Annual Report 2020

TABLE OF CONTENTS
OUR MISSION AND VISION _______________________________________________ 3
OUR BUSINESS ________________________________________________________ 4
FINANCIALS AND OPERATING HIGHLIGHTS __________________________________ 5
BUSINESS REVIEW AND CLIENT TESTIMONIALS _______________________________ 6
CORPORATE GOVERNANCE _______________________________________________ 9
OPERATING MANAGEMENT _____________________________________________ 20
RISK MANAGEMENT ___________________________________________________ 21
COMPLIANCE_________________________________________________________ 32
ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) MATTERS _________________ 34
PRODUCTS AND SERVICES ______________________________________________ 40
BRANCH DIRECTORY ___________________________________________________ 41
CORPORATE INFORMATION _____________________________________________ 48
AUDITED FINANCIAL STATEMENT _________________________________________49
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OUR MISSION
Building a Better Philippines

OUR VISION
To uplift the lives of Filipinos whose needs are underserved
and unserved by formal financial institutions.
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OUR BUSINESS
BPI Direct BanKo, Inc. (or BanKo) is a wholly-owned subsidiary and the microfinance arm of the Bank
of the Philippine Islands (BPI). Since 2016, it has endeavored to strengthen the financial capacities of
thousands of Filipino Self-Employed Micro-Entrepreneurs (SEMEs) nationwide by creating an enabling
business environment for them. True to its mission of empowering the Negosyanteng Pinoy, BanKo has
provided access to easy, convenient and affordable loan products to fund their operations, and
provided them with an opportunity to grow and expand their businesses. It has increased its presence
in more communities, releasing Php 18 billion in loans and servicing 145,000 unique borrowers in over
300 branches and branch lite units located in 74 provinces nationwide.

BanKo is guided by BPI’s core competencies of providing high quality customer service and a
comprehensive set of products, multi-channel delivery, and stringent credit, risk and compliance
processes while addressing the needs of unbanked and underserved, giving them access to formal
financial services that they have been deprived of.

NEGOSYOKO LOAN

The Bank’s primary product is the NegosyoKo Loan, a microloan that allows SEMEs to fund their
existing businesses easily. It’s highly focused sales distribution and high-touch delivery service to its
clients is supported by a branch network located near microenterprise locations primarily for loans
solicitation, processing and servicing.

The market it serves is comprised of 5.4 million households from the C&D classes who own micro-
enterprises with 10 employees or less, and assets not greater than Php 3 million. These
microbusinesses fall under the following categories: wholesale and retail trading (market stalls, sari-
sari stores), manual services (hairdressers, auto repair shop owners, tailors), food services (mini-
eateries and bakeries), manufacturing (furniture, handicrafts), and agriculture (animal product
farming).

BanKo’s loan officers, called BanKoMares and BanKoPares, establish direct relationships with its clients
through financial literacy discussions. Its 304 branches nationwide are present in micro-enterprise
locations, providing a venue for servicing loans. An innovative scorecard based on interviews with local
residents and community leaders, and decentralized approval of loans by in-branch personnel result in
a fast turnaround time. Collection terms and methods are flexible.

Currently, BanKo has a microinsurance product bundled with the microloans that offers an affordable
basic life and non-life insurance coverage.

With the success of the NegosyoKo Loan, BanKo is now the 2nd biggest microfinance bank in the
country, with a 17% share in microfinance loans among banks. BanKo’s relevance has also been
validated through several recognitions from local and international agencies.

PONDOKO SAVINGS ACCOUNT

PondoKo Savings is an app-based, interest-bearing basic deposit account with no maintaining balance
that enables clients to build up their funds and manage their cash flow. Through PondoKo Savings,
clients can also conveniently conduct banking transactions such as Buy Load, Send Money, Pay Bills,
and Pay Loan via BanKo Mobile.
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FINANCIALS AND OPERATING HIGHLIGHTS

2020 2019 Change

BALANCE SHEET (in Php mn)

Assets 21,910 17,871 22.6%
Treasury Assets 9,239 3,933 134.9%
Net Loans 10,723 12,194 -12.1%
Deposits 17,848 13,961 27.8%
Equity 2,342 2,617 -10.5%
INCOME STATEMENT (in Php mn)
Net Interest Income 2,809 2,782 1.0%
Non-Interest Income 428 390 9.7%
Net Revenues 3,237 3,172 2.1%
Operating Expenses 2,380 2,170 9.7%
Pre-Provision Profit 858 1,002 -14.4%
Impairment Losses 1,920 576 233.6%
Net Income -752 273
FINANCIAL INDICATORS
Profitability
Return on Equity -30.1% 10.5% -387.2%
Return on Assets -3.4% 1.8% -289.9%
Margin and Liquidity
Net Interest Margin 14.2% 20.4% -30.6%
Net Loans to Deposit Ratio 60.1% 87.3% -31.2%
Cost Efficiency
Cost to Income Ratio 73.5% 68.4% 7.4%
Cost to Average Asset Ratio 10.7% 14.2% -24.5%
Asset Quality
NPL Ratio 15.8% 7.0% 125.2%
NPL Cover 58.0% 57.9% 0.2%
Capital Leverage
CET1 Ratio 11.0% 15.2% -27.4%
Capital Adequacy Ratio 11.8% 16.1% -26.5%
DISTRIBUTION NETWORK AND MANPOWER
Branches/Branch - Lite Units 304 300 1.3%
Employees 2,758 2,833 -2.6%
Officers 716 688 4.1%
Staff 2,042 2,145 -4.8%
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BUSINESS REVIEW AND CLIENT TESTIMONIALS

FINANCIAL PERFORMANCE

In 2020, the Bank’s total assets grew by 22.6% to Php 21.9 billion or Php 4.0 billion higher than the
previous year. Deposits grew by 27.8% with a 21.5% and 46.8% growth from float and bought
deposits, respectively.

Net interest income of Php 2.8 billion was flat primarily due to to the deposit build up activity via
time deposit offering that increased the cost of funds. Fees and commissions grew by 9.7%, which
was driven by late payment fees from SEME.

The Bank generated pre-provision profit of Php 858 million, down 14% compared to 2019 with the
full cost of the 100 new branches opened in 2019; 60 of which were opened in the 3 rd quarter of that
year.

As of the end of 2020, consolidated common equity tier 1 ratio stood at 11.0% and capital adequacy
ratio was at 11.8%. These ratios are well above minimum regulatory requirements, with an adequate
buffer to support the Bank’s operations.

NPL levels were reported in accordance with BSP relief guidelines, Circular 941 .

CONNECTING WITH CLIENTS DURING THE CRISIS

The COVID-19 crisis and the series of natural disasters that hit the country in 2020 have greatly
affected businesses especially the micro-enterprises. True to its mission, BanKo was at the forefront of
recovery, serving the Self-Employed Micro-Entrepreneurs with affordable credit to help them recover,
sustain their operations, and fuel economic growth. BanKo employees took on a more proactive role in
helping clients recover from these challenges. As NegosyoKo partners, BankoMares and BankoPares
continued to engage their clients and service their banking needs.

Early in 2020, BanKo ramped up its disaster response efforts immediately after the eruption of the Taal
Volcano by offering a deferred payment program to clients located in areas directly impacted by the
eruption, allowing qualified clients to pay at a later date without penalties. Later in the year, BanKo
clients who were affected by Typhoons Ulysses and Rolly were given cash assistance courtesy of the
Secure Assist Insurance Policy.
During the COVID-19 pandemic, BanKo offered different programs to help borrowers recover after
being suspending their business operations due to community restrictions. BanKo rolled out the Loan
Rehab Program that allowed qualified borrowers to take on a secondary loan. Remedial programs
were likewise offered such as Loan Term Extension and Compromise Agreement, where loans were
restructured to reflect the new cash flow of the borrowers. In compliance with the Bayanihan to Heal
as One Act (BAHO) and Bayanihan to Recover as One Act (BARO2), the Bank implemented a
mandatory grace period for all borrowers in Q2 and again in Q4 respectively.

The strict lockdown from mid-March to the end of May 2020 resulted to minimal loan releases as some
branches implemented intermittent branch operations schedule during the period of enhanced
community quarantine. In spite of these challenges, the Bank continued to respond to the
requirements of the micro-entrepreneurs by resuming loan releases in the second half of the year,
releasing Php 6.87 billion in total disbursed loans, benefiting 99,867 SEMEs. BanKo opened four (4)
additional branch-lite units (BLUs) in 2020, further expanding its reach to new markets.
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FINANCIAL INCLUSION POWERED BY DIGITAL

In February 2020, BanKo launched its mobile app which can be downloaded through IOS and Android,
making it easier for the market it serves to open a PondoKo Savings account and access their account
through their mobile phones. Banking transactions such as Buy Load, Pay Bills, Send Money and Pay
Loan can be done safely and securely.

CREATING RESIIENT ENTREPRENEURS

As BPI’s vehicle for financial inclusion, BanKo’s long-term vision is to make a significant contribution in
nation-building as it enables its SEME clients with the tools and expertise for business growth.

Clients have considered BanKo as their partner in progress. To date, BanKo was able to help change the
lives of more than 100,000 Negosyanteng Pinoys, and will continue to strengthen its commitment
towards sustainable development and nation-building.

Four clients share their experiences with BanKo.

Cindy Camale, a retailer of consumer goods and feeds, is one of BanKo’s many success stories.

“I have been a client of BanKo since 2018,” said Cindy. “I was able to open branches and buy a multi-
cab with the loan from BanKo. Even if 2020 has been a challenging year for me, I am confident of the
recovery of my business. I recently applied for a loan to open another branch since sales have picked
up and I have more consignors. Today I have eight employees and I help send young people to school. I
am very grateful for the opportunities that BanKo has given me.”

Another client, Raynol Alquiza of Montevista, a banana farmer from Montevista, Davao De Oro,
expressed his appreciation for BanKo’s services. Due to the pandemic, the price of his produce
dropped, severely affecting the profit from his harvest.

“Because of the pandemic, the price of bananas dropped and my profits went down too. I availed of
the Rehab Fund of BanKo to be able to pay for the salaries of my laborers and buy fertilizers and
insecticides. I thank BanKo for helping me sustain my business in this pandemic,” said Raynol.

Manelyn Dela Cruz Rabulan was one of BanKo Biñan’s first clients when the branch opened in 2018.
Her first two loan availments were used to buy equipment for her ice cream production business. She
then used her subsequent loans as downpayment for a lot where she built rooms for her employees,
and eventually added ice cream carts that roamed from Biñan to GMA, Cavite. While her business was
forced to temporarily shut down during the lockdown, she continued to provide for her employees’
daily needs.

“The pandemic taught us to value the knowledge of the business so that when our people leave, we
can still run the business. BanKo has helped us tremendously in growing our business and in purchasing
the equipment that we need,” said Manelyn.

Crab seller and distributor Melinda Dilag Belinario from San Jose, Occidental Mindoro, said her success
would not have been possible without BanKo.

“I used my first loan in 2017 to buy crabs and put up a stall at the public market. After I year, I availed
of a second loan and started shipping my products to Laguna, Manila, and Occidental Mindoro. With
my third loan, I was able to open a grocery store. Because of my business and the help of BanKo, I was
able to build a house for my family, set up a fish pond, and purchase six hectares of land,” said
Melinda.
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CONTRIBUTION TO THE SUSTAINABLE DEVELOPMENT GOALS

More than just attaining financial returns, BanKo strives to achieve sustainability by creating shared
value for its clients, shareholders, and society as a whole. The microfinance loans business of BanKo
contributes to Sustainability Development Goal 8, or the provision of decent work and economic
growth among Filipinos, by providing affordable source of additional capital for the micro-businesses of
borrowers, spurring growth and increasing their number of employees. In 2020, BanKo facilitated
additional investment to 99,867 businesses, which is 16% higher compared to 2019. Of the total
businesses who benefited from the Banko NegosyoKo Loan program, 74% are owned by women.
BanKo’s borrowers also include farmers to support their agricultural needs.
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CORPORATE GOVERNANCE
CORPORATE GOVERNANCE PHILOSOPHY

The Board of Directors and Management, employees and shareholders of BPI Direct BanKo, Inc., A
Savings Bank (BanKo) believe that a sound and effective corporate governance is the cornerstone of its
strength and long term existence. It subscribes to a philosophy of adhering to honesty, integrity, and
professionalism in the conduct of its business, exercising prudence in arriving at decisions, enforcing
internal discipline and a system of checks and balances in its operating processes, and providing
transparency to its various publics regarding basic management policies and practices, major business
strategies and decisions and its operating results.

The Board of Directors and Management, commit themselves to the principles and practices of the
corporate governance philosophy of the bank. They shall also undertake every effort necessary to
create the necessary awareness of these principles and practices within the organization in order to
ensure proper internalization by every member of the organization

GOVERNANCE STRUCTURE

Board of Directors

The Board of Directors (the Board) bears the primary responsibility for creating and enhancing the long
term shareholder value of BanKo and ensuring that this objective is achieved in all its business
activities. It must ensure BanKo’s ability to satisfy the needs of its customers, sustain its leadership and
competitiveness, and uphold its reputation in order to maintain BanKo’s long term success and viability
as a business entity. Its mandate consists of setting the strategic business directions of BanKo,
appointing its senior executive officers, confirming its organizational structure, approving all major
strategies and policies, overseeing all major risk-taking activities, monitoring the financial results,
measuring and rewarding the performance of management, and generating a reasonable investment
return to shareholders. It shall also provide an independent check on management.

Term limits of Independent Directors

An independent director may only serve as such for a maximum cumulative term of nine (9) years.
After which, the independent director shall be perpetually barred from serving as independent
director, but may continue to serve as a regular director.

Policy on Directorships

Directors are bound by BanKo’s Director’s Code of Conduct to take into account their individual
circumstances and the nature, scale and complexity of the Bank’s activities in showing full commitment
to the Bank - devoting the time, schedule and attention necessary to its business interests, to properly
and effectively perform their duties and responsibilities and to avoid conflicts of interest.

A rigorous nomination process to ascertain fitness and propriety of candidate directors and examine
their principal commitments is also done every year, prior to the Annual Stockholders Meeting. Board
and committee attendance is closely monitored and reported. The Board also conducts an annual
performance evaluation of itself, its committees and directors, which includes an affirmative
determination of time commitments.
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Powers of the Board of Directors

The corporate powers of a bank shall be exercised, its business conducted and all its property
controlled and held, by its board of directors. The power of the board of directors as conferred by law
are original and cannot be revoked by the stockholders. The directors hold their office charged with
the duty to exercise sound and objective judgment for the best interest of the bank.

Duties and Responsibilities

The position of a Bank director is a position of trust. A director assumes certain responsibilities to
different constituencies or stakeholders, i.e., the bank itself, its stockholders, its depositors and other
creditors, its management and employees, the regulators, deposit insurer and the public at large.
These constituencies or stakeholders have the right to expect that the institution is being run in a
prudent and sound manner. The board of directors is primarily responsible for approving and
overseeing the implementation of the Bank’s strategic objectives, risk strategy, corporate governance
and corporate values. Further, the board of directors is also responsible for the selection of key
members of senior management and control functions as well as monitoring and overseeing the
performance of senior management as the latter manages the day to day affairs of the institution.

Selection

Our shareholder may recommend candidates for board membership for consideration by the
Nominations Committee. Such recommendations are sent to the Committee through the Office of the
Corporate Secretary. Candidates recommended by shareholder are evaluated in the same manner as
Director Candidates identified by any other means. The Committee itself may identify and recommend
qualified individuals for nomination and election to the Board. For this purpose, the Committee may
utilize professional search firms and other external groups to search for qualified candidates.

The Nominations Committee pre-screens the candidates and prepares a final list of candidates prior to
the Annual Stockholders Meeting. Only nominees whose names appear on the final list of candidates
are eligible for election to the Board.

No other nomination shall be entertained after the final list of candidates are drawn up. No
nomination shall be entertained or allowed on the floor during the Annual Stockholders Meeting.

Board members are elected by BanKo stockholders who are entitled to one vote per share at the
Bank’s Annual Stockholders Meeting, where votes may be cumulated as provided for in the
Corporation Code. The nominees receiving the highest number of votes are declared elected and hold
office for one year until their successors, qualified in accordance with the by-laws, are elected at the
next Annual Stockholders Meeting.

Board Composition and Qualification

Pursuant to Sections 15 and 17 of R.A. No. 8791, and the Bank’s Amended By-Laws, there is a maximum of nine
(9) members of the Board who are elected by the stockholders entitled to vote at the annual meeting, and shall
hold office for one (1) year and until their successors are elected and qualified in accordance with the Bank’s By-
Laws.

Marie Josephine M. Ocampo (Non- Executive Director), Filipino, 59 years old, is the Chairman of the
Board of BanKo. She currently heads the Mass Retail Segment of BPI where she oversees BPI’s credit,
debit and prepaid card businesses as well as personal and micro finance loans. She is a member of the
Board of BPI Payments Holdings Inc., Global Payments AsiaPacific Philippines, Inc., AF Payments Inc.,
Zalora Philippines, and CARD MRI Rizal Bank Inc. Ms. Ocampo started her career in BPI as Vice
President for Marketing and Sales of BPI Credit Cards in 1996. She soon took the position of President
 11

for BPI Card Corporation, the BPI’s credit card subsidiary where she won the prestigious Agora Award-
2000 Marketing Company of the Year. In 2005, Ms. Ocampo was then cross-posted to BPI’s Consumer
Banking Group as Head of Kiosk Banking and Head of Personal Banking. She also became the Chief
Marketing Officer of BPI from 2008 until 2014 where she was responsible for retooling the Bank’s data
warehouse and customer analytics capabilities into its distinct competitive advantage. Ms. Ocampo
also developed the Bank’s CRM initiatives on top of driving the BPI’s advertising and digital initiatives
across the breadth of products, channels and services. In 2015, she became the Payments and
Remittance group head, and was tasked to grow fee revenue via expanding existing businesses and
developing new payment platforms.

Prior to joining BPI, Ms. Ocampo gained over 10 years of marketing experience in Procter & Gamble
and Johnson & Johnson Australia and the Philippines, where she led the expansion of J&J’s Health
Care, Baby Care, and Sanitary Protection business. Ms. Ocampo graduated magna cum laude and
received her Bachelor of Science in Business Management, Honors Program at Ateneo de Manila
University. She also completed the Advanced Management Program at the Harvard Business School in
2007.

Natividad N. Alejo, (Non-Executive Director), Filipino, 64 years old, is a member of the Bank’s Audit
Committee and Risk Management Committee. She was the Chairman of BanKo from June 2017 to
December 2017 and a BanKo Director since 2012. She was the President of BPI Family Savings Bank
from 2015 to 2017.

