BPI Capital Audited Financial Statements

AUDITED FINANCIAL STATEMENTS
76 BPI Capital 2017 Annual Report

Transforming the Landscape 77
BPI Capital Corporation and Subsidiary
Statements of Financial Position

As at December 31, 2017 and 2016
(All amounts in Philippine Peso)
Consolidated Parent
Notes 2017 2016 2017 2016
ASSETS
Cash and other cash items 2 855,680,373 480,810,054 462,859,040 149,533,245

Due from Bangko Sentral ng Pilipinas 2 541,029,448 2,921,244,035 541,029,448 2,921,244,035
Interbank loans receivable and
securities purchased under
agreements to resell 2 192,523,005 335,376,533 192,523,005 335,376,533
Trading securities 3 1,528,782,980 589,361,321 1,528,782,980 589,361,321
Available-for-sale securities, net 4 616,884,911 964,057,823 412,661,130 763,340,165
Held-to-maturity securities 5 223,945,103 224,874,002 - -
Equity investments 5 - - 202,361,610 202,361,609
Trade and other receivables, net 6 537,355,932 646,792,174 44,912,154 343,305,437
Property and equipment, net 7 21,725,889 18,484,046 19,726,064 15,521,850
Deferred income tax assets, net 8 15,288,601 15,158,640 27,392,713 29,412,697
Other assets, net 9 53,666,071 36,264,264 27,085,668 19,820,880
Total assets 4,586,882,313 6,232,422,892 3,459,333,812 5,369,277,772
LIABILITIES AND EQUITY

Liabilities
Accounts payable and other liabilities 10 760,024,555 648,211,452 101,008,725 238,279,684
Equity
Share capital 11 506,435,080 506,435,080 506,435,080 506,435,080
Share premium 260,364,020 260,364,020 260,364,020 260,364,020
Accumulated reserves 11 136,730,012 5,031,277 36,697,083 (92,406,427)
Retained earnings 11 2,923,328,646 4,812,381,063 2,554,828,904 4,456,605,415
Total equity 3,826,857,758 5,584,211,440 3,358,325,087 5,130,998,088
Total liabilities and equity 4,586,882,313 6,232,422,892 3,459,333,812 5,369,277,772
(The notes on pages 1 to 54 are integral part of these consolidated financial statements)

Statements of Income
For the years ended December 31, 2017 and 2016
Consolidated Parent
Notes 2017 2016 2017 2016
Income
Fees and commissions 12 1,212,909,556 1,252,496,111 950,382,284 1,041,011,226
Interest income 13 116,188,071 137,759,563 107,172,764 127,818,485
Gain on sale of available-for-sale
securities 4 94,739,938 30,438,523 94,961,098 30,438,523
Dividend income 3,4 29,371,649 42,144,004 27,689,567 40,460,983
Trading (loss) gain, net 3 (5,469,256) 2,080,309 (5,469,256) 2,080,309
Net foreign exchange gain 18 4,585,794 3,691,730 4,585,794 3,691,730
Miscellaneous income 1,708,225 5,190,318 1,123,312 1,949,266
Gross receipts tax (76,945,503) (83,987,177) (76,945,503) (83,987,177)
1,377,088,474 1,389,813,381 1,103,500,060 1,163,463,345
Expenses
Compensation and fringe
benefits 16 270,881,795 256,081,798 186,248,122 185,975,516
Management and other
professional fees 31,097,231 10,604,663 9,828,957 9,229,417
Brokerage and underwriting fees 26,699,689 36,340,777 2,185,035 39,062,795
Occupancy and equipment-
related expenses 7 17,302,070 14,967,379 15,971,059 12,938,183
Taxes and licenses 2,794,025 1,059,940 2,071,046 300,026
(Reversal) provision for
impairment 4,6,9 (307,774) 621,817 (113,815) 621,817
Other operating expenses 14 204,893,262 191,439,302 80,573,414 83,881,888
553,360,298 511,115,676 296,763,818 332,009,642
Income before income tax 823,728,176 878,697,705 806,736,242 831,453,703
Income tax expense
Current 15 214,168,391 229,674,838 209,075,191 218,249,795
Deferred 8 (1,387,798) 3,213,969 (562,438) 1,849,432
212,780,593 232,888,807 208,512,753 220,099,227
Net income for the year 610,947,583 645,808,898 598,223,489 611,354,476

Statements of Comprehensive Income

Consolidated Parent
Note 2017 2016 2017 2016
Net income for the year 610,947,583 645,808,898 598,223,489 611,354,476
Other comprehensive income (loss) 11
Item that may be subsequently reclassified to
profit or loss
Net change in fair value reserve on
available-for-sale securities, net of tax 125,178,606 6,732,720 121,732,255 9,797,336
Item that will not be subsequently
reclassified to profit or loss
Remeasurement gain (loss) on
retirement benefits, net of tax 6,111,802 (5,406,050) 6,025,747 (5,982,523)
131,290,408 1,326,670 127,758,002 3,814,813
Total comprehensive income for the year 742,237,991 647,135,568 725,981,491 615,169,289

Statements of Changes in Equity

Consolidated
Share Accumulated Retained
capital Share reserves earnings
(Note 11) premium (Note 11) (Note 11) Total equity
Balances at January 1, 2016 506,435,080 260,364,020 2,463,275 5,166,572,165 5,935,834,540
Comprehensive income
Net income for the year - - - 645,808,898 645,808,898
Other comprehensive income - - 1,326,670 - 1,326,670
Total comprehensive income for the year - - 1,326,670 645,808,898 647,135,568
Transaction with owners
Employee stock option plan amortization - - 1,241,332 - 1,241,332
Dividends declared and paid - - - (1,000,000,000) (1,000,000,000)
Total transaction with owners - - 1,241,332 (1,000,000,000) (998,758,668)
Balances at December 31, 2016 506,435,080 260,364,020 5,031,277 4,812,381,063 5,584,211,440
Employee stock option plan amortization - - 408,327 - 408,327
Total transaction with owners - - 408,327 (2,500,000,000) (2,499,591,673)

Statements of Changes in Equity


Parent
Accumulated Retained
Share capital Share reserves earnings
(Note 11) premium (Note 11) (Note 11) Total equity
Balances at January 1, 2016 506,435,080 260,364,020 (96,987,405) 4,845,250,939 5,515,062,634
Employee stock option plan amortization - - 766,165 - 766,165
Total transaction with owners - - 766,165 (1,000,000,000) (999,233,835)
Balances at December 31, 2016 506,435,080 260,364,020 (92,406,427) 4,456,605,415 5,130,998,088
Employee stock option plan amortization - - 1,345,508 - 1,345,508
Total transaction with owners - - 1,345,508 (2,500,000,000) (2,498,654,492)
Statements of Cash Flows

Consolidated Parent
Notes 2017 2016 2017 2016
Cash flows from operating activities
Income before income tax 823,728,176 878,697,705 806,736,242 831,453,703
Adjustments for:
Unrealized fair value loss on trading
securities 3 3,248,030 22,925,543 3,248,030 22,925,543
Depreciation 7 7,222,437 6,603,613 5,891,426 4,574,417
(Reversal) provision for impairment 4,6,9 (307,774) 804,629 (113,815) 621,817
Stock option plan amortization 408,327 1,241,332 1,345,508 766,165
Loss (gain) on sale of property and
equipment 7 79,934 (119,715) - -
Gain on sale of available-for-sale securities 4 (94,739,938) (30,348,698) (94,961,098) (30,438,523)
Interest income 13 (116,188,071) (137,759,563) (107,172,764) (127,818,485)
Dividend income 3,4 (29,371,649) (42,144,004) (27,689,567) (40,460,983)
Operating income before changes in
operating assets and liabilities 594,079,472 699,900,842 587,283,962 661,623,654
Changes in operating assets and liabilities
(Increase) decrease in:
Trading securities (928,317,962) (85,317,902) (928,317,962) (85,317,902)
Trade and other receivables 114,233,917 199,017,294 294,049,510 108,891,288
Other assets 27,632,019 340,264 1,343,422 4,281,643
(Decrease) increase in accounts payable
and other liabilities 189,674,690 (423,020,457) (9,951,051) (344,612,824)
Cash generated from operations (2,697,864) 390,920,041 (55,592,119) 344,865,859
Interest received 93,230,389 125,542,500 92,034,636 124,462,676
Contributions to retirement fund 16 (10,604,396) (11,499,891) - -
Income taxes paid (341,675,721) (126,192,739) (331,230,485) (115,975,767)
Net cash (used in) from operating activities (261,747,592) 378,769,911 (294,787,968) 353,352,768
Cash flows from investing activities
Acquisition of available for sales securities 4 (113,559,994) (92,116,570) (113,328,749) (92,116,570)
Acquisition of held-to-maturity
(HTM) securities 4 (98,332,772) (94,689,142) - -
Proceeds from disposal of available-for-sale
securities 4 685,759,160 387,076,946 680,701,136 386,952,933
Dividend received 3,4 29,371,649 42,144,004 27,689,567 40,460,983
Interest received on investment securities 14,351,727 16,242,430 - -
Acquisitions of property and equipment 7 (13,250,263) (11,077,859) (12,881,623) (10,367,890)
Proceeds from maturities of HTM securities 5 104,623,494 104,233,317 - -
Proceeds from disposals of property and
equipment 7 1,000 1,316,314 2,865,317 482,314
Net cash from investing activities 608,964,001 353,129,440 585,045,648 325,411,770
Cash flows from financing activities
Dividend declared and paid 11 (2,500,000,000) (1,000,000,000) (2,500,000,000) (1,000,000,000)
Net decrease in cash and cash equivalents (2,152,783,591) (268,100,649) (2,209,742,320) (321,235,462)
- -
Cash and cash equivalents at January 1 3,737,430,622 4,001,839,541 3,406,153,813 3,727,389,275
Effect of exchange rate differences 4,585,795 3,691,730 - -
Cash and cash equivalents at December 31 2 1,589,232,826 3,737,430,622 1,196,411,493 3,406,153,813

Notes to Consolidated Financial Statements

(Amounts are shown in Philippine Peso unless otherwise stated)
Note 1 - General information
BPI Capital Corporation (the “Parent Company”) was incorporated in the Philippines and registered
with the Securities and Exchange Commission (SEC) on February 5, 1977, primarily to act as an
institutional vehicle by and through which the business of financial intermediation may be provided by
carrying out and exercising the powers, rights, privileges, and attributes of an investment house as may
be allowed under applicable laws.
The Parent Company owns 100% of BPI Securities Corporation, (collectively the “Group”) a domestic
commercial bank with an expanded banking license. The Group is registered and domiciled in the
Philippines.
The Parent Company, with principal place of business at 8th Floor, BPI Building, Ayala Avenue corner
Paseo de Roxas, Makati City, is a wholly-owned subsidiary of Bank of the Philippine Islands (“Ultimate
Parent Company” or “BPI”), a commercial bank with an expanded banking license registered in the
Philippines.
The Group has 110 employees as at December 31, 2017 (2016 - 106 employees).
These financial statements have been approved and authorized for issuance by the Group’s Board of
Directors of the Parent Company on March 21, 2018.
There were no material events that occurred subsequent to March 21, 2018.
Note 2 - Cash and cash equivalents
The account at December 31 consists of:
Consolidated Parent
2017 2016 2017 2016
Cash and other cash items 855,680,373 480,810,054 462,859,040 149,533,245
Due from Bangko Sentral ng Pilipinas 541,029,448 2,921,244,035 541,029,448 2,921,244,035
Interbank loans receivable and SPAR 192,523,005 335,376,533 192,523,005 335,376,533
1,589,232,826 3,737,430,622 1,196,411,493 3,406,153,813

Due from Bangko Sentral ng Pilipinas (BSP)
The account pertains to the Group’s placements in special deposit accounts with BSP with an average
maturity of 5 to 7 days (2016 - 5 to 28 days) and average effective rate of 3.01% in 2017
(2016 - 3.06%). The account includes mandatory reserve deposits in compliance with regulatory
requirement amounting to P1,029,448 as at December 31, 2017 (2016 - P244,035).
Interbank Loans Receivable and Securities Purchased Under Agreements to Resell (SPAR)
The account represents short-term lending to BSP under reverse repurchase agreement which bears an
effective interest rate of 3% in 2017 and 2016 with an average maturity of 5 days as at
December 31, 2017 (2016 - 4 days).
Interest income earned from cash and cash equivalents is disclosed in Note 13.
Note 3 - Trading securities
Consolidated Parent
2017 2016 2017 2016
Debt securities
Philippine government securities 1,166,864,792 90,421,433 1,166,864,792 90,421,433
Philippine corporate bonds 28,627,319 374,499,237 28,627,319 374,499,237
Listed equity securities 330,735,709 124,440,651 330,735,709 124,440,651
Derivative 2,555,160 - 2,555,160 -
1,528,782,980 589,361,321 1,528,782,980 589,361,321
Listed equity securities were issued by Philippine corporations and are traded in Philippine Stock
Exchange, Inc. (PSE). Dividend income earned from investments in equity securities for the year ended
December 31, 2017 amounted to P12,880,229 (2016 - P13,751,945).
Details of net trading (loss) gain for the years ended December 31 on trading securities are summarized
as follows:
Consolidated Parent
2017 2016 2017 2016
Realized (loss) gain (2,221,226) 25,005,852 (2,221,226) 25,005,852
Unrealized fair value loss (3,248,030) (22,925,543) (3,248,030) (22,925,543)
(5,469,256) 2,080,309 (5,469,256) 2,080,309
(2)

Note 4 - Available-for-sale securities, net
Consolidated Parent
2017 2016 2017 2016
Equity securities
Listed 226,436,084 512,778,307 168,836,564 455,562,784
Unlisted 197,468,986 214,305,314 197,468,986 214,305,314
Mutual funds 194,523,505 238,967,861 48,005,580 95,610,067
Government securities 106,336 144,341 - -
618,534,911 966,195,823 414,311,130 765,478,165
Allowance for impairment on
unlisted equity securities (1,650,000) (2,138,000) (1,650,000) (2,138,000)
616,884,911 964,057,823 412,661,130 763,340,165
Listed equity securities were issued by Philippine corporations and traded in PSE.
Unlisted equity securities mainly pertain to its investments in close-ended foreign private equity funds.
The Group’s investment in mutual funds include units issued by an open-ended fund that tracks the
performance of the PSE Index (PSEi) by investing in a diversified portfolio of stocks comprising the
PSEi in the same weights as the index. It also includes a placement in an open-ended investment
company with a primary investment objective of generating a steady stream of income through
investments in a diversified portfolio composed of high-grade fixed-income investments and securities.
In compliance with SRC Rule 49.2 - Customer Protection Reserves and Custody of Securities, the
Group designated its investment in mutual fund of P146.5 million (2016 - P143.4 million) as special
reserve account.
The movements in allowance for impairment are summarized as follows:
Consolidated Parent
2017 2016 2017 2016
Beginning of year 2,138,000 2,138,000 2,138,000 2,138,000
Write-off (488,000) - (488,000) -
End of year 1,650,000 2,138,000 1,650,000 2,138,000
The movements in the account, gross of impairment are summarized as follows:
Consolidated Parent
2017 2016 2017 2016
Beginning of year 966,195,823 1,226,683,919 765,478,165 1,020,052,629
Additions 113,559,994 92,116,570 113,328,749 92,116,570
Disposals (591,019,222) (356,728,248) (590,731,997) (356,514,410)
Write-off (488,000) - (976,000) -
Accretion of discount - 25,999 - 25,999
Fair value adjustment 130,286,316 4,097,583 127,212,214 9,797,377
End of year 618,534,911 966,195,823 414,311,131 765,478,165
(3)

