
(As restated - (As restated -
2018 Note 2) Note 2)
Insurance P
=931,079 P922,020
= P726,459
=
Outside services 695,084 758,629 521,564
Repairs and maintenance 868,804 437,336 369,655
Advertising and publicity 700,155 352,428 341,828
Management and professional fees 550,908 352,871 288,431
Fines and penalties 475,490 113,642 3,231
Communication 347,516 251,089 179,137
Transportation and travel 252,775 194,442 165,891
Card related expenses 224,190 308,592 205,450
Supervision fees 183,134 149,755 120,385
Litigation 176,599 202,383 162,857
Stationery and supplies 171,523 163,342 133,510
Plan benefits 158,000 215,321 301,500
Representation and entertainment 83,701 81,364 87,339
Others 617,562 505,673 447,446
P
=6,436,520 =5,008,887
P =4,054,683
P
Parent Bank
2018 2017 2016
Insurance P
=819,369 =806,393
P P631,162
=
Repairs and maintenance 818,647 409,708 323,096
Outside services 615,933 533,354 463,880
Advertising and publicity 619,463 285,695 180,215
Management and professional fees 504,644 342,697 233,675
Fines and penalties 369,145 92,234 3,192
Communication 280,262 199,436 140,162
Card related expenses 224,190 308,592 205,450
Litigation 175,716 201,184 162,857
Supervision fees 158,858 126,689 102,801
Stationery and supplies 143,869 127,471 97,757
Transportation and travel 171,099 128,196 111,253
Representation and entertainment 75,204 80,225 86,228
Others 243,657 215,735 186,346
P
=5,220,056 =3,857,609
P =2,928,074
P
*SGVFS032841*
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Parent Bank
2018 2017 2016
Short-term benefits:
Salaries and wages P
=2,631,683 P2,395,817
= =1,981,598
P
Fringe benefits 1,076,300 1,017,789 739,779
Bonuses 453,652 432,575 1,099,287
Social security costs 78,849 68,124 57,869
Other benefits 103,048 72,104 144,374
Post-employment benefits 261,170 332,966 250,379
Other long-term benefits 64,789 67,366 60,533
P
=4,669,491 =4,386,741
P =4,333,819
P
The Group maintains funded, tax-qualified, noncontributory pension plans covering all regular
full-time employees that are being administered by the Parent Bank’s TISG for the Parent Bank,
UPI and CSB and by trustee banks that are legally separated from the Group for FUIFAI, PR
Savings Bank and PETNET. Under these pension plans, all covered employees are entitled to
cash benefits after satisfying certain age and service requirements.
The Group maintains seven separate retirement plans. Two of which are being maintained for
UnionBank and former iBank employees, hence, the Parent Bank presents pension information in
its financial statements separately for the two plans. The other five pension plans are for UPI,
CSB, FUIFAI, PR Savings Bank and PETNET employees.
UnionBank Plan
The normal retirement age is 60. The plan also provides for an early retirement at age 55, or
age 50 with the completion of at least ten years of service. However, late retirement is subject to
the approval of the Parent Bank’s BOD. Normal retirement benefit is an amount equivalent to
150% of the final monthly salary for each year of credited service.
UPI Plan
The optional retirement age is 60 and the compulsory retirement age is 65. Both must have a
minimum of five years of credited service. Both have retirement benefit equal to one-half
month’s salary as of the date of retirement multiplied by the employee’s year of service. Upon
retirement of an employee, whether optional or compulsory, his services may be continued or
extended on a case to case basis upon agreement of management and employee.
This is based on the retirement plan benefits provided in the Retirement Law (R.A. No. 7641).
*SGVFS032841*
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Under the law, unless the parties provide for broader inclusions, the term one-half (1/2) month
salary shall mean fifteen (15) days plus one-twelfth (1/12) of the 13th month pay and the cash
equivalent of not more than (5) days of service incentive leaves.
CSB Plan
The normal retirement age is 60 or completion of 30 years of service whichever is earlier. The
service of any member, however, may be extended from year to year beyond the normal
retirement date, provided such an extension of service is with the consent of the member and the
express approval of CSB. The plan also provides for an early retirement after completion of at
least ten years of service. Normal retirement benefit is an amount equivalent to 100% of the final
basic monthly salary multiplied by the number of years of service prior to January 1, 2008 and
150% of the final basic monthly salary for services rendered starting January 1, 2008.
FUIFAI Plan
The normal retirement age is 60 with a minimum of five years of credited service. The plan also
provides for an early retirement at age 50 with a minimum of five years of credited service and late
retirement after age 60, both subject to the approval of FUIFAI’s BOD. Normal retirement benefit
is an amount equivalent to 150% of the final monthly covered compensation (average monthly
basic salary during the last 12 months of credited service) for every year of credited service.
PETNET Plan
The normal retirement age is 60. The plan also provides for an early retirement at age 50 with the
completion of at least ten years of service and late retirement beyond age 60. However, early and
late retirement are subject to the approval of the company. Retirement benefit is an amount
equivalent to 92% of the final monthly salary for each year of continuous service.
Actuarial valuations are made annually to update the retirement benefit costs and the amount of
contributions. All amounts presented in the subsequent pages are based on the actuarial valuation
reports obtained from independent actuaries in 2018 and 2017.
The amounts of post-employment defined benefit obligation (net retirement asset) recognized in
the statements of financial position are determined as follows (see Notes 19 and 24):
Group
2018 2017 2016
Present value of the obligation P
=3,344,042 =4,175,532
P P3,664,572
=
Fair value of plan assets 3,380,329 3,236,803 2,130,338
(P
= 36,287) =938,729
P =1,534,234
P
*SGVFS032841*
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As of December 31, 2018, the excess of plan assets over the obligation amounting to =
P36,287 is
separately shown as Net retirement asset of =
P135,093 (see Note 19) and as Post-employment
defined benefit obligation of =
P98,806 (see Note 24).
The movements in the present value of the post-employment benefit obligation recognized in the
financial statements are as follows:
Group
2018 2017 2016
Balance at beginning of year P
=4,175,532 =3,664,572
P =3,326,413
P
Current service cost 337,837 386,734 289,697
Interest expense 187,136 172,511 160,581
Remeasurements:
Actuarial losses (gains) arising from
Changes in financial assumptions (549,408) (127,015) 141,932
Experience adjustments 217,217 353,737 274,664
Changes in demographic assumptions (23,676) (119,078) 5,316
Benefits paid (1,095,626) (155,929) (534,031)
Effects of business combinations (Note 15) 95,030 − −
Balance at end of year P
=3,344,042 =4,175,532
P =3,664,572
P
*SGVFS032841*
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The movements in the fair value of plan assets are presented below.