Ms. Alejo graduated with an AB Economics degree (Summa Cum Laude and Gansewinkle Scholastic
Trophy Awardee) from Divine World University, Tacloban City in 1976. She took up MA Economics at
University of the Philippines in 1978 and completed the Advanced Management Program at Harvard
Business School in fall of 2005.

Ignacio R. Bunye, (Independent Director), Filipino, 76 years old, has been an independent member of
the Board since June 27, 2018. He is the Chairman of the Bank’s Corporate Governance and Related
Party Committee. He is a member of the Bank’s Risk Management Committee. Mr. Bunye was a
member of the Monetary Board of the Bangko Sentral ng Pilipinas from 2008 to 2014. He previously
held the positions of Presidential Political Adviser in 2008, Presidential Spokesperson in 2003, and
Press Secretary in 2002.

Mr. Bunye is a member of the Philippine Integrated Bar. He obtained his Bachelor of Arts degree and
Bachelor of Laws degree from Ateneo de Manila University in 1964 and 1969 respectively. He passed
the Philippine Bar Examination in 1969. Significant awards and recognition received by Mr. Bunye
include the Asian Institute of Management Honor and Prestige Award, the Bangko Sentral Service
Excellence Medal, the Gran Oden de Isabela Catolica, and the Order of Lakandula.

Jose Ferdinand B. De Luzuriaga (Independent Director), Filipino, 59 years old, is the Chairman of the
Bank’s Risk Management Committee and member of the Audit Committee. Mr. De Luzuriaga is the
Group Investment Officer and Group Chief Finance Officer and Committee Chairman of Inquirer Group
of Companies and President of LINQ Information Entertainment Quadrant Corporation (Philippines).

Mr. De Luzuriaga graduated with a BS Management degree from the University of the Philippines in
1983.

Jerome B. Minglana (Executive Director), Filipino, 47 years old, President of BPI Direct BanKo since
January 2017. He previously served as President of BPI Globe BanKO from 2015-2016. He also took on
other roles in BPI, such as Vice President and Division Head of Retail Banking Group and served as Area
Business Director of extreme North Luzon area.
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Mr. Minglana obtained his Bachelor of Science in Accountancy and BS Commerce major in
Management degrees from St. Louis University in 1994 and 1995 respectively.

Aurelio R. Montinola III, (Non- Executive Director), Filipino, 69 years old, served as President and
Chief Executive Officer of BPI for eight years from 2005 to 2013, and BPI Family Savings Bank, Inc. for
12 years from 1992 to 2004. He is the Chairman of the Bank’s Personnel and Compensation
Committee. Mr. Montinola is the Chairman of the Board and Non-Executive Director of Far Eastern
University and an Independent Director of Roxas and Company, both listed companies. Since May
2017, he has served as an Independent Director of Xeleb Technologies, Inc., a subsidiary of publicly-
listed Xurpas, Inc. He is also the Chairman of the Nicanor Reyes Educational Foundation Inc.,
Roosevelt Colleges, Inc., East Asia Computer Center Inc., Amon Trading Corporation, and the Kabang
Kalikasan ng Pilipinas Foundation, Inc. He is also a member of the Board of Trustees of BPI Foundation
Inc. where he sits as Vice-Chairman.

Among the significant awards received by Mr. Montinola include Management Man of the Year 2012
(Management Association of the Philippines), Asian Banker Leadership Award (twice), and Legion
d’Honneur (Chevalier) from the French Government. He obtained his degree in Bachelor of Science in
Management Engineering from the Ateneo de Manila University in 1973 and his MBA from Harvard
Business School in 1977.

Simon R. Paterno (Non-Executive Director), Filipino, 62 years old, is the Founder and CEO of 2QR
Corporation, a financial Technology start-up. He served as the head of BPI’s Financial Products &
Alternative Channels until his retirement in June 30, 2019. He was responsible for building and
managing BPI’s service capabilities across all asset, liability, payments, and bancassurance platforms.
He also served on BPI’s Management, Asset & Liability, Credit Committees, as well as on the Boards of
AF Payments, Zalora Philippines, BPI Century Tokyo Lease and Finance Corporation, BPI Century Tokyo
Rental Corporation, BPI/MS Insurance Corporation and BPI Direct BanKo where he was the Chairman
from 2018 to 2019.

Mr. Paterno received his MBA from Stanford University in 1984 and his AB Honors Program in
Economics (Cum Laude) from the Ateneo de Manila University in 1980.

Jesus V. Razon, Jr. (Independent Director), Filipino, 74 years old, is the Chairman of the Bank’s Audit
Committee and a member of the Corporate Governance, Nomination, and Personnel and
Compensation committees. Mr. Razon was the Senior Vice President of the Consumer Banking Group
and Human Resources Management Group at BPI. He also previously served as a Director of Prudential
Bank since August 2005.

Mr. Razon received his Master in Management from the Asian Institute of Management in 1990 and
his degree in AB Economics from the Ateneo de Manila University in 1967.

Jaime Alfonso Antonio E. Zobel de Ayala, Filipino, 30 years old, joined as board director in June 2020.
He is the Head of Business Development of Ayala Corporation. He is also a Director of Exenor, Inc. MCT
Berhad, BPI Capital Corporation and Ayala Land Logistics Holdings Corp.

Mr. Zobel de Ayala graduated from Harvard in 2013 with a Degree in Primary Concentration in
Government and completed his MBA from Columbia University in 2019.

Corporate Secretary

Angela Pilar B. Maramag. Filipino, 51 years old, was appointed Corporate Secretary on April 8, 2015.
She is also the Corporate Secretary of BPI subsidiaries and affiliates, including BPI Family Savings Bank,
BPI Capital Corporation, BPI Asset Management and Trust Corporation, BPI/MS Insurance Corporation,
and BPI Foundation. Prior to joining BPI, Ms. Maramag was Senior Counsel at the Bank for
 13

International Settlements (BIS) in Basel, Switzerland, from 2001 to 2008, and Head of Finance and
Administration at the BIS Representative Office in Hong Kong from 2008 to 2011. She was a Legal
Officer at the United Nations Compensation Commission in Geneva, Switzerland, from 1998 to 2001.
Ms. Maramag was admitted to the Philippine Bar (1995) and New York State Bar (1998). She received
her Master in Laws (LL.M) from the University of Chicago in 1997, Juris Doctor (J.D) in 1994 from
Ateneo de Manila School of Law, and AB Honors Program in Economics in 1990 from Ateneo de Manila
University.

Board Committees

Chairman Marie Josephine M. Ocampo*

Natividad N. Alejo
Ignacio R. Bunye . (Independent)
Jose Ferdinand B. De Luzuriaga (Independent)
Jerome B. Minglana
Members
Aurelio R. Montinola III
Simon R. Paterno
Jesus V. Razon, Jr. (Independent)
Jaime Alfonso Antonio E. Zobel de Ayala

*Replaced Mr. Simon R. Paterno as Chairman of the Board effective January 22, 2020

Corporate Governance Committee

The Corporate Governance Committee assists the Board in fulfilling its corporate governance
responsibilities, and ensures the Board’s effectiveness and due observance of sound corporate
governance principles and guidelines, as embodied in the Manual of Corporate Governance.

It also performs the function of a Related Party Transaction Committee and is charged with ensuring
that the Bank’s dealings with the public and various stakeholders are imbued with the highest
standards of integrity. In conjunction with the Audit, Risk, and Corporate Governance Committees, this
Committee endeavors to ensure compliance with Bangko Sentral regulations and guidelines on related
party transactions. The committee independently reviews, vets, and endorses significant and material
related party transactions—above and beyond transactions qualifying under directors, officers,
shareholders, and related interest restrictions—such that these transactions are dealt on terms no less
favorable to the Bank than those generally available to an unaffiliated third party under the same or
similar circumstances.

Chairman Ignacio R. Bunye (Independent)

Jesus V. Razon Jr. (Independent)

Members Simon R. Paterno

Nomination Committee
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The Nomination Committee ensures that the Board of Directors is made up of individuals of proven
integrity and competence, and that each member possesses the ability and resolve to effectively
oversee the Bank in his capacity as board member and member in their respective board committee.
This Committee also reviews and evaluates the qualifications of all persons nominated to the Board.

Chairman Marie Josephine M. Ocampo

Jose Ferdinand B. De Luzuriaga (Independent)

Members
Simon R. Paterno

Audit Committee

The Audit Committee monitors and evaluates the adequacy and effectiveness of the Bank’s system of
internal control systems, risk management, and governance practices. It provides oversight on the
integrity of the Bank’s financial statements and financial reporting process, performance of the
internal and external audit functions and compliance with bank policies, applicable laws, and
regulatory requirements. This Committee also reviews the external auditor’s annual audit plan and
scope of work, and assesses its overall performance and effectiveness. In consultation with
management, this Committee also approves the external auditor’s terms of engagement and audit
fees.

Chairman Jesus V. Razon, Jr. (Independent)

Natividad N. Alejo
Members
Jose Ferdinand B. De Luzuriaga (Independent)

Risk Management Committee

The Risk Management Committee is tasked with nurturing a culture of risk management across the
enterprise. It supports the Board by overseeing and managing the Bank’s exposures to financial and
non-financial risks, assesses new and emerging risk issues across the Bank, regularly reviews the Bank’s
risk management appetite, policies, structures and metrics, and monitors overall liquidity and capital
adequacy, in order to meet and comply with regulatory and international standards on risk
measurement and management.

Chairman Jose Ferdinand B. De Luzuriaga (Independent)

Natividad N. Alejo
Members
Ignacio R. Bunye (Independent)

Personnel and Compensation Committee

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The Personnel and Compensation Committee directs and ensures the development and
implementation of long-term strategies and plans for the Bank’s human resources, in alignment with
the Board’s vision for the organization.

Chairman Aurelio R. Montinola III

Simon R. Paterno
Members
Jesus V. Razon Jr. (Independent)

Executive Officers of BanKo

The Executive Officers of BanKo are the President, Senior Vice President, Vice President, Secretary and
Treasurer. The Executive Officers shall be appointed by the Board of Directors. In addition, the Board of
Directors shall appoint (from time to time) such other senior officers as provided for in the BanKo By-
Laws.

President Jerome B. Minglana

Senior Vice President Rodolfo K. Mabiasen, Jr.

Vice President Ma. Cynthia Leticia S. De Jesus

Meetings and Attendance

The BPI Direct BanKo Board meets regularly for the effective discharge of its obligation. Regular board
meetings are convened monthly, held every fourth Wednesday of the month. Board of Directors
meetings are set immediately after the Annual Stockholder Meeting to cover the full term of the newly
elected or re-elected members of the Board, reckoned from the date of the current year’s Annual
Stockholder Meeting to that of the following year. Special meetings may be called for as needed.
Discussions during the board meetings and open independent views are given due consideration.
Board reference materials are made available to the directors at least five days in advance of the
scheduled meeting. Independent and Non- Executive Directors of the Bank also meet at least once a
year without the presence of the executive director or management.

The Board’s full-year attendance at the 2020 Board Meetings and Committee Meetings are outlined as
follows:
 16

Performance Evaluation and Self-Assessment

Monitoring of governance by the Board requires a continuous review of the internal structure of the
Bank to ensure that there are clear lines of accountability for management throughout the
organization.

In this regard, the Board, under the guidance of the Corporate Governance Committee, annually
conducts a self-assessment to ascertain the alignment of leadership fundamentals and issues, validate
the Board’s and Senior Management’s appreciation of its roles and responsibilities and confirm that
the Board and Senior Management possesses the right mix of background and competencies.
Performance of the Board and Senior Management is measured on the basis of what it delivers and
how it delivers, how it meets its responsibilities to all BPI Direct BanKo stakeholders, and how it
addresses issues that impact the Board’s and Senior Management ability to effectively fulfill its
fiduciary duties.
 17

Succession Planning and Talent Management

Financials services today face many transformative factors – regulation, market disruption, new
technologies and business models, competition- that affect the business in major and long-term ways.
Our Board understands that the Bank must continually evolve, adapt, and even restructure the
business to remain ahead of strategic, market, technology and regulatory shifts. The Board, through its
Personnel and Compensation Committee, manages the talent pipeline and assembles the required
personnel capable of navigating such changes.

In consultation with the President, the Personnel and Compensation Committee reviews the Bank’s
talent development process for the proper management. Senior management provides a report to this
Committee on the results of its talent and performance review process for key management positions
and other high-potential individuals. Aside from ensuring that there is a sufficient pool of qualified
internal candidates to fill senior leadership positions, this review process identifies opportunities,
performance gaps, and proactive measures in the Bank’s executive succession planning. And as part of
the same executive planning process, the Committee as a whole or a part thereof, in consultation with
the Board and the President, evaluates and nominates potential successors to the President and the
Senior Management.

Induction and Director Education

Board members acquire appropriate skills at appointment, and thereafter remain abreast of relevant
new laws, regulations, and changing commercial risks through in-house training and external courses.
New Directors are briefed on BPI Direct BanKo’s background. Organizational structure, and, in
compliance with Bangko Sentral Circular No. 758, the general and specific duties and responsibilities of
the Board.

They also receive briefings on relevant policies and rules governing their roles as Directors. They are
given an overview of the industry, regulatory environment, business of banking, strategic plans of the
Bank, its governance framework, i.e. Manual of Corporate Governance, Director’s Code of Conduct,
Board operations (schedules, procedures and processes), including support from the Corporate
Secretary and senior management. Continuing education of Board members includes internal meetings
with senior executives and operational or functional heads, dedicated briefings, on specific areas of
responsibility within the business and special presentations on current issue or regulatory initiatives
with respect to Data Privacy, Cyber Risk, and Cyber Security, the Anti- Money Laundering and Terrorist
Financing Prevention Program, Foreign Account Tax Compliance Act, Securities Regulations Code, SEC
memorandum circulars, and Bangko Sentral regulations, among others. The Bank brings technical,
subject matter experts as needed. Other in-bank courses on anti- money laundering, business
continuity management, conflict of interest, risk management overview, and information security
awareness. Board members also regularly attend governance conferences, and summits.

Remuneration

Our remuneration decisions for the Board and management are aligned with risk incentives and
support sustainable, long-term value creation. Apart from ensuring that Board and management pay
appropriately reflects industry conditions and financial performance, the Bank likewise rebalances
returns back to shareholders through dividend declaration.

Under the Bank’s Amended By-Laws, as approved by the shareholders, the Board of Directors, as a
whole, determines the level of remuneration and/or benefits for directors sufficient to attract and
retain directors and compensate them for their time commitments and responsibilities of their role.
 18

Our Personnel and Compensation Committee (PerCom) recommends to the Board the fees and other
compensation for directors, ensuring that compensation fairly remunerates directors for work
required in a company of BanKo’s size and scope. As provided by our Amended By-Laws and pursuant
to a Board resolution, each director is entitled to receive fees and other compensation for his services
as director. The Board has the sole authority to determine the amount, form, and structure of the fees
and other compensation of the directors.

Board members receive per diems for each occasion of attendance at meetings of the Board or of a
board committee. All fixed or variable remuneration paid to directors may be given as approved by
stockholders during the Annual Stockholders Meeting, upon recommendation of the PerCom. Other
than the usual per diem arrangement for Board and Committee meetings and the aforementioned
compensation of Directors, there is no standard arrangement as regards compensation of directors,
directly or indirectly, for any other service provided by the directors for the last completed fiscal year.

Board members with executive responsibilities within the BPI group are compensated as fulltime
officers of the company, not as Executive Directors or Non-Executive Directors. No director
participates in discussions of the remuneration scheme for himself or herself. The remuneration policy
is reviewed annually to ensure that it remains competitive and consistent with the Bank’s high
performance culture, objectives, and long-term outlook, risk assessment and strategies.

The Board, through the PerCom, annually approves the remuneration payable to the President and
Senior Management who have the authority and responsibility for the Bank’s overall direction and
strategy execution. The PerCom monitors and assesses how the remuneration was implemented each
year and ensures that it corresponds to the remuneration policy.

Code of Business Conduct and Ethics

BanKo’s core values encapsulate what we believe in and what we stand for. All Directors and
Employees are expected to observe the highest standards of accountability, performance, punctuality,
honesty, integrity, courtesy, and teamwork, and thus contribute to the achievement of the Bank’s
goals of customer satisfaction, excellence and profitability.

Whistleblower Policy

The Whistleblower Program is the Bank’s mechanism for preventing and detecting fraud or
misconduct, and enabling fast and coordinated incident responses and avenues for establishing cause,
remedial actions, and damage control procedures.

Under the Policy, it is the responsibility of all personnel, including the Board, Officers and employees,
to comply with the rules and regulations of the Bank and to report violations or suspected violations in
accordance with the Whistleblower Policy. Any person who knowingly aids, abets, or conceals or
otherwise deliberately permits the commission of any irregular or fraudulent act directed against the
Bank shall be considered as guilty as the principal perpetrators of the fraud or irregularity. Hence, all
personnel, including the Board, Officers and employees, have a duty to cooperate with investigations
initiated under the policy.

Anti-Bribery and Anti-Corruption Policy

The Bank puts the highest premium on sound, responsible and effective corporate governance and
does not tolerate bribery, corruption or improper acts of any kind in all business dealings. As such, it
has enabled and equipped the Bank’s officers and Employees, with the requisite policies, programs and
guidance through its Code of Business Conduct and Ethics and Standards on Conflict of Interest to
combat risks in corruption and bribery.
 19

Remuneration Structure and Policies

Remuneration for the President and Senior Management is set in the same way as for all officers,
employees and staff, being contractually fixed, based on the role, the skills and experience of the
individual, and reviewed annually with reference to relevant market benchmarks. Remuneration for
Senior Management, as reflected in the ratio between fixed and variable components of their total
compensation, changes according to performance, rank and function.
 The PerCom ensures that Senior Management remuneration and incentives reflect prudent risk-
taking and effective control.
 Salary reviews (covering fixed and variable compensation) are done annually to ensure market
competitiveness of the senior officer’s total remuneration. The Bank also participates in Executive
and Total Remuneration Surveys to benchmark on its market positioning.
The remuneration of the Head of Risk Management and Head of Compliance Department are reviewed
and endorsed by the Risk Management Committee and Audit Committee respectively and
subsequently approved by the Board. The performance of control functions, (Audit, Compliance and
Risk) are assessed independently from the business units they support to prevent any conflicts of
interests.

These principles of paying competitively and paying for performance applies equally to our Board,
Senior Management, Officers and staff. Senior management and staff remuneration must reflect the
interest of the shareholder and the Company, and is structured to encourage the long-term
commitment of the employee as well as long term outlook and plans of the Company.