Proceeds from disposal of certain investments in mutual funds, government securities and listed equity
securities for the year ended December 31, 2017 amounted to P680,767,201 (2016 - P387,076,946)
resulting to a gain of P94,739,938 (2016 - P30,348,698).
For the year ended December 31, 2017, dividend income earned from investments in equity securities
amounted to P16,491,420 (2016 - P28,392,059).
Critical accounting judgment: Impairment of available-for-sale securities
The Group follows the guidance of PAS 39 to determine when an available-for-sale security is impaired.
This determination requires significant judgment. In making this judgment, the Group evaluates,
among other factors, the duration and extent to which the fair value of an investment is less than its
cost; and the financial health and near-term business outlook of the issuer, including factors such as
industry and sector performance, changes in technology and operational and financing cash flows.
Note 5 - Held-to-maturity securities
Held-to-maturity (HTM) securities are mainly composed of government securities which bear average
effective interest rate of 4.22% (2016 - 3.99%) in 2017. Interest income from HTM securities is disclosed
in Note 13. The aggregate fair value of the securities as at December 31, 2017 amounted to P231,180,438
(2016 - P220,031,087).
The movements in this account are summarized as follows:
Consolidated Parent
2017 2016 2017 2016
Beginning of year 224,874,002 232,255,178 - -
Additions 98,332,772 94,689,142 - -
Maturities (104,623,494) (104,233,317) - -
Amortization of discount, net 6,236,823 4,020,291 - -
Net change in accrued interest receivable (875,000) (1,857,292) - -
End of year 223,945,103 224,874,002 - -
Current and non-current portion of the HTM securities is as follows:
Consolidated Parent
2017 2016 2017 2016
Current 127,244,585 51,176,891 - -
Non-current 96,700,518 173,697,111 - -
223,945,103 224,874,002 - -
Critical accounting judgment: HTM securities
The Group follows the guidance of PAS 39 on classifying non-derivative financial assets with fixed or
determinable payments and fixed maturity as HTM. This classification requires significant judgment.
In making this judgment, the Group evaluates its intention and ability to hold such investments to
maturity. If the Group fails to keep these investments to maturity other than for the specific
circumstances - for example selling an insignificant amount close to maturity - it will be required to
reclassify the entire class as available-for-sale. The investments would therefore be measured at fair
value and not at amortized cost.
(4)

Note 6 - Trade and other receivables, net
Consolidated Parent
2017 2016 2017 2016
Trade 604,358,739 713,063,462 111,741,051 409,208,857
Notes 5,385,618 5,385,618 5,385,618 5,385,618
Loans 1,883,012 2,808,489 1,883,012 2,808,489
611,627,369 721,257,569 119,009,681 417,402,964
Allowance for impairment on trade
receivables (74,271,437) (74,465,395) (74,097,527) (74,097,527)
537,355,932 646,792,174 44,912,154 343,305,437
The current and non-current portion of trade and other receivables follow:
Consolidated Parent
2017 2016 2017 2016
Current 530,087,302 638,598,067 37,643,524 335,111,330
Non-current 7,268,630 8,194,107 7,268,630 8,194,107
537,355,932 646,792,174 44,912,154 343,305,437
Loans receivable mainly pertain to loans granted to Group officers with interest at rates ranging from
7% to 9% with a term of five years.
The movement in allowance for impairment for the years ended December 31 are as follows:
Consolidated Parent
2017 2016 2017 2016
(Reversal of) provision for impairment (193,958) 804,629 - 621,817
End of year 74,271,437 74,465,395 74,097,527 74,097,527
In 2015, management provided full impairment on the receivable from a third party customer
amounting to P72,893,710 from an executed and completed financial advisory services rendered by the
Parent Company to the latter. Management’s judgment to fully impair the said receivable stemmed
from the significant disagreement between the Parent Company and the third party customer as to the
fees on the services rendered. The Parent Company has already filed a legal case against the customer
in the appropriate court and no decision has been issued as at December 31, 2017.
Details of loans receivable by collateral profile are as follows:
Consolidated Parent
2017 2016 2017 2016
Chattel mortgage 1,625,642 2,424,480 1,625,642 2,424,480
Real estate mortgage 257,370 384,009 257,370 384,009
1,883,012 2,808,489 1,883,012 2,808,489
(5)

Critical accounting judgment: Impairment of trade and other receivables
The Group maintains allowance for impairment of receivables at a level considered adequate to provide
for potential uncollectible receivables. The level of this allowance is evaluated by the Group on the basis
of factors that affect the collectability of the accounts. These factors include, but are not limited to, the
length of the Group’s relationship with the customer, the customer’s payment behavior and known
market factors. The Group reviews the age and status of receivables, and identifies accounts to be
provided with allowance on a continuous basis.
The amount and timing of recorded expenses for any period would differ if different judgments were
made. An increase in allowance for impairment of receivables would increase recorded costs and
expenses and decrease the related assets.
Note 7 - Property and equipment, net
Details and movements of the account follow:
Consolidated
Furniture,
fixtures and Computer Transportation
equipment equipment equipment Total
Cost
January 1, 2017 33,498,228 9,500,175 - 42,998,403
Additions 12,342,029 908,234 - 13,250,263
Disposals (1,200,000) - - (1,200,000)
Transfers to Parent Bank (3,820,000) - - (3,820,000)
December 31, 2017 40,820,257 10,408,409 - 51,228,666
Accumulated depreciation
January 1, 2017 15,759,078 8,755,278 - 24,514,356
Depreciation 6,355,079 867,358 - 7,222,437
Disposals (1,119,066) - - (1,119,066)
December 31, 2017 19,880,141 9,622,636 - 29,502,777
Net carrying value at December 31, 2017 20,940,116 785,773 - 21,725,889
(6)

Furniture,
fixtures, and Computer Transportation
Cost
January 1, 2016 27,993,077 18,074,909 2,142,857 48,210,843
Additions 10,962,756 115,103 - 11,077,859
Disposals (5,457,605) (8,689,837) (2,142,857) (16,290,299)
December 31, 2016 33,498,228 9,500,175 - 42,998,403
January 1, 2016 15,714,109 16,254,620 1,035,714 33,004,443
Depreciation 5,020,730 1,190,026 392,857 6,603,613
Disposals (4,975,761) (8,689,367) (1,428,571) (15,093,699)
December 31, 2016 15,759,078 8,755,279 - 24,514,357
Parent
Furniture,
fixtures and Computer Transportation
Cost
January 1, 2017 27,981,010 2,768,298 - 30,749,308
Additions 12,244,594 637,029 - 12,881,623
Disposals (1,200,000) - - (1,200,000)
December 31, 2017 35,205,604 3,405,327 - 38,610,931
January 1, 2017 12,726,861 2,500,596 - 15,227,457
Depreciation 5,520,525 370,901 - 5,891,426
Disposals (1,119,066) - - (1,119,066)
December 31, 2017 16,013,370 2,871,497 - 18,884,867
Furniture,
fixtures, and Computer Transportation
Cost
January 1, 2016 23,070,725 11,458,135 - 34,528,860
Additions 10,367,890 - - 10,367,890
Disposals (5,457,605) (8,689,837) - (14,147,442)
December 31, 2016 27,981,010 2,768,298 - 30,749,308
January 1, 2016 13,685,987 10,632,182 - 24,318,169
Depreciation 4,016,635 557,782 - 4,574,417
Disposals (4,975,761) (8,689,367) - (13,665,128)
December 31, 2016 12,726,861 2,500,597 - 15,227,458
(7)

Details of sale of property and equipment follow:
Consolidated Parent
2017 2016 2017 2016
Proceeds on the sale of property and
equipment 1,000 1,316,315 1,000 482,314
Net book value of the asset sold 80,934 1,196,600 (80,934) 482,314
(Loss) gain on sale (79,934) 119,715 (79,934) -
Depreciation is included in occupancy and equipment-related expenses in the statement of income.
Note 8 - Deferred income taxes, net
Deferred income tax (DIT) assets, net as at December 31 represent the tax effects of the following
temporary differences.
Consolidated Parent
2017 2016 2017 2016
DIT assets
Allowance for impairment 25,073,897 25,137,570 24,993,414 25,027,209
Provision for short-term employee benefit 10,617,154 7,216,068 6,302,594 5,125,162
Past service cost 1,491,378 714,734 1,100,803 664,177
Stock options plan 1,279,735 866,313 1,279,735 866,313
Others 1,478,871 1,101,335 1,653 -
Total DIT assets 39,941,035 35,036,020 33,678,199 31,682,861
DIT liabilities
Fair value gain on available-for-sale
securities (17,112,409) (16,996,657) - -
Retirement benefit asset (7,540,025) (2,880,723) (6,285,486) (2,270,124)
Others - - - (40)
Total DIT liabilities (24,652,434) (19,877,380) (6,285,486) (2,270,164)
DIT assets, net 15,288,601 15,158,640 27,392,713 29,412,697
The movements in DIT assets, net for the years ended December 31 are as follows:
Consolidated Parent
2017 2016 2017 2016
Credited to (charged against) statement of
income 1,387,798 (3,213,969) 562,438 (1,849,432)
(Charged against) credited to other
comprehensive income (1,257,837) 4,952,057 (2,582,422) 2,563,938
End of year 15,288,601 15,158,640 27,392,713 29,412,697
Critical accounting judgment: Realization of DIT assets
The recognition of DIT assets depends on management’s assessment of adequate future taxable income
against which the temporary differences can be applied. The Group reviews the carrying amounts of
DIT assets at the end of each reporting period and reduces the amounts to the extent that it is no longer
probable that sufficient taxable profit will allow all or part of its DIT assets to be utilized. The Group’s
management believes that the DIT assets at the end of each reporting period will be fully realized.
(8)

Note 9 - Other assets, net
Consolidated Parent
Note 2017 2016 2017 2016
Retirement benefit asset 16 28,307,335 13,445,463 20,282,483 7,567,080
Creditable withholding taxes 17,530,029 15,529,171 2,981,555 9,335,410
Software and other investments 8,804,997 8,804,997 8,804,997 8,804,997
Prepaid expenses 1,493,821 1,629,722 - -
Prepaid taxes 899,783 719,123 - 10,674
Trading right 440,000 440,000 - -
Others 3,753,957 2,885,455 2,580,484 1,292,386
61,229,922 43,453,931 34,649,519 27,010,547
Allowance for impairment of software
and other investments (7,563,851) (7,189,667) (7,563,851) (7,189,667)
53,666,071 36,264,264 27,085,668 19,820,880
The movements in allowance for impairment of software and other investments for the years ended
December 31 are as follows:
Consolidated Parent
2017 2016 2017 2016
Provision 374,184 - 374,184 -
End of year 7,563,851 7,189,667 7,563,851 7,189,667
The current and non-current portion of other assets, net follow:
Consolidated Parent
2017 2016 2017 2016
Current 4,892,904 10,638,470 4,892,904 10,638,470
Non-current 48,773,167 25,625,794 22,192,764 9,182,410
53,666,071 36,264,264 27,085,668 19,820,880
(9)

Note 10 - Accounts payable and other liabilities
Consolidated Parent
Note 2017 2016 2017 2016
Trade payable 644,727,335 386,885,431 26,173,213 413,331
Accrued salaries and wages 35,588,730 24,064,623 21,206,862 17,094,937
Income tax payable 29,477,753 155,281,503 26,753,254 154,073,432
Taxes and licenses payable 26,152,225 46,413,684 18,907,865 42,057,944
Accrued expenses 9,129,680 12,384,247 337,750 7,167,930
Due to related parties 17 5,881,269 10,319,067 69,808 9,107,143
Withholding taxes payable 648,964 887,438 - -
Others 8,418,599 11,975,459 7,559,973 8,364,967
760,024,555 648,211,452 101,008,725 238,279,684
Trade accounts payable pertains to the proceeds due to retail treasury bonds and proceeds due to
customers arising from brokerage transactions.
Accrued expenses mainly pertain to brokerage fees.
Other liabilities mainly pertain to final tax on premium on debt securities and other fees.
Accounts payable and other liabilities are expected to be settled within the next financial year.
Note 11 - Share capital; accumulated reserves
Share capital
Details of share capital at December 31, 2017 and 2016 follow:
Consolidated Parent
Shares Amount Shares Amount
Authorized, at P10 par value per share
Common shares 100,000,000 1,000,000,000 100,000,000 1,000,000,000
Issued and outstanding shares
Common shares 50,643,508 506,435,080 50,643,508 506,435,080
On October 14, 2016, the Board of Directors of the Parent Company declared cash dividends amounting
to P1 billion on its total outstanding common shares as at October 31, 2016 record date, which was
subsequently paid on December 22, 2016.
On June 9, 2017, the Board of Directors of the Parent Company declared cash dividends amounting to
P2.5 billion on its total outstanding common shares as at April 30, 2017 record date, which was
subsequently paid on July 21, 2017. The dividend rate per share is P49.36.
(10)