Group
2017 2016
Balance at beginning of year P
=3,236,803 =2,130,338
P =2,328,087
P
Interest income 143,434 101,529 111,612
Return on plan asset (excluding amounts included
in net interest) (84,670) 158,826 (105,877)
Contributions to the plan 977,032 1,002,039 330,547
Benefits paid (1,095,626) (155,929) (534,031)
Effects of business combinations (Note 15) 203,356 − −
Balance at end of year P
=3,380,329 =3,236,803
P =2,130,338
P
The composition of the fair value of plan assets at the end of the reporting period by category and
risk characteristics is shown below.
Group
2018 2017 2016
Bank deposits P
=738,575 =1,121,080
P =294,001
P
Quoted equity securities:
Financial and insurance activities 1,348,208 1,502,927 1,468,358
Electricity, gas and water 41,576 135,987 26,712
Wholesale and retail trade 37,179 – 82,088
Other service activities 28,766 82,106 –
Real estate activities 8,364 11,967 11,719
Manufacturing − – 158
Others 4,951 159 63
1,469,044 1,733,146 1,589,098
Debt securities:
Philippine government bonds 539,926 232,832 104,824
Corporate bonds 615,629 145,727 141,094
1,155,555 378,559 245,918
Others 17,155 4,018 1,321
P
=3,380,329 =3,236,803
P =2,130,338
P
*SGVFS032841*
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Equity securities under the fund are primarily investments in corporations listed in the PSE,
which include =P202,244 and P =252,583 investments in the shares of stocks of the Parent Bank as
of December 31, 2018 and 2017, respectively, while debt securities represent investments in
government and corporate bonds, which include = P103,900 investment in the notes of the Parent
Bank as of both December 31, 2018 and 2017 (see Note 31).
The fair values of the above equity and debt securities are determined based on quoted market
prices in active markets (classified as Level 1 of the fair value hierarchy). The retirement fund
neither provides any guarantee or surety for any obligation of the Parent Bank nor its investments
in the Bank’s shares of stocks covered by any restriction and liens. Bank deposits are maintained
with reputable financial institutions, which include =P498,603 and = P368,706 deposits with the
Parent Bank as of December 31, 2018 and 2017, respectively.
The amounts recognized in the statements of income in respect of the post-employment defined
benefit plan are as follows:
Group
2018 2017 2016
Current service cost P
=337,837 =386,734
P =289,697
P
Net interest expense 43,702 70,982 48,969
P
=381,539 =457,716
P =338,666
P
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Group
2018 2017 2016
Actuarial losses (gains) arising from changes in:
Financial assumption (P
= 549,408) P127,015
= P141,932
=
Experience adjustments 217,217 (353,737) 274,664
Demographic assumptions (23,676) 119,078 5,316
Return on plan assets (excluding amounts
included in net interest) 84,670 158,826 105,877
(P
= 271,197) P51,182
= P527,789
=
In addition to the above items, the Parent Bank also recognized its share of the other
comprehensive income of subsidiaries in respect of the post-employment defined benefit plan
amounting to = P26,171 gain, P
=15,264 loss and =
P21,126 gain in 2018, 2017 and 2016, respectively
(see Note 15).
Amounts recognized in other comprehensive income were included within items that will not be
reclassified subsequently to profit or loss.
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In determining the retirement benefits, the following actuarial assumptions were used:
UPI
2018 2017 2016
Retirement age 60 60 60
Average remaining working life 5 years 6 years 14 years
Discount rate 7.18% 4.93% 4.93%
Expected rate of salary increase 6.00% 7.00% 7.00%
Employee turnover rate 0%-15% 0%-18% 0%-5%
CSB
2018 2017 2016
Retirement age 60 60 60
Average remaining working life 16 years 16 years 19 years
Discount rate 7.41% 5.58% 5.58%
Expected rate of salary increase 6.00% 6.00% 6.00%
Employee turnover rate 0%-5% 0%-5% 0%-5%
FUIFAI
2018 2017 2016
Retirement age 60 60 60
Average remaining working life 20 years 20 years 23 years
Discount rate 7.53% 5.70% 5.38%
Expected rate of salary increase 10.00% 10.00% 10.00%
2018
PR SAVINGS BANK PETNET
Retirement age 60 60
Average remaining working life 11 years 9 years
Discount rate 7.88% 7.37%
Expected rate of salary increase 6.00% 6.00%
Employee turnover rate − 0% to 15%
Assumptions regarding future mortality and disability are based on published statistics and
mortality tables. These assumptions were developed by management with the assistance of an
independent actuary. Discount factors are determined close to the end of each reporting period by
reference to the interest rates of a zero coupon government bond with terms to maturity
approximating to the terms of the retirement obligation. Other assumptions are based on current
actuarial benchmarks and management’s historical experience.
*SGVFS032841*
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The plans expose the Group to actuarial risks such as investment risk, interest rate risk, longevity
risk and salary risk.
The present value of the defined benefit obligation is calculated using a discount rate
determined by reference to market yields of government bonds. Generally, a decrease in the
interest rate of a reference government bonds will increase the plan obligation. However, this
will be partially offset by an increase in the return on the plan’s investments in debt securities
and if the return on plan asset falls below this rate, it will create a deficit in the plan.
Currently, the plans are mostly invested in equity securities. Due to the long-term nature of
plan obligation, a level of continuing equity investments is an appropriate element of the
Group’s long-term strategy to manage the plans efficiently.
The present value of the defined benefit obligation is calculated by reference to the best
estimate of the mortality of the plan participants both during and after their employment and
to their future salaries. Consequently, increases in the life expectancy and salary of the plan
participants will results in an increase in the plan obligation.
The information on the sensitivity analysis for certain significant actuarial assumptions, the
Group’s asset-liability matching strategy, and the timing and uncertainty of future cash flows
related to the retirement plan are described below and in the succeeding pages.
∂ Sensitivity Analysis
The following table summarizes the effects of changes in the significant actuarial
assumptions used in the determination of the defined benefit obligation as of December 31:
Group
*SGVFS032841*
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UnionBank Plan
The above sensitivity analysis is based on a change in an assumption while holding all other
assumptions constant. This analysis may not be representative of the actual change in the
defined benefit obligation as it is unlikely that the change in assumptions would occur in
isolation of one another as some of the assumptions may be correlated. Furthermore, in
presenting the above sensitivity analysis, the present value of the defined benefit obligation
has been calculated using the projected unit credit method at the end of the reporting period,
which is the same as that applied in calculating the defined benefit obligation recognized in
the statements of financial position.
To efficiently manage the retirement plan, the Group through its Retirement Committee,
ensures that the investment positions are managed in accordance with its asset-liability
matching strategy to achieve that long-term investments are in line with the obligations under
the retirement scheme. This strategy aims to match the plan assets to the retirement
obligations by investing in long-term fixed interest securities (i.e., government or corporate
bonds) with maturities that match the benefit payments as they fall due and in the appropriate
currency. The Group actively monitors how the duration and the expected yield of the
investments are matching the expected cash outflows arising from the retirement obligations.