Retirement Policy

The best interests of BanKo are served by retention of directors that make very meaningful
contributions to the Board and the organization, regardless of age. It is the Bank’s strong view that
with age often comes unmatched wisdom and experience, expert business judgement, invaluable
industry and community relations and authority, and deeply ingrained appreciation of the principles of
corporate governance.

The Bank believes that imposing uniform and fixed limit on director tenure is counter-productive as it
may force the arbitrary retirement of valuable directors.

Retirement of senior management is done with the requisite succession planning and in accordance
with the Bank’s policies and implementing guidelines of its retirement plan for all employees, the
Bank’s Amended By-Laws, Labor Code and the Corporation Code of the Philippines. Currently, the
retirement age for employees of the Bank is set at 60 years of age.

Related Party Transactions

As part of the Bank’s effort to ensure that transactions with related parties are normal banking
activities and are done at arm’s length, vetting is done either by the BanKo Management Vetting
Committee, the Board-level Corporate Governance Committee or the BPI Related Party Transaction
Committee, depending on materiality, prior to implementation.
 20

OPERATING MANAGEMENT
The following is an overview of the Bank’s principal activities and its functional organization (as of
December 31, 2020):

TABLE OF ORGANIZATION

Board of Directors
Corporate
Secretary

Audit BanKo Audit Risk

(SLA with BPI) President Committee Committee

Risk
Compliance
Management

President

Financial Inclusion &

Microfinance Solutions

Branch Channels

Credit, Collection & Finance & Strategic Financial Planning &

Enterprise Services
Loans Operations Management Control Division
Agency Banking &
Direct Sales
Credit Quality Assurance Treasury

Customer &
Product Collections & Strategic
Human Resources
Management Loans Business
& Training
Operations (Non-Core)
Branch & Digital
Channels Technology Accounting
Management Support

Analytics
Contact Center

Partnership,
Operations,
Monitoring, &
Premises

Deposits
Operations
 21

RISK MANAGEMENT
Comprehensive Framework

BanKo under the centralized Enterprise Risk Management (ERM) in BPI pursues best practices across its
businesses and processes. It has an established ERM and capital management framework that enables
the Bank to identify, measure, control, and monitor its significant financial and non-financial risk
exposures, ensure adequate liquidity, and set aside sufficient amounts of capital to cover and mitigate
such risks. The framework reflects the Bank’s internal standards as guided by the regulatory directives
issued by the Bangko Sentral ng Pilipinas (BSP) in promoting effective risk management governance,
implementing robust business continuity and resiliency standards that are regularly tested, and
performing the internal capital adequacy assessment and other risk management processes.
(Recommendation 2.11, 12.4 SEC CG Code for PLCs)

Risk management in BPI follows a top-down approach, with risk appetite setting and overall risk
strategy emanating from the Board of Directors (Board). The Board fulfills its risk management function
through the Risk Management Committee (RMC). The RMC defines risk appetite statements at
functional risk areas and reviews risk management structures, metrics, limits, and issues of the Bank,
and directs the Bank’s risk strategy framework anchored on sound risk management governance,
value-enhancing risk methods and processes, and risk-intelligent data and technology. It oversees and
manages risks and monitors regulatory and internal capital adequacy vis-à-vis risk exposures. It
promotes a strong risk culture and exercises oversight through the Bank’s Risk Management Office. It
manages risks through clearly-delineated functions to ensure effective risk management governance
and control processes across the Bank using the “three lines of defense” model. This model defines the
risk management responsibilities of each unit owning and managing the risk (1st line), overseeing risk
management function (2nd line), or providing independent assurance on the quality and effectiveness
of risk management and internal controls (3rd line).

The Bank’s risk culture is anchored on its vision of transparency and integrity in the workplace, creation
of sustainable value, and delivery of maximum returns to stakeholders. In order to achieve its
responsibilities to clients, employees, stakeholders, regulators and country, it exercises proactive and
prudent risk management.

Chief Risk Officer (CRO). The CRO of the BPI Group thru the BanKo Risk Officer leads the formulation of
risk management policies and methodologies in line with overall business strategy. The CRO thru the
BanKo Risk Officer, who is primarily responsible for the overall management of the Bank’s total risk,
ensures that risks are prudently and rationally taken, within the Bank’s risk appetite, and
commensurate with returns on capital. The Bank’s risk appetite is a careful measure of the amount of
risk it is willing to assume in order to achieve business objectives. Risk appetite statements are
regularly reviewed and approved by the Board through the RMC.
 22

The CRO and the BanKo Risk Officer is supported by the Risk Management Office (RMO), a team of
skilled risk managers dedicated to identifying, measuring, controlling, and monitoring the BPI Group’s
risk exposures. The Bank’s risk managers keep abreast of industry developments, emerging risks, and
risk management best practices through continuous and adequate training. The CRO and the RMO
actively engage the RMC, Management, and business units to effectively communicate through various
internal channels the Bank’s risk culture, risk awareness campaigns and learning programs, and risk
management best practices. (Recommendation 12.5 of the SEC CG Code for PLCs).

BPI identifies risks according to three major classifications:

• Credit Risk (including concentration)
• Market (including foreign exchange, interest rate, and equity price risks) and Liquidity Risks
• Operational and Information Technology (IT) Risks

Credit risk refers to the risk of default on obligations that may arise if a borrower fails to make required
payments such as principal and/or interest on an agreed date; market risk due to price
movements/fluctuations in trading and distribution activities of credit securities, foreign exchange, and
derivative instruments (as allowed by regulation); liquidity risk from the management of the Bank’s
cash flows and balance sheet; and operational and IT risks from inadequate or failed internal
processes, people, information technology and systems, and threats from external events that pose
risks of financial losses and damage to the Bank’s reputation. The Bank is likewise cognizant of other
emerging risks (e.g., environmental, social, and geopolitical risks) that it may be exposed to in its day-
to-day business operations and these are identified, measured, controlled, and monitored accordingly.

The Bank has established risk management processes and controls and uses various methodologies,
metrics, tools, and systems to identify, measure, control, and monitor its risk exposures. It
continuously invests in risk technologies and business-enabling systems, and enhances its processes to
ensure completeness and accuracy of data, 360o risk perspective, and timely reporting. With the
implementation of the Risk Data Architecture system leveraging on the Bank’s Enterprise Big Data
platform, the availability of automated risk data not only supports the Bank’s risk management
activities, but also enables risk data servicing of the various business units.

In compliance with BSP Circular 989 (Conduct of Stress Testing Exercises), the RMO together with the
Strategy & Finance Group have employed a formal integrated risk and capital stress testing framework,
with forward looking assessment of risks under given stressed scenarios identified or developed by the
Bank’s experts, to facilitate the development of contingency and recovery plans.

Independent reviews are regularly conducted by the Bank’s Internal Audit, external auditors, and
regulatory examiners to ensure that controls and risk mitigation are in place and functioning as
intended. The Bank also engages various risk management experts to independently assess the Bank’s
risk maturity covering areas such as business continuity, cyber and information security, and ERM.

All these efforts have been undertaken and conscientiously practiced in recognition of BSP Circular 971
(Risk Governance), as well as benchmarked to the Committee of Sponsoring Organization’s (COSO)
ERM integrated framework. These have likewise proven indispensable with the Bank heavily relying on
its established risk management system to ensure continued delivery of value to its stakeholders
during unprecedented times brought about by the COVID-19pandemic.

Credit Risk

The single largest risk for most local banks, arises from the Bank’s core lending and investing
businesses, and involves thorough credit evaluation, appropriate approval, management and
continuous monitoring of risk exposures such as borrower (or counterparty) risk, facility risk,
concentrations and industry risks relating to each loan account. The Bank’s credit risk management
process is governed by established underwriting policies and credit parameters, and lending
 23

procedures and standards which are regularly reviewed and updated given regulatory requirements
and market developments. The Bank’s loan portfolio is continuously monitored and reviewed as to
overall asset quality and credit risk concentration.

In 2020, the Bank experienced a decrease in loan volumes and increase in credit risk due to the COVID-
19 pandemic, but was able to manage overall credit risk and maintain asset quality, in general
compliance with regulatory and prudential requirements relating to credit risk management. The Bank
continues to maintain a diversified loan portfolio with no significant concentrations. Top borrower
exposures remain within the internal single borrower’s limit.

The Bank regularly reviews the sufficiency of loan loss provisioning which is based on expected credit
loss (ECL) model developed for each loan portfolio.

The Bank adopted credit score card to assess the borrowers’ credit worthiness. The credit scorecard
model undergo model enhancement and independent validation to ensure maintain predictive power
and performance.

The Bank fully implemented Philippine Financial Reporting Standards 9 (PFRS 9)-based policies, models,
and ECL methodologies for all of its credit portfolios, rendering it compliant to both the BSP and
accounting standards on PFRS 9 implementation. Loss provisioning are based on ECL, which is a
function of the probability of default, loss given default, and exposure at default.

The Bank measures credit risk exposures in terms of regulatory capital requirements using the
standardized approach in compliance with Basel III and BSP standards on minimum capital
requirements. Using this approach, credit exposures are risk-weighted and allows for the use of eligible
collaterals (cash, financial instruments, and guarantees) to mitigate credit risk.

The Bank continuously enhances its credit policies, processes, guidelines, and lending programs to
conform with sound credit risk management.

The Bank regularly conducts stress tests on its loan portfolio to determine the impact of changes in
various macroeconomic scenarios, surface any undue credit concentration risk, and comply with
regulatory reporting. Assessment of stress testing impact to the Bank’s financials is also performed
simultaneously. In the most recent exercise, results showed that the Bank’s capital adequacy ratio
(CAR) and common equity tier 1 ratio (CET1) generally remain above or at about the regulatory capital
requirements, even with assumed write-down scenarios and COVID-19- affected portfolio.

All these efforts have been undertaken in recognition of BSP Circular 855 (Sound Credit Risk
Management Practices).

Market, Interest Rate in the Banking Book (IRRBB), and Liquidity Risks

Risk Management Office exercises its market, IRRBB, and liquidity risk management duties and
responsibilities in coordination with BPI parents Market and Liquidity Risk Management Division
(MRM). The division employs various risk metrics commensurate to the size and sophistication of its
business operations which guide the Bank to effectively manage the risks arising from position taking
strategies balanced by the Board’s overall risk appetite. Risk limits are continuously reviewed and
updated to align with the Bank’s objectives, strategies, and overall risk appetite. MRM also provides
forward looking scenario analysis, simulations, and stress tests to complement the risk metrics and
provide a broader and holistic risk perspective to the RMC and Management. For 2020, amidst the
COVID-19 pandemic, the Bank’s market risk, IRRBB, and liquidity risk exposures were generally within
the RMC-approved limits.
 24

The Bank closely monitors the risk exposures of both trading and non-trading portfolios. Assets in both
on- and off balance sheet trading portfolios are marked-to-market and the resulting gains and losses
are recognized through profit or loss. Market risk exposures from these portfolios are measured using
the historical simulation Value-at-Risk model complemented by several risk metrics such as Stop Loss
and dollar duration (DV01).

IRRBB is the current and prospective risk to the Bank’s capital and earnings arising from adverse
movements in interest rates that affect its banking book positions. Excessive levels of interest rate risks
in the banking book can pose a significant threat to the Bank’s earnings and capital base. Therefore, it
is imperative for the Bank to establish adequate risk management policies and procedures, appropriate
risk measurement models, risk limits structure, and a robust risk management system measured
through (a) Earnings-at-Risk (EaR), or the potential deterioration in net interest income over the next
12 months due to adverse movements in interest rates, and (b) balance sheet Value-at-Risk (BSVaR), or
the impact on the economic value of future cash flows in the banking book due to changes in interest
rates. BSVaR considers both principal and interest payments while EaR considers principal payments
only. Both are built on the repricing profile of the balance sheet accounts. IRRBB risk levels are
compared against RMC approved limits and regularly reported to the RMC and Senior Management.

The Bank ensures adequate liquidity levels at all times and contingency plans are in place in the event
of liquidity stress. The Bank’s liquidity profile is measured and monitored through its internal metric –
the Minimum Cumulative Liquidity Gap (MCLG), and the regulatory metrics – Liquidity Coverage Ratio
(LCR) and Net Stable Funding Ratio (NSFR). MCLG measures the smallest net cumulative cash inflow (if
positively gapped) or the largest net cumulative cash outflow (if negatively gapped) over the next three
months. This indicates the biggest funding requirement in the short term and the degree of liquidity
risk present in the current cash flow profile of the Bank. LCR determines the short-term resilience of
the Bank’s liquidity risk profile, requiring financial institutions to hold adequate level of high-quality
liquid assets to cover net cash outflows in the next 30 days. The Bank maintains adequate liquidity to
provide sufficient buffer for critical liquidity situations. NSFR complements the LCR by limiting the
overreliance on short-term wholesale funding and promotes enhanced assessment of funding risk
across all on- and off-balance sheet accounts. An escalation procedure is in place to immediately report
to Management and the RMC when MCLG, LCR, and NSFR levels are approaching approved floor levels
and the minimum regulatory limits, respectively. Corrective actions are identified and implemented to
resolve possible and actual breaches, if any, in order to maintain a stable liquidity environment.
Scenario analyses and simulations provide forward looking liquidity conditions to anticipate potential
funding requirements.

The Bank performs regular stress testing activities to determine its ability to withstand and evaluate
the impact of financial crises and other types of stress events. It conducts price stress tests in the
banking book and EaR stress tests using a variety of interest rate shock scenarios to identify the impact
of adverse movements in interest rates on the Bank’s economic value and earnings. The design of the
price and EaR stress tests includes various scenarios such as steepening and flattening yield curves,
parallel up/down and short rate up/down scenarios, and other notable stressed events experienced by
the financial industry. The interest rate shocks applied are calibrated for all significant currencies in
which the Bank has active positions. The Bank also conducts liquidity stress tests using different risk
events, scenario types, and stress horizons to assess the Bank’s iquidity position and determine
potential liquidity shortfalls during stress events.

The results of the stress tests are presented to the RMC and Senior Management to integrate them to
the overall risk management process of the Bank. In 2020, the Bank conducted various portfolio and
risk simulations to evaluate the impact of possible strategies and actions to address the COVID-19
pandemic. Hypothetical scenarios taking into account the COVID-19 pandemic were also used for the
Bank’s price, IRRBB and liquidity stress testing activities. All these initiatives were undertaken to ensure
that the relevant market, IRRBB and liquidity risks are identified and controlled.
 25

The risk management process, including its various components, is subject to regular monitoring and
periodic independent review (i.e., internal/regulatory audit and model validation), and consistently
calibrated to ensure accuracy, propriety, and timeliness of data and assumptions employed. The
assumptions and parameters used in developing these metrics are properly documented, and any
change in the methodology and assumptions is approved by the CRO and noted by the RMC.

Operational and Information Technology Risks

The Bank’s Operational Risk Management Team monitors risks arising from inadequate or failed
internal processes, people, and systems or from external events such as natural disasters that damage
physical assets and electrical or telecommunication failures that disrupt the Bank’s operations.
Operational risk is inherent in all banking products and services, and may include risks that give rise to
adverse legal, tax, regulatory, or reputational consequences. Information Technology (IT) is a
significant risk factor assumed in conjunction with operational risk, given the highly automated nature
of the Bank’s processes and services. The Bank defines IT risk as the risk of any potential adverse
outcome arising from the use of or reliance on IT (i.e., computer hardware, software, devices, systems,
applications, and networks). IT risk includes, but is not limited to, information security, service
availability, reliability and availability of IT operations, completion on specification of IT development
projects, and regulatory compliance pursuant to the BSP’s guidelines on Information Technology Risk
Management.

The Bank develops and monitors Key Risk Indicators (KRIs), oversees thoroughness of Bank-wide risk
and control self-assessments, loss event management processes, and operational risk management
awareness and appreciation programs. The Bank manages its operational and IT risks by ensuring such
risks are thoroughly identified, assessed, monitored, reported, and mitigated. It has defined clear
responsibilities related to the performance of the risk management function, as well as the
accountabilities, methods, and tools employed to identify and mitigate operational and IT risks in the
Bank’s operating units. It requires operating units to undertake regular self-assessments to identify
risks, assess the inherent and residual risks, identify controls, and assess the design and the
performance effectiveness of these controls. KRIs are used to monitor risk profiles, trigger early-
warning alerts, and instigate mitigating action. Operational loss events data collection and analysis
provide meaningful information in effectively managing risks. The risk and control library improves the
Bank’s aggregation and reporting process by providing an aligned taxonomy of risks and controls.

The Bank’s exposure to operational risks is identified, assessed, and monitored as an integral part of
the risk assessment processes. The Bank currently uses the Basel II regulatory basic indicator approach
to quantify operational risk-weighted assets, using the historical total annual gross income as the main
measure of risk.

The Bank regularly performs operational risk stress tests, through scenario analysis, to support the
internal capital assessment for operational and IT risks, as part of the Bank’s initiatives to advance risk
management methodologies. Through a series of stress scenarios, the Bank is able to identify, analyze,
and assess the impact of unexpected and severe operational risk events. This exercise ensures that the
impact of high-severity events is captured during risk assessment, especially those not yet reflected in
the Bank’s existing historical loss data.

The Bank’s risk management processes are ingrained in the Bank’s new product development efforts.
From inception to launch, new products or programs, as well as its related processes and systems, are
subject to rigorous risk assessments, design and testing activities aimed at safeguarding both the Bank
and its clients from the risks of economic loss, operational disruption, or compromise of personal or
financial data. The Bank has updated its guidelines on the assessment and approval process for
engaging in new business activities to cover not only products and processes, but also new markets
and new business locations or offices.
 26

The Board-level RMC is regularly apprised of IT risks through monthly reports and quarterly meetings.

The Bank continues to closely monitor established measurements and limits on risk indicators, and
implement mitigating measures in view of increasing cyber-related risks and risks related to the COVID-
19 pandemic, primarily on the health and safety of the Bank’s employees and continuity of operations
with the significant portion of the work force on work-from home arrangements. The Bank’s strategic
initiatives on digitalization, improvements on IT infrastructure and cybersecurity technology, and
availability of business recovery sites enabled the continued delivery of the Bank’s products and
services to its customers. The Bank remains operational as it implemented split operations, activated
alternate work sites and mobility areas to improve accessibility of the Bank’s employees to office
premises, and adjusted working hours and work-from home arrangements. The Bank also launched the
mobility program for employees, and equipped them with adequate tools to allow work outside of
Bank premises.

For personnel safety and welfare, the Bank fully complied with health and medical guidelines from the
Department of Health (DOH) and Department of Labor and Employment (DOLE). Additional
precautionary measures continue to be implemented and include providing transportation for
employees, enforcing virtual meetings, and limiting movements of personnel within and across its
business offices. COVID-19 rapid testing for all employees and maintenance personnel were likewise
carried out.