Accumulated reserves
The details and movements of the account for the years ended December 31 are summarized as follow:
Consolidated Parent
Notes 2017 2016 2017 2016
Fair value reserve on available-for-sale
securities
Beginning of year 1,288,686 (5,444,034) (95,436,793) (105,234,129)
Unrealized fair value gain 220,034,295 34,446,240 216,693,353 40,235,859
Realized gain recycled to profit or loss 4 (94,739,938) (30,348,698) (94,961,098) (30,438,523)
Deferred tax effect (115,751) 2,635,178 - -
End of year 126,467,292 1,288,686 26,295,462 (95,436,793)
Remeasurement of defined benefit plan,
net of tax
Beginning of year (76,784) 5,329,266 148,172 6,130,695
Remeasurement loss 6,148,683 (5,158,990) 6,025,747 (5,982,523)
Deferred tax effect (36,881) (247,060) - -
End of year 16 6,035,018 (76,784) 6,173,919 148,172
Stock option reserve
Employee stock option plan amortization 408,327 1,241,332 1,345,508 766,165
End of year 4,227,702 3,819,375 4,227,702 2,882,194
136,730,012 5,031,277 36,697,083 (92,406,427)
Note 12 - Fees and commissions
The account for the years ended December 31 consists of income from the following activities:
Consolidated Parent
2017 2016 2017 2016
Underwriting and loan syndication 898,551,350 934,905,814 898,551,350 934,905,814
Commissions 262,527,272 211,484,885 - -
Financial advisory 32,957,248 92,951,833 32,957,248 92,951,833
Broker’s fees 9,457,773 8,228,176 9,457,773 8,228,176
Service fees 9,415,913 4,925,403 9,415,913 4,925,403
1,212,909,556 1,252,496,111 950,382,284 1,041,011,226
(11)

Note 13 - Interest income
Interest income for the year ended December 31 are as follows:
Consolidated Parent
2017 2016 2017 2016
Trading securities 29,078,667 9,360,165 29,078,667 9,360,165
Due from BSP 20,250,716 38,193,096 20,250,716 38,193,096
Held-to-maturity securities 7,819,554 8,861,254 - -
Cash in bank 1,477,682 1,431,113 281,929 351,289
Loans and receivables 164,120 10,579,658 164,120 10,579,658
Available-for-sale securities - 32,728 - 32,728
116,188,071 137,759,563 107,172,764 127,818,485
Note 14 - Other operating expenses
Other operating expenses for the years ended December 31 consists of:
Consolidated Parent
Note 2017 2016 2017 2016
Outsourced services 112,679,647 82,831,991 49,913,155 46,509,420
Trading system charges 46,445,168 43,904,169 - -
Periodicals and magazines 14,155,523 11,170,186 14,155,523 11,170,186
Communication, light, and water 5,696,068 4,786,444 - -
Advertising expense 4,487,428 2,976,866 3,039,038 1,659,543
Representation and entertainment 3,037,013 2,657,855 1,815,700 1,003,725
Stationery and office supplies 2,981,457 2,833,431 1,851,454 1,471,978
Transportation expense 2,371,157 4,074,895 1,296,290 2,426,221
Postage and telegram 2,084,333 1,793,163 2,084,333 1,793,163
Directors’ remuneration 17 2,640,000 1,811,000 1,996,000 1,331,000
Fees and charges 1,187,945 7,970,416 - -
BSP supervision and examination fees 1,174,468 1,251,022 1,174,468 1,251,022
Messengerial and other contractual services 1,086,230 2,295,058 - -
Others 4,866,825 21,082,806 3,247,453 15,265,630
204,893,262 191,439,302 80,573,414 83,881,888
Other operating expenses comprise mainly travelling expenses, advertising costs, membership fees and
dues and repairs and maintenance.
(12)

Note 15 - Income taxes
The reconciliation between income tax expense at the statutory rate and the actual income tax expense
presented in the statement of income for the years ended December 31 follows:
Consolidated
2017 2016
Amount Rate (%) Amount Rate (%)
Statutory income tax 247,118,453 30.00 263,609,312 30.00
Income tax effects of permanent differences:
Income subjected to lower tax rates, net (28,803,209) (3.50) (24,831,188) (2.83)
Tax-exempt income (6,480,014) (0.79) (6,028,784) (0.69)
Others, net 945,363 0.11 139,467 0.02
Effective income tax expense 212,780,593 38.45 232,888,807 45.56
Parent
2017 2016
Amount Rate (%) Amount Rate (%)
Statutory income tax 242,020,873 30.00 249,436,111 30.00
Income tax effects of permanent differences:
Income subjected to lower tax rates, net (27,872,535) (3.44) (23,813,715) (2.86)
Tax-exempt income (5,976,372) (0.74) (5,523,878) (0.66)
Others, net 340,787 0.04 709 0.00
Effective income tax expense 208,512,753 25.86 220,099,227 26.48
Note 16 - Retirement benefits
BPI and its subsidiaries (the “BPI Group”), which includes the Group, have trusteed, non-contributory
retirement benefit plan (the “BPI unified plan”) covering all qualified officers and employees.
Effective January 1, 2016, the Plan is divided into two separate funds from which the retirement
benefits shall be obtained; the defined benefit (DB) fund and defined contribution (DC) fund which is
accounted for as a defined benefit plan with minimum guarantee. These funds are administered by a
trustee, governed by local regulations and practice in the Philippines.
All non-unionized employees hired on or after the effective date are automatically under the new DC
plan. Employees hired prior to the effective date shall have the option to elect to become members of
the new DC plan. The normal retirement age under the BPI unified plan is 60.
(13)

Under the DB plan, normal retirement benefit consists of a lump sum benefit equivalent to 200% of
the basic monthly salary of the employee at the time of retirement for each year of service, and if it
have rendered at least 10 years of service, or to 150% of its basic monthly salary, if it has rendered less
than 10 years of service. For voluntary retirement, the benefit is equivalent to 112.50% of the
employee’s basic monthly salary for a minimum of 10 years of service with the rate factor progressing
to a maximum of 200% of basic monthly salary for service years of 25 or more. Death or disability
benefit, on the other hand, shall be determined on the same basis in normal or voluntary retirement.
The DC fund is a separate and allocated fund established to hold contributions made by the members
and the Group for the members’ behalf, and the corresponding investment earnings and losses on
such contributions. The Group contributes monthly to the DC fund based on a certain percentage of
each member’s monthly basic salary. A member shall not be allowed to withdraw its individual
account balance prior to separation from the Group. The defined benefit is the total of
a) greater of the balance under the Fund or minimum benefit guarantee based on the provisions of
Republic Act (“RA”) No. 7641 and b) 100% of the updated member balance (Employee contributions
Fund).
An independent actuary conducts a periodic actuarial valuation of the DB plan using the projected unit
credit method. The amount recognized in the statement of financial position under the DB plan as at
December 31 follows:
Consolidated Parent
2017 2016 2017 2016
Fair value of plan assets 105,100,733 102,336,367 85,228,502 86,747,428
Present value of defined benefit obligation (67,075,740) (87,914,498) (62,128,396) (78,728,840)
Excess of plan assets over defined benefit obligation 38,024,993 14,421,869 23,100,106 8,018,588
Asset ceiling limit (9,717,658) (976,406) 2,817,623 451,508
Retirement benefit asset 28,307,335 13,445,463 20,282,483 7,567,080
The movements in the present value of defined benefit obligation for the years ended December 31
follow:
Consolidated Parent
2017 2016 2017 2016
Current service cost 7,196,304 12,763,332 5,837,601 8,846,424
Interest cost 4,228,940 4,575,352 3,710,869 4,125,034
Past service cost - plan amendment - (2,600,723) - (2,096,767)
Settlement gain - (709,295) - (326,200)
Benefit payments (17,160,173) (23,599,174) (17,160,173) (23,599,174)
Transfer to DC - (5,934,457) - (4,685,753)
Remeasurement - changes in financial assumptions (15,103,829) 5,989,838 (8,988,741) 7,178,830
End of year 67,075,740 87,914,498 62,128,396 78,728,840
(14)

The movements in fair value of plan asset for the years ended December 31 are as follows:
Consolidated Parent
2017 2016 2017 2016
Interest income 5,299,438 5,139,492 4,344,766 4,309,355
Contributions 10,604,396 11,499,891 7,928,671 10,030,326
Benefit payments (17,160,173) (23,599,174) (17,160,173) (23,599,174)
Transfer to DC - (5,934,457) - (4,685,753)
Remeasurement - return on plan assets 4,020,705 (2,073,858) 3,367,810 (1,710,710)
End of year 105,100,733 102,336,367 85,228,502 86,747,428
The components of pension expense recognized in the statement of income for the years ended
December 31 consist of:
Consolidated Parent
2017 2016 2017 2016
Past service cost - (2,600,723) - (2,096,767)
Settlement gain - (709,295) - (326,200)
Net interest cost (1,017,009) (501,666) (610,012) (149,232)
Pension expense 6,179,295 8,951,648 5,227,589 6,274,225
Pension expense is presented as part of compensation and fringe benefits account for the years ended
December 31, 2017 and 2016.
The movements in reserve for remeasurement of pension asset as at December 31 are as follows:
Consolidated Parent
Note 2017 2016 2017 2016
Beginning of year 76,784 (7,613,238) (211,676) (8,758,137)
Remeasurement (gain) loss on DBO (11,124,423) 5,989,838 (7,606,513) 7,178,830
Remeasurement (gain) loss on plan assets (4,020,705) 2,073,858 (3,367,810) 1,710,710
Changes in the effect of asset ceiling 5,638,461 (340,768) 2,366,115 (343,079)
Adjustments 808,429 - - -
(8,698,238) 7,722,928 (8,608,208) 8,546,461
(8,621,454) 109,690 (8,819,884) (211,676)
Deferred tax effect 2,586,436 (32,906) 2,645,965 63,504
End of year 11 (6,035,018) 76,784 (6,173,919) (148,172)
Remeasurements on retirement benefits recognized in OCI are presented in the statement of total
comprehensive income net of 30% deferred tax.
(15)

The composition of the plan assets at fair value as at December 31 are as follows:
Consolidated
2017 2016
Amount % Amount %
Debt securities 39,567,369 38 46,586,895 46
Equity securities 38,573,758 37 45,028,001 44
Others 26,959,606 26 10,721,471 10
105,100,733 100 102,336,367 100
Parent
2017 2016
Amount % Amount %
Debt securities 29,829,976 35 38,168,868 44
Equity securities 29,829,976 35 38,168,868 44
Others 25,568,550 30 10,409,692 12
85,228,502 100 86,747,428 100
The plan asset of the BPI unified plan include investments in BPI’s common shares. The actual gain on
plan assets attributable to the Group for the year ended December 31, 2017 amounted to P7,059,681
(2016 - P2,961,791).
The Group has no other transactions with the fund other than the contributions presented above.
The principal actuarial assumptions used as at December 31 are as follows:
Consolidated Parent
2017 2016 2017 2016
Discount rate 5.81% to 6.27% 5.29% to 5.64% 5.81% 5.29%
Future salary increases 5.00% 5.00% 5.00% 5.00%
Discount rate
As there is no deep market in high-quality corporate bonds in the Philippines, the discount rate is
determined by reference to market yields at the reporting date based on government bonds with
currency and term similar to the estimated term of the retirement benefit obligation. For government
securities, the yields are computed and published by the Philippine Dealing and Exchange Corporation
(PDEx), a recognized calculation agent by the Bankers Association of the Philippines and the Bangko
Sentral ng Pilipinas. The coupon-bearing instruments from PDEx are converted to zero-coupon rates
by adjusting the duration of the instruments.
Future salary rate increases
This is the expected long-term average rate of salary increase taking into account inflation, seniority,
promotion and other market factors. Salary increases comprise of the general inflationary increases
plus a further increase for individual productivity, merit and promotion. The future salary increase
rates are set by reference over the period over which benefits are expected to be paid. Salary increase is
being approved by the Parent Company, prior to implementation.
(16)

Demographic assumptions
Assumptions regarding future mortality and disability experience are based on published statistics
generally used for local actuarial valuation purposes.
The defined benefit plan typically exposes the Group to a number of risks such as interest rate risk and
salary risk. The more significant of which relates to interest rate risk. The present value of the defined
benefit obligation is determined by discounting the estimated future cash outflows using interest rates
of government bonds that are denominated in the currency in which the benefits will be paid, and that
have terms to maturity approximating the terms of the related pension liability.
A decrease in government bond yields will increase the defined benefit obligation. Hence, the present
value of defined benefit obligation is directly affected by the discount rate to be applied by the Group.
DC plan
Following are the details of the Group’s DC plan as at December 31, 2017 that has a DB minimum
guarantee:
Consolidated Parent
2017 2016 2017 2016
Fair value of plan assets 12,106,196 6,024,814 9,210,159 4,639,666
Present value of defined benefit obligation (5,994,248) (4,774,819) (4,147,980) (3,372,775)
Excess of plan assets over defined benefit obligation 6,111,948 1,249,995 5,062,179 1,266,891
Asset ceiling limit (6,111,948) (1,249,995) 5,062,179 1,266,891
Retirement benefit asset - - - -
The movements in the present value of DB obligation for the year ended December 31, 2017 are as
follows:
Consolidated Parent
2017 2016 2017 2016
Beginning of year 4,774,819 - 3,372,775 -
Interest cost 258,409 - 185,503 -
Transfer from DB - 5,934,457 - 4,685,753
Remeasurement - changes in financial assumptions (1,388,798) (3,356,729) (893,306) (2,459,789)
End of year 5,994,248 4,774,819 4,147,980 3,372,775
(17)

The movements in the fair value of plan asset for the year ended December 31 are as follows:
Consolidated Parent
2017 2016 2017 2016
Beginning of year 6,024,814 - 4,639,666 -
Interest income 452,021 - 350,415 -
Contributions 4,740,469 403,259 3,463,024 178,303
Benefit payments - - - -
Transfers from DB - 5,934,457 - 4,685,753
Remeasurement - return on plan assets 888,892 (312,902) 757,054 (224,390)
End of year 12,106,196 6,024,814 9,210,159 4,639,666
Expected maturity analysis of undiscounted retirement benefits as at December 31:
Consolidated
Between Between Between More than
Less than a year 1-5 years 5-10 years 10-15 years 15 years
December 31, 2017 1,246,590 21,284,648 35,467,003 105,313,957 324,070,615
December 31, 2016 26,178,225 15,646,612 22,850,469 237,314,731 1,024,473,810
Parent
Between Between Between More than
Less than a year 1-5 years 5-10 years 10-15 years 15 years
December 31, 2017 1,246,590 21,284,648 26,951,733 88,837,000 197,442,781
December 31, 2016 26,178,225 15,646,612 19,131,704 153,878,852 510,685,631
Assumptions regarding future mortality and disability experience are based on published statistics
generally used for local actuarial valuation purposes.
The defined benefit plan typically exposes the Group to a number of risks such as investment risk,
interest rate risk and salary risk. The most significant of which relate to investment and interest rate
risk. The present value of the defined benefit obligation is determined by discounting the estimated
future cash outflows using interest rates of government bonds that are denominated in the currency in
which the benefits will be paid, and that have terms to maturity approximating the terms of the related
pension liability. A decrease in government bond yields will increase the defined benefit obligation
although this will also be partially offset by an increase in the value of the plan’s fixed income holdings.
Hence, the present value of defined benefit obligation is directly affected by the discount rate to be
applied by the Group. However, the Group believes that due to the long-term nature of the pension
liability and the strength of the Group itself, the mix of debt and equity securities holdings of the plan is
an appropriate element of the Group’s long term strategy to manage the plan efficiently.
The Group ensures that the investment positions are managed within an asset-liability matching
framework that has been developed to achieve long-term investments that are in line with the
obligations under the plan. The Group’s main objective is to match assets to the defined benefit
obligation by investing primarily in long-term debt securities with maturities that match the benefit
payments as they fall due. The asset-liability matching is being monitored on a regular basis and
potential change in investment mix is being discussed with the trustor, as necessary to better ensure
the appropriate asset-liability matching.
For the year ended December 31, 2017, the weighted average duration of the defined benefit
obligation is 9.2 years (2016 - 10.4 years).
(18)