In view of this, investments are made in reasonably diversified portfolio, such that the failure
of any single investment would not have a material impact on the overall level of assets.
*SGVFS032841*
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A large portion of assets as of December 31, 2018 and 2017 consists of equity securities and
bonds, although the Group also invests in bank deposits. The Group believes that equity
securities offer the best returns over the long term with an acceptable level of risk. The
majority of equities are in a diversified portfolio of investments in corporations listed in the
PSE.
There has been no change in the Group’s strategies to manage its risks from previous periods.
The maturity profile of undiscounted expected benefits payments from the plan follows:
Group
2018 2017
Within one year P
=396,512 =267,815
P
More than one year to five years 1,425,452 1,319,237
More than five years to ten years 2,055,480 1,937,696
More than ten years to 15 years 2,733,449 2,464,946
More than 15 years to 20 years 2,700,010 2,590,312
More than 20 years 7,175,972 7,363,165
P
=16,486,875 =15,943,171
P
UnionBank Plan
2018 2017
Within one year P
=286,902 =171,484
P
More than one year to five years 1,110,827 997,656
More than five years to ten years 1,592,433 1,487,729
More than ten years to 15 years 2,122,283 1,947,381
More than 15 years to 20 years 1,759,740 1,836,381
More than 20 years 4,907,616 5,538,972
P
=11,779,801 =11,979,603
P
2018 2017
Within one year P
=50,748 P57,097
=
More than one year to five years 249,960 288,995
More than five years to ten years 252,331 301,502
More than ten years to 15 years 308,656 293,055
More than 15 years to 20 years 266,372 232,972
More than 20 years 218,950 184,041
P
=1,347,017 =1,357,662
P
The weighted average duration of the defined benefit obligation is 16 years and 15 years in 2018
and 2017, respectively.
*SGVFS032841*
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The components of income tax expense (benefit) for the years ended December 31, 2018, 2017, and
2016 are as follows:
Group
2018 2017 2016
Reported in profit or loss
Current tax expense:
Final tax at 20%, 10% and 7.5% =747,296
P =607,277
P =408,741
P
Regular corporate income tax
(RCIT) at 30% 504,017 1,474,296 1,610,317
MCIT at 2% 216,024 141,929 362
1,467,337 2,223,502 2,019,420
Deferred tax expense (benefit)
relating to origination and
reversal of temporary
differences (284,579) 42,578 (109,833)
=1,182,758
P =2,266,080
P =1,909,587
P
Reported in other comprehensive
income
Deferred tax expense (benefit)
relating to origination and
reversal of actuarial gains or
losses (P
=81,359) =15,355
P =158,337
P
Parent Bank
2018 2017 2016
Reported in profit or loss
Current tax expense:
Final tax at 20%, 10% and 7.5% =672,123
P =607,117
P =400,740
P
MCIT at 2% 182,501 141,929 –
RCIT at 30% 22,245 35,575 191,047
877,049 784,621 591,787
Deferred tax expense (income)
relating to origination and
reversal of temporary
differences (542,359) 42,578 (109,833)
P334,690
= =827,199
P P481,954
=
*SGVFS032841*
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The reconciliation of the statutory income tax rate and the effective income tax rate follows:
Group
2018 2017 2016
Statutory income tax rate 30.00% 30.00% 30.00%
Adjustment for income subjected to
lower income tax rates (3.48) (2.54) (2.68)
Tax effects of:
FCDU income before tax (13.66) (7.97) (14.77)
Non-taxable income (8.27) (14.45) (5.02)
Non-deductible expenses 5.84 12.95 2.68
Others 3.49 3.22 5.72
Effective income tax rate 13.92% 21.21% 15.93%
Parent Bank
2018 2017 2016
Statutory income tax rate 30.00% 30.00% 30.00%
Adjustment for income subjected to
lower income tax rates (3.38) (2.41) (1.12)
Tax effects of:
FCDU income before tax (15.38) (9.36) (16.47)
Non-taxable income (9.15) (12.68) (10.55)
Non-deductible expenses 6.08 4.30 2.77
Others (3.73) (0.78) (0.14)
Effective income tax rate 4.44% 9.07% 4.49%
The components of the net deferred tax assets presented under Other resources (see Note 19) as of
December 31, 2018 and 2017 are as follows:
Group
2017 2016
(As restated - (As restated -
2018 Note 2) Note 2)
Deferred tax assets:
Allowance for impairment losses =2,786,039
P =3,235,437
P =3,522,609
P
Accrued other expenses 295,701 257,786 349,474
Deferred service fees 427,832 529,841 548,213
Excess MCIT 334,219 141,929 −
Unrealized foreign exchange loss 329,292 10,254 261,315
Net operating loss carry over (NOLCO) 209,217 − −
Others 643,062 550,682 343,109
5,025,362 4,725,929 5,024,720
Deferred tax liabilities:
Fair value gains on investment properties 1,525,145 1,127,598 1,135,486
Unrealized foreign exchange gain 379,140 71,015 170,609
Capitalized interest 29,653 30,751 31,849
Others 66,797 35,470 168,882
2,000,735 1,264,834 1,506,826
Net deferred tax assets =3,024,627
P =3,461,095
P =3,517,894
P
*SGVFS032841*
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Parent Bank
2018 2017
Deferred tax assets:
Allowance for impairment =2,189,686
P =2,923,968
P
Unrealized foreign exchange swap loss 329,292 10,254
Excess MCIT 324,430 141,929
Accrued other expenses 259,250 257,786
Net operating loss carry-over (NOLCO) 193,268 –
Others 547,044 486,209
3,842,970 3,820,146
Deferred tax liabilities:
Fair value gains on investment properties 1,188,474 1,106,101
Unrealized foreign exchange gain 375,762 71,011
Capitalized interest 29,653 30,751
Others 51,026 23,661
1,644,915 1,231,524
Net deferred tax assets =2,198,055
P =2,588,622
P
Other deferred tax asset includes post-retirement obligation and other future deductible items.
The Parent Bank is subject to MCIT which is computed at 2% of gross income net of allowable
deductions, as defined under tax regulations or to RCIT, whichever is higher. In 2014 and 2013, the
Parent Bank recognized MCIT amounting to = P100,846 and P
=95,555, respectively, which was applied
against RCIT in 2016.
In 2018 and 2017, the Parent Bank incurred MCIT amounting to = P182,501 and = P141,929,
respectively, that can be applied against income tax liability for the next three consecutive years after
the MCIT was incurred.
Except for resident foreign corporations, which is still subject to the existing rate of 7.5%, tax on
interest income of foreign currency deposits was increased to 15% under TRAIN. Documentary
stamp tax on bank checks, drafts, certificate of deposit not bearing interest, all debt instruments, bills
of exchange, letters of credit, mortgages, deeds and others are now subjected to a higher rate.