Business Continuity Risk

The Bank is able to maintain its business continuity capability and organizational resilience by means of
an effective and sustainable Business Continuity Management (BCM) program aligned with BPI parent.
This program was self-assessed by the Bank, aligned with ISO 22301 and BSP Circular 951 (Business
Continuity Management). Within this program are methodology, products and services, recovery plans,
and a response structure to provide adequate level of services until normal operations resume. The
Business Impact Analysis (BIA) methodology identifies products, services, and processes that should be
prioritized during a disruption. Risk Assessment for Business Continuity (RABCon) identifies the most
probable threats to the Bank, assesses the likelihood of their occurrences and their impact to key areas
of the Bank. Business Recovery Plan (BRP) provides a suitable solution that focuses on the impact of
events and the timely restoration of building, equipment and supplies, technology and vital
documents, human resources, and third-party vendors.

Resiliency structure is in place and functional areas have been identified to meet business continuity
objectives and to support the agreed recovery solution. Each functional area has a designated
Functional Business Continuity Coordinator who handles localized risk events impacting business units
in the functional areas, with the support and guidance of tactical teams such as the Incident
Management Teams and the Corporate BCM Unit. For incidents that rise to the level of a true crisis,
the Crisis Resiliency Committee (CRC) central in BPI parent, composed of senior officers which includes
senior officers of BanKo, is convened to establish command and control.

At the onset of the pandemic, the CRC which includes senior officers of BanKo convened regularly to
provide direction and to streamline critical parts of the operational approach for the Bank to operate
more effectively. Employees were transitioned to remote working, equipped with the necessary access
and tools, and precautionary measures were implemented in all the corporate offices and branches for
the safety and security of the employees. The Bank’s business recovery sites (as allocated in
coordination with BPI parent) is in strategic locations proved to be helpful as it enabled the Bank to
immediately implement split operations (Team A and Team B), physical distancing, and decreased
personnel density in the main corporate sites to contain infection.
 27

The foundational capabilities that the Bank has in place, which included anything from experience and
relationships to frameworks and data, allowed the Bank to be resilient in the face of the disruptions
related to the pandemic.

Information and Physical Security Risks

The Bank is vigilant about information and physical security. The Banks’ Information Security
Management aligned with BPI’s Enterprise Information Security Management (EISM) team is
continuously maintaining and revalidating the inventory of the Bank’s information assets to enhance
monitoring and reporting of information security risks. It addresses the evolving cyber-threat
landscape and adheres to applicable laws such as the Data Privacy Act by continuously improving its
defenses, following the Bank’s Information Security Program. To secure the new computing
environment, the Bank implemented technical and organizational controls that maintain the
confidentiality, integrity, and availability of information assets and IT facilities.

To complement continued investments in technical controls and recognizing the criticality of a cyber
aware organization in securing the Bank from attacks, the Bank has an established awareness program
that includes classroom trainings, e-learning courses that are accessible anytime, anywhere,
roadshows, and periodic bulletins. Awareness campaigns for clients to combat fraud, which has risen
as a consequence of increased adoption of online services by the public, have been intensified with
sustained engagement also conducted extensively online via social media, website, press releases, and
e-mail bulletins. The Bank continually implements programs such as these to make clients and
employees aware of the current cybercrime landscape, emerging risks and trends, and mitigating
measures to further strengthen operational risk and information awareness. An established third party
or vendor risk management program ensures that the use of service providers and IT suppliers do not
unnecessarily expose the Bank to operational, regulatory, and reputational risk.

BPI’s Facilities Services Group (FSG) is at the forefront of ensuring a safe and secured environment
within which the Bank’s clients and personnel can conduct business at their convenience. Being the
office responsible for the physical security of the Bank’s facilities and the overall safety of its clients
and employees, FSG implements a proactive and integrated approach to people, infrastructure, and
information security to address the increasingly sophisticated and cross-border threats on financial
products and services fulfillment. Facilities security and monitoring are constantly evaluated and
enhanced to achieve more advanced, dynamic and resilient designs integrating traditional physical
security system with value engineering of more advanced tools to stay ahead of the evolving physical
and financial security landscape. Reinforcing this effort is capability development through physical
security monitoring systems improvement and deployment of emergency communications at strategic
areas for enhanced coordination. Amidst the COVID-19 pandemic, FSG provided several safety
initiatives aligned with Inter- Agency Task Force on Emerging Infectious Diseases (IATF) guidelines
which include the employee shuttle services, disinfection of premises, distribution of Personal
Protective Equipment (PPE) such as face masks and hand sanitizers and conversion of idle workspaces
for mobility or alternate sites. With the foregoing and FSG’s Physical Security and Safety Response Plan
laid down for all types of emergencies and calamities that is further supported by trained personnel
and physical & technological assets, the Bank is ready for any kind of eventualities and emergencies.

Legal and Tax Risks

The Bank outsourced the legal services to BPI. BPI has two specialized legal services divisions
composed of highly-trained legal professionals with experience in banking and corporate law that
serve as BPI Group’s main legal resource. These two legal divisions play critical roles in the operations
of the Bank especially during this time of the pandemic.

The BPI Corporate Legal Affairs Unit composed of the Documentation, Legal Advisory, Legal Risk, Tax
Compliance, Tax Advisory and Tax Risk Management units provide proactive guidance and support to
 28

effectively manage the Bank’s legal and tax risks. The Documentation and Legal Advisory units ensure
that the Bank’s rights and obligations are protected in its contractual relations, and that the Bank is
abreast of legal developments and requirements, respectively. It also conducts a legal risk assessment
of potential claims against the Bank and recommends legal risk mitigation measures. It further
empowers the Bank units by issuing legal and tax advisory bulletins and providing supporting training
seminars that highlight legal and tax issues, new laws, and regulatory fiats that impact the Bank’s
products and services, and promote awareness of initiatives of various regulatory agencies.

During the pandemic, BPI’s Corporate Legal Affairs continued to provide legal direction and support to
the Bank, working closely with Management, Risk and Compliance Offices, and the various business
segments in monitoring, interpreting, and implementing laws, government regulations and issuances in
connection with the pandemic. These include the Bayanihan to Heal as One Act, Bayanihan to Recover
as One Act, implementing rules and regulations issued by the BSP and SEC, various IATF resolutions,
BIR issuances, and local government ordinances.

The Bank’s Dispute Resolution and Litigation officer, under BanKo HR Team, plays a significant role in
protecting the Bank’s rights and interests and in avoiding losses when it is involved in all types of
disputes from customer complaints before regulatory bodies to full blown litigation in all levels of the
judicial proceedings as well as from trial courts to the Supreme Court. He likewise ensures compliance
with all issuances of the DOLE, and other related regulatory issuances of the BSP.

Reputational Risk

The Bank defines reputational risk as the risk of potential negative public perception or uncontrollable
events and developments to have an adverse impact on the Bank’s brand and reputation that can
affect the ability to maintain existing or establish new business relationships and continued access to
sources of funding.

A company’s reputation is a very valuable asset, especially for a financial institution. A negative
corporate reputation harms client and investor trust, erodes customer base, and hinder sales. Poor
reputation also correlates with increased costs for hiring and retention which degrades operating
margins and prevents higher returns. Furthermore, reputational damage increases liquidity risk which
impacts stock price and ultimately slashes market capitalization.

The Bank complies with the BPI established reputational risk management framework that provides
consistent standards for the identification, assessment, and management of reputational risk issues.
While all employees have a responsibility to protect the Bank’s reputation, which forms part of the
Bank’s Code of Conduct, the primary responsibility for managing and reporting reputational risk
matters lies with the business and operating units in the first line of defense.

The Corporate Affairs and Communications unit in BPI, on the other hand, is the risk control owner of
reputational risk, promoting awareness and application of the BPI’s policies and standards regarding
reputational risk and encouraging business units to take account of the Bank’s reputation in all
decision-making, including dealings with customers and suppliers, and among employees.

Sound Capital Management

Effective capital management supports the Bank’s assets and absorbs losses that may arise from credit,
market and liquidity, operational and IT, and other risk exposures. The Bank’s capital management
framework ensures that on standalone, there are sufficient capital buffers at all times to support the
respective risk profiles of the various businesses of the Bank, as well as changes in the regulatory and
accounting standards and other future events. The Bank submits a comprehensive internal capital
adequacy assessment process, or ICAAP, document annually to the Bangko Sentral ng Pilipinas, in
accordance with the Pillar 2 guidelines of the Basel framework. As of December 31, 2020, The Bank’s
 29

CET1 and CAR Ratio stood at 11.03% and 11.79% respectively, both higher than the minimum
regulatory requirements.

The table below shows the Bank’s CAR components for 2020 and 2019:

Risk (Php Mn) 2020 2019

Credit Risk 10,379 12,624
Market Risk 29 25
Operational Risk 3,842 2,146
Total 14,250 14,795
Capital Adequacy (Php
Mn) 2020 2019
CET1/Net Tier1 ¹∕ 1,571 2,247
T2/Net Tier2 ²∕ 109 128
Total QC ³∕ 1,680 2,375
Total CRWA 4∕ 10,379 12,624
Total MRWA 5∕ 29 25
Total ORWA 6∕ 3,842 2,146
TRWA 7∕ 14,250 14,795
Ratios (%)
CET1 11.03 15.19
CAR 11.79 16.05
¹∕ Common Equity Tier 1 Capital/Net Tier 1
²∕ Tier 2 Capital/Net Tier 2
³∕ Qualifying Capital
4∕ Credit risk-weighted assets
5∕ Market risk-weighted assets
6∕ Operational risk-weighted assets
7∕ Total risk-weighted assets

The bank's types and level of risk willing to assume in order to achieve business objectives is conveyed
through the risk appetite statements approved by the Risk Management Committee. This covers each
important risk identified.

Risk Area BanKo Risk Appetite Statements

1. Enterprise Risk The Bank adopts an overall low risk appetite for the Bank’s
aggregated and total financial and non-financial risk exposures.

2. Credit Risk The Bank shall ensure to maintain a moderate level of non-
(portfolio quality) performing loans (NPLs), and make certain that the amounts of
loss reserves are sufficient to cover the NPL and ROPA levels.
3. Credit Risk
(Regulatory Limits, Credit The Bank has low appetite for non-compliance to regulatory
Counterparty Risk & Credit limits and ceilings on credit risk, particularly on credit portfolio
Concentration) concentration and credit test results.

The Bank has low appetite for losses from the day-to-day trading
4. Market Risk activities, which are monitored against the Bank’s profit-and-loss
(P&L and comprehensive income levels.

The Bank aims to meet regulatory and internal requirements of

5. Liquidity Risk liquidity in terms of the ability to meet current and prospective
obligations.

The bank has low appetite for losses due to adverse movements
6. Interest Rate Risk in the interest rates as measured by the impact on the Bank’s net
interest income and underlying value of assets, liabilities and off-
balance sheet instruments.

The Bank has a moderate appetite for the financial losses due to
7. Model Risk the use of risk models that are work in progress in absence of a
stable model in the industry.
 30

The Bank has moderate appetite for losses to earnings or capital,

8. Business Strategic Risk whether current or prospective, due to adverse business
decisions, improper implementation of decisions or lack of
responsiveness to industry changes in business conditions.
The Bank has a very low appetite for reputational risk and takes
9. Reputational Risk immediate action to resolve clients’ complaints, local and
overseas regulatory concerns, and high risk issues.

The Bank has zero tolerance for incidents involving improper

business practices. The Bank nurtures a culture of high ethical
10. Conduct Risk and moral standards among employees where the tone is set at
the top for conducting business with honesty, decency, fairness
and integrity.

The Bank strive to mitigate risks with no annual aggregated

11. Operational Risk operational risk losses to exceed 1% of gross income per year.
The Bank have zero tolerance for any loss incident of catastrophic
proportions.
A. Operational Risk The Bank aims to achieve 99.5% availability of critical customer-
(Run the Bank) facing services.
1. Business Process The Bank has a low operational risk appetite for process failure
Execution Failure and low tolerance for high risk internal audit issues.
The Bank has a low appetite for legal action against it with
assessed unfavorable outcome. The Bank aims to maintain
2. Regulatory and Compliance
compliance with regulatory requirements across BanKo and to
address any breach within the time provisions of regulators
3. Damage to Physical and The Bank pursues to have effective and tested business
Intangible Assets, continuity plans, responding to cover mission-critical products /
Technology Failures and services and making these available within two (2) to four (4)
Damages hours.
4. Vendor Failures and The Bank does not tolerate failure from providers of critical
Damages outsourced services
The Bank has a low appetite for counterparty failures. The Bank
5. Trade Counterparty
exercises due diligence when dealing with counterparties and
Failures
correspondent banks.
The Bank applies industry standards in securing our assets,
including physical and financial assets, customer data and other
B. Operational Risk highly sensitive data and human resources.
(Secure the Bank) The Bank strives to mitigate emerging risks with zero tolerance
for data confidentiality and integrity breaches leading to financial
loss, reports to regulators and/or media reports.
The Bank has zero appetite for events and work activities that
compromise the health and safety of employees, causing serious
1. Employment Practices
illness or injuries or loss of life. The Bank gives utmost priority to
and Workplace Safety
providing adequate safety equipment to prevent any accident in
the workplace
The Bank aims to employ sufficient, suitably skilled and
experienced staff with clearly defined roles and responsibilities.
2. Internal Theft and Fraud
The Bank has zero appetite for any fraudulent activity, and all
potential conflicts of interest shall be avoided and disclosed.
The Bank invests in learning the latest fraud trends and work
towards deploying security measures in minimizing theft and
3. External Theft and Fraud fraud incidence in the Bank. The Bank strives to have zero
occurrence of robberies and burglaries in any of the bank and
branch premises
The Bank has zero appetite for any misconduct or employees,
clients, and third parties such as bribery and corruption or
activities related to money laundering or terrorist financing. The
4. Financial Crime
Bank is committed to combating financial crime and ensuring
that offered products and services are not misused for the
purpose of money laundering, terrorism financing and fraud
 31

events.
The Bank will innovate by adopting and customizing new, market-
C. Operational Risk tested technologies with the key objective of providing our
(Build the Bank) customers with the best banking experience and with minimum
security risks.
The Bank has a moderate appetite for IT project failures. The
IT Project Failures Bank uses established industry practices to deliver projects with
minimal time, budget and quality variances.

RELATED PARTY TRANSACTIONS

In the ordinary course of business, the Bank has transactions with its directors, officers, stockholders
and related interests (DOSRI) and with its Parent Bank such as cash deposit arrangements, purchase of
investment securities and outsourcing of certain services, primarily loans operations, branch
operations and human resource-related functions.

As part of the Bank’s effort to ensure that transactions with related parties are normal banking
activities and are done at arm’s length, vetting is done either by the Board-level Corporate Governance
Committee, defending on materiality, prior to implementation.

In 2020, the Bank made additional purchase of personal loans from BPI Parent aggregating Php 3.1Bn.

Significant related party transactions are also disclosed in the Audited Financial Statements,
particularly Note 18 on RPTs.
 32

COMPLIANCE

Regulatory Compliance

The Bank views compliance to mean not only adherence to laws, regulations, and standards but, more
importantly, the consistent conduct of the affairs of the Bank within a culture of high integrity,
bounded by conformity to ethical business practice, abiding by the principles of fair dealing,
accountability and transparency. This ensures that in all our areas of activity, the Bank and its
stakeholders are protected from regulatory and business risks as comprehensively as possible.

Oversight of the management of the Bank’s regulatory and business risks and implementation of its
compliance function is the responsibility of our Board of Directors, through the Audit Committee. At
the management level, the compliance function is carried out by the Compliance Office, led by our
Compliance Officer.

Anti-Money Laundering Compliance

The prevention of financial crimes is a top priority of BanKo, not only because they pose a significant
threat to our reputation, but because they weaken the integrity of the global financial system. Hence,
our Compliance Office extends its ambit beyond the Bank, its policies, and its employees to ensure that
our clients also act within the law and do not use the Bank for illegal activities.

The Compliance Office’s Anti-Money Laundering Department is responsible for monitoring customer
and counterparty transactions in compliance with the Anti-Money Laundering Law, its implementing
rules and regulations, and Bangko Sentral Circular No. 950. Developed under the guidance of the
Bangko Sentral’s Money Laundering and Terrorist Financing Prevention Program.

Financial Consumer Protection Framework

The Bank has a financial consumer protection governance structure that aims to establish a business
environment that protects the interest of financial consumers and create an institutional culture of fair
and responsible treatment of customers through good governance exercised by the Board and
governing bodies, and reinforced by the various functions that own, manage, oversee, or provide
independent assurance over consumer protection activities.

BanKo Customer Care Office in coordination with other units and BanKo Compliance Office has
established a Consumer Protection Compliance Program aimed at preventing or reducing regulatory
violations and protecting customer from harm or loss associated with non-compliance.

Data Privacy

BanKo has a strong Data Privacy Policy in place, which describes to whom the policy applies to, what
personal data the Bank collects and how such data is collected, how the Bank may use personal data
for core business and marketing purposes, how the Bank may disclose and share such personal data,
how such personal data is stored and retained, and how such data can be accessed or corrected. The
Data Privacy Policy is posted on the company website and complies with the requirements of the Data
Privacy Act and the National Privacy Commission.
 33

Internal Audit and Control

The enterprise Internal Audit Division is an independent body that supports the BPI and its subsidiaries’
respective Audit Committees in fulfilling its oversight responsibilities by providing an independent,
objective, assessment on the adequacy and effectiveness of the Bank’s risk management, internal
controls, and governance processes through well- established risk-based audit plans. Internal Audit
also ensures that the Bank’s operating and business units adhere to internal process and procedures
and to regulatory and legal requirements.

It collaborates with other assurance providers such as the Risk Management Office, Compliance Office,
external auditors, and other oversight units for a comprehensive review of risks and compliance in the
institution, and ensures that business units proactively manage the risk and compliance exposures.
The internal audit function as empowered by the Internal Audit Charter includes free access to all
records, properties and personnel. In this respect, the Audit Committee reviews the internal audit
function, including its independence and the authority of its reporting relationship. The Internal Audit
Division continuously improves the capabilities of its auditors through continuous education on
specialized areas knowledge, auditing techniques, regulations, and banking products and services.

The enterprise Internal Audit Division has an established quality assurance and improvement program
to ensure that audit activities conform to the International Standards for the Professional Practice of
Internal Auditing. The program includes periodic internal and external quality assessment and ongoing
monitoring of the performance of the internal audit activity. Periodic internal assessments are
conducted annually, while external quality assessments are conducted at least once every five years by
a qualified independent validator. This unit maintains its “generally conforms” ratings on both internal
and external assessment, which indicate that its activities have continuously conformed to professional
standards, code of ethics, and other internal standards.