Critical accounting estimate and assumption: Principal assumptions and estimation of retirement
obligation
The present value of the retirement benefit obligation depends on a number of factors that are
determined on an actuarial basis using a number of assumptions. The assumptions used in
determining the net cost for pensions include the discount rate and future salary increases. Any
changes in these assumptions will impact the carrying amount of the retirement benefit obligation.
The Group determines the appropriate discount rate at the end of each period. This is the interest rate
that should be used to determine the present value of estimated future cash outflows expected to be
required to settle the retirement benefit obligation. In determining the appropriate discount rate, the
Group considers the interest rates of high-quality government bonds that are denominated in the
currency in which the benefits will be paid and that have terms to maturity approximating the terms of
the related retirement obligation.
Other key assumptions for retirement benefit obligation are based in part on current market
conditions.
The sensitivity of the defined benefit obligation to changes in the weighted principal assumptions is
presented as follows:
Consolidated
Impact on defined benefit obligation
Decrease in
Change in assumption Increase in assumption assumption
December 31, 2017
Discount rate 0.5% (3,061,473) 3,302,100
Salary increase rate 1.0% 6,174,475 (5,427,164)
December 31, 2016
Discount rate 0.5% (2,167,083) 2,321,250
Parent
Impact on defined benefit obligation
Decrease in
Change in assumption Increase in assumption assumption
December 31, 2017
Discount rate 0.5% (2,757,051) 2,966,939
December 31, 2016
Discount rate 0.5% (1,603,276) 1,712,810
The sensitivity analyses are based on a change in an assumption while holding all other assumptions
constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be
correlated. When calculating the sensitivity of the defined benefit obligation to significant actuarial
assumptions the same method (present value of the defined benefit obligation calculated with the
projected unit credit method at the end of the reporting period) has been applied as when calculating
the retirement benefit obligation recognized in the statement of financial position.
The methods and types of assumptions used in preparing the sensitivity analysis did not change
compared to the previous period.
(19)

Note 17 - Related party transactions
In the normal course of business, the Group transacts with its Parent Bank and other related entities
and with its directors, officers, shareholders and related interest (DOSRI).
These transactions such as loans and advances, deposit arrangements, underwriting/advisory services
and advances for operating expenses are made in the normal operating activities and have terms and
conditions that are generally comparable to those offered to non-related parties and to similar
transactions in the market.
Transactions with the Parent Bank include outsourcing of services related to the following activities:
(a) anti-money laundering; (b) accounting and securities administration services;
(c) deposit arrangements; and (d) loan operations, treasury operations, human resource-related
functions and information systems.
BPI Family Savings Bank, Inc. (BPI FSB), BPI Computer Systems Corporation (BPI CSC) and
BPI Card Finance Corporation (BCFC) are fellow entities under common control. Transactions with
these fellow subsidiaries consist primarily of outsourcing of services related to information systems.
Significant related party transactions as at and for the years ended December 31 are summarized
below:
Consolidated
Transactions Outstanding
for the year Balances Terms and conditions
December 31, 2017
Loans and other receivables, net
Parent Bank (204,846) 206,482 - Unsecured
- Non-interest bearing
- Non-guaranteed
- Collectible in cash on demand
- Unsecured
- Interest of 2.65%
Cash deposits to:

Parent Bank 337,320,561 790,063,625 - These are demand and savings deposits
BPI FSB 6,522 1,545,041 bearing the following average interest
rates:
Demand - 0.22% to 0.41%
Savings - 0.76% to 1.14%
337,327,083 791,608,666
Other liabilities
Parent Bank (4,437,798) 5,881,269 - Unsecured
- Payable in cash on demand
(20)

December 31, 2016
Parent Bank (6,025,763) 411,328 - Unsecured
- Non-guaranteed
BCFC (164,353,992) - - Unsecured

- Interest of 2.65%
(170,379,755) 411,328
Cash deposits to:
Parent Bank (90,664,895) 452,743,065 - These are demand and savings deposits
rates:
Demand - 0.22% to 0.41%
Savings - 0.76% to 1.14%
(90,657,770) 454,281,583
Other liabilities
Parent Bank 5,021,384 10,319,067 - Unsecured
Parent
December 31, 2017
Parent Bank (204,846) (206,482) - Unsecured
- Non-guaranteed
Cash deposits to:

Parent Bank 313,319,273 461,313,999 - These are demand and savings
BPI FSB 6,522 1,545,041 deposits bearing the following average
interest rates:
Demand - 0.22% to 0.41%
Savings - 0.76% to 1.14%
313,325,795 462,859,040
Other liabilities
Parent Bank 69,808 69,808 - Unsecured
BPI Securities (9,107,143) - - Non-interest bearing
(9,037,335) 69,808
106(21)
BPI Capital 2017 Annual Report
December 31, 2016
Parent Bank (6,025,763) 411,328 - Unsecured
- Non-guaranteed
BCFC (164,353,992) - - Unsecured

- Interest of 2.65%
(170,379,755) 411,328
Cash deposits to:
Parent Bank (14,873,598) 147,994,727 - These are demand and savings deposits
rates:
Demand - 0.22% to 0.41%
Savings - 0.76% to 1.14%
(14,866,473) 149,533,245
Other liabilities
Parent Bank (3,304,439) - - Unsecured
BPI Securities 9,107,143 9,107,143 - Non-interest bearing
5,802,704 9,107,143
(22) Transforming the Landscape 107

The aggregate amounts included in the determination of income before income tax that resulted from
transactions with each class of related parties are as follows:
Consolidated Parent
2017 2016 2017 2016
Interest income
BCFC - 10,429,852 - 10,429,852
Parent Bank 1,381,145 1,192,065 219,524 145,003
BPI FSB 9,403 8,908 9,403 8,908
1,390,548 11,630,825 228,927 10,583,763
Outsourcing services
Parent Bank 101,745,602 82,826,591 49,913,155 46,509,420
BCSC - 5,400 - -
101,745,602 82,831,991 49,913,155 46,509,420
Rent
Parent Bank 4,500,938 4,240,411 4,500,938 4,240,411
Fees and commission
Parent Bank 5,107,344 2,150,538 5,107,344 2,150,538
Brokerage services
BPI Securities - - - 11,324,245
Retirement benefits
Key management personnel 6,999,247 6,970,900 4,722,399 3,881,592
Salaries, allowances and other short-term benefits
Key management personnel 107,514,700 122,172,222 75,891,200 82,579,990
Directors’ remuneration 2,640,000 1,811,000 1,996,000 1,331,000
Interest income from BCFC was earned from the loan extended to the latter in relation to a joint
consortium agreement with other private entities. The loan was settled in November 23, 2016.
BCSC is a subsidiary of the Parent Bank. Transactions with BCSC consist primarily of outsourcing of
services related to data processing fees.
There were no provisions recognized against receivables from related parties. Also, no additional
provision was recognized during the year.
Details of DOSRI loans and interest income earned are as follows:
Consolidated Parent
2017 2016 2017 2016
Outstanding DOSRI loans 1,740,690 2,664,888 1,740,690 2,664,888
Interest income earned 164,120 149,807 164,120 149,807
% to total outstanding loans and receivable 23.96% 32.54% 23.96% 32.54%
% to total outstanding DOSRI loans
Unsecured DOSRI loans Nil Nil Nil Nil
Past due DOSRI loans 0.00% 0.00% 0.00% 0.00%
Non-performing DOSRI loans Nil Nil Nil Nil
At December 31, 2017 and 2016, the Group is in full compliance with the General Banking Act and the
Bangko Sentral ng Pilipinas regulations on DOSRI loans.
(23)

Note 18 - Critical accounting estimates and judgments
The Group makes estimates and assumptions that affect the reported amounts of assets and liabilities.
Estimates and judgments 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. It is reasonably possible that the outcomes within the next financial year could differ
from assumptions made at reporting date and could result in the adjustment to the carrying amount of
affected assets or liabilities.
Critical accounting estimates and assumptions
(a) Principal assumptions and estimation of retirement benefit obligation (Note 16)
Critical accounting judgments in applying the Group’s accounting policies
(a) Impairment of available-for-sale securities (Note 4)

(b) Held-to-maturity securities (Note 5)
(c) Impairment of trade and other receivables (Note 6)
(d) Current and deferred income taxes (Note 8)
Note 19 - Financial risk and capital management
Risk management in the BPI Group covers all perceived areas of risk exposure, even as it continuously
endeavors to uncover hidden risks. Capital management is understood to be a facet of risk
management. The Board of Directors sets the BPI Group’s management tone by specifying the
parameters by which business risks are to be taken and by allocating the appropriate capital for
absorbing potential losses from such risks.
The Group’s activities expose it to a variety of financial risks and those activities involve the analysis,
evaluation, acceptance and management of some degree of risk or combination of risks. Taking risk is
core to the financial business, and the operational risks are an inevitable consequence of being in
business. The Group’s aim is therefore to achieve an appropriate balance between risk and return and
minimize potential adverse effects on the Group’s financial performance.
The Group’s risk management policies are designed to identify and analyze these risks, to set
appropriate risk limits and controls, and to monitor the risks and adherence to limits by means of
reliable and up-to-date information systems. The Group regularly reviews its risk management policies
and systems to reflect changes in markets, products and emerging best practices.
The Board of Directors provides written principles for overall risk management, as well as specific
areas, such as foreign exchange risk, interest rate risk, credit risk, liquidity risk and operational and
information technology (IT) risks, among others.
Market risk management is incumbent on the Board of Directors through its Risk Management
Committee (RMC). Market risk management in BPI covers managing exposures to trading risk,
foreign exchange risk, counterparty credit risk, interest rate risk of the banking book and liquidity risk.
At the management level, the Bank’s market risk exposure is managed by the Risk Management Office
(RMO), headed by the Bank’s Chief Risk Officer (CRO) who reports directly to the RMC. The Parent
Bank’s Credit Policy Group works with the Credit Committee in managing credit risks. Market and
credit risks management is carried out through policies patterned after the Parent Bank, reviewed by
the Group’s RMC and approved by the Group’s Board of Directors.
(24)

In addition, Internal Audit is responsible for the independent review of risk assessment measures and
procedures and the control environment.
The most important risks that the Group manages are credit risk, liquidity risk, market risk and other
operational and information technology (IT) risks.
19.1 Credit risk
The Group takes on exposure to credit risk, which is the risk that counterparty will cause a financial
loss for the Group by failing to discharge an obligation. Significant changes in the economy, or in the
health of a particular industry segment that may represent a concentration in the Group’s portfolio,
could result in losses that are different from those provided for at the reporting date. Management
therefore carefully manages its exposure to credit risk. Credit exposures arise principally in loans and
receivables and debt securities.
19.1.1 Credit risk management
The Group manages limits and controls concentrations of credit risk wherever they are identified, in
particular, to individual counterparties and groups. Credit exposures arise principally in cash and cash
equivalents, trade receivables from customers, clearing house and others and debt securities included
in held-to-maturity securities.
In measuring credit risk of trade receivables at a counterparty level, the Group considers three
components: (i) the probability of default by the client or counterparty on its contractual obligations;
(ii) current exposures to the counterparty and its likely future development; and (iii) the likely recovery
ratio on the defaulted obligations.
As mandated by Securities Regulation Code (SRC), trade receivables from customers and clearing
houses are settled within three days from transaction date. If full payment is not received within the
required time and the amount of receivable is P10,000 and above, the broker dealer shall liquidate the
transaction, or the unsettled portion thereof, starting on the next business day but not beyond 10 days
following the last day for the customer to pay, unless such sale cannot be effected within said period for
justifiable reasons in which case, notification in writing shall be made with the PSE and the SEC. If
transaction is liquidated as a result of non-payment by the customer, prior to any subsequent purchase
during the next ninety days, the customer shall be required to deposit sufficient funds in the account to
cover each purchase transaction prior to execution of buy order. If amount from the sale is insufficient
to fully settle the transaction, any other stock positions that the client may have will be disposed. These
SRC provisions are likewise incorporated in the credit risk management policy of the Group and in
effect, there is no significant exposure to credit risk in relation to trade receivables from customers and
clearing house. Purchase transactions of clients are only allowed against available cash position or
earmarked against current stock position. Securities owned by customers are held as collateral for
amounts due from customers.
For debt securities and other bills, external ratings such as Standard & Poor’s, Moody’s and Fitch
ratings or their equivalent are used by the Group for managing credit risk exposures. Investments in
these securities and bills are viewed as a way to gain better credit quality mix and at the same time,
maintain a readily available source to meet funding requirements.
(25)

19.1.2 Risk limit control and mitigation policies
The Group manages limits and controls concentrations of credit risk wherever they are identified, in
particular, to individual counterparties and groups, to industries and sovereigns.
The Group structures the levels of credit risk it undertakes by placing limits on the amount of risk
accepted in relation to one borrower, or groups of borrowers, and to geographical and industry
segments. Such risks are monitored on a regular basis and subject to an annual or more frequent
review, when considered necessary.
The exposure to any one borrower is further restricted by sub-limits covering on- and off- balance sheet
exposures. Actual exposures against limits are monitored regularly.
Exposure to credit risk is also 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 where appropriate.
The Group employs a range of policies and practices to mitigate credit risk such as collateral. Collateral
is one of the most traditional and common practice in mitigating credit risk which serves as security
particularly for loans and receivables. The Group implements guidelines on the acceptability of
specific classes of collateral for credit risk mitigation. The principal collateral type for loans and
receivable used by the Group is mortgages over real estate properties and chattels. In order to
minimize credit loss, the Group seeks additional collateral from the counterparty when impairment
indicators are observed for the relevant individual loans and receivables.
19.1.3 Impairment and provisioning policies
Impairment provisions are recognized based on objective evidence of impairment at the reporting date.
19.1.4 Maximum exposure to credit risk before collateral held or other credit
enhancements
Credit risk exposures relating to on-balance sheet assets are as follows:
Consolidated Parent
2017 2016 2017 2016
Cash and other cash items 855,680,373 480,810,054 462,859,040 149,533,245
Due from BSP 541,029,448 2,921,244,035 541,029,448 2,921,244,035
Trading securities - debt securities 1,195,492,111 464,920,670 1,195,492,111 464,920,670
Held-to-maturity securities 223,945,103 224,874,002 - -
Trade and other receivables, net 537,355,932 646,792,174 44,912,154 343,305,437
3,546,025,972 5,074,017,468 2,436,815,758 4,214,379,920
The above table represents a worst case scenario of credit risk exposure to the Group at
December 31, 2017 and 2016, without taking into account any collateral held or other credit
enhancements attached.
To reduce the credit risk on its cash in bank, the Group has concentrated its banking activity with the
Parent Bank, a universal bank and its subsidiary that has a good financial rating. Also, the utilization of
credit limits with the bank is regularly monitored. Cash in bank is considered to be fully performing.
(26)