The following are the relevant tax regulations affecting the Group:
Income Tax
(a) MCIT, computed at 2% gross income, net of allowable deductions as defined under the tax
regulations, or to RCIT of 30%, whichever is higher;
(b) FCDU transactions with non-residents of the Philippines and other offshore banking units
(offshore income) are tax-exempt, while interest income on foreign currency loans from residents
other than offshore banking units (OBUs) or other depository banks under the expanded system is
subject to 10% income tax;
*SGVFS032841*
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(c) Withholding tax of 7.5% is imposed on interest earned by resident foreign corporations (RFCs)
under the expanded foreign currency deposit system, while withholding tax of 15% is imposed on
interest earned by residents other than RFCs; and,
(d) Net operating loss carry-over (NOLCO) can be claimed as deductions against taxable income
within three years after NOLCO is incurred. The excess of the MCIT over income tax due may be
carried over to the three succeeding taxable years and credited against income tax due provided
the company is in RCIT position.
The significant provisions relating to DST under TRAIN are summarized below:
(a) On every original issue of debt instruments, there shall be collected a DST of 1.50 on each 200 or
fractional part thereof of the issue price of any such debt instrument; provided, that for such debt
instruments with terms of less than one year, the DST to be collected shall be of a proportional
amount in accordance with the ratio of its term in number of days to 365 days; provided further
that only one DST shall be imposed on either loan agreement or promissory notes to secure such
loan.
(b) On all sales or transfer of shares or certificates of stock in any corporation, there shall be
collected a DST of 1.50 on each 200, or fractional part thereof, of the par value of such stock.
(c) On all bills of exchange (beteen points within the Philippines) or drafts, there shall be collected a
DST of 0.60 on each 200, or fractional part thereof, of the face value of any such bill of exchange
or draft.
(d) The following instruments, documents and papers shall be exempt from DST:
∂ Borrowings and lending of securities executed under the Securities Borrowing and Lending
Program of a registered exchange, or in accordance with regulations prescribed by the
appropriate regulatory authority;
∂ Loan agreements or promissory notes, the aggregate of which does not exceed 250,000 or any
such amount as may be determined by the Secretary of Finance, executed by an individual for
his purchase on installment for his personal use;
∂ Sale, barter or exchange of shares of stock listed and traded through the local stock exchange
(as amended by RA No. 9648);
∂ Fixed income and other securities traded in the secondary market or through an exchange;
∂ Derivatives including repurchase agreements and reverse repurchase agreements;
∂ Bank deposit accounts without a fixed term or maturity; and,
∂ Interbank call loans with maturity of not more than seven days to cover deficiency in reserve
against deposit liabilities.
Itemized Deduction
In 2018, 2017 and 2016, the Parent Bank opted to claim itemized deductions.
*SGVFS032841*
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The following securities and other properties held by the Parent Bank in fiduciary or agency capacity
(for a fee) for its customers are not included in the accompanying statement of financial position since
these are not properties of the Parent Bank (see Note 34).
2018 2017
Investments P
=45,070,579 =42,073,308
P
Others 498,205 961
P
=45,568,784 =42,074,269
P
In compliance with the requirements of the General Banking Act relative to the Parent Bank’s trust
functions:
(b) ten percent of the Parent Bank’s trust income is transferred to Surplus reserves. This yearly
transfer is required until the surplus reserves for trust function is equivalent to 20% of the Parent
Bank’s authorized capital stock. No part of such reserves shall at anytime be paid out as
dividends, but losses accruing in the course of business may be charged against such surplus. As
of December 31, 2018, the reserve for trust functions amounted to = P247,726 and is included as
part of Surplus reserves in the statements of financial position (see Note 25).
Income from trust operations of the Group and Parent Bank amounted to P=156,524, P=141,831 and
=148,873 for the years ended December 31, 2018, 2017 and 2016, respectively, and shown as Income
P
from trust operations account under Miscellaneous income in the statements of income (see Note 27).
The Group’s and Parent Bank’s related parties include subsidiaries, stockholders, key management
personnel and others as described below.
The summary of the Group’s significant transactions with its related parties as of and for the years
ended December 31, 2018 and 2017 are as follows:
2018 2017
Amount Outstanding Amount Outstanding
Related Party Category of Transaction Balance of Transaction Balance Terms and Conditions/Nature
Applicable to the Parent Bank
Subsidiaries
Lease of properties:
Lease income P
= 12,726 P
=– P
=10,715 P
=– Lease renewed every 5 years
Refundable deposits – – – 683 with 5% escalation rate
Project management fee,
commission and service
Management services 78,656 – 25,153 – charges
Trust fee income 13 – 25 – Fees paid to subsidiaries
(Forward)
*SGVFS032841*
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2018 2017
Amount Outstanding Amount Outstanding
Related Party Category of Transaction Balance of Transaction Balance Terms and Conditions/Nature
Deposit liabilities:
With interest rate based on
Outstanding balance P
=– P
= 788,484 P–
= =939,655 average daily bank deposit rate
P
Net movements (151,171) – 29,426 –
Interest expense on deposits 3,618 – 4,079 –
Interbank lending -
Short-term lending with annual
Interest income 29,629 – – – fixed rate of 3.22% to 4.97%
Loans -
Peso-denominated loans with
annual interest rates ranging
from 6.83% to 7.12%, paid off
Interest income 18,913 during the year
Advances:
Various expenses advanced by
Outstanding balance – 17,706 – 1,884 the Bank
Net movements 15,822 – 1,879 –
Variable fee for credit card
Other liabilities 33,403 transactions
Outstanding receivables from and payables to related parties, if any, arising from lease of properties,
management services and advances are unsecured, noninterest-bearing and generally settled in cash
within 12 months or upon demand.
*SGVFS032841*
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The Parent Bank and its subsidiaries’ retirement plans have transactions directly and indirectly with
the Parent Bank as of December 31, 2018 and 2017 as follows:
2018 2017
Amount Outstanding Amount Outstanding
of Transaction Balance of Transaction Balance
Investment in Bank shares (P
=48,339) =204,244
P =58,056
P =252,583
P
Investments in Parent Bank notes payable:
Outstanding balance – 103,900 – 103,900
Interest income 5,565 5,460 –
Accrued interest income – 171 – 367
Deposit liabilities:
Outstanding balance – 498,603 – 368,706
Net movements 129,897 – 93,136 –
Interest income on deposits 13,043 – 5,768 –
Dividend income 110 – 4,049 –
Lease of Properties
In February 2014, the Parent Bank entered into a lease agreement with UPI, whereby the latter, as a
lessee, leases one of the Parent Bank’s investment properties for a period of five years. UPI pays the
Parent Bank a monthly rent of = P95, exclusive of VAT. Refundable deposit of UPI to the Parent Bank
amounted to = P683 as of both December 31, 2018 and 2017.