Dividend Policy

BanKo may declare dividends subject to the discretion of the Board. However, the SEC may direct
BanKo to declare dividends when its retained earnings is in excess of 100% of its paid-in capital stock,
except:
● When justified by definite corporate expansion projects or programs approved by the Board;
● When BanKo is prohibited under any loan agreement with any financial institution or creditor,
whether local or foreign, from declaring dividends without its consent, and such consent has
not been secured;
● When it can be clearly shown that such retention is necessary under special circumstances
obtaining, such as when there is a need for a special reserve for probable contingencies.

For 2020, BanKo did not declare dividends.

 34

ENVIRONMENTAL, SOCIAL AND GOVERNANCE

(ESG) MATTERS
Employee Health and Safety

In March 2020, the National Government had recognized the threat that the COVID-19 outbreak
posses to its citizens. The Government enacted Proclamation No. 922 on March 16, 2020 declaring a
nationwide State of Public Health emergency. In order to prevent the sharp rise of COVID-19 cases in
the country, the entire island of Luzon was placed under Enhance Community Quarantine (ECQ) and an
Inter-Agency Task Force on Emerging Infectious Diseases (IATF-EID) was created.

In response to the declaration of ECQ and the guidelines released by the IATF-EID, BanKo decided to
only allow essential personnel to report to the Head Office and its branches in order to continue to
serve its clients in this challenging times. Those employees who continued reporting for work were
given additional compensation in the form of Special Meal and Transportation Allowance (SMTA) as
high as P1200 depending on the declared COVID-19 state. In addition, to ensure the safety of
employees reporting for work alcohol, face mask and face shield were also made available to BanKo
employees. Additional safety protocols were also enacted such as temperature checking 2x a day, Stay
Safe PH scanning before entering the premises. installation of acrylic dividers in the work stations, set-
up of air purifiers, posting of reminders on social distancing and proper washing of hands.

From May 27 to June 2, 2020 and from August 4 to 28, 2020, as more employees were allowed to
report back at the head office and due to lack of available public transformation, shuttle service were
provided consisting of 4 vans, wherein pick-up and drop points were designated in major areas.

Finally, BanKo employees were divided them into two teams (Team A and Team B) with alternate work
schedule of one week at the office and the following week as work from home. Also, employees who
were identified as high risk were allowed to continue to work from home as long as they can deliver
75% of their daily work load.
 35

SUPPLEMENTARY SCHEDULES ON CAPITAL AND RISK MANAGEMENT

DISCLOSURES PURSUANT TO THE BANKO SENTRAL’S MEMORAMDUM M-
2017-011

Capital Structure

The Bank’s qualifying capital for the years ended 2020 and 2019 were Php1.57 billion and Php2.24
billion, respectively. The Bank’s total qualifying capital for 2020 and 2019 were largely composed of
CET1 capital and Tier1 at 94.0% and 95.0%, respectively.

The table below shows the composition of the Bank’s capital structure and total qualifying capital.
31-Dec-20 31-Dec-19
Capital Structure (Php Mn) CET1/ Tier1 Tier 2 TOTAL CET1/ Tier1 Tier 2 TOTAL

Core Capital 2,317 108 2,425 2,602 128 2,730

Paid-up common stock 905 - 905 405 - 405
Additional paid-in capital
Retained earnings 2,210 - 2,210 1,939 - 1,939
Undivided profits (757) - (757) 276 - 276
Net unrealized gains or losses on
AFS securities
Cumulative foreign currency
translation
Remeasurements of Net Defined
(41) - (41) (18) - (18)
Benefit Liability (Asset)
Minority interest ¹∕
General loan loss provision 2∕ - 108 108 - 128 128
Deductions 745 - 745 354 - 354
Total O/S unsecured credit
3
accommodations ∕

Deferred tax assets 716 - 716 327 - 327

Other intangible assets
Defined benefit pension fund assets 24 - 24 18 - 18
5
Investments in equity ∕
6
Significant minority investments ∕
7
Other equity investments ∕
TOTAL QUALIFYING CAPITAL 1,572 108 1,680 2,248 128 2,376
94% 6% 100% 95% 5% 100%

¹∕ Minority interest in subsidiary banks, which are less than wholly-owned

2∕ General loan loss provision, limited to a maximum of 1% of credit risk-weighted assets, and any amount in excess thereof shall be deducted from the credit risk-weighted assets in computing the denominator of the risk-based capital ratio
3∕ Total outstanding unsecured credit accommodations, both direct and indirect, to directors, officers, stockholders and their related interests (DOSRI)
4∕ Total outstanding unsecured loans, other credit accommodations and guarantees granted to subsidiaries and affiliates
5∕ Investments in equity of unconsolidated subsidiary banks and quasi-banks, and other financial allied undertakings
(excluding subsidiary securities dealers/brokers and insurance companies), after deducting related goodwill, if any (for solo basis only and as applicable) and Investments in equity of unconsolidated subsidiary securities dealers/brokers
and insurance
companies after deducting related goodwill, if any (for both solo and consolidated bases and as applicable)
6∕ Significant minority investments (10%-50% of voting stock) in securities dealers/brokers and insurance companies, after deducting related goodwill, if any (for both solo and consolidated bases)
7∕ Other equity investments in non-financial allied undertakings and non-allied undertakings
 36

Credit risk-weighted assets. Using the Basel regulatory standardized approach, our total credit risk-
weighted assets as of December 31, 2020 amounted to Php10.85 billion, and composed of on-book
credit exposures after risk mitigation of Php10.37 billion.

The table below provides a summary of the Bank’s credit risk-weighted assets for 2020 and 2019:
Amount

Credit RWAs (Php Mn) 2020 2019

0 10,854 12,796
Total RWA (On-balance sheet) /
0 0 0
Total RWA (Off-balance sheet) /
1 0 0
Total counterparty RWA (banking book) /
Total counterparty RWA (trading book) 0 0
Total RWA credit-linked notes (banking book) - -
Total Gross RWA 10,854 12,796
2 475 172
Deductions: General loan loss provision /
Total Credit RWAs 10,379 12,624
0/ Risk-weighted assets
1/ For derivatives and repo-style transactions
2/ In excess of the amount permitted to be included in upper Tier 2

Schedule A
December 31, 2020
(Php Mn) Exposure
Risk Total
after risk
Weights CRWA
mitigation 1
/
0% 20% 50% 75% 100% 150%

Cash on hand 253 253 - - - - - 253

Checks and other cash items 2 - 2 - - - - 2

Due from BSP 8,169 8,169 - - - - - 8,169

Due from other banks 815 - 778 37 - 815

Available-for-sale (AFS) - - - - - - - -

Held-to-maturity (HTM) - - - - - - - -

UDSCL 2/ - - - - - - - -

Loans and receivables 11,307 - - 4,634 - 5,999 601 11,236

Loans and receivables - Others 3/ - - - - - - - -

Sales contract receivables - - - - - - - -

ROPA 4/ 61 - - - - 61 61

Sub-total 20,607 8,422 2 5,412 - 6,036 662 20,536

Other assets 1,116 - - - - 1,116 - 1,116

Total exposure, plus other assets 21,723 8,422 2 5,412 - 7,152 662 21,652

Total risk-weighted OBSA (no CRM) 0/5 / 0 2,708 - 7,152 993 10,853

Total risk-weighted OBSA (with CRM)5 / - - - - - -

Total RWA (On-Balance Sheet) 0 2,708 - 7,152 993 10,853

 37

December 31, 2019

(Php Mn) Exposure
Risk Total
after risk
Weights CRWA
mitigation 1
/
0% 20% 50% 75% 100% 150%

Cash on hand 215 215 - - - - - 215

Checks and other cash items 2 - 2 - - - - -

Due from BSP 2,196 2,196 - - - - - 2,196

Due from other banks 1,131 - 1,073 58 - 1,131

Available-for-sale (AFS) 0 - 0 - - - - 0

Held-to-maturity (HTM) - - - - - - - -

UDSCL 2/ - - - - - - - -

Loans and receivables 12,494 - 1,693 3,843 6,689 269 12,494

Loans and receivables - Others 3/ 394 394 - - - - - 394

Sales contract receivables - - - - - - - -

ROPA 4/ 64 - - - - 64 64

Sub-total 14,744 2,805 2 2,766 3,843 6,747 332 14,744

Other assets 804 - - - - 804 - 804

Total exposure, plus other assets 15,548 2,805 2 2,766 3,843 7,551 332 15,548

Total risk-weighted OBSA (no CRM) 0/5 / 328 1,383 2,882 8,034 498 12,797

Total risk-weighted OBSA (with CRM)5 / - - - - - -

Total RWA (On-Balance Sheet) 328 1,383 2,882 8,034 498 12,797
1
/ Credit risk-weighted assets
2
/ Unquoted debt securities classified as loans
3/ Loans and receivables arising from repurchase agreements, certificates of assignment/participation with recourse, and securities lending and borrowing transactions
4/ Real and other properties acquired
5/ Not covered by, and covered by credit risk mitigants, respectively

Market risk-weighted assets. In terms of capital usage using the Basel standardized approach, total
market risk-weighted assets stood at Php29 million as of end-2020, of which foreign exposures
accounted for more than half, followed by interest rate exposures and equity exposures, respectively.

The table below presents the breakdown of the Bank’s market risk-weighted assets for 2020 and 2019:
MARKET RWA (Php Mn) 2020 2019
Using standardized approach
Interest rate exposures - -
Foreign exposures 29 25
Equity exposures - -
0
TOTAL MARKET RWA / 29 25

0
/ Risk-weighted assets
 38

Operational risk-weighted assets. We currently use the Basel regulatory basic indicator approach to
quantify operational risk-weighted assets, by using the historical total annual gross income as the
main measure of risk. In 2020, the Bank’s total operational risk-weighted assets stood at Php3,842
million.

The table below presents the breakdown of the Bank’s market risk-weighted assets for 2020 and 2019:
AMOUNT
OPERATIONAL RWA (Php Mn)
2020 2019
Gross income (a) 3,329 2,110
1
Capital requirement / 499 317
2
Average capital requirement (b) / 307 171
3
Adjusted capital charge (c) / 384 215
0 4
TOTAL OPERATIONAL RWA / / 3,842 2,146

0/ Risk-weighted assets
1/ (a) multiplied by 15 percent
2 / Average of 15 percent of (a) for the past (3) years
3 / (b) multiplied by 125 percent
4 / (c) multiplied by factor 10
 39

Corporate Information

The following is an overview of the Bank’s major stockholders, including nationality, percentage of
stockholdings and voting status (as of December 31, 2020):
 40

PRODUCT AND SERVICES

DEPOSITS
Peso
Checking Account
Savings Account
Time Deposits Account

Foreign Currency
Savings Account

Microfinance
PondoKo Savings

LOANS
Consumer
Auto Loans
Housing Loans

Microfinance
NegosyoKo Loan

ELECTRONIC CHANNELS
BanKo Mobile
 41

BRANCH DIRECTORY
A Branch refers to any permanent office other than the Head Office where the Bank may perform activities and
provide products and services that are within the scope of its authority and relevant license.

Branch Lite Unit (BLU) refers to any permanent office or place of business of the Bank, other than its Head Office
or a branch. It performs limited banking activities and records its transactions in the books of the Head Office or
the branch to which it is annexed to.

Count Location Branch Type Address

1 Head Office/Greenhills , NCR Branch 220 Ortigas Avenue BanKo Center, North Greenhills, San Juan
City
2 Naga , Camarines Sur Branch Unit 302 Level 3, Nagaland E-mall Elias Angeles Street San
Francisco Naga City, Camarines Sur
3 Dumaguete, Negros Oriental Branch Unit K-12 Twin Arcade Building, Perdices Street, Dumaguete
City, Negros Oriental
4 Davao, Davao Del Sur Branch 5-A Bajada Plaza Building, J.P. Laurel Avenue, Davao City,
Davao Del Sur
5 Angeles, Pampanga Branch Romercial Purok 5, San Francisco St. Lourdes North West,
Angeles City, Pampanga
6 Caloocan, NCR Branch G/F 98 A. Mabini Street Maypajo, Caloocan City, Metro
Manila
7 Cainta, Rizal Branch Unit 7 ARDI Bldg. Ortigas Avenue Ext., Cainta Rizal
8 Lipa, Batangas Branch Kapitan Simeon Luz, Barangay 4 Lipa City, Batangas
9 Iloilo, Iloilo Branch 161 Fuentes Street, San Jose, Iloilo City
10 General Santos, South Cotabato Branch Santiago Blvd., General Santos City South Cotabato
11 Legazpi, Albay Branch 2/F Hotel Rex Building, Aguinaldo corner Penaranda Sts.
Legaspi City, Albay
12 San Fernando, Pampanga Branch G/F EKO Building. Consunji St. Barrio Sto. Rosario, San
Fernando City, Pampanga
13 Tabaco , Albay Branch-Lite Unit VSP Building Riosa Street, Divino Rostro, Tabaco City, Albay
14 Iriga, Camarines Sur Branch-Lite Unit Tansylit Commercial Building, Zone 4 Alfelor St., San Roque,
Iriga City, Camarines Sur
15 Apalit, Pampanga Branch-Lite Unit St. Jude Commercial Bldg., along MacArthur Highway, Brgy.
San Vicente, Apalit, Pampanga
16 Guagua, Pampanga Branch-Lite Unit G/F 174 Lapid Bldg., Sto. Nino, Guagua, Pampanga
17 Sta. Ana, Pampanga Branch-Lite Unit Corner Gamboa St., and A. Dizon St., San Joaquin, Sta. Ana,
Pampanga
18 Guihulngan, Negros Oriental Branch-Lite Unit Nesto Commercial Space, ML Quezon St., Guihulngan, Negros
Oriental
19 Tanjay , Negros Oriental Branch-Lite Unit Josephine Building, Lot 642, Opao Barrio Poblacion, Tanjay
City, Negros Oriental
20 Bayawan, Negros Oriental Branch-Lite Unit Cor. Bollos and J. P. Rizal St., Brgy. Boyco, Bayawan City
21 Digos, Davao Del Sur Branch-Lite Unit 2094 Rizal Avenue, Zone II, Digos City, Davao Del Sur
22 Panabo, Davao Del Norte Branch-Lite Unit Asaje Realty Corporation Property, Prk. Tambis, Sto. Nino,
Panabo City
23 Tagum, Davao Del Norte Branch-Lite Unit DCC Building, Dalisay-Gante Road Prk. Bayanihan, Magugpo
West, Tagum City
24 Mati, Davao Oriental Branch-Lite Unit Lot 12, Blk 13, Asaje Building, Rizal Ext., Barangay Central City
of Mati, Davao Oriental
25 Pili, Camarines Sur Branch-Lite Unit Guevarra St., Old San Roque, Pili, Camarines Sur
26 Butuan, Agusan Del Norte Branch Purok 7, Brgy. Limaha 14, Langihan Road, Butuan City, Agusan
Del Norte
27 Iligan, Lanao Del Norte Branch Door #4 Alco Building, Gregorio T. Lluch, Sr Ave. corner F. B.
Laya St. Iligan City, Lanao Del Norte
28 Santa Maria, Bulacan Branch J. C. De Jesus St., Poblacion, Santa Maria, Bulacan
29 Tanauan, Batangas Branch-Lite Unit Almeda Space Rental, Burgos St., Poblacion 7, Tanauan City,
Batangas
30 Ozamis , Misamis Occidental Branch-Lite Unit 132 A Gomez Ext. Cor. Zulueta, Trigold Trade Mindanao Bldg.
Sta Cruz, Ozamis City, Misamis Occidental
 42