Due from BSP comprise the Group’s investments in special deposit accounts. They are considered fully
performing at December 31, 2017 and 2016.
At December 31, 2017 and 2016, held-to-maturity investments include Philippine government
securities which are rated BBB by Standard and Poor’s and are backed directly by the Philippine
government. Cash are deposited in reputable local commercial banks.
Credit risk on trading securities and available-for-sale securities relates to exposures on investments in
government securities. Interbank loans receivable and SPAR consist of special deposit accounts and
reverse repurchase agreements with BSP.
19.1.5 Trade and other receivables
Trade and other receivables are summarized as follows:
Consolidated Parent
2017 2016 2017 2016
Neither past due nor impaired 537,355,932 646,792,174 44,912,153 343,305,437
Impaired 74,271,437 74,465,395 74,097,527 74,097,527
611,627,369 721,257,569 119,009,680 417,402,964
The fully performing accounts consist mainly of trade receivables classified as current with no history of
defaults.
19.1.6 Credit quality of financial assets
(a) Cash and other cash items
Cash and other cash items substantially consist of deposit placements with the Parent Bank and its
subsidiary.
(b) Due from BSP, interbank loans receivable and SPAR
Due from BSP, interbank loans receivable and SPAR are made with a sovereign counterparty and are
considered fully performing.
The table below presents the ratings of debt securities, treasury bills and other government securities
based on Standard & Poor’s rating:
Consolidated Parent
Trading Held-to- Trading
securities maturity Total securities Total
A- to A+ 28,627,319 - 28,627,319 28,627,319 28,627,319
Lower than A- 1,166,864,792 223,945,103 1,390,809,895 1,166,864,792 1,166,864,792
At December 31, 2017 1,195,492,111 223,945,103 1,419,437,214 1,195,492,111 1,195,492,111
Consolidated Parent
Trading Held-to- Trading
securities maturity Total securities Total
A- to A+ 374,583,060 - 374,583,060 374,583,060 374,583,060
Lower than A- 90,337,610 224,874,002 315,211,612 90,337,610 90,337,610
At December 31, 2016 464,920,670 224,874,002 689,794,672 464,920,670 464,920,670
(27)

19.1.7 Concentration of risk on financial assets with credit risk exposure
The Group’s main credit exposure at their carrying amounts, as categorized by industry sectors are as
follows:
Consolidated
At December 31, 2017
Financial
institutions Manufacturing Real estate Others Total
(In million pesos)
Cash and other cash items 856 - - - 856
Due from BSP 541 - - - 541
Interbank loans receivable and SPAR 193 - - - 193
Trading securities - debt securities 1,167 1 28 - 1,196
Trade and other receivables - - - 537 537
2,757 1 28 537 3,323
Financial
(In million pesos)
Due from BSP 2,921 - - - 2,921
Trading securities - debt securities - 1 367 97 465
3,737 1 367 744 4,849
Parent
Financial
(In million pesos)
Due from BSP 541 - - - 541
Trading securities - debt securities 1,167 1 28 - 1,196
At December 31, 2017 2,364 1 28 45 2,438
(28)

Financial
(In million pesos)
Due from BSP 2,921 - - - 2,921
Trading securities - debt securities - 1 367 97 465
At December 31, 2016 3,406 1 367 440 4,214
19.2 Market risk management
The Group is exposed to market risk - the risk that the fair value or future cash flows of a financial
instrument will fluctuate because of changes in market prices. Market risk management is guided by
policies and procedures reviewed by the Group’s RMC and approved by the Executive
Committee/Board of Directors.
The Group reviews and controls market risk exposures in its trading operations. Trading portfolios
include those positions arising from the Group’s market-making transactions.
To estimate its exposure to market risk, the Group computes the statistical “value at risk” (VaR) of its
trading position on a daily basis. The VaR measurement estimates, at 99% degree of confidence, the
maximum loss, due to adverse market movements, that could be incurred by portfolios over assumed
holding periods. As such, there remains 1% statistical probability that portfolios’ actual loss could be
greater than the VaR estimate.
VaR of the Group as at December 31 follows:
Consolidated Parent
2017 2016 2017 2016
(In thousands)
Balance Sheet VaR 22,016 30,804 27,036 20,852
VaR is an integral part of the Group’s market risk control system. VaR limits for all trading portfolios
are set by the Group’s Board of Directors. Actual market risk exposures vis-à-vis market risk limits are
reported daily to the Group’s management as well as the Parent Bank’s FRMC.
19.2.1 Foreign exchange risk
The Group takes on exposure to the effects of fluctuations in the prevailing exchange rates on its
foreign currency financial position and cash flows.
The Group’s exposure to foreign currency exchange rate risk at December 31, 2017 arises from its cash
and other cash items denominated in United States Dollar (US Dollar) amounting to P109,188,148
(2016 - P38,943,096). The Group has no foreign-currency denominated liabilities as at
December 31, 2017 and 2016.
Net realized foreign exchange gain from foreign currency denominated transactions for the year ended
December 31, 2017 amounted to P4,585,794 (2016 - P3,691,730).
(29)

At December 31, 2017 and 2016, if the Philippine Peso had weakened/strengthened by 4% against the
US Dollar based on rate 60 days after reporting period with all other variables held constant, net
income for the year ended December 31, 2017 would have been P3 million (2016 - P37 thousand)
higher/lower, mainly as a result of foreign exchange gains/losses on translation of US Dollar-
denominated assets.
19.2.2 Interest rate risk
Cash flow interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate
because of changes in market interest rates. Fair value interest rate risk is the risk that the value of a
financial instrument will fluctuate because of changes in market interest rates. The Group takes on
exposure to the effects of fluctuations in the prevailing levels of market interest rates on both its fair
value and cash flow risks. Interest margins may increase as a result of such changes but may also result
in losses in the event that unexpected movements arise.
The Group’s borrowing is subject to fixed interest rate while other financial liabilities are all
non-interest bearing.
19.2.3 Price risk
The Group is exposed to price risk to the extent of equity securities held under trading securities and
available-for-sale securities. The Group’s sensitivity and exposure to price risk on its equity securities
are measured and monitored through the Group’s VaR (Note 19.2).
19.3 Liquidity risk
Liquidity risk is the risk that the Group is unable to meet its payment obligations associated with its
financial liabilities when they fall due and to replace funds when they are withdrawn. The consequence
may be the failure to meet current obligations and/or immediate sale of securities.
The Group’s liquidity management process, as carried out within the Group and monitored by the
Group 's RMC and the Parent Bank’s FRMC includes:
 Day-to-day funding, managed by monitoring future cash flows to ensure that requirements can be
met. This includes replenishment of funds as they mature or are borrowed by customers;
 Maintaining a portfolio of highly marketable assets that can easily be liquidated as protection against
any unforeseen interruption to cash flow;
 Monitoring balance sheet liquidity ratios against internal and regulatory requirements; and
 Managing the concentration and profile of debt maturities.
Monitoring and reporting take the form of cash flow measurement and projections for the next day,
week and month respectively, as these are key periods for liquidity management. The starting point for
these projections is an analysis of the contractual maturity of the financial liabilities and the expected
collection date of the financial assets.
The table below presents the maturity profile of non-derivative financial instruments based on
undiscounted cash flows, which the Group uses to manage the inherent liquidity risk. The analysis into
maturity grouping is based on the remaining period from the end of the reporting period to the
contractual maturity date or, if earlier, the expected date the financial asset will be realized or the
financial liability will be settled.
(30)

Consolidated
Over 1 up to
Up to 1 year 3 years Over 3 years Total
As at December 31, 2017
Financial assets
Cash and other cash items 855,680,373 - - 855,680,373
Due from BSP 541,029,448 - - 541,029,448
Interbank loans receivable and SPAR 192,523,005 - - 192,523,005
Trading securities 205,137,127 336,828,254 653,526,730 1,195,492,111
Trade and other receivables, net 530,439,964 6,117,970 797,998 537,355,932
Total financial assets 2,324,809,917 342,946,224 654,324,728 3,322,080,869
Financial liabilities
Trade payables to customers, net 610,590,594 - - 610,590,594
Accounts payable 33,906,841 - - 33,906,841
Accrued expenses, excluding accrued taxes and
licenses and other non-financial liabilities 44,205,931 - - 44,205,931
Due to related parties 5,881,269 - - 5,881,269
Miscellaneous, excluding non-financial liabilities 8,278,148 - - 8,278,148
Total financial liabilities 702,862,783 - - 702,862,783
Total maturity gap 1,621,947,134 342,946,224 654,324,728 2,619,218,086
Over 1 up to
Financial assets
Due from BSP 2,921,244,035 - - 2,921,244,035
Trading securities 16,285,678 485,992,514 5,788,965 508,067,157
Trade and other receivables, net 638,601,782 8,190,392 646,792,174
Financial Liabilities
Trade payables to customers, net 257,384,191 - - 257,384,191
Trade payables to clearing house, net 123,813,542 - - 123,813,542
(31)

Parent
Over 1 up to
Financial assets
Due from BSP 541,029,448 - - 541,029,448
Trading account securities 205,137,127 336,828,254 653,526,730 1,195,492,111
Trade and other receivables, net 37,996,186 6,117,970 797,998 44,912,154
Due to related parties 69,808 - - 69,808
Over 1 up to
Financial assets
Due from BSP 2,921,244,035 - - 2,921,244,035
Trading account securities 16,285,678 485,992,514 5,788,965 508,067,157
Trade and other receivables, net 335,115,045 - 8,190,392 343,305,437
Accounts payable 413,331 - - 413,331
Miscellaneous, excluding non-financial liabilities 986,742 - - 986,742
The balances of financial assets (mainly trading account securities, available-for-sale securities and
loans and receivables) disclosed in the table above include future contractual interest to be earned.
(32)

19.4 Fair value hierarchy
The following table presents the fair value hierarchy of the Group’s significant assets and liabilities at
December 31:
Consolidated
Fair value
2017 Level 1 Level 2 Level 3 Total
Recurring measurements
Financial assets
Trading securities 1,166,864,792 28,627,319 - 1,195,492,111
Available-for-sale securities 226,436,084 194,629,841 195,818,986 616,884,911
Fair values disclosed
Financial assets
Cash and other cash items - 462,859,040 - 462,859,040
Due from BSP - 541,029,448 - 541,029,448
Interbank loans receivable and SPAR - 192,523,005 - 192,523,005
Held-to-maturity securities 231,180,438 - 231,180,438
Trade and other receivables, net - 44,912,154 - 44,912,154
Other liabilities - 54,823,698 - 54,823,698
Fair value
Financial assets
Trading securities 498,670,808 90,690,513 - 589,361,321
Financial assets
Due from BSP - 2,921,244,035 - 2,921,244,035
Held-to-maturity securities 220,031,087 - 220,031,087
(33)

Parent
Fair value
Financial assets
Trading securities 1,166,864,792 28,627,319 - 1,195,492,111
Financial assets
Due from BSP - 541,029,448 - 541,029,448
Fair value
Financial assets
Trading securities 498,670,808 90,690,513 - 589,361,321
Financial assets
Due from BSP - 2,921,244,035 - 2,921,244,035
The Group’s RMC is responsible for performing the valuation of fair value measurements included in
the financial statements, including Level 3 fair values. The valuation processes and results for recurring
measurements are reviewed and approved by the Chief Risk Officer (CRO) at least once every quarter,
in line with the Group’s quarterly reporting dates. The valuation processes and results for non-
recurring measurements are reviewed and approved by the CRO in the quarter in which the
measurement occurs. All Level 3 valuation results are discussed with the Audit Committee as part of its
quarterly review of the Group’s financial statements.
The Group’s Level 2 financial instruments include government debt securities. The fair values of Level
2 financial instruments are estimated using values obtained from government board summary.
The table below shows the valuation techniques and applicable unobservable inputs used to measure
the Group’s Level 3 financial instruments as at December 31:
Description 2017 2016 Valuation technique Unobservable inputs

Unlisted equity securities 195,818,986 212,167,314 Net asset value Net asset value
There is no gain included in profit or loss for assets held under Level 3 for the reporting periods.
(34)