Management Services
The Bank entered into a sales management agreement with FUDC whereby the latter sells UnionBank
Visa Credit Cards through its direct selling network. Under the terms of the agreement, the Parent
Bank pays a fixed monthly service fee of P =4,123 and =
P4,618 in 2018 and 2017, respectively, (net of
applicable taxes and service charges) plus commission per approved principal card.
Advances
The Parent Bank also has advances to CSB and FUDC as of December 31, 2018 and 2017. These are
generally settled in cash upon demand.
In 2018, CSB availed of short-term borrowings from AEVI, Aboitiz Power Corporation and Aboitiz
and Co., Inc., related parties under common ownership, amounting to =
P2,250,000, =
P300,000, and
=5,670,000, respectively. These were subsequently paid in the following month.
P
*SGVFS032841*
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Bancassurance Agreement
On January 27, 2017, the Parent Bank and its subsidiary, CSB, entered into a bancassurance
partnership (the Agreement) with Insular Life Assurance Company, Ltd. (Insular Life). Under the
Agreement, Insular Life paid the Parent Bank an amount representing Exclusive Access Fee (EAF)
with a term of 15 years. In the event that the cumulative annualized premium earned (APE) sold
during the first five year period is less than the agreed minimum amount, the Parent Bank shall refund
the proportion of EAF that equals the proportion by which the cumulative APE is less the minimum
amount. EAF recognized for 2018 and 2017 is presented as Income from bancassurance business
under Miscellaneous Income account in the statements of income. Unearned income arising from this
transaction is presented as part of Miscellaneous under Other liabilities account in the statements of
financial position (see Note 24).
Under the distribution agreement, Insular Life will have exclusive access to the branch network of the
Parent Bank and CSB. Additionally, the Parent Bank’s sales force, composed of relationship
managers and financial advisors, shall be trained and licensed to sell life insurance products. Under
the same Agreement, the Parent Bank shall earn commissions on all insurance policies sold by the
Parent Bank. Commissions earned for the years ended December 31, 2018 and 2017 are presented as
part of Others under Service charges, fees and commissions account in the statements of income
(see Note 27).
Group
2018 2017 2016
Short-term benefits P
=1,673,823 =1,584,646
P =1,224,869
P
Post-employment benefits 115,052 147,560 97,224
Other long-term benefits 72,152 67,365 60,533
P
=1,861,027 =1,799,571
P =1,382,626
P
Parent Bank
2018 2017 2016
Short-term benefits P
=1,486,828 =1,363,854
P =1,096,136
P
Post-employment benefits 103,092 129,683 83,255
Other long-term benefits 72,140 67,366 60,533
P
=1,662,060 =1,560,903
P =1,239,924
P
Directors’ fees incurred by the Group amounted to P=75,800 in 2018, = P60,707 in 2017, and P=59,678 in
2016, and by the Parent Bank amounted to = P66,672 in 2018, =P55,681 in 2017, =P55,031 in 2016, and
are included as part of Salaries and employee benefits account in the statements of income.
*SGVFS032841*
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On January 31, 2007, BSP issued Circular No. 560 which provides the rules and regulations that
govern loans, other credit accommodations and guarantees granted to subsidiaries and affiliates of
banks and quasi-banks. Under the said circular, the total outstanding exposures to each of the Parent
Bank’s subsidiaries and affiliates shall not exceed 10% of bank’s net worth, the unsecured portion of
which shall not exceed 5% of such net worth. Further, the total outstanding exposures to subsidiaries
and affiliates shall not exceed 20% of the net worth of the lending bank.
The composition of the retirement plan assets of the Parent Bank and its subsidiaries as of
December 31, 2018 and 2017 are the following:
As of December 31, 2018 and 2017, the carrying value of the fund is equivalent to its fair value.
*SGVFS032841*
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The retirement fund of the Group includes investments in shares of stock and notes payable of the
Parent Bank amounting to = P202,244 and = P103,900, respectively, as of December 31, 2018 and
=252,583 and P
P =103,900, respectively, as of December 31, 2017. The investment in Parent Bank
shares are primarily held for re-sale and the Group’s retirement fund does not intend to exercise its
voting rights over those shares. The terms of the investment in notes payable are discussed in
Note 23.
The combined retirement fund of the Group and the retirement funds of the Parent Bank have
deposits with the Parent Bank amounting to P
=498,603 and =P380,790, respectively, as of
December 31, 2018 and = P368,706 and =
P259,074, respectively, as of December 31, 2017.
The related dividend income, interest income and trading gain amounted to P =110, P=18,608 and nil,
respectively, in 2018, =
P4,049, P
=11,228 and nil, respectively, in 2017 and =
P4,049, =
P8,748 and =
P283,
respectively, in 2016.
As of December 31, 2018, 2017 and 2016, the Group and the Parent Bank have no outstanding
potentially dilutive securities, hence, basic earnings per share are equal to diluted earnings per share.
The basic and diluted earnings per share were computed as follows:
Group
2018 2017 2016
Net profit attributable to Parent
Bank’s stockholders P
=7,316,102 =8,411,325
P =10,058,276
P
Divided by the weighted average
number of outstanding
common shares (thousands) 1,098,045 1,058,344 1,058,344
Basic and diluted earnings
per share P
=6.66 =7.95
P =9.50
P
Parent Bank
2018 2017 2016
Net profit P
=7,211,912 =8,281,948
P =10,253,503
P
Divided by the weighted average
number of outstanding
common shares (thousands) 1,098,045 1,058,344 1,058,344
Basic and diluted earnings
per share P
=6.57 =7.83
P =9.69
P
*SGVFS032841*
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The following are some measures of the Group and Parent Bank’s financial performance:
Liquidity ratio:
Debt-to-equity ratio:
Asset-to-equity ratio:
*SGVFS032841*
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Liquidity ratio:
Debt-to-equity ratio:
Asset-to-equity ratio:
Leases
The Parent Bank leases various branch premises for an average period of seven years. The lease
contracts are cancellable upon mutual agreement of the parties or renewable at the Parent Bank’s
option under certain terms and conditions. Various lease contracts include escalation clauses, most of
which bear an annual rent increase of 5%. Some leases include a clause to enable adjustment of the
rental charge on an annual basis based on prevailing market rates. As of December 31, 2018
and 2017, the Parent Bank has neither a contingent rent payable nor an asset restoration obligation in
relation with these lease agreements.
*SGVFS032841*
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Rentals charged against current operations included as part of Occupancy account in the statements of
income are as follows:
The estimated minimum future annual rentals payable under non-cancellable operating leases follows:
Group
2018 2017
Within one year P
=416,346 P342,660
=
Beyond one year but within five years 1,035,874 1,132,481
Beyond five years 36,674 71,043
P
=1,484,803 =1,546,184
P
Parent Bank
2018 2017
Within one year P
=271,544 =263,515
P
Beyond one year but within five years 741,828 823,167
Beyond five years 1,467 54,386
P
=1,014,839 =1,141,068
P
The Group has entered into commercial property leases on the Group’s surplus offices. These
non-cancellable leases have remaining non-cancellable lease terms of one to four years.