Count Location Branch Type Address

31 Baliuag, Bulacan Branch-Lite Unit J & U Bldg., 321 B.S Aquino Ave., Bagong Nayon, Baliuag
Bulacan
32 Dagupan , Pangasinan Branch #20 Burgos St., Brgy. Tapuac, Dagupan City, Pangasinan
33 Urdaneta, Pangasinan Branch-Lite Unit Lot 357-B Mac Arthur Highway Poblacion, Urdaneta City,
Pangasinan
34 Marilao, Bulacan Branch-Lite Unit 2nd Floor 208, Poblacion 2, Marilao, Bulacan
35 Gingoog , Misamis Oriental Branch-Lite Unit Princity Bldg., Barangay 19 Gingoog City, Misamis Oriental
36 Toril, Davao Del Sur Branch-Lite Unit Purok 8 Vdlr Street, Lower Portion, Brgy. Bayabas Crossing,
Toril District, Davao City
37 Kidapawan, North Cotabato Branch-Lite Unit Armando Realty Corp., Padilla St., Brgy. Poblacion,
Kidapawan, North Cotabato
38 San Jose De Buenavista, Antique Branch-Lite Unit Bantayan Road, Funda-Dalipe, San Jose De Buenavista,
Antique
39 Silang, Cavite Branch-Lite Unit 01 Yakal St. Brgy. San Miguel I, Silang, Cavite
40 Iba, Zambales Branch-Lite Unit 2nd Floor, Camara Bldg., National Road Zone I, Iba, Zambales
41 Mandaue, Cebu Branch-Lite Unit Unit 1B Zion Center, A. Del Rosario St. Brgy. Guizo, Mandaue
City Cebu
42 Concepcion, Tarlac Branch-Lite Unit Arthur Go Bldg., L. Cortez St., Brgy. San Jose, Concepcion,
Tarlac
43 Tarlac City, Tarlac Branch NP Magbag Bldg. F. Tanedo corner Sapiro St. San Nicolas,
Tarlac City
44 Binangonan, Rizal Branch-Lite Unit GMG Bldg. Blk 1 Lot 1 Branch Lite Uniteridge Village, Brgy.
Tagpos, Binangonan Rizal
45 Ilagan, Isabela Branch-Lite Unit Rizal St., San Vicente, Ilagan City, Isabela
46 Baguio, Benguet Branch G/F Kayang Business Center No. 08 Unit L3-G Shagem Street
corner Kayang Road, Baguio City
47 Balanga, Bataan Branch Capinpin Road, Market Site San Jose, Balanga City, Bataan
48 Tuguegarao, Cagayan Branch Rizal Street, Centro 08, Tuguegarao City, Cagayan
49 Santa Rosa, Laguna Branch-Lite Unit #94, J.P. Rizal Blvd., Tagapo, Santa Rosa Laguna
50 Gumaca, Quezon Branch-Lite Unit J. P. Rizal St., Brgy. Penafrancia, Gumaca, Quezon
51 Kalibo, Aklan Branch-Lite Unit Door F. Barrios Building Roxas Ave., Ext. Andago, Kalibo,
Aklan
52 Estancia, Iloilo Branch-Lite Unit E. Reyes Ave., Poblacion Zone 2, Estancia, Iloilo
53 Paniqui, Tarlac Branch-Lite Unit GF Patricia Anne Bldg. M. H. Del Pilar St. Brgy. Estacion,
Paniqui Tarlac
54 Tanay, Rizal Branch-Lite Unit Sampaloc Rd., Brgy. Plaza Aldea, Tanay Rizal
55 Kabankalan, Negros Occidental Branch-Lite Unit G. Cordova St., Brgy. 3, Kabankalan City, Negros Occidental
56 San Francisco, Agusan Del Sur Branch-Lite Unit Unit 4, Romana-Paul Tan Building, Bonifacio Street,
Poblacion, Brgy. 4, San Francisco, Agusan Del Sur
57 Malaybalay, Bukidnon Branch-Lite Unit Moreno St., Barangay 05, Malaybalay City , Bukidnon
58 Cagayan De Oro, Misamis Oriental Branch Door#2, Anthony Tion Bldg., Hayes St. Nazareth, Cagayan De
Oro City
59 La Trinidad, Benguet Branch-Lite Unit Rose Buan Bldg., KM 4 Balili, La Trinidad, Benguet
60 Puerto Princesa, Palawan Branch GSK Bldg., Lacao St. Puerto Princesa City, Palawan
61 Cabatuan, Iloilo Branch-Lite Unit Morales Bldg., Rizal St., Cabatuan Iloilo
62 Antipolo, Rizal Branch-Lite Unit Lot 64-66, Cogeo Trade Hall, Sitio Kasapi, Bagong Nayon,
Antipolo City
63 Bacolod, Negros Occidental Branch Door 5 Ava Arcade San Sebastian Gatuslao St., Brgy. 13,
Bacolod City, Negros Occidental
64 Malolos, Bulacan Branch-Lite Unit #31 Tanjeco St., San Vicente, Malolos City, Bulacan
65 San Jose, Nueva Ecija Branch-Lite Unit #126 Maharlika Highway, Brgy. Malasin, San Jose City, Nueva
Ecija
66 Gapan, Nueva Ecija Branch-Lite Unit Maharlika Hiway, JC Ramirez Bldg., Brgy. San Vicente, Gapan
City, Nueva Ecija
67 San Carlos , Negros Occidental Branch-Lite Unit JL Tourist Inn, S. Carmona St., Brgy. IV, San Carlos City, Negros
Occidental
68 San Carlos, Pangasinan Branch-Lite Unit #38 Rizal Ave., San Carlos City, Pangasinan
69 Cauayan, Isabela Branch-Lite Unit King Street Mall, Rizal Ave., District III, Cauayan City, Isabela
70 Santiago, Isabela Branch-Lite Unit A and A Musngi Bldg., City Road Centro East, Santiago City,
Isabela
71 Tacloban, Leyte Branch Cor. P. Zamora S. P. Paterno Sts., Brgy. 26 Tacloban City,
Leyte
72 Catarman, Northern Samar Branch-Lite Unit Corner Quirino Street, Barangay Jose P. Rizal, Catarman,
Northern Samar
73 Surigao, Surigao Del Norte Branch Borromeo Cor. Magallanes St., Brgy. Washington, Surigao
City, Surigao Del Norte
74 Vigan, Ilocos Sur Branch Sky 1 Bldg., Del Pilar St., Barangay VIII, Vigan City
75 Calamba, Laguna Branch 106 Commerce Center, Parian, Calamba City, Laguna
 43

Count Location Branch Type Address

76 Candelaria, Quezon Branch-Lite Unit Del Valle St., Poblacion, Candelaria Quezon
77 Polomolok, South Cotabato Branch-Lite Unit Cannery Road, Sanchez Subd., Brgy. Poblacion, Polomolok,
South Cotabato
78 Tacurong, Sultan Kudarat Branch-Lite Unit Jose Abad Santos Street, Poblacion, Tacurong City, Sultan
Kudarat
79 Balayan, Batangas Branch-Lite Unit Lot 356-A #123 Damballelos St. Brgy 4 Balayan, Batangas
80 Roxas, Capiz Branch Roxas Avenue, Brgy. VIII, Roxas City, Capiz
81 Ligao, Albay Branch-Lite Unit 1 Door 10 Dy - OK Bldg., Legazpi St., Guilid, Ligao City, Albay
82 Masbate, Masbate Branch Good Star Bldg., Corner Cortidor & Zurbito Sts., Bapor,
Masbate City
83 Lapu-Lapu, Cebu Branch-Lite Unit Ompad St. Poblacion, Lapu-Lapu City, Cebu
84 Ormoc , Leyte Branch-Lite Unit Gr. FI Lam Bldg., Cor. Carlos Tan & Mabini St., District 23,
Ormoc City, Leyte
85 Laoag, Ilocos Norte Branch 2nd Floor, Conching Bldg., Rizal St., Brgy 16, Laoag City, Ilocos
Norte
86 Bangued, Abra Branch-Lite Unit McKinley St. Zone 2, Bangued, Abra
87 San Jose Del Monte, Bulacan Branch-Lite Unit MASJ Building Unit D&E Carriedo St., Muzon, San Jose, Del
Monte, Bulacan
88 Tagbilaran, Bohol Branch 6R's Bldg. Belderol St., Cogon, Tagbilaran City, Bohol
89 Cebu City, Cebu Branch Unit 6, The Eden, Colon St., Kalubihan, Cebu City
90 Danao, Cebu Branch-Lite Unit Rizal St., Poblacion, Danao City, Cebu
91 Maasin, Southern Leyte Branch-Lite Unit Oppus St., Tunga Tunga, Maasin City, Southern Leyte
92 Sagay, Negros Occidental Branch-Lite Unit Avancena St. cor. Osmena St., Poblacion 1, Sagay City, Negros
Occidental
93 Silay, Negros Occidental Branch-Lite Unit Prince Hypermart, Cor. Antonio Luna and Rizal St., Brgy. I
Silay City, Negros Occidental
94 Solano, Nueva Vizcaya Branch 1 De Luna Bldg. Espino St., Brgy. Quirino, Solano, Nueva
Vizcaya
95 Binan, Laguna Branch-Lite Unit Bonifacio St., Canlalay, Binan, Laguna
96 Santa Cruz , Laguna Branch-Lite Unit 1618 J. Falcon St., Poblacion 5, Sta. Cruz Laguna
97 Lucena, Quezon Branch 29A Quezon Avenue cor. Ravanzo St., Brgy. I, Lucena City,
Quezon
98 Calapan, Oriental Mindoro Branch J.P. Rizal St., San Vicente Central, Calapan, Oriental Mindoro
99 Polangui, Albay Branch-Lite Unit Sapalicio St., Basud, Polangui, Albay
100 Baler, Aurora Branch Purok 2, Sitio Kinalapan, Brgy. Pingit, Baler, Aurora

101 Cabanatuan City, Nueva Ecija Branch Cor. Burgos and Sanciangco Sts., Brgy. Fatima, Cabanatuan
City Nueva Ecija
102 Valencia, Bukidnon Branch NVM Mall, Guinoyan Road, P-4, Poblacion, Valencia City,
Bukidnon
103 San Jose , Occidental Mindoro Branch-Lite Unit Capt. Cooper St., Poblacion, Brgy. IV, San Jose, Occidental
Mindoro
104 Olongapo, Zambales Branch GF 1995 Ave., West Bajac Bajac, Olongapo City, Zambales
105 San Fernando , La Union Branch-Lite Unit BHF Bldg., 147 P. Burgos St., Ilocanos Sur, San Fernando City
La Union
106 Virac, Catanduanes Branch-Lite Unit Brgy. Concepcion, Virac, Catanduanes
107 Batangas City, Batangas Branch-Lite Unit H. C. Tomson Commercial Bldg., D. Silang St. Poblacion 015,
Batangas City
108 Sorsogon, Sorsogon Branch Quezon St., Polvorista, Sorsogon City, Sorsogon
109 Bacoor, Cavite Branch No. 369 Gen. E. Aguinaldo Hi-way, Talaba IV, Bacoor Cavite
110 Koronadal, South Cotabato Branch-Lite Unit Salanga Bldg., Morales Ave., Brgy. Gen. P. Santos, Koronadal
City, South Cotabato
111 Cadiz, Negros Occidental Branch-Lite Unit Magsaysay Ext., Andrea Village, Poblacion 3, Cadiz City,
Negros Occidental
112 Roxas , Isabela Branch-Lite Unit Bethany Hotel Bldg., Osmena St., Brgy. Bantug, Roxas, Isabela
113 Brooke's Point, Palawan Branch-Lite Unit NT Bldg., Poblacion District II, National Highway, Brooke's
Point, Palawan
114 Tigbauan, Iloilo Branch-Lite Unit Tupas St., Brgy. 7 Poblacion, Tigbauan, Iloilo
115 Pinamalayan, Oriental Mindoro Branch-Lite Unit Amando Marciano Bldg., cor. Mabini and Quezon St., Zone III,
Pinamalayan, Oriental Mindoro
116 Rodriguez, Rizal Branch #50 E. Rodriguez Hi-way corner Kalantas St., Brgy. San Jose,
Rodriguez, Rizal
117 Trece Martires, Cavite Branch-Lite Unit 13 Martyrs St., Mariden Bldg. Brgy. San Agustin, Trece
Martires, Cavite
118 Consolacion, Cebu Branch-Lite Unit Westside Properties, 803 V & G Subdivision, Brgy. Nangka,
Consolacion, Cebu
119 Lingayen, Pangasinan Branch-Lite Unit 41 C. Avenida Rizal, East Poblacion, Lingayen, Pangasinan
120 Rosales, Pangasinan Branch CSC Bldg., General Luna St., Zone III, Poblacion, Rosales,
Pangasinan
 44

Count Location Branch Type Address

121 Boac, Marinduque Branch Del Mundo St. Cor. Madrigal St., Brgy. Malusak, Boac,
Marinduque
122 Minglanilla , Cebu Branch-Lite Unit 1316 Natalio B. Bacalso, South National Highway, Poblacion
Ward I, Minglanilla, Cebu
123 Dasmariñas, Cavite Branch-Lite Unit Unit 6 Ground Floor AVM Building, Isidro Mangubat St., Brgy.
Zone IV, Dasmarinas, Cavite
124 Pototan, Iloilo Branch-Lite Unit #5008 SRG Bldg., Villa Cecilia Subd., Brgy. Malusgod, Pototan,
Iloilo
125 Talisay, Cebu Branch-Lite Unit Talisay Town Center Unit 12, Victoria St., Bgy. Tabunok,
Talisay City, Cebu
126 Cubao, NCR Branch St. Anthony Bldg., Aurora Blvd., Brgy. E. Rodriguez, Cubao,
Quezon City
127 Cavite City , Cavite Branch-Lite Unit P. Burgos Avenue, Caridad, Cavite City, Cavite
128 GMA, Cavite Branch-Lite Unit Door 4 Umerez Properties Bldg., Bgy. San Gabriel, GMA
formerly Carona, Cavite
129 Rosario, Cavite Branch-Lite Unit #248 Abutin Bldg., Gen. Trias Drive, Tejeros Convention Bgy.
Tejeros, Rosario, Cavite
130 Sariaya, Quezon Branch-Lite Unit Maharlika Highway, cor. Pablo St., Sariaya, Quezon
131 Lemery, Batangas Branch-Lite Unit Miranda Building, Ilustre Avenue, District 3, Lemery, Batangas
132 Guimaras, Guimaras Branch-Lite Unit Zemkamps Chalet Bldg. Stall 5 & 6, New Site, San Miguel,
Jordan, Guimaras
133 Daet, Camarines Norte Branch Bagasbas Road cor. Diego Linan St., Bgy. 6, Daet, Camarines
Norte
134 Plaridel, Bulacan Branch-Lite Unit JMET's Building 215 J. Garcia St., Banga 1st, Plaridel, Bulacan
135 General Trias, Cavite Branch-Lite Unit 9026 C.M. Delos Reyes St., Bgy. Manggahan, General Trias
City, Cavite
136 Talavera, Nueva Ecija Branch-Lite Unit Maharlika Highway, Esguerra District, Talavera, Nueva Ecija
137 Imus, Cavite Branch-Lite Unit R. Nuguid & Sons, Inc., Building, Emilio Aguinaldo Highway,
Brgy. Tanzang Luma 3, Imus, Cavite
138 Bago, Negros Occidental Branch-Lite Unit 2nd St., Marhil Subdivision, Poblacion, Bago City, Negros
Occidental
139 Bayambang, Pangasinan Branch-Lite Unit Rizal Avenue, Poblacion Sur, Bayambang, Pangasinan
140 Lucban, Quezon Branch-Lite Unit Quezon Avenue, Lucban, Quezon
141 Carcar, Cebu Branch San Vicente St., Poblacion 1, Carcar City, Cebu
142 Floridablanca, Pampanga Branch-Lite Unit Sta. Maria St., Poblacion, Floridablanca, Pampanga
143 Mangaldan, Pangasinan Branch-Lite Unit 602 Rizal St., Brgy. Poblacion, Mangaldan, Pangasinan
144 Nasugbu, Batangas Branch-Lite Unit Brias St., Barangay 9, Nasugbu, Batangas
145 San Juan, Batangas Branch-Lite Unit Gen. Luna St., Poblacion, San Juan, Batangas
146 Bogo, Cebu Branch-Lite Unit J. Almerante St., Brgy. San Vicente, Bogo City, Cebu
147 Baybay, Leyte Branch-Lite Unit Prince Town Baybay Unit N-24 A. Bonifacio St., Baybay City,
Leyte
148 Ubay , Bohol Branch-Lite Unit Tan Nene St., Poblacion, Ubay, Bohol
149 Pagadian, Zamboanga Del Sur Branch-Lite Unit J. Ariosa St., San Francisco District, Pagadian City, Zamboanga
del Sur
150 Calinog, Iloilo Branch-Lite Unit Cor. Rizal-Osmena St., Poblacion Centro, Calinog, Iloilo
151 Labo, Camarines Norte Branch-Lite Unit Don Juan Building 2, Brgy. Masalong, Labo, Camarines Norte
152 Guimba, Nueva Ecija Branch-Lite Unit Onjianco St., Brgy. Sta. Veronica, Guimba, Nueva Ecija
153 Mariveles, Bataan Branch-Lite Unit Lot 1B, Jonalyn's Bldg., Paguio St., Poblacion, Mariveles,
Bataan
154 Magalang, Pampanga Branch-Lite Unit Acejo, Arnel B. Bldg., Sta. Cruz, Magalang, Pampanga
155 Bayugan, Agusan Del Sur Branch-Lite Unit Libres St., Taglatawan, Bayugan, Agusan del Sur
156 Maramag, Bukidnon Branch-Lite Unit Jacob, Juanity Bldg. P-2 South Poblacion, Maramag, Bukidnon
157 Candon, Ilocos Sur Branch-Lite Unit De Guia Building, Brgy. San Juan, Candon City, Ilocos Sur
158 Sto. Tomas, Batangas Branch-Lite Unit Sierra Makiling Bldg., Maharlika Highway, Brgy. San Antonio,
Sto. Tomas, Batangas
159 Dipolog, Zamboanga Del Norte Branch-Lite Unit Quezon Avenue, Brgy. Central, Dipolog City, Zamboanga del
Norte
160 Irosin, Sorsogon Branch-Lite Unit St. Vincent Building, Bgy. San Julian, Irosin, Sorsogon
161 Jagna, Bohol Branch-Lite Unit 7S Shopping Center, Looc, Jagna, Bohol
162 Dumanjug, Cebu Branch-Lite Unit Gaisano Grand Mall Dumanjug Unit DMG-ARS-03 G/F Arcade
Villa St., cor. G. Gica St., Poblacion, Dumanjug, Cebu
163 Toledo, Cebu Branch-Lite Unit V & U Bldg., corner Rafols and Poloyapoy St., Toledo City,
Cebu
164 Mabalacat, Pampanga Branch-Lite Unit Clark Gateway Commercial Complex, L 290 & 292 Velasquez
St., San Francisco, Mabalacat, Pampanga
165 Porac, Pampanga Branch-Lite Unit General Luna St., Bgy. Cangatba, Porac, Pampanga
 45