19.5 Capital management
The Group manages its capital following the framework of Basel Committee on Banking Supervision
Accord II (Basel II) and its implementation in the Philippines by the BSP and the Risk Based Capital
Adequacy (RBCA) framework imposed by the SEC.
The BSP through its Circular 538 requires each bank and its financial affiliated subsidiaries to keep its
Capital Adequacy Ratio (CAR) - the ratio of qualified capital to risk-weighted exposures - to be no less
than 10%. In quantifying its CAR, the Group currently uses the Standardized Approach (for credit risk
and market risk) and the Basic Indicator Approach (for operational risk). Capital adequacy reports are
filed with the BSP every quarter.
Qualifying capital and risk-weighted assets are computed based on BSP regulations. The qualifying
capital of the Group consists of core tier 1 capital and tier 2 capital. Tier 1 capital comprises paid-up
capital stock, paid-in surplus, surplus including net income for the year, surplus reserves less
deductions such as deferred income tax, unsecured credit accommodations to DOSRI and unrealized
fair value losses on available-for-sale securities. Tier 2 capital includes net unrealized fair value gains
on available-for-sale investments, and general loan loss provisions for BSP reporting purposes. The
Group has fully complied with the CAR requirement. The Group’s capital-to-risk assets ratio is 62.50%
(2016 - 110.34%).
The Basel II framework following BSP Circular 538 took into effect on July 1, 2007 and was relevant
until 2013.
Effective January 1, 2014, the BSP, through its Circular 781, requires each bank and its financial
affiliated subsidiaries to adopt new capital requirements in accordance with the provisions of Basel III.
The new guidelines are meant to strengthen the composition of the Bank's capital by increasing the
level of core capital and regulatory capital. The Circular sets out minimum Common Equity Tier 1
(CET1) ratio and Tier 1 Capital ratios of 6.0% and 7.5%, respectively. A capital conservation buffer of
2.5%, comprised of CET1 capital, was likewise imposed. The minimum required capital adequacy ratio
remains at 10% which includes the capital conservation buffer.
Under the provisions of Section 8 of Republic Act (RA) No. 8366, an Act amending Presidential Decree
No. 29, otherwise known as the Investment Houses Law, the Group is required to maintain a minimum
paid-up capital of P300,000,000.
At December 31, 2017 and 2016, the Group has complied with the CAR required by the BSP and the
minimum capital requirement prescribed by the Investment Houses Law.
RBCA is the ratio linking the net liquid capital to the broker dealer’s total risk exposure calculated as
the net liquid capital divided by total risk capital requirements (TRCR). TRCR is the sum of the
following risks: (a) operational risk requirement, (b) credit risk requirement which include
requirements for counterparty risk, settlement risk, large exposure risk and margin financing risk, and
(c) position or market risk requirement. As a rule for every trading participant, the Group is required to
maintain an RBCA ratio of at least 110% and a net liquid capital of at least P5 million or five percent
(5%) of its aggregate indebtedness, whichever is higher. Also, the Group’s aggregate indebtedness
should not exceed two thousand percent (2,000%) of its net liquid capital. In the event that the
minimum RBCA ratio of 110% or the minimum NLC is breached, the Group shall immediately cease
doing business as a broker and shall notify the PSE and the SEC. As at December 31, 2017 and 2016, the
Group’s RBCA ratio is at 760% and 770%, respectively.
(35)

The Group is monitoring its capital structure, including the level of accumulated earnings to meet the
required minimum RBCA ratio. Dividends are declared if there are excess accumulated earnings and a
reasonable level of capital for operating and RBCA requirements has been established.
Note 20 - Basic quantitative indicators of financial performance
The key financial performance indicators of the Group follow:
Consolidated Parent
2017 2016 2017 2016
Return on average equity 12.96% 10.62% 14.02% 10.83%
Return on average assets 8.99% 8.38% 13.16% 10.05%
Net interest margin 2.22% 2.02% 2.41% 2.11%
Note 21 - Summary of significant accounting policies
The principal accounting policies applied in the preparation of these financial statements are set out
below. These policies have been consistently applied to both years presented, unless otherwise stated.
21.1 Basis of preparation
The consolidated financial statements of the Group have been prepared in accordance with Philippine
Financial Reporting Standards (PFRS). The term PFRS in general includes all applicable PFRS,
Philippine Accounting Standards (PAS), and interpretations of the Philippine Interpretations Committee
(PIC), Standing Interpretations Committee (SIC) and International Financial Reporting Interpretations
Committee (IFRIC) which have been approved by the Financial Reporting Standards Council (FRSC) and
adopted by the SEC.
The Parent Company is a wholly-owned subsidiary of BPI. BPI, as an ultimate parent company,
publishes consolidated financial statements which are available for public use and prepared in
accordance with Philippine Financial Reporting Standards. In accordance with IAS 27, Consolidated
Financial Statements, the Parent Company is not required to prepare consolidated financial statements
as it is a parent that is in itself a controlled subsidiary. These consolidated financial statements are
prepared by management for BSP reporting purposes only.
These consolidated financial statements have been prepared under the historical cost convention, as
modified by the revaluation of trading securities and available-for-sale securities.
The preparation of consolidated financial statements in conformity with PFRS requires the use of
certain critical accounting estimates. It also requires management to exercise its judgment in the
process of applying the Group’s accounting policies. The areas involving a higher degree of judgment
or complexity, or areas where assumptions and estimates are significant to the financial statements are
disclosed in Note 18.
(36)

Changes in accounting policy and disclosures
(a) Amendments adopted by the Group
The following amendments have been adopted by the Group effective January 1, 2017:
 Amendments to PAS 12, Recognition of Deferred Tax Assets for Unrealized Losses
 Amendments to PAS 7, Disclosure Initiative
 Amendment to PFRS 12 - Clarification on the scope of the standard
The adoption of the above amendments did not have a material impact on the financial statements of
the Group.
(b) New standards, interpretations and amendments not yet adopted
The following new accounting standards and interpretations are not mandatory for December 31, 2017
reporting period and have not been early adopted by the Group:
PFRS 9, Financial instruments (effective for annual periods beginning on or after January 1, 2018)
PFRS 9 addresses the classification, measurement and de-recognition of financial assets and financial
liabilities, introduces new rules for hedge accounting and a new impairment model for financial assets.
The Group will apply the new rules retrospectively from January 1, 2018, with the practical expedients
permitted under the standard. Comparatives for 2017 will not be restated.
The Group has embarked on PFRS 9 Implementation Project (the “PFRS 9 Project”) to enable the
Group to transition to PFRS 9. The PFRS 9 project is a collaborative undertaking primarily driven by
the Parent Bank and participated in by various committees and working groups across the Group.
Classification and measurement of financial assets
Investments in debt instruments
Under PFRS 9, a financial asset should be subsequently measured at amortized cost if both of the
following conditions are met:
 the financial asset is held within a business model whose objective is to hold financial assets in
order to collect contractual cash flows; and
 the contractual terms of the financial asset give rise, on specified dates, to cash flows that are solely
payments of principal and interest (SPPI) on the principal amount outstanding.
A financial asset should be subsequently measured at fair value through other comprehensive income
(FVOCI) if both of the following conditions are met:
 the financial asset is held within a business model whose objective is achieved by both holding
financial assets in order to collect contractual cash flows and selling financial assets; and
 the contractual terms of the financial asset give rise on specified dates to cash flows that are
SPPI.
If the financial asset is measured at FVOCI, all movements in the fair value should be taken
through OCI, except for the recognition of impairment gains or losses, interest revenue in line
with the effective interest method and foreign exchange gains and losses, which are recognized
in profit or loss.
(37)

If the financial asset does not pass the business model assessment and SPPI criteria, or the fair
value option is applied, it is measured at fair value through profit or loss (FVTPL). This is the
residual measurement category.
Investments in equity instruments
Under PFRS 9, investments in equity instruments are always measured at fair value. Equity
instruments that are held for trading are required to be classified at FVTPL, with dividend income
recognized in profit or loss.
For all other equities within the scope of PFRS 9, the standard allows entities to make an irrevocable
election on initial recognition, on an instrument-by-instrument basis, to present changes in fair value
in OCI rather than profit or loss (except for equities that give an investor significant influence over an
investee according to PAS 28, which can only be accounted for under PFRS 9 if they are measured at
FVTPL). Dividends are recognized in profit or loss unless they clearly represent a recovery of part of the
cost of an investment, in which case they are recognized in OCI. There is no recycling of amounts from
OCI to profit or loss – for example, on sale of an equity investment – nor are there any impairment
requirements. The entity however, can transfer the cumulative gain or loss within equity.
The initial results of the impact assessment done by the PFRS 9 Project team of the Group on the
classification and measurement of financial assets follow:
 Majority of the investments in debt instruments that are currently classified as available-for-sale
(AFS) will satisfy the conditions for classification as at FVOCI, hence, there will be no change on
the accounting for these investments.
 The Group expects that held-to-maturity (HTM) securities will largely remain at amortized cost.
Likewise, the Group has initially assessed that securities previously classified as AFS will satisfy the
conditions for classification as at amortized cost. Hence, management will go back to the assets’
initial recognition and measure them as if it had always been measured at amortized cost under
PFRS 9.
 Existing trading equity and debt securities will likely remain at FVTPL.
 Most of the AFS equity securities will likely be measured still at FVOCI following the irrevocable
election available under PFRS 9.
 Financial assets classified as loans and receivables under PAS 39 will remain at amortized cost
under PFRS 9.
Classification and measurement of financial liabilities
PFRS 9 will have no impact on the Group’s accounting for financial liabilities, as the new requirements
only affect the accounting for financial liabilities that are designated at fair value through profit or loss
and the Group’s does not have any such liabilities. The de-recognition rules have been transferred from
PAS 39 Financial Instruments: Recognition and Measurement and have not been changed.
Impairment of financial assets
The new impairment model requires the recognition of impairment provisions based on expected credit
losses (ECL) rather than only incurred credit losses as is the case under PAS 39. It applies to financial
assets classified at amortized cost, debt instruments measured at FVOCI, loan commitments and
certain financial guarantee contracts.
Based on the initial assessments performed to date, the Group expects that the ECL model will not have
a significant impact on the impairment provisioning for loans and advances.
(38)

Hedge accounting
The new hedge accounting rules under PFRS 9 will align the accounting for hedging instruments more
closely with the entity’s risk management practices. As a general rule, more hedge relationships might
be eligible for hedge accounting, as the standard introduces a more principles-based approach.
The new hedge accounting rules will not have a significant impact on the Group as there are no formal
hedge accounting relationships as of December 31, 2017.
The new standard also introduces expanded disclosure requirements and changes in presentation.
These are expected to change the nature and extent of the Group’s disclosures about its financial
instruments particularly in the year of the adoption of the new standard.
PFRS 15, Revenue from contracts with customers (effective for annual periods beginning on or after
January 1, 2018)
PFRS 15 will replace PAS 18, ‘Revenue’ which covers contracts for goods and services and PAS 11,
‘Construction contracts’ which covers construction contracts. The new standard is based on the
principle that revenue is recognized when control of a good or service transfers to a customer - so the
notion of control replaces the existing notion of risks and rewards.
A new five-step process must be applied before revenue can be recognized: (1) identify contracts with
customers, (2) identify the separate performance obligation, (3) determine the transaction price of the
contract, (4) allocate the transaction price to each of the separate performance obligations, and
(5) recognize the revenue as each performance obligation is satisfied.
The adoption of PFRS 15 will not have a material impact on the financial statements of the Group.
PFRS 16, Leases (effective for annual periods beginning on or after January 1, 2019)
PFRS 16 will replace the current guidance in PAS 17, Leases. PFRS 16 which will become effective on
January 1, 2019 will affect primarily the accounting by lessees and will result in the recognition of
almost all leases on balance sheet. PFRS 16 removes the current distinction between operating and
financing leases and requires recognition of an asset (the right to use the leased item) and a financial
liability to pay rentals for virtually all lease contracts. Under PFRS 16, a contract is, or contains, a lease
if the contract conveys the right to control the use of an identified asset for a period of time in exchange
for consideration. An optional exemption exists for short-term and low-value leases.
The adoption of PFRS 16 will likely affect the accounting of certain assets currently held by the Group
under operating lease arrangements.
Philippine Interpretation IFRIC-23, Uncertainty over Income Tax Treatments (effective for annual
periods beginning on or after January 1, 2019)
It has been clarified previously that PAS 12, not PAS 37, Provisions, Contingent Liabilities and
Contingent Assets, applies to accounting for uncertain income tax treatments. IFRIC 23 explains how
to recognize and measure deferred and current income tax assets and liabilities where there is
uncertainty over a tax treatment.
An uncertain tax treatment is any tax treatment applied by an entity where there is uncertainty over
whether that treatment will be accepted by the tax authority. For example, a decision to claim a
deduction for a specific expense or not to include a specific item of income in a tax return is an
(39)

uncertain tax treatment if its acceptability is uncertain under tax law. IFRIC 23 applies to all aspects of
income tax accounting where there is an uncertainty regarding the treatment of an item, including
taxable profit or loss, the tax bases of assets and liabilities, tax losses and credits and tax rates.
The adoption of the above interpretation will not have a material impact on the consolidated financial
statements of the Group.
Likewise, the following amendments are not mandatory for December 31, 2017 reporting period and
have not been early adopted by the Group:
 Amendments to PAS 28, Long-term Interests in Associates and Joint Ventures

 Amendments to PFRS 9, Prepayment Features with Negative Compensation
 Amendments to PFRS 15 - Clarifications to PFRS 15
 Amendments to PFRS 4 - Applying PFRS 9, Financial Instruments, with PFRS 4, Insurance
Contracts
 Amendments to PFRS 2, Classification and Measurement of Share-based Payment Transactions
The adoption of the above amendments are not expected to have a material impact on the consolidated
financial statements of the Group.
21.2 Consolidation
Subsidiaries are all entities over which the Parent Company has the power to govern the financial and
operating policies generally accompanying a shareholding of more than one-half of the voting rights.
The existence and effect of potential voting rights that are currently exercisable or convertible are
considered when assessing whether the Parent Company controls another entity. Subsidiaries are fully
consolidated from the date on which control is transferred to the Parent Company. They are
deconsolidated from the date which control ceases.
The purchase method of accounting is used to account for the acquisition of subsidiaries by the Parent
Company. The cost of an acquisition is measured at the fair value of the assets given, equity
instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly
attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities
assumed in a business combination are measured initially at their fair values at the acquisition date,
irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair
value of the Parent Company’s share of the identifiable net assets acquired is recorded as goodwill. If
the cost of acquisition is less than the fair value of the Parent Company’s share of the net assets of the
subsidiary acquired, the difference is recognized directly in profit or loss.
Intercompany transactions, balances and unrealized gains on transactions among the entities within
the Group are eliminated. Unrealized losses are also eliminated unless the transaction provides
evidence of an impairment of the asset transferred. Subsidiaries’ accounting policies have been
changed where necessary to ensure consistency with the policies adopted by the Parent Company.
The consolidated financial statements include the accounts of the Parent Company and its
wholly-owned subsidiary, BPI Securities Corporation.
BSC was registered with the Securities and Exchange Commission (SEC) on August 26, 1980 and is a
registered trading participant of the Philippine Stock Exchange, Inc. (PSE). In July 2000, the Parent
Company launched "bpitrade.com", an on-line stock trading facility via internet or through wireless
access protocol which enables clients to view live stock market information, do online buying and selling
of stocks and access its research reports.
(40)