Total rent income earned included under Miscellaneous income account in the statements of
income (see Note 27) by the Group and the Parent Bank for the years ended December 31, 2018,
2017 and 2016 are as follows:
The estimated minimum future annual rentals receivable under non-cancellable operating leases
follows:
Group
2018 2017
Within one year P
=131,424 =139,709
P
Beyond one year but within five years 189,418 133,061
Beyond five years 5,884 −
P
=326,726 =272,770
P
*SGVFS032841*
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Parent Bank
2018 2017
Within one year P
=116,643 =128,554
P
Beyond one year but within five years 164,341 129,668
P
=280,984 =258,222
P
Others
In the normal course of the Group’s operations, there are various outstanding commitments and
contingent liabilities such as guarantees, commitments to extend credit, which are not reflected in the
accompanying financial statements. The Group recognizes in its books any losses and liabilities
incurred in the course of its operations as soon as these become determinable and quantifiable.
Management believes that, as of December 31, 2018, no additional material losses or liabilities are
required to be recognized in the accompanying financial statements as a result of the above
commitments and transactions.
2018 2017
Trust department accounts P
=45,568,784 =42,074,269
P
Inward bills for collections 32,323,461 17,221,005
Unused commercial letters of credit 3,041,698 4,038,136
Outstanding guarantees issued 573,842 665,451
Late deposits/payments received 63,446 5,642
Outward bills for collection 41,377 32,288
Other contingent accounts 3,148 3,016
There are several suits, assessments or notices and claims that remain unsettled. Management
believes, based on the opinion of its legal counsels, that the ultimate outcome of such suits,
assessments and claims will not have a material effect on the Group’s and the Parent Bank’s financial
position and results of operations.
UPI acts as the project and fund manager of Kingswood Project. As fund manager, UPI is
responsible for the treasury and money management as well as arranging the necessary facilities and
accounting for the development of the project. UPI also receives a certain percentage of the sales
price related to Kingswood Project as sales commission and to compensate for the marketing
expenses incurred.
*SGVFS032841*
- 147 -
Presented below is the supplemental information on the Group’s and Parent Bank’s liabilities arising
from financing activities:
Group
Notes and Bonds
LTNCD Bills Payable Payable Total
Balance at January 1, 2018 P
=3,000,000 P
=43,070,825 P
=32,128,177 P
=78,199,002
Cash flows from financing activities:
Additions 3,000,000 657,746,587 11,013,685 671,760,272
Repayment of borrowings − (613,840,876) − (613,840,876)
Issuance of new shares − − − −
Effect of business combinations − 4,323,571 36,806 4,360,377
Non-cash financing activities:
Effects of foreign exchange rate changes − (335,634) 1,325,000 989,366
Amortization of debt issue cost − − 18,398 18,398
Balance as of December 31, 2018 P
=6,000,000 P
=90,964,473 P
=44,522,066 P
=141,486,539
Parent Bank
Notes and Bonds
LTNCD Bills Payable Payable Total
Balance at January 1, 2018 P
=3,000,000 P
=29,009,719 P
=32,306,823 P
=64,316,542
Cash flows from financing activities:
Additions 3,000,000 638,874,784 10,863,685 652,738,469
Repayment of borrowings − (602,798,238) − (602,798,238)
Issuance of new shares − − − −
Non-cash financing activities:
Effects of foreign exchange rate changes − (335,634) 1,325,000 989,366
Amortization of debt issue cost − − 18,398 18,398
Balance as of December 31, 2018 P
=6,000,000 P
=64,723,631 P
=44,513,906 P
=115,264,537
Dividend Declaration
On January 25, 2019, the Parent Bank’s BOD approved the declaration of cash dividends at =P1.90 per
share or for a total of =
P2,312,584 based on the outstanding common stock of 1,217,149,512 shares as
of December 31, 2018. Record date for stockholders entitled to said cash dividend is
February 11, 2019 while payment is expected to be made on February 28, 2019.
*SGVFS032841*
- 148 -
Presented below is the supplementary information required by the Bureau of Internal Revenue (BIR)
under RR 15-2010 to be disclosed as part of the notes to financial statements. This supplementary
information is not a required disclosure under PFRS.
The Parent Bank reported total GRT amounting to P =809,792 in 2018 as shown under Taxes and
Licenses account. Total GRT payable as of December 31, 2018 amounted to = P73,893 and is included
as part of Accrued taxes and other expenses under Other liabilities account in the 2018 statement of
financial position (see Note 24).
Withholding Taxes
The details of total withholding taxes for the year ended December 31, 2018 are shown below:
Final =1,291,618
P
Expanded 693,561
Compensation and benefits 180,729
=2,165,908
P
GRT =809,792
P
DST 895,821
Real property tax 36,838
Fringe benefit tax (FBT) 36,377
Local and business permits 30,262
Miscellaneous 3,678
Less:
FBT charged to employee benefits 36,377
=1,776,391
P
Excise Taxes
The Parent Bank does not have excise taxes accrued since it did not have any transactions subject to
excise tax.
*SGVFS032841*
- 149 -
On July 4, 2018, the Supreme Court affirmed the CTA decision granting the Bank’s claim for refund
amounting to =
P90,923. On September 12, 2018, the BIR filed a Motion for Reconsideration of the
Supreme Court’s Resolution.
Deficiency DST
The Parent Bank has been assessed by the BIR for alleged deficiency DST on its Power Savings
Account (“PSA”) in the amounts of =P22,882, = P5,815, =P34,506 and =P55,852 for taxable years 1994,
1995, 1996 and 1997, respectively, and on its deficiency final withholding tax on onshore income for
taxable years 1994, 1996 and 1997 in the total amount of =P21,174, which was reduced by the Court of
Tax appeals to =P10,830. On February 6, 2019, the Bank received the Supreme Court decision dated
November 21, 2018 dismissing the Bank’s Petition for Review and ordering it to pay the aggregate
amount of P =129,885 for DST and final withholding tax on onshore income, plus 20% delinquency
interest per annum from July 16, 2001 until fully paid. In view of the recent signing into law of
Republic Act No. 11213 or the 2019 Tax Amnesty Law, the Bank is currently assessing its position
on the matter.