Count Location Branch Type Address

166 Capas, Tarlac Branch-Lite Unit Sto. Cristo St., Brgy. Sto. Rosario, Capas, Tarlac
167 Hilongos, Leyte Branch-Lite Unit C.V Alcuino St., Brgy. Central Pob. Hilongos, Leyte
168 Allen, Northern Samar Branch-Lite Unit Rizal St., Brgy. Sabang 1, Allen, Northern Samar
169 Calbayog, Samar Branch-Lite Unit Rosales Blvd., Bgy. Central, Calbayog City, Samar
170 Catbalogan, Samar Branch 2nd Floor, Casa Cristina Hotel Building, 152 San Roque St.,
Bgy. Poblacion 11, Catbalogan City, Samar
171 Borongan, Eastern Samar Branch-Lite Unit Brgy. Songco, Borongan City, Eastern Samar
172 Hinigaran, Negros Occidental Branch-Lite Unit Rizal B St., Bgy. 4, Poblacion, Hinigaran, Negros Occidental
173 Alaminos, Pangasinan Branch-Lite Unit BHF Branch Lite Unite Horizon Building, Quezon Avenue,
Poblacion, Alaminos, Pangasinan
174 Villanueva, Misamis Oriental Branch-Lite Unit NVCDC Building 1, National Highway, Katipunan, Villanueva,
Misamis Oriental
175 Tandag, Surigao Del Sur Branch-Lite Unit Cabrera St., Purok Maligaya, Bag-ong Lungsod, Tandag City,
Surigao del Sur
176 Agoo, La Union Branch-Lite Unit 56 National Highway, San Miguel, Agoo, La Union
177 Pagbilao, Quezon Branch-Lite Unit Corner Alvarez, Bonifacio St., Bgy. Del Carmen, Pagbilao,
Quezon
178 Nabunturan, Davao De Oro Branch-Lite Unit Arellano St., Puro 5, Poblacion, Nabunturan, Compostela
Valley
179 Cotabato, Maguindanao Branch Ground Floor, Happy King Hotel and Restaurant, Jose Lim Sr.
Street., Cotabato City
180 Rosario , Batangas Branch-Lite Unit 26 Carandang St. Brgy. C, Rosario, Batangas
181 Oroquieta, Misamis Occidental Branch-Lite Unit John Paul Co. Bldg., Barrientos St., Poblacion 2, Oroquieta
City, Misamis Occidental
182 Sindangan, Zamboanga Del Norte Branch-Lite Unit Gov. Lim St., cor. Mabini St., Poblacion, Sindangan,
Zamboanga del Norte
183 Molave, Zamboanga Del Sur Branch-Lite Unit Rizal Ave., cor Quezon St., Purok Bulawanon, Bgy. Madasigon,
Molave, Zamboanga del Sur
184 Zamboanga City, Zamboanga Del Branch Jilron Bldg., La Purisima St. Zone II, Zamboanga City,
Sur Zamboanga del Sur
185 Ipil, Zamboanga Sibugay Branch-Lite Unit Ipil Citi Suites Hotel Building Purok San Francisco, Poblacion,
Ipil, Zamboanga Sibugay
186 Goa, Camarines Sur Branch-Lite Unit Rizal St. Brgy. Panday, Goa, Camarines Sur
187 San Miguel, Bulacan Branch-Lite Unit Tecson St., Bgy. San Jose, San Miguel, Bulacan
188 Hagonoy, Bulacan Branch-Lite Unit #2 Emilio Perez St., Purok 4, Bgy. Sto. Nino, Hagonoy, Bulacan
189 City Of Naga, Cebu Branch-Lite Unit National Highway, South Poblacion, City of Naga, Cebu
190 Tanza, Cavite Branch-Lite Unit Antero Soriano Highway, Poblacion 4, Tanza, Cavite
191 Victorias, Negros Occidental Branch-Lite Unit Lot 51-54 Blk 1 Osmena Avenue, Brgy. 13, Victorias City,
Negros Occidental
192 San Marcelino, Zambales Branch-Lite Unit Delta Building, National Highway, Bgy. Consuelo Sur, San
Marcelino, Zambales
193 Malasiqui, Pangasinan Branch-Lite Unit JB Realty Calle Montemayor, Bgy. Poblacion, Malasiqui,
Pangasinan
194 Pozorrubio, Pangasinan Branch-Lite Unit Poblacion, District IV, Pozorrubio, Pangasinan
195 Tayug, Pangasinan Branch-Lite Unit Corner Magtali St. and Bonifacio St., Bgy. Poblacion B, Tayug,
Pangasinan
196 Los Baños, Laguna Branch-Lite Unit Ocho Miembros Bldg., Brgy. Maahas, National Highway, Los
Banos, Laguna
197 San Pablo, Laguna Branch-Lite Unit A. Flores St., Bgy. 7-C, San Pablo City, Laguna
198 San Pedro, Laguna Branch-Lite Unit 14-E Luna St., Poblacion, San Pedro, Laguna
199 Oton, Iloilo Branch-Lite Unit J.C. Zulueta St., Poblacion South, Oton, Iloilo
200 Passi , Iloilo Branch-Lite Unit Padernilla St., Poblacion, Passi City, Iloilo
201 Norzagaray, Bulacan Branch-Lite Unit Roadside View Subdivision, Bgy. Partida, Norzagaray, Bulacan
202 Arayat, Pampanga Branch-Lite Unit Pistahan Building, Bgy. Plazang Luma, Arayat, Pampanga
203 Tumauini, Isabela Branch-Lite Unit #49 National Highway, Bgy. San Pedro, Tumauini, Isabela
204 Zaragoza, Nueva Ecija Branch-Lite Unit Biak na Bato, Del Pilar East, Zaragoza, Nueva Ecija
205 Cuyapo, Nueva Ecija Branch-Lite Unit Aguila St., District 1, Cuyapo, Nueva Ecija
206 Rizal, Nueva Ecija Branch-Lite Unit Aglipay St., Poblacion Sur, Rizal, Nueva Ecija
207 Lubao, Pampanga Branch-Lite Unit #31 JP Rizal St., Sta. Cruz, Lubao, Pampanga
208 Sipalay, Negros Occidental Branch-Lite Unit Corner Lacson, Alvarez St., Bgy. 1, Poblacion, Sipalay, Negros
Occidental
209 Alicia, Isabela Branch-Lite Unit LM Building, Magsaysay, Alicia, Isabela
210 Cabadbaran, Agusan Del Norte Branch-Lite Unit A. Curato St., Corner Garame St., Bgy. 4, Poblacion,
Cabadbaran City, Agusan del Norte
 46

Count Location Branch Type Address

211 Manolo Fortich, Bukidnon Branch-Lite Unit Prince Hypermart Bgy. Tankulan, Manolo Fortich, Bukidnon
212 Compostela , Davao De Oro Branch-Lite Unit Purok 9 Magsaysay St., Poblacion, Compostela, Compostela
Valley
213 M'lang, North Cotabato Branch-Lite Unit M.H. Del Pilar St., Poblacion, M’lang, North Cotabato
214 Bantayan, Cebu Branch-Lite Unit Ticad, Bantayan, Cebu
215 Daanbantayan, Cebu Branch-Lite Unit Osmena St., Poblacion, Daanbantayan, Cebu
216 Naic, Cavite Branch-Lite Unit Corner Public Market Road, Poblete St., Ibayo, Silangan, Naic,
Cavite
217 Siquijor, Siquijor Branch-Lite Unit St. Francis Assisi Convent New Building, Poblacion, Siquijor,
Siquijor
218 Aparri, Cagayan Branch-Lite Unit EH Chua Bldg., 68 De Rivera St., Centro 14, Aparri, Cagayan
219 Bambang, Nueva Vizcaya Branch-Lite Unit Maharlika Highway, Brgy. Banggot, Bambang, Nueva Vizcaya
220 Aritao, Nueva Vizcaya Branch-Lite Unit Purok Payao, Poblacion, Aritao, Nueva Vizcaya
221 San Ildefonso, Bulacan Branch-Lite Unit National Highway, Sapang Putol, San Ildefonso, Bulacan
222 Guiguinto, Bulacan Branch-Lite Unit GD Plaza, Mc Arthur Hiway, Ilang-ilang, Guiguinto, Bulacan
223 Manaoag, Pangasinan Branch-Lite Unit Ground Floor JCJ Bldg. Soriano St., Poblacion, Manaoag,
Pangasinan
224 Cabagan, Isabela Branch-Lite Unit Ugad, Cabagan, Isabela
225 Cabarroguis , Quirino Branch-Lite Unit Purok 2, Gundaway, Cabarroguis, Quirino
226 Bauang, La Union Branch-Lite Unit Blade Building, National Highway, Qinavite, Bauang, La Union
227 Midsayap, North Cotabato Branch-Lite Unit Corner Quezon Ave., National Highway, Poblacion 3,
Midsayap, Cotabato
228 Surallah, South Cotabato Branch-Lite Unit Poblacion, Surallah, South Cotabato
229 Bauan, Batangas Branch-Lite Unit Sta. Cruz St. Poblacion IV, Bauan, Batangas
230 San Jose , Batangas Branch-Lite Unit Macalintal Ave., Brgy. Sto. Cristo, San Jose, Batangas
231 Calumpit, Bulacan Branch-Lite Unit St. Peter Commercial Bldg. Mc Arthur Hi-way, Corazon,
Calumpit, Bulacan
232 Balagtas, Bulacan Branch-Lite Unit National Highway, Balagtas, Bulacan
233 Meycauayan , Bulacan Branch-Lite Unit Meycauayan College Mc Arthur Highway, Calvario,
Meycauayan, Bulacan
234 Murcia, Negros Occidental Branch-Lite Unit Corner Dinsay, Arimas St., Bgy. Zone IV, Murcia, Negros
Occidental
235 Narvacan, Ilocos Sur Branch-Lite Unit Old National Highway St., San Jose, Narvacan, Ilocos Sur
236 Santa Cruz, Ilocos Sur Branch-Lite Unit Gabor Norte, Sta. Cruz, Ilocos Sur
237 Bansalan, Davao Del Sur Branch-Lite Unit R. Delos Cientos St., Poblacion Dos, Bansalan, Davao Del Sur
238 Samal, Davao Del Sur Branch-Lite Unit P-1 Sitio Pantalan, Brgy. Miranda-Pichon, Island Garden City
of Samal, Davao del Norte
239 Santo Tomas, Davao Del Norte Branch-Lite Unit FDR District 3, National Highway, Sto. Tomas, Davao del
Norte
240 Buug, Zamboanga Sibugay Branch-Lite Unit National Highway, Buug, Zamboanga Sibugay
241 Solana, Cagayan Branch-Lite Unit #054 Rizal St., Bgy. Centro Southeast, Solana, Cagayan
242 Bislig , Surigao Del Sur Branch-Lite Unit Door 2 Sia Bldg., RB Castillo St., Mangagoy, District II, Bislig,
Surigao del Sur
243 Lopez, Quezon Branch-Lite Unit 10 Rosario Corner Judge Olega St. Brgy. Gomez, Lopez,
Quezon
244 Kabacan, North Cotabato Branch-Lite Unit Rizal Avenue, Poblacion, Kabacan, Cotabato
245 Calabanga, Camarines Sur Branch-Lite Unit San Antonio, Poblacion, Calabanga, Camarines Sur
246 Bongabon, Nueva Ecija Branch-Lite Unit #5 Bgy. Mantile, Bongabon, Nueva Ecija
247 Science City Of Munoz, Nueva Ecija Branch-Lite Unit Poblacion East, City of Science of Munoz, Nueva Ecija
248 Carmen, Bohol Branch-Lite Unit Poblacion Sur, Carmen, Bohol
249 Pilar, Sorsogon Branch-Lite Unit Cor. Milleza St., Main Road and Prieto St., Poblacion, Dao,
Pilar, Sorsogon
250 Gerona, Tarlac Branch-Lite Unit Poblacion 1, Gerona, Tarlac
251 San Mateo, Isabela Branch-Lite Unit Barangay 1, Purok 3, National Highway, San Mateo, Isabela
252 Mambajao, Camiguin Branch-Lite Unit J.P. Rizal St., Poblacion, Mambajao, Camiguin
253 Infanta, Quezon Branch-Lite Unit Rizal Street, Poblacion 1, Infanta, Quezon
254 Lebak, Sultan Kudarat Branch-Lite Unit Door #7 Dimar's Building, Poblacion 1, Lebak, Sultan Kudarat
255 Kapatagan, Lanao Del Norte Branch-Lite Unit Prince Hypermart, Poblacion, Kapatagan, Lanao del Norte
 47

Count Location Branch Type Address

256 Calamba, Misamis Occidental Branch-Lite Unit Matunog St., Southwestern Poblacion, Calamba, Misamis
Occidental
257 Liloy, Zamboanga Del Norte Branch-Lite Unit Baybay, Liloy, Zamboanga del Norte
258 San Miguel , Zamboanga Del Sur Branch-Lite Unit Purok Meliton, Poblacion, San Miguel, Zamboanga del Sur
259 Zarraga, Iloilo Branch-Lite Unit Gomez St., Barangay Poblacion, Ilaud, Zarraga, Iloilo
260 Carigara, Leyte Branch-Lite Unit Real St., Brgy. Baybay, Carigara, Leyte
261 Sablayan , Occidental Mindoro Branch-Lite Unit National Highway, Brgy. Buenavista, Sablayan, Occidental
Mindoro
262 Roxas , Oriental Mindoro Branch-Lite Unit SMH Bldg., Morente Ave., Bagumbayan, Roxas, Oriental
Mindoro
263 Lala , Lanao Del Norte Branch-Lite Unit Purok Apitong, Maranding, Lala, Lanao del Norte
264 Libmanan, Camarines Sur Branch-Lite Unit Nik Nok Farm Realty Corp. Palo St., Poblacion, Libmanan,
Camarines Sur
265 Talibon, Bohol Branch-Lite Unit CPG Avenue, Poblacion, Talibon, Bohol
266 Tubigon, Bohol Branch-Lite Unit Centro, Tubigon, Bohol
267 Moncada, Tarlac Branch-Lite Unit Poblacion 1, Moncada, Tarlac
268 Guiuan, Eastern Samar Branch-Lite Unit Concepcion St., Brgy. 7, Guiuan, Eastern Samar
269 Taytay, Rizal Branch-Lite Unit Unit 9 & 10 Leoncio Commercial, National Road, Brgy. San
Juan, Taytay, Rizal
270 Bolinao, Pangasinan Branch-Lite Unit Don Agustin Cacho St., Concordia Poblacion, Bolinao,
Pangasinan
271 Alubijid, Misamis Oriental Branch-Lite Unit National Highway, Purok 2, Poblacion, Alubijid, Misamis
Oriental
272 Batac, Ilocos Norte Branch-Lite Unit Washington St., Brgy. 2 Ablan, Batac City, Ilocos Norte
273 Montevista, Davao De Oro Branch-Lite Unit 1022 Valderama St., Purok 6A, Poblacion, Montevista,
Compostela Valley
274 Narra, Palawan Branch-Lite Unit National Highway, Panacan 2, Narra, Palawan
275 Banate, Iloilo Branch-Lite Unit Union St., Brgy. Bularan, Banate, Iloilo
276 Santa Rosa , Nueva Ecija Branch-Lite Unit 328 Bgy. Cojuangco. Sta. Rosa, Nueva Ecija
277 Cabiao, Nueva Ecija Branch-Lite Unit #15 San Juan South, Cabiao, Nueva Ecija
278 Argao, Cebu Branch-Lite Unit Albarracin St., Poblacion, Argao, Cebu
279 Tuburan, Cebu Branch-Lite Unit National Highway, Brgy. 3 Tuburan, Cebu
280 Orani, Bataan Branch-Lite Unit National Highway, Bgy. Mulawin, Orani, Bataan
281 Camiling, Tarlac Branch-Lite Unit Quezon Ave., Poblacion I, Camiling, Tarlac
282 Sogod, Southern Leyte Branch-Lite Unit L. Regis St., Zone 5, Sogod, Southern Leyte
283 Naval, Biliran Branch-Lite Unit BZL Building, Vicentillo St., Smo, Rosario, Naval, Biliran
284 Mangatarem, Pangasinan Branch-Lite Unit #30 Burgos St., Poblacion, Mangatarem, Pangasinan
285 Bayombong, Nueva Vizcaya Branch-Lite Unit Galamay Bldg., National Road, Poblacion, District IV,
Bayombong, Nueva Vizcaya
286 Santa Maria , Ilocos Sur Branch-Lite Unit Poblacion Sur, Sta. Maria, Ilocos Sur
287 Malungon, Sarangani Branch-Lite Unit Purok Waling Waling, National Highway, Malandag,
Malungon, Sarangani Province
288 Isulan , Sultan Kudarat Branch-Lite Unit National Highway, Kalawag 3, Isulan, Sultan Kudarat
289 Odiongan, Romblon Branch-Lite Unit J.P. Laurel St., Cocoville, Dapawan, Odiongan, Romblon
290 Culasi, Antique Branch-Lite Unit National Highway, Centro Poblacion, Culasi, Antique
291 Pontevedra , Capiz Branch-Lite Unit Isagani St., Poblacion, Ilawod, Pontevedra, Capiz
292 Mambusao, Capiz Branch-Lite Unit Villareal Highway, Poblacion, Mambusao, Capiz
293 Cataingan, Masbate Branch-Lite Unit Quezon Extension, Poblacion, Cataingan, Masbate
294 Moalboal, Cebu Branch-Lite Unit 2nd Floor Gaisano Grand Mall, Poblacion East, Moalboal,
Cebu
295 Indang, Cavite Branch-Lite Unit A. Mabini St., Poblacion 1, Indang, Cavite
296 Cabuyao, Laguna Branch-Lite Unit Unit 1112 Sala Commercial Bldg., National Highway, Brgy.
Sala, Cabuyao, Laguna
297 Nagcarlan, Laguna Branch-Lite Unit General Luna St., Bgy. 1, Nagcarlan, Laguna
298 Mamburao, Occidental Mindoro Branch-Lite Unit Rizal St. Corner Mercene St. Bgy. 3, Mamburao, Occidental
Mindoro
299 Victoria, Oriental Mindoro Branch-Lite Unit National Highway, Poblacion 1, Victoria, Oriental Mindoro
300 Malay, Aklan Branch-Lite Unit National Road, Caticlan, Malay, Aklan
301 San Juan , Ilocos Sur Branch-Lite Unit EJGS Commercial Building, Brgy. Bannuar San Juan, Ilocos Sur
302 Umingan, Pangasinan Branch-Lite Unit #3 Zamora St., Poblacion West, Umingan, Pangasinan
303 Gattaran, Cagayan Branch-Lite Unit National Highway Centro Sur Gattaran, Cagayan
304 Tabuk, Kalinga Branch-Lite Unit Purok 1, Bulanao, Tabuk City, Kalinga
 48

CORPORATE INFORMATION
BPI Direct BanKo, Inc., A Savings Bank
BanKo Center
220 Ortigas Avenue, North Greenhills
San Juan City 1503
(632) 7754-9980
www.banko.com.ph

Customer Inquiries
(632) 8654-7758
+63917 8149305 (duo) 75067172
+63917 8202418
+63917 8202257
+63917 8146306
+63919 076-4943
+63919 076-4942

Email
[email protected]

Facebook Page
www.facebook/magbankona

BanKo is regulated by the Bangko Sentral ng Pilipinas

https://www.bsp.gov.ph
www.pwc.com/ph

BPI Direct
BanKo, Inc.,
A Savings Bank
(Formerly BPI Direct Savings
Bank, Inc.)
Financial Statements
As at and for the years ended December 31, 2020 and 2019
 Isla Lipana & Co.

Independent Auditor’s Report

To the Board of Directors and Shareholder of

BPI Direct BanKo, Inc., A Savings Bank
(Formerly BPI Direct Savings Bank, Inc.)
G/F BanKo Center Building
Ortigas Avenue, North Greenhills
San Juan, Metro Manila

Report on the Audits of the Financial Statements

Our Opinion

In our opinion, the accompanying financial statements present fairly, in all material respects, the financial
position of BPI Direct BanKo, Inc., A Savings Bank (formerly BPI Direct Savings Bank, Inc.) (the “Bank”)
as at December 31, 2020 and 2019, and its financial performance and its cash flows for the years then
ended in accordance with Philippine Financial Reporting Standards (PFRSs).

What we have audited

The financial statements of the Bank comprise:

 the statements of condition as at December 31, 2020 and 2019;

 the statements of income for the years ended December 31, 2020 and 2019;
 the statements of comprehensive income for the years ended December 31, 2020 and 2019;
 the statements of changes in capital funds for the years ended December 31, 2020 and 2019;
 the statements of cash flows for the years ended December 31, 2020 and 2019; and
 the notes to the financial statements, which include a summary of significant accounting policies.

Basis for Opinion

We conducted our audits in accordance with Philippine Standards on Auditing (PSAs). Our responsibilities
under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial
Statements section of our report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
opinion.

Independence

We are independent of the Bank in accordance with the Code of Ethics for Professional Accountants in the
Philippines (Code of Ethics), together with the ethical requirements that are relevant to our audit of the
financial statements in the Philippines, and we have fulfilled our other ethical responsibilities in
accordance with these requirements and Code of Ethics.