21.3 Cash and cash equivalents
Cash and cash equivalents consist of cash and other cash items and interbank loans receivable and
securities purchased under agreements to resell with maturities of less than three months from the date
of acquisition and that are subject to insignificant risk of changes in value.
21.4 SPAR
SPAR (‘reverse repos’) are recorded as loans and advances to other banks and customers and included
in the statement of financial position under “Interbank loans receivable and securities purchased under
agreements to resell”. Securities lent to counterparties are also retained in the financial statements.
21.5 Financial assets
21.5.1 Classification
The Group classifies its financial assets in the following categories: (i) financial assets at fair value
through profit or loss, (ii) loans and receivables, (iii) held-to-maturity securities, and (iv) available-for-
sale securities. The classification depends on the purpose for which the assets are acquired.
Management determines the classification of its investments at initial recognition.
(a) Financial assets at fair value through profit or loss
This category has two sub-categories: financial assets held for trading, and those designated at fair
value through profit or loss at inception.
A financial asset is classified as held for trading if it is acquired or incurred principally for the purpose
of selling or repurchasing in the near term or if it is part of a portfolio of identified financial
instruments that are managed together and for which there is evidence of a recent actual pattern of
short-term profit-taking. Financial assets held for trading are shown as “trading securities” in the
statement of financial position.
Financial assets designated at fair value through profit or losses at inception are those that are
managed and their performance is evaluated on a fair value basis, in accordance with a documented
investment strategy. Information about these financial assets is provided internally on a fair value
basis to the Group’s key management personnel.
(b) Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are
not quoted in an active market and with no intention of trading. Significant accounts falling under this
category are cash and other cash items, trade and other receivables, Due from Bangko Sentral ng
Pilipinas (BSP) and Interbank loans receivable and SPAR.
(c) Held-to-maturity securities
Held-to-maturity financial assets are non-derivative financial assets with fixed or determinable
payments and fixed maturities that the Group’s management has the positive intention and ability to
hold to maturity. If the Group were to sell other than an insignificant amount of held-to-maturity
financial assets, the whole category would be tainted and reclassified as available-for-sale.
(41)

(d) Available-for-sale securities
Available-for-sale securities are non-derivatives that are either designated in this category or not
classified in any of the other categories.
21.5.2 Recognition and measurement
(a) Initial recognition
Regular-way purchases and sales of financial assets at fair value through profit or loss and
available-for-sale securities are recognized on trade-date, the date on which the Group commits to
purchase or sell the asset. Loans and receivables are recognized upon origination when cash is
advanced to the borrowers or when the right to receive payment is established. Financial assets not
carried at fair value through profit or loss are initially recognized at fair value plus transaction costs.
Financial assets carried at fair value through profit or loss are initially recognized at fair value, and
transaction cost are expensed in the statement of income.
(b) Subsequent measurement
Available-for-sale securities and financial assets at fair value through profit or loss are subsequently
carried at fair value. Loans and receivables are subsequently carried at amortized cost using the
effective interest method. Gains and losses arising from changes in the fair value of the financial assets
at fair value through profit or loss are included in the statement of income in the year in which they
arise. Gains and losses arising from changes in the fair value of available-for-sale securities are
recognized directly in the statement of total comprehensive income, until the financial asset is
derecognized or impaired at which time the cumulative gain or loss previously recognized in other
comprehensive income in equity should be recognized in the statement of income. However, interest
calculated on these securities using the effective interest method and foreign currency gains and losses
on monetary assets classified as available-for-sale are recognized in the statement of income.
Dividends on equity instruments are recognized in the statement of income when the Group’s right to
receive payment is established.
The fair values of quoted investments in active markets are based on current bid prices. The quoted
prices of the Parent Company’s equity securities are obtained from the daily quotation report of the
PSE. The quoted prices of government securities are derived from Philippine Dealing and Exchange
Corporation through the Bloomberg terminals. Those for investment in mutual fund are based on the
net asset value per share posted by the fund’s manager. If there is no active market for a financial asset,
the Parent Company establishes fair value by using valuation techniques. These include the use of
recent arm’s length transactions, reference to other instruments that are substantially the same,
discounted cash flow analysis, securities pricing models and other valuation techniques commonly used
by market participants.
Changes in the fair value of monetary securities denominated in a foreign currency and classified as
available-for-sale are analyzed between translation differences resulting from changes in amortized
cost of the security and other changes in the carrying amount of the security. The translation
differences are recognized in the statement of income, and other changes in carrying amount are
recognized in equity. Changes in the fair value of non-monetary securities classified as available-for-
sale are recognized in other comprehensive income.
(42)

21.5.3 Derecognition
Financial assets are derecognized when the contractual right to receive cash flows from the financial
assets has ceased to exist or the Group has transferred substantially all risks and rewards of ownership.
21.6 Impairment of financial assets
(a) Assets carried at amortized cost
The Group assesses at each reporting date whether there is objective evidence that a financial asset or
group of financial assets is impaired. A financial asset or a group of financial assets is impaired and
impairment losses are incurred only if there is objective evidence of impairment as a result of one or
more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or
events) has an impact on the estimated future cash flows of the financial asset or group of financial
assets that can be reliably estimated.
The criteria that the Group uses to determine that there is objective evidence of impairment include:
 Delinquency in contractual payments of principal or interest;
 Cash flow difficulties experienced by the borrower;
 Breach of loan covenants or conditions;
 Initiation of bankruptcy proceedings;
 Deterioration of the borrower’s competitive position; and
 Deterioration in the value of collateral.
The Group first assesses whether objective evidence of impairment exists individually for financial
assets that are individually significant, and 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.
The amount of impairment loss is measured as the difference between the financial 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 (recoverable
amount). The calculation of recoverable amount of a collateralized financial asset reflects the cash flows
that may result from foreclosure less costs of obtaining and selling the collateral, whether or not
foreclosure is probable. Impairment loss is recognized in the statement of income and the carrying
amount of the asset is reduced through the use of an allowance account.
For purposes of collective evaluation of impairment, 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.
(43)

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 currently exist. The methodology and assumptions
used for estimating future cash flows are reviewed regularly to reduce any differences between loss
estimates and actual loss experience.
When a loan is uncollectible, it is written off against the related provision for loan impairment. Such
loans are written off after all the necessary procedures have been completed and the amount of loss has
been determined.
If, in a subsequent period, the amount of 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 reversal is recognized in the statement of income.
(b) Assets classified as available-for-sale
The Group assesses at each reporting date whether there is evidence that a debt security classified as
available-for-sale is impaired. For debt securities, the Group uses the criteria referred to in (a) above.
In the case of equity investments classified as available-for-sale, a significant or prolonged decline in
the fair value below cost is also evidence that the assets are impaired. Generally, the Group treats 20%
or more as significant as and greater than twelve months as ‘prolonged’. The cumulative loss (difference
between the acquisition cost and the current fair value, less impairment loss on that financial asset
previously recognized in the statement of income) is removed from equity and recognized in the
statement of income. If, in a subsequent period, the fair value of a debt instrument previously impaired
increases and the increase can be objectively related to an event occurring after the impairment loss
was recognized, the impairment loss is reversed through the statement of income. Reversal of
impairment losses recognized previously on equity instruments is made directly to equity.
21.7 Financial liabilities
The Group classifies its financial liabilities as: (i) financial liabilities at fair value through profit or loss
(including financial liabilities held for trading and those that are designated at fair value); and (ii) other
financial liabilities measured at amortized cost.
21.7.1 Classification
(a) Financial liabilities at fair value through profit or loss
This category comprises two sub-categories: financial liabilities classified as held for trading, and
financial liabilities designated by the Group as at fair value through profit or loss upon initial
recognition.
(44)

A financial liability is classified as held for trading if it is acquired or incurred principally for the
purpose of selling or repurchasing it in the near term or if it is part of a portfolio of identified financial
instruments that are managed together and for which there is evidence of a recent actual pattern of
short-term profit-taking. Derivatives are also categorized as held for trading unless they are designated
and effective as hedging instruments. Financial liabilities held for trading also include obligations to
deliver financial assets borrowed by a short seller. The Group has no financial liabilities that are held
for trading or designated at fair value through profit loss.
(b) Other liabilities measured at amortized cost
The Group’s other financial liabilities at amortized cost comprise mainly of accounts payable and other
liabilities (except for payables to the Bureau of Internal Revenue and other government agencies for
taxes and remittances and advances from a customer), which are carried at amortized cost using the
effective interest rate method. These are included in current liabilities, except for maturities greater
than 12 months after the reporting date or when the Group has an unconditional right to defer
settlement for at least 12 months after the reporting date which are classified as non-current liabilities.
21.7.2 Recognition and measurement
(a) Recognition
Financial liabilities are recognized in the statement of financial position when, and only when, the
Group becomes a party to the contractual provisions of the instrument.
(b) Measurement
Financial liabilities carried at fair value through profit or loss are initially recognized at fair value, and
transaction costs are expensed in profit or loss. Other financial liabilities carried at amortized cost are
initially recognized at fair value plus transaction cost.
Financial liabilities carried at fair value through profit or loss are subsequently carried at fair value.
Other financial liabilities at amortized cost are subsequently measured at amortized cost using the
effective interest rate method.
Gains or losses arising from changes in the fair value of financial assets and liabilities at fair value
through profit or loss, including interest and dividend income and interest expense, are presented in
profit or loss within other income (expenses) in the period in which they arise. Dividend income from
financial assets at fair value through profit and loss is recognized in profit or loss as part of other
income when the Group’s right to receive payment is established.
(c) Derecognition
Financial liabilities are derecognized when it is extinguished, that is, when the obligation specified in a
contract is discharged or cancelled, or when the obligation expires. When an existing financial liability
is replaced by another financial liability from the same creditor with substantially different terms, or
the terms of an existing liability are substantially modified, such modification is treated as a
derecognition of the original financial liability and a recognition of a new financial liability, and the
difference in the respective carrying amounts is recognized in profit or loss within finance costs.
(45)

21.8 Offsetting of financial instruments
Financial assets and liabilities are offset and the net amount reported in the statement of financial
position when there is a legally enforceable right to offset the recognized amounts and there is an
intention to settle on a net basis or realize the asset and settle the liability simultaneously. The legally
enforceable right must not be contingent on future events and must be enforceable in the normal
course of business and in the event of default, insolvency or bankruptcy of the Group or the
counterparty.
As at December 31, 2017 and 2016, there are no financial assets and liabilities that have been offset .
21.9 Determination of fair value of financial instruments
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 of a non-financial asset is measured based on its highest and best use. The asset’s current
use is presumed to be its highest and best use.
The fair value of financial and non-financial liabilities takes into account non-performance risk, which
is the risk that the entity will not fulfill an obligation.
The Group classifies its fair value measurements using a fair value hierarchy that reflects the
significance of the inputs used in making the measurements. The fair value hierarchy has the following
levels:
 Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities. This level
includes listed equity securities and debt instruments on exchanges (for example, Philippine Stock
Exchange, Inc., Philippine Dealing and Exchange Corp., etc.).
 Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or
liability, either directly (that is, as prices) or indirectly (that is, derived from prices). This level
includes the majority of the over-the-counter (“OTC”) derivative contracts. The primary source of
input parameters like LIBOR yield curve or counterparty credit risk is Bloomberg.
 Level 3 - Inputs for the asset or liability that are not based on observable market data
(unobservable inputs). This level includes equity investments and debt instruments with
significant unobservable components. This hierarchy requires the use of observable market data
when available.
The appropriate level is determined on the basis of the lowest level input that is significant to the fair
value measurement.
The fair value of financial instruments traded in active markets is based on quoted market prices at the
reporting date. 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. The quoted
market price used for financial assets held by the Group is the most representative price within the bid-
ask spread. These instruments are included in Level 1.
(46)

The fair value of assets and liabilities that are not traded in an active market (for example, over-the-
counter derivatives) is determined by using valuation techniques. These valuation techniques
maximize 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 fair value an instrument are observable, the asset
or liability is included in Level 2. If one or more of the significant inputs is not based on observable
market data, the asset or liability is included in Level 3.
Specific valuation techniques used to value financial instruments include:
 Quoted market prices or dealer quotes for similar instruments.

 The fair value of interest rate swaps is calculated as the present value of the estimated future cash
flows based on observable yield curves.
 The fair value of forward foreign exchange contracts is determined using forward exchange rates at
the reporting date, with the resulting value discounted back to present value.
 Other techniques, such as discounted cash flow analysis, are used to determine fair value for the
remaining financial instruments.
21.10 Other assets
Other assets are recognized in the event that payment has been made in advance of obtaining right of
access to goods or receipt of services and measured at nominal amounts. These are derecognized upon
delivery of goods or when services have been rendered, through amortization over a certain period of
time, and use or consumption.
Creditable withholding tax is recognized as asset to the extent that it is probable that the benefit will
flow to the Group. This are derecognized when applied against the related tax liability or refunded by
the tax authorities as prescribed by the relevant tax laws.
Other assets are included in current assets, except when the related goods or services are expected to be
received or rendered more than twelve (12) months after the reporting date, which are then classified as
non-current assets.
21.11 Property and equipment
Property and equipment are stated at historical cost less accumulated depreciation. Historical cost
includes expenditure that is directly attributable to the acquisition of the items.
Subsequent costs are included in the asset’s carrying amount or are recognized as a separate asset, as
appropriate, only when it is probable that future economic benefits associated with the item will flow to
the Group and the cost of the item can be measured reliably. All other repairs and maintenance are
charged to the statement of income during the year in which they are incurred.
Depreciation is calculated using the straight-line method to allocate cost or residual values over the
estimated useful lives of the assets as follows:
Furniture, fixtures and equipment 3-5 years

Computer equipment 3 years
Major renovations are depreciated over the remaining useful life of the related asset.
(47)

The asset’s residual values and useful lives are reviewed, and adjusted if appropriate, at each reporting
date.
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 recoverable amount is the
higher of an asset’s fair value less costs to sell and value in use.
The Group derecognizes the carrying amount of an item of property and equipment on disposal or when
no future economic benefits are expected from its use or disposal.
Gains and losses on disposals are determined by comparing proceeds with carrying amount and are
included in the statement of income.
21.12 Software costs
Acquired software licenses are capitalized on the basis of the costs incurred to acquire and bring to use
the specific software. These costs are amortized over their estimated useful life of three (3) years.
Cost associated with maintaining computer software programs are recognized as an expense when
incurred.
The carrying amount of software costs is derecognized on disposal or when no future economic benefits
are expected from its use or disposal. The gain or loss arising from derecognition is recognized in profit
or loss.
21.13 Accounts payable and other liabilities
Accounts payable and other liabilities are obligations to pay for goods or services that have been
acquired in the ordinary course of business. These are recognized in the period in which the related
money, goods or services are received or when a legally enforceable claim against the Group is
established or when the corresponding assets and expenses are recognized. Accounts payable and
other liabilities are classified as current liabilities if payment is due within one year or less. If not, these
are presented as non-current liabilities. These are measured at the original invoice amount (as the
effect of discounting is immaterial) and subsequently measured at amortized cost using the effective
interest rate method.
Accounts payable and other liabilities are derecognized when it is extinguished, that is, when the
obligation specified in a contract is discharged or cancelled, or when the obligation expires.
21.14 Provisions
Provisions are recognized when the Group has a present legal or constructive obligation as a result of
past events, it is more likely than not that an outflow of resources will be required to settle the
obligation and the amount can be reliably estimated. Provisions are not recognized for future operating
losses.
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. A provision is recognized
even if the likelihood of an outflow with respect to any one item included in the same class of
obligations may be small.
(48)