*SGVFS032841*
UNION BANK OF THE PHILIPPINES AND SUBSIDIARIES
INDEX TO THE FINANCIAL STATEMENTS AND SUPPLEMENTARY SCHEDULES
DECEMBER 31, 2018
C. Schedule of Selected Financial Performance Indicators for December 31, 2018 and 2017
A Financial Assets 1
Financial Assets at Fair Value Through Profit or Loss
Financial Assets at Amortized Cost
Financial Assets at Fair Value Through Other Comprehensive Income
B Amounts Receivable from Directors, Officers, Employees, Related Parties
and Principal Stockholders (Other than Affiliates) 5
C Amounts Receivable from Related Parties which are eliminated during the
Consolidation of Financial Statements 6
D Intangible/ Other Assets 7
E Long-term Debt 8
F Indebtedness to Related Parties (Long-term Loans from Related Companies) *
G Guarantees of Securities of Other Issuers *
H Capital Stock 9
Map Showing the Relationship Between and Among the Bank and its Related Entities
* These schedules and supplementary information are not included as these are not applicable to the Group.
UNION BANK OF THE PHILIPPINES AND SUBSIDIARIES
UnionBank Plaza, Meralco Avenue corner Onyx Street and Sapphire Road
Ortigas Center, Pasig City
2018 2017
Net profit
9.0% 12.0%
Average total capital funds
Net profit
1.2% 1.5%
Average total resources
Liquidity ratio
Current Assets
37.0% 49.1%
Current Liabilities
Debt-to-equity ratio
Liabilities
6.4:1 7.4:1
Equity
Asset-to-equity ratio
Asset
7.4:1 8.4.:1
Equity
Number of
Shares or Amount Shown in the Value Based on Market
Income Received
Name of Issuing Entity and Association of Each Issue Principal Statement of Financial Quotation at Statement of
and Accrued
Amount of Bonds Position Condition Date
and Notes
Debt Securities
Equity Securities
120,490,000 120,490,000 -
1
Union Bank of the Philippines and Subsidiaries
SEC Released Amended SRC Rule 68
Annex 68-E
Schedule A - Financial Assets
December 31, 2018
Number of
Shares or Amount Shown in the Value Based on Market
Income Received
Name of Issuing Entity and Association of Each Issue Principal Statement of Financial Quotation at Statement of
and Accrued
Amount of Bonds Position Condition Date
and Notes
Derivative Assets
2
Union Bank of the Philippines and Subsidiaries
SEC Released Amended SRC Rule 68
Annex 68-E
Schedule A - Financial Assets
December 31, 2018
Number of
Shares or Amount Shown in the Value Based on Market
Income Received
Name of Issuing Entity and Association of Each Issue Principal Statement of Financial Quotation at Statement of
and Accrued
Amount of Bonds Position Condition Date
and Notes
Total - Financial Assets at Fair Value through Profit or Loss P 8,283,695,086 P 8,283,695,086 P 235,968,474
ABU DHABI NATIONAL ENERGY CO. (TAQA) 736,120,000 P 824,136,433 P 792,757,073 P 30,167,143
BHARAT PETROLEUM CORP LTD 3,496,570,000 3,335,101,126 3,292,681,323 48,316,051
BRESIL (REPUBLIQUE FEDERATIVE DU) 9,096,340,000 9,900,601,092 9,750,945,752 434,171,320
CHINA NATIONAL OFFSHORE OIL CORPORATION 1,498,530,000 1,481,862,370 1,421,985,088 63,072,923
ECOPETROL SA 2,103,200,000 2,074,337,991 1,975,535,760 50,110,662
GAZPROM PJSC 4,048,660,000 4,890,489,631 4,503,284,031 289,569,832
INDIAN RAILWAY FINANCE 683,540,000 636,838,356 628,412,499 5,371,663
Indonesia Asahan Aluminium (Persero) 2,629,000,000 2,716,673,702 2,700,219,610 5,358,853
KINGDOM OF SAUDI ARABIA 8,602,088,000 8,396,017,364 8,016,808,820 277,368,738
NTPC LIMITED 2,471,260,000 2,380,301,939 2,354,633,879 21,168,399
ORIENTAL REPUBLIC OF URUGUAY 262,900,000 375,108,641 344,264,921 19,176,763
PERUSAHAAN LISTRIK NEGARA(PLN) INDONESIA 5,194,904,000 5,739,045,817 5,241,783,276 265,785,209
PETROLEOS MEXICANOS - PEMEX 10,971,847,568 8,749,551,876 9,273,736,034 352,738,091
PETROLIAM NASIONAL BERHAD - MALAYSIA 683,540,000 2,576,383,513 672,350,450 23,350,619
POWER FINANCE CORP 1,892,880,000 1,899,608,766 1,838,062,195 7,778,773
POWER SECTOR ASSET & LIABILITY MANAGEMENT 2,431,825,000 2,478,578,807 2,469,469,651 168,081,610
PT PERTAMINA(PERSERO) - JAK 1,340,790,000 1,549,556,822 1,379,989,967 85,361,850
REPUBLIC OF CHILE 2,103,200,000 2,151,005,975 1,957,216,888 76,187,254
REPUBLIC OF COLOMBIA 4,521,880,000 5,043,780,256 4,621,963,927 255,789,823
REPUBLIC OF INDONESIA 22,430,628,000 24,855,215,292 23,824,124,297 615,607,625
REPUBLIC OF PERU 1,682,560,000 2,616,320,448 2,476,307,680 156,298,659
REPUBLIC OF THE PHILIPPINES 25,014,701,440 25,827,095,313 24,302,581,637 977,620,559
REPUBLIC OF TURKEY 2,997,060,000 3,022,786,003 2,469,375,007 175,927,084
SINOPEC GROUP OVERSEAS DEVELOPMENT LIMITED 2,176,812,000 2,161,789,334 2,031,076,224 84,961,387
STATE OF QATAR 10,391,806,040 10,894,740,388 10,675,564,797 352,772,581
SULTANATE OF OMAN 683,540,000 733,775,231 553,168,416 44,525,163
US TREASURY N/B 2,629,000,000 2,656,716,526 2,527,947,813 59,279,063
REPUBLIC OF THE PHILIPPINES 52,621,857,026 60,040,892,478 47,378,786,810 2,583,169,390
Total Government bonds and other debt securities 200,008,311,490 179,475,033,825 7,529,087,087
3
Union Bank of the Philippines and Subsidiaries
SEC Released Amended SRC Rule 68
Annex 68-E
Schedule A - Financial Assets
December 31, 2018
Number of
Shares or Amount Shown in the Value Based on Market
Income Received
Name of Issuing Entity and Association of Each Issue Principal Statement of Financial Quotation at Statement of
and Accrued
Amount of Bonds Position Condition Date
and Notes
Total Government bonds and other debt securities 9,762,402,542 9,762,402,542 71,126,924
Equity Securities
Total - Financial Assets at Fair value through OCI P 9,815,039,651 P 9,815,039,651 P 79,253,260
4
Union Bank of the Philippines and Subsidiaries
SEC Released Amended SRC Rule 68
Annex 68-E
Schedule B - Amounts Receivable from Directors, Officers, Employees, Related Parties and Principal Stockholders (Other than Related Parties)
December 31, 2018
RECEIVABLES FROM DIRECTORS, OFFICERS, EMPLOYEES, RELATED PARTIES AND PRINCIPAL STOCKHOLDERS
ARE WITHIN THE ORDINARY COURSE OF BUSINESS OF THE BANK
5
Union Bank of the Philippines and Subsidiaries
SEC Released Amended SRC Rule 68
Annex 68-E
Schedule C - Amounts Receivable from Related Parties which are Eliminated during the Consolidation of Financial Statements
December 31, 2018
6
Union Bank of the Philippines and Subsidiaries
SEC Released Amended SRC Rule 68
Annex 68-E
Schedule D - Intangible/Other Assets
December 31, 2018
Other Changes
Charged to Cost and Charged to Other Additions
Description Beginning Balance Additions at Cost Expenses Accounts (Deductions) Ending Balance
7
Union Bank of the Philippines and Subsidiaries
SEC Released Amended SRC Rule 68
Annex 68-E
Schedule E - Long-term Debt
December 31, 2018
8
Union Bank of the Philippines and Subsidiaries
SEC Released Amended SRC Rule 68
Annex 68-E
Schedule H - Capital Stock
December 31, 2018
9
SUPPLEMENTARY SCHEDULE OF ALL THE EFFECTIVE STANDARDS
AND INTERPRETATIONS
1
PHILIPPINE FINANCIAL REPORTING STANDARDS
AND INTERPRETATIONS Not Not
Effective as of December 31, 2018 Adopted Adopted Applicable
PAS 10 Events after the Reporting Period ü
PAS 12 Income Taxes ü
PAS 16 Property, Plant and Equipment ü
PAS 17 Leases ü
PAS 19 Employee Benefits ü
PAS 20 Accounting for Government Grants and
ü
Disclosure of Government Assistance
PAS 21 The Effects of Changes in Foreign Exchange
ü
Rates
PAS 23 Borrowing Costs ü
PAS 24 Related Party Disclosures ü
PAS 26 Accounting and Reporting by Retirement
ü
Benefit Plans
PAS 27 Separate Financial Statements ü
PAS 28 Investments in Associates and Joint Ventures ü
Amendments to PAS 28, Measuring an
Associate or Joint Venture at Fair Value
ü
(Part of Annual Improvements to PFRSs
2014 - 2016 Cycle)
PAS 29 Financial Reporting in Hyperinflationary
ü
Economies
PAS 32 Financial Instruments: Presentation ü
PAS 33 Earnings per Share ü
PAS 34 Interim Financial Reporting ü
PAS 36 Impairment of Assets ü
PAS 37 Provisions, Contingent Liabilities and
ü
Contingent Assets
PAS 38 Intangible Assets ü
PAS 39 Financial Instruments: Recognition and
ü
Measurement
PAS 40 Investment Property ü
Amendments to PAS 40, Transfers of
ü
Investment Property
PAS 41 Agriculture ü
Philippine Interpretations
Philippine Changes in Existing Decommissioning,
Interpretation Restoration and Similar Liabilities ü
IFRIC-1
2
PHILIPPINE FINANCIAL REPORTING STANDARDS
AND INTERPRETATIONS Not Not
Effective as of December 31, 2018 Adopted Adopted Applicable
Philippine Members’ Shares in Co-operative Entities
Interpretation and Similar Instruments ü
IFRIC-2
Philippine Determining whether an Arrangement
Interpretation contains a Lease ü
IFRIC-4
Philippine Rights to Interests arising from
Interpretation Decommissioning, Restoration and ü
IFRIC-5 Environmental Rehabilitation Funds
Philippine Liabilities arising from Participating in a
Interpretation Specific Market—Waste Electrical and ü
IFRIC-6 Electronic Equipment
Philippine Applying the Restatement Approach under
Interpretation PAS 29 Financial Reporting in ü
IFRIC-7 Hyperinflationary Economies
Philippine Interim Financial Reporting and Impairment
Interpretation ü
IFRIC-10
Philippine Service Concession Arrangements
Interpretation ü
IFRIC-12
Philippine PAS 19—The Limit on a Defined Benefit
Interpretation Asset, Minimum Funding Requirements and ü
IFRIC-14 their Interaction
Philippine Hedges of a Net Investment in a Foreign
Interpretation Operation ü
IFRIC-16
Philippine Distributions of Non-cash Assets to Owners
Interpretation ü
IFRIC-17
Philippine Extinguishing Financial Liabilities with
Interpretation Equity Instruments ü
IFRIC-19
Philippine Stripping Costs in the Production Phase of a
Interpretation Surface Mine ü
IFRIC-20
Philippine Levies
Interpretation ü
IFRIC-21
Philippine Foreign Currency Transactions and Advance
Interpretation Consideration ü
IFRIC-22
3
PHILIPPINE FINANCIAL REPORTING STANDARDS
AND INTERPRETATIONS Not Not
Effective as of December 31, 2018 Adopted Adopted Applicable
Philippine Introduction of the Euro
Interpretation ü
SIC-7
Philippine Government Assistance—No Specific
Interpretation Relation to Operating Activities ü
SIC-10
Philippine Operating Leases—Incentives
Interpretation ü
SIC-15
Philippine Income Taxes—Changes in the Tax Status
Interpretation of an Entity or its Shareholders ü
SIC-25
Philippine Evaluating the Substance of Transactions
Interpretation Involving the Legal Form of a Lease ü
SIC-27
Philippine Service Concession Arrangements:
Interpretation Disclosures ü
SIC-29
Philippine Intangible Assets—Web Site Costs
Interpretation ü
SIC-32
4
UNION BANK OF THE PHILIPPINES
UnionBank Plaza, Meralco Avenue corner Onyx Street and Sapphire Road
Ortigas Center, Pasig City
Adjustments
Accumulated equity in net profit of subsidiaries ( 10,564,418 )
Deferred tax assets ( 3,591,997 )
Accumulated fair value gains on investment properties ( 3,862,656 )
Effect of adoption of PFRS 9, Financial Instruments 2,014,149
Effect of prior period adjustments of a subsidiary ( 640,589 )
Effect of adoption of PFRS 9 of subsidiaries ( 373,034 )
3,852,872
CONGLOMERATE MAPPING
Aboitiz Equity
Ventures, Inc.
UnionBank
Interventure Capital
Union Properties, Inc. City Savings Bank, Inc. Currency Brokers UBP Securities, Inc. UnionData Corp.
Corporation
100% 99.78% Corporation 100% 100%
60%
100%
inactive inactive inactive inactive
* Union Bank of the Philippines (UBP) is effectively 49.36% owned by Aboitiz Equity Ventures, Inc. (AEVI); hence, UBP is an associate of AEVI in accordance with PAS 28, Investments in Associates .
** Required by Securities and Exchange Commssion Securities Regulation Code Rule 68, as Amended, dated October 20, 2011.