Provisions are measured at the present value of the expenditures expected to be required to settle the
obligation using a pre-tax rate that reflects current market assessments of the time value of money and
the risks specific to the obligation. The increase in the provision due to passage of time is recognized in
profit or loss.
Provisions are reviewed at the end of each reporting period and adjusted to reflect the current best
estimate. If it is no longer probable that an outflow of resources embodying economic benefits will be
required to settle the obligation, the provision is reversed and derecognized in the statement of
financial position.
21.15 Income taxes
The provision for income tax for the period comprises current and deferred income tax. Income tax is
recognized in profit or loss, except to the extent that that it relates to items recognized in other
comprehensive income or directly in equity. In this case, the tax is also recognized in other
comprehensive income or directly in equity, respectively.
The current income tax charge is calculated on the basis of the tax laws enacted or substantively
enacted at the reporting date where the Group operates and generates taxable income. Management
periodically evaluates positions taken in tax returns with respect to situations in which applicable tax
regulation is subject to interpretation. It establishes provisions where appropriate on the basis of
amounts expected to be paid to the tax authorities.
Deferred income tax is recognized on temporary differences arising between the tax bases of assets and
liabilities and their carrying amounts in the financial statement. Deferred income tax is determined
using tax rates (and laws) that have been enacted or substantively enacted at reporting date and are
expected to apply when the related deferred income tax asset is realized or the deferred income tax
liability is settled.
Deferred income tax assets are recognized for all deductible temporary differences, carry-forward of
unused tax losses (net operating loss carryover or NOLCO) and unused tax credits (excess minimum
corporate income tax or MCIT) to the extent that it is probable that future taxable profit will be
available against which the temporary differences can be utilized. Deferred income tax assets arising
from NOLCO and excess MCIT are recognized to the extent that it is probable that the Group will have
future taxable profit before any unused tax losses or unused tax credits expire as prescribed by the
relevant tax provisions.
Deferred tax liabilities are the amounts of income taxes payable in future periods in respect of taxable
temporary differences. Deferred income tax liabilities are recognized in full for all taxable temporary
differences.
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset
current tax assets against current tax liabilities and when the deferred income tax assets and liabilities
relate to income taxes levied by the same taxation authority on the taxable entity and where there is an
intention to settle the balances on a net basis.
The Group has substantial income from its investment in government securities subject to final
withholding tax. Such income is presented at its gross amount and the tax paid or withheld is included in
Current provision for income tax.
The Group re-assesses at each reporting date the need to derecognize a previously recognized deferred
income tax asset.
(49)

21.16 Income and expense recognition
(a) Fees and commission income
Fees and commission income from underwriting, loan syndication and financial advisory activities are
recognized in the period the related services are rendered and completed.
(b) Interest income
Interest income is recognized in the statement of income for all interest-bearing financial instruments
using the effective interest method.
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.
Once a financial asset or a group of similar financial assets has been written down as a result of an
impairment loss, interest income is recognized using the rate of interest used to discount future cash
flows for the purpose of measuring impairment loss.
(c) Dividend income
Dividend income is recognized in the statement of income when the Group’s right to receive payment is
established.
(d) Gain or loss on sale of available-for-sale securities
Gain or loss on sale of investments is determined by comparing proceeds with carrying amount of
available-for-sale securities upon the completion of the sale.
(e) Trading gains and losses
Trading gains and losses are recognized based on changes in the fair value and disposal of financial
assets at fair value through profit or loss which are recognized in the statement of income in the period
they arise.
(f) Other income
Other income is recognized when earned.
(g) Cost and expenses
Costs and expenses are recognized in profit or loss when a decrease in future economic benefit related
to a decrease in an asset, or an increase in a liability has arisen, that can be measured reliably.
Brokerage fees and underwriting fees pertain to payments made by the Group to broker-dealers for
brokering and underwriting services rendered related to certain underwritten deals.
(50)

21.17 Employee benefits
(a) Pension benefits
The Group has both defined benefit and defined contribution plans. A defined benefit plan is a pension
plan that defines an amount of pension benefit that an employee will receive on retirement, usually
dependent on one or more factors such as age, years of service and compensation. A defined
contribution plan is a pension plan under which the Group pays fixed contributions into a separate
fund. Under a defined contribution plan, the Group has no legal or constructive obligations to pay
further contributions if the fund does not hold sufficient assets to pay all employees the benefits
relating to employee service in the current and prior periods.
Defined benefit plan
The Group’s defined benefit plan is funded through payments to a trustee-administered fund as
determined by periodic actuarial calculations.
The defined benefit obligation is calculated annually by independent actuaries using the projected unit
credit method. The present value of the defined benefit obligation is determined by discounting the
estimated future cash outflows using interest rates of government bonds that are denominated in
Philippine Peso, and that have terms to maturity approximating the terms of the related retirement
benefit obligation.
The liability recognized in the statement of financial position in respect of defined benefit plans is the
present value of the defined benefit obligation at the end of the reporting period less the fair value of
plan assets. In cases when the amount determined results in a surplus (being an excess of the fair value
of the plan assets over the present value of the defined benefit obligation), the Group measures the
resulting asset at the lower of the surplus in the defined benefit plan and the present value of future
benefits in the form of refunds or reductions in future contributions to the plan.
Restricted or non-transferrable assets of the fund are excluded in the determination of the fair value of
plan assets.
Remeasurement gains and losses arising from experience adjustments and changes in actuarial
assumptions are charged or credited directly to other comprehensive income under remeasurement
loss or gain in the period in which they arise.
All past service costs are recognized immediately in profit or loss.
The net interest cost is calculated by applying the discount rate to the net balance of the defined benefit
obligation and the fair value of plan assets. This cost is included as part of retirement benefit expense
recognized in profit or loss.
When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefit that
relates to past service or the gain or loss on curtailment is recognized immediately in profit or loss. The
Group recognizes gains or losses on the settlement of a defined benefit plan when the settlement
occurs.
(51)

Defined contribution plan
The Group also maintains a defined contribution plan that covers certain full-time employees. Under
its defined contribution plan, the Group pays fixed contributions based on the employees’ monthly
salaries to a privately trusteed-administered fund. Contribution is determined by periodic actuarial
calculations and compensation. The Group, however, is covered under RA No. 7641, otherwise known
as The Philippine Retirement Law, which provides for its qualified employees a defined benefit
minimum guarantee. The defined benefit minimum guarantee is equivalent to a certain percentage of
the monthly salary payable to an employee at normal retirement age with the required credited years of
service based on the provisions of RA No. 7641. Accordingly, the Group accounts for its retirement
obligation under the higher of the defined benefit obligation relating to the minimum guarantee and
the obligation arising from the defined contribution plan.
For the defined benefit minimum guarantee plan, the liability is determined based on the present value
of the excess of the projected defined benefit obligation over the projected defined contribution
obligation at the end of the reporting period. The defined benefit obligation is calculated annually by a
qualified independent actuary using the projected unit credit method.
The liability recognized in the statement of financial position in respect of defined benefit pension
plans is the present value of the defined benefit obligation at the reporting date less the fair value of
plan assets. The present value of the defined benefit obligation is determined by discounting the
estimated future cash outflows using interest rates of government bonds that are denominated in the
currency in which the benefits will be paid, and that have terms to maturity approximating the terms of
the related pension liability. The fair value of plan asset is the defined contribution assets upon which
the defined contribution benefits depend, with an adjustment for margin on asset returns, if any, where
this is reflected in the defined contribution benefits.
The Group has no further payment obligations once the contributions have been paid. The
contributions are recognized as employee benefit expense when these are due. Prepaid contributions
are recognized as an asset to the extent that a cash refund or a reduction in the future payments is
available.
Remeasurement gains and losses arising from experience adjustments and changes in actuarial
assumptions are charged or credited to equity in other comprehensive income in the period in which
they arise.
Past-service costs are recognized immediately in profit or loss.
(b) Profit-sharing and bonus plans
The Group recognizes a liability and an expense for bonuses and profit-sharing, based on a formula
that takes into consideration the profit attributable to the Group’s shareholders after certain
adjustments. The Group recognizes a provision where contractually obliged or where there is a past
practice that has created a constructive obligation.
(c) Share-based compensation
The Group’s management awards high-performing employees bonuses in the form of options to
purchase Parent Bank’s common shares, from time to time, on a discretionary basis. The options are
subject to certain service vesting conditions.
(52)

The fair value of the services received is measured by reference to the fair value of the shares or share
options granted on the date of the grant. The grant by BPI of the options over its equity instruments to
the employees of the Group is recorded in equity. The fair value of employee services received by the
Group in respect of the options granted is recognized in profit or loss over the period that the services
are received, which is the vesting period. The Group is recharged by BPI for the share-based payment
when the award vests. The subsidiary recognizes the recharge over the vesting period as a charge to
equity.
The fair value of the options granted is determined using option pricing models which take into account
the exercise price of the option, the current share price, the risk-free interest rate, the expected
volatility of the share price over the life of the option and other relevant factors.
When the stock options are exercised, the proceeds received, net of any directly attributable transaction
costs, are credited to share capital (par value) and share premium for the excess of exercise price over
par value.
(d) Termination benefits
Termination benefits are payable when employment is terminated by the Group before the normal
retirement date, or whenever an employee accepts voluntary redundancy in exchange for these
benefits. The Group recognizes termination benefits at the earlier of the following dates: (a) when the
Group can no longer withdraw the offer of those benefits; and (b) when the entity recognizes costs for a
restructuring that is within the scope of PAS 37 and involves the payment of termination benefits. In
the case of an offer made to encourage voluntary redundancy, the termination benefits are measured
based on the number of employees expected to accept the offer. Benefits falling due more than 12
months after the end of the reporting period are discounted to their present value.
21.18 Share capital; retained earnings
Common shares are classified as equity and are measured at par value for all shares issued. The amount
of proceeds from the issuance or sale of shares representing the aggregate par or stated value is credited
to share capital. Proceeds in excess of the aggregate par or stated value of shares, if any, are credited to
share premium. Incremental costs directly attributable to the issue of new shares or options are shown in
equity as a deduction from the proceeds, net of tax.
After initial recognition, share capital and share premium are carried at historical cost and are classified
as equity in the statement of financial position.
Retained earnings represent the accumulated profit or loss as a result of the operations of the Group
less any dividends declared.
21.19 Dividends on common shares
Dividends on common shares are recognized in the period in which they are approved by the Board of
Directors.
21.20 Leases (the Group is the lessee)
Leases in which substantially all risks and rewards of ownership are retained by another party, the
lessor, are classified as operating leases. Payments, including prepayments, made under operating
leases (net of any incentives received from the lessor) are charged to the statement of income on a
straight-line basis over the period of the lease.
(53)

21.21 Related party relationships and transactions
Related party relationships exists when one party has the ability to control, directly, or indirectly
through one or more intermediaries, the other party or exercises significant influence over the other
party in making financial and operating decisions. Such relationships also exist between and/or among
entities which are under common control with the reporting enterprise, or between, and/or among the
reporting enterprise and its key management personnel, directors, or its shareholder. In considering
each possible related party relationships, attention is directed to the substance of the relationship and
not merely the legal form.
21.22 Foreign currency transactions and translation
Functional and presentation currency
Items included in the financial statements of the Group are measured using the currency of the primary
economic environment in which the entity operates (‘the functional currency’). The financial statements
are presented in Philippine Peso, which is the Group’s functional and presentation currency.
Transactions and balances
Foreign currency transactions are translated into Philippine Peso using the exchange rates prevailing at
the dates of the transaction. Foreign exchange gains and losses resulting from the settlement of foreign
currency transactions and from the translation at the year-end exchange rates of monetary assets and
liabilities denominated in foreign currencies are recognized in profit or loss.
21.23 Subsequent events
Post year-end events that provide additional information about the Group’s position at the end of the
reporting period (adjusting events) are reflected in the financial statements. Post year-end events that
are not adjusting events are disclosed in the notes to the consolidated financial statements when
material.
(54)


BPI Capital Audited Financial Statements

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AUDITED FINANCIAL STATEMENTS

76 BPI Capital 2017 Annual Report

Statements of Financial Position

Cash and other cash items 2 855,680,373 480,810,054 462,859,040 149,533,245

LIABILITIES AND EQUITY

80 BPI Capital 2017 Annual Report

Transforming the Landscape 81

Statements of Comprehensive Income

82 BPI Capital 2017 Annual Report

Statements of Changes in Equity

Transforming the Landscape 83

Statements of Changes in Equity

84 BPI Capital 2017 Annual Report

Statements of Cash Flows

Transforming the Landscape 85

Notes to Consolidated Financial Statements

Note 1 - General information

Note 2 - Cash and cash equivalents

The account at December 31 consists of:

86 BPI Capital 2017 Annual Report

Note 3 - Trading securities

The account at December 31 consists of:

Transforming the Landscape 87

The account at December 31 consists of:

The movements in allowance for impairment are summarized as follows:

The movements in the account, gross of impairment are summarized as follows:

88 BPI Capital 2017 Annual Report

Critical accounting judgment: Impairment of available-for-sale securities

Note 5 - Held-to-maturity securities

The movements in this account are summarized as follows:

Current and non-current portion of the HTM securities is as follows:

Critical accounting judgment: HTM securities

Transforming the Landscape 89

The account at December 31 consists of:

Details of loans receivable by collateral profile are as follows:

90 BPI Capital 2017 Annual Report

Note 7 - Property and equipment, net

Details and movements of the account follow:

Transforming the Landscape 91

92 BPI Capital 2017 Annual Report

Depreciation is included in occupancy and equipment-related expenses in the statement of income.

Note 8 - Deferred income taxes, net

Critical accounting judgment: Realization of DIT assets

Transforming the Landscape 93

The account at December 31 consists of:

The current and non-current portion of other assets, net follow:

94 BPI Capital 2017 Annual Report

The account at December 31 consists of:

Accrued expenses mainly pertain to brokerage fees.

Note 11 - Share capital; accumulated reserves

Details of share capital at December 31, 2017 and 2016 follow:

Transforming the Landscape 95

Note 12 - Fees and commissions

96 BPI Capital 2017 Annual Report

Interest income for the year ended December 31 are as follows:

Note 14 - Other operating expenses

Transforming the Landscape 97

Note 16 - Retirement benefits