Isla Lipana & Co., 29th Floor, Philamlife Tower, 8767 Paseo de Roxas, 1226 Makati City, Philippines
T: +63 (2) 8845 2728, F: +63 (2) 8845 2806, www.pwc.com/ph
Isla Lipana & Co. is the Philippine member firm of the PwC network. PwC refers to the Philippine member firm, and may sometimes refer to the PwC network. Each member firm
is a separate legal entity. Please see www.pwc.com/structure for further details.
 Isla Lipana & Co.

Independent Auditor’s Report

To the Board of Directors and Shareholder of
BPI Direct BanKo, Inc., A Savings Bank
(Formerly BPI Direct Savings Bank, Inc.)
Page 2

Responsibilities of Management and Those Charged with Governance for the Financial
Statements

Management is responsible for the preparation and fair presentation of the financial statements in
accordance with PFRSs, and for such internal control as management determines is necessary to enable the
preparation of financial statements that are free from material misstatement, whether due to fraud or
error.

In preparing the financial statements, management is responsible for assessing the Bank’s ability to
continue as a going concern, disclosing, as applicable, matters related to going concern and using the going
concern basis of accounting unless management either intends to liquidate the Bank or to cease operations,
or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Bank’s financial reporting process.

Auditor’s Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are
free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that
includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit
conducted in accordance with PSAs will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic decisions of users taken on the
basis of these financial statements.
 Isla Lipana & Co.

Independent Auditor’s Report

To the Board of Directors and Shareholder of
BPI Direct BanKo, Inc., A Savings Bank
(Formerly BPI Direct Savings Bank, Inc.)
Page 3

As part of an audit in accordance with PSAs, we exercise professional judgment and maintain professional
skepticism throughout the audit. We also:

 Identify and assess the risks of material misstatement of the financial statements, whether due to fraud
or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that
is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material
misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve
collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

 Obtain an understanding of internal control relevant to the audit in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Bank’s internal control.

 Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.

 Conclude on the appropriateness of management’s use of the going concern basis of accounting and,
based on the audit evidence obtained, whether a material uncertainty exists related to events or
conditions that may cast significant doubt on the Bank’s ability to continue as a going concern. If we
conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to
the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our
opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s
report. However, future events or conditions may cause the Bank to cease to continue as a going
concern.

 Evaluate the overall presentation, structure and content of the financial statements, including the
disclosures, and whether the financial statements represent the underlying transactions and events in a
manner that achieves fair presentation.

We communicate with those charged with governance regarding, among other matters, the planned scope
and timing of the audit and significant audit findings, including any significant deficiencies in internal
control that we identify during our audit.
 Isla Lipana & Co.

Independent Auditor’s Report

To the Board of Directors and Shareholder of
BPI Direct BanKo, Inc., A Savings Bank
(Formerly BPI Direct Savings Bank, Inc.)
Page 4

Report on the Supplementary Information Required by the Bangko Sentral ng Pilipinas

(BSP) and the Bureau of Internal Revenue (BIR)

Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken
as a whole. The supplementary information required under BSP Circular No. 1074 in Note 24 and BIR
Revenue Regulations No. 15-2010 in Note 25 to the financial statements is presented for the purposes of
filing with the BSP and the BIR, respectively, and is not a required part of the basic financial statements.
Such information is the responsibility of management of the Bank. The information has been subjected to
the auditing procedures applied in our audits of the basic financial statements. In our opinion, the
information is fairly stated, in all material respects, in relation to the basic financial statements taken as a
whole.

Isla Lipana & Co.

Ruth F. Blasco
Partner
CPA Cert. No. 112595
P.T.R. No. 0018519, issued on January 5, 2021, Makati City
SEC A.N. (individual) as general auditors 112595-SEC; Category A, valid to audit 2020 to 2024
financial statements
SEC A.N. (firm) as general auditors 0142-SEC, Category A; valid to audit 2020 to 2024
financial statements
TIN 235-725-236
BIR A.N. 08-000745-133-2020, issued on June 5, 2020; effective until June 4, 2023
BOA/PRC Reg. No. 0142, effective until January 21, 2023

Makati City
March 24, 2021
 BPI Direct BanKo, Inc., A Savings Bank
(Formerly BPI Direct Savings Bank, Inc.)

Statements of Condition
December 31, 2020 and 2019
(All amounts in Philippine Peso)

Notes 2020 2019

RESOURCES

Cash and other cash items 2 254,412,943 216,587,760

Due from other banks 2 815,738,983 830,391,583
Interbank loans receivable 2,3 - 393,634,185
Due from Bangko Sentral ng Pilipinas 2,4 8,168,802,018 2,491,887,897
Investment security at fair value through other
comprehensive income 5 9,914 5,560
Loans and advances, net 6 10,723,453,795 12,193,544,153
Assets held for sale 86,833,483 82,358,184
Bank premises, furniture, fixtures and equipment, net 7 816,334,041 1,002,078,934
Deferred income tax assets, net 8 716,192,409 327,038,301
Other resources, net 9 328,578,179 333,752,015
Total resources 21,910,355,765 17,871,278,572

LIABILITIES AND CAPITAL FUNDS

Deposit liabilities 10 17,848,087,262 13,961,113,446

Accrued taxes, interest and other expenses 11 216,472,387 196,940,611
Other liabilities 12 1,503,554,866 1,096,242,025
Total liabilities 19,568,114,515 15,254,296,082
CAPITAL FUNDS 13
Share capital 905,572,100 405,572,100
Accumulated other comprehensive income (40,851,354) (18,191,065)
Other reserves (269,815,403) (269,815,403)
Surplus 1,747,335,907 2,499,416,858
Total capital funds 2,342,241,250 2,616,982,490
21,910,355,765 17,871,278,572

(The notes on pages 1 to 55 are an integral part of these financial statements.)

 BPI Direct BanKo, Inc., A Savings Bank
(Formerly BPI Direct Savings Bank, Inc.)

Statements of Income
For the years ended December 31, 2020 and 2019
(All amounts in Philippine Peso)

Notes 2020 2019

INTEREST INCOME
Loans and advances 6 3,029,657,113 2,828,710,528
Deposits with BSP and other banks 2,4 111,591,791 65,592,132
Interbank loans receivable 3 32,587,431 18,952,187
Investment security 5 - 2,691,160
3,173,836,335 2,915,946,007
INTEREST EXPENSE ON DEPOSITS 10 364,792,147 134,349,991
NET INTEREST INCOME 2,809,044,188 2,781,596,016
PROVISION FOR IMPAIRMENT 6,9,21 1,920,143,598 575,510,838
NET INTEREST INCOME AFTER PROVISION
FOR IMPAIRMENT 888,900,590 2,206,085,178
OTHER INCOME
Service fee income 385,301,115 327,326,094
Profit on assets sold 8,420,862 19,357,796
Miscellaneous income 14 34,442,616 43,492,737
428,164,593 390,176,627
OTHER EXPENSES
Compensation and fringe benefits 17,18 932,832,901 761,972,587
Occupancy and equipment-related expenses 18 958,065,682 801,620,928
Other operating expenses 15 488,705,909 606,563,073
2,379,604,492 2,170,156,588
(LOSS) INCOME BEFORE PROVISION FOR
INCOME TAX (1,062,539,309) 426,105,217
PROVISION FOR INCOME TAX 16
Current 30,321,429 242,461,125
Deferred 8 (340,779,787) (89,011,503)
(310,458,358) 153,449,622
NET (LOSS) INCOME FOR THE YEAR (752,080,951) 272,655,595

(The notes on pages 1 to 55 are an integral part of these financial statements.)

 BPI Direct BanKo, Inc., A Savings Bank
(Formerly BPI Direct Savings Bank, Inc.)

Statements of Comprehensive Income

For the years ended December 31, 2020 and 2019
(All amounts in Philippine Peso)

Note 2020 2019

NET (LOSS) INCOME FOR THE YEAR (752,080,951) 272,655,595
OTHER COMPREHENSIVE INCOME (LOSS) 13
Item that will be subsequently reclassified to profit or loss
Change in fair value reserve on debt security at fair value
through other comprehensive income, net of tax - 288,000
Items that will not be subsequently reclassified to profit or loss
Change in fair value reserve on equity security at fair value
through other comprehensive income, net of tax 4,354 (1,778)
Remeasurement loss on retirement benefit obligation, net
of tax (22,664,643) (21,436,470)
Total other comprehensive loss (22,660,289) (21,150,248)
TOTAL COMPREHENSIVE (LOSS) INCOME FOR THE YEAR (774,741,240) 251,505,347

(The notes on pages 1 to 55 are an integral part of the financial statements.)

 BPI Direct BanKo, Inc., A Savings Bank
(Formerly BPI Direct Savings Bank, Inc.)

Statements of Changes in Capital Funds

For the years ended December 31, 2020 and 2019
(All amounts in Philippine Peso)

Accumulated
other
comprehensive
Share capital income (loss) Other Surplus
(Note 13) (Note 13) reserves (Note 13) Total
BALANCE, JANUARY 1, 2019 405,572,100 2,959,183 (269,815,403) 2,226,761,263 2,365,477,143
COMPREHENSIVE INCOME (LOSS)
Net income for the year - - - 272,655,595 272,655,595
Other comprehensive loss - (21,150,248) - - (21,150,248)
Total comprehensive income (loss)
for the year - (21,150,248) - 272,655,595 251,505,347
BALANCE, DECEMBER 31, 2019 405,572,100 (18,191,065) (269,815,403) 2,499,416,858 2,616,982,490
TRANSACTION WITH OWNER
Additional capital contribution 500,000,000 - - - 500,000,000
COMPREHENSIVE LOSS
Net loss for the year - - - (752,080,951) (752,080,951)
Other comprehensive loss - (22,660,289) - - (22,660,289)
Total comprehensive loss for the year - (22,660,289) - (752,080,951) (774,741,240)
BALANCE, DECEMBER 31, 2020 905,572,100 (40,851,354) (269,815,403) 1,747,335,907 2,342,241,250

(The notes on pages 1 to 55 are an integral part of the financial statements.)

 BPI Direct BanKo, Inc., A Savings Bank
(Formerly BPI Direct Savings Bank, Inc.)

Statements of Cash Flows

For the years ended December 31, 2020 and 2019
(All amounts in Philippine Peso)

Notes 2020 2019

CASH FLOWS FROM OPERATING ACTIVITIES
(Loss) income before provision for income tax (1,062,539,309) 426,105,217
Adjustments for:
Interest income (3,173,836,335) (2,915,946,007)
Interest expense 10,19 392,433,624 164,002,549
Depreciation and amortization 7 365,331,400 294,085,272
Profit on assets sold (8,967,135) (20,826,039)
Retirement benefit expense 17 21,183,626 18,824,255
Provision for impairment 6,9,20 1,920,143,598 575,510,838
Interest received 3,088,648,625 2,779,909,167
Interest paid (302,952,144) (68,212,753)
Operating income before changes in operating
resources and liabilities 1,239,445,950 1,253,452,499
Changes in operating resources and liabilities
(Increase) decrease in:
Loans and advances (361,450,875) (3,337,274,833)
Assets held for sale 4,491,836 13,914,816
Other resources (51,488,117) (273,900,748)
Increase (decrease) in:
Deposit liabilities 3,886,973,816 1,400,473,144
Accrued taxes, interest and other expenses (97,344,271) 24,268,135
Other liabilities 511,969,921 131,665,081
Net cash from (used in) operations 5,132,598,260 (787,401,906)
Retirement plan contributions 17 (42,779,728) (33,951,618)
Income tax paid (6,805,041) (49,633,271)
Net cash from (used) in operating activities 5,083,013,491 (870,986,795)
CASH FLOWS FROM INVESTING ACTIVITIES
(Increase) decrease in:
Bank premises, furniture, fixture, and equipment 7 (172,367,416) (334,376,377)
Investment securities at FVOCI 5 - 100,468,874
Net cash used in investing activities (172,367,416) (233,907,503)
CASH FLOWS FROM FINANCING ACTIVITIES
Receipt of additional capital contribution from
Parent Bank 13 500,000,000 -
Payment of principal portion of lease liabilities 19 (104,193,556) (87,788,282)
Net cash from (used in) financing activities 395,806,444 (87,788,282)
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 5,306,452,519 (1,192,682,580)

CASH AND CASH EQUIVALENTS

January 1 3,932,501,425 5,125,184,005
December 31 2 9,238,953,944 3,932,501,425

(The notes on pages 1 to 55 are an integral part of these financial statements.)

BPI Direct BanKo, Inc., A Savings Bank

Notes to the Financial Statements

As at and for the years ended December 31, 2020 and 2019
(In the notes, all amounts are shown in Philippine Peso unless otherwise stated)

Note 1 - General information

1.1 Business information

BPI Direct BanKo, Inc., A Savings Bank (the “Bank”) was incorporated in the Philippines and registered with
the Securities and Exchange Commission (SEC) on March 17, 1956 primarily to engage in and carry on the
general business of savings and mortgage banking.

The Bank is a wholly-owned subsidiary of Bank of the Philippine Islands (“BPI” or the “Parent Bank”),
a domestic commercial bank with an expanded banking license, which is also its ultimate parent.

The Bank’s registered office address, which is also its principal place of business, is BanKo Center Building,
Ortigas Avenue, North Greenhills, San Juan, Metro Manila.

The Bank has 2,094 regular employees as at December 31, 2020 (2019 - 2,823).

Coronavirus pandemic

On March 16, 2020, the Philippine Government declared the entire island of Luzon under an Enhanced
Community Quarantine (ECQ) due to the increasing coronavirus disease (COVID-19) cases in the country. The
ECQ mandated the closure of non-essential businesses and strict home quarantine which resulted in the
slowdown of the economy. Measures have been implemented to protect the health and safety of the Bank’s
employees, clients and partners, to support business continuity and to manage financial impact to a minimum.
These measures have caused disruptions to businesses and economic activities, and its impact on businesses
continue to evolve. While banks are authorized to operate during the ECQ period, branch operations were
sorely impacted by COVID-19, with 44% of the branches operating on a skeletal basis during the beginning of
the lockdown. With the transition to general community quarantine (GCQ) on June 1, 2020, branch operations
have been back to 100%. At this stage, the Bank deems it prudent to review its branch network strategy given
the acceleration in digital adoption by its clients and other considerations.

While quarantine measures over highly urbanized cities in the National Capital Region (NCR) were relaxed
following the proclamation of a modified enhanced community quarantine (MECQ) effective May 16, 2020,
and subsequently, a GCQ effective June 1, 2020, operations across various industries remain below full
capacity in these areas.

Effect of the suspension of loan payments mandated by the Bayanihan Acts 1 and 2

On March 24, 2020, the Congress passed Republic Act No. 11469 or the Bayanihan to Heal as One Act
(Bayanihan Act I) into law, which conferred emergency powers to the President of the Philippines.
Section 4(aa) of Bayanihan Act I directed all banks to implement a thirty (30)-day grace period for the payment
of all loans falling due within the ECQ period without interests, penalties, and other charges. Under this law,
persons with multiple loans were granted a grace period of 30 days for each and every loan.

The following were the reprieve measures issued by the government through the Implementing Rules and
Regulations (IRR) of Section 4(aa) of Bayanihan Act I for all loans regardless of status with payment due dates
(e.g., principal and/or interest) falling due within the ECQ period (March 17, 2020 to May 31, 2020, or as
extended):

• implementation of mandatory grace period to extend payment due dates of loans;

• non-imposition of interest on interest and waiver of fees and charges for non-payment;
• non-imposition of documentary stamp tax on credit extensions; and
• payment on a staggered basis for accrued interest on implemented mandatory grace period.
The status of the loans prior to the grant of the mandatory grace period and/or extension of maturity dates or
payment due dates were retained. The Bank monitored non-performing loan (NPL) measures internally:
1) based on aging of accounts without the grace period and 2) aging with grace period, as the grant of the grace
period may have artificially understated the actual NPL levels.

On September 11, 2020, the President of the Philippines signed into law Republic Act No. 11494 or the
Bayanihan to Recover as One Act (Bayanihan Act II), in view of the continuing rise of COVID-19 cases and the
ensuing economic disruption brought about by the pandemic. Under Section 4(uu) of Bayanihan Act II, all
banks are directed to implement a mandatory one-time sixty (60)-day grace period for the payment of all
existing, current, and outstanding loans falling due on or before December 31, 2020, without incurring interest
on interest, penalties, fees, or other charges. The amounts falling due within the 60-day grace period may be
settled in full after the 60-day grace period, or on a staggered basis until December 31, 2020, or as may be
agreed upon by the parties.

While Bayanihan Acts I and II both provide moratorium on the payment of eligible loans, they differ in the
qualification of eligible loans, the number of days provided as grace period and the allowable payment
schemes.

As a result of the COVID-19 pandemic, the Bank has seen an increase in the level of NPL attributable to the
temporary/permanent closure of certain businesses, suspended business operations and limited travel and
exchange of goods. The actual delinquency status or effect on the NPL levels across different products became
evident in the last quarter of 2020 after the lapse of the Bayanihan Act I.

1.2 Approval of the Bank’s financial statements

These financial statements have been approved and authorized for issuance by the BOD on March 24, 2021.

Note 2 - Cash and cash equivalents

The account as at December 31 consists of:

Notes 2020 2019

Cash and other cash items 254,412,943 216,587,760
Due from other banks 815,738,983 830,391,583
Interbank loans receivable 3 - 393,634,185
Due from BSP 4 8,168,802,018 2,491,887,897
9,238,953,944 3,932,501,425

For the year ended December 31, 2020, interest income earned on Due from other banks amounts to P1,413,287
(2019 - P2,955,443).

Cash and cash equivalents are classified as current as at December 31, 2020 and 2019.

Note 3 - Interbank loans receivable

The account at December 31, 2019 consists of transactions with:

Amount
BSP 393,415,621
Accrued interest receivable 218,564
393,634,185

Interbank loans receivable maturing within 90 days from the date of acquisition are classified as cash equivalents
in the statement of cash flows (Note 2).

Government bonds are pledged by the BSP as collaterals under reverse repurchase agreements. The face value of
securities pledged is equivalent to the total balance of outstanding placements as at reporting date. All collateral
agreements mature within 12 months.

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In 2020, the interbank loan receivable matured and was reinvested into overnight deposit facility under Due from
BSP (Note 4).

Average interest rate on interbank loans receivable in 2020 is 2.75% (2019 - 3.95%). Total interest earned on
interbank loans receivable amounts to P32,587,431 for the year ended December 31, 2020 (2019 - P18,952,187).

Interbank loans receivable is classified as current.

Note 4 - Due from BSP

The account as at December 31 consists of:

2020 2019
Special deposit accounts 7,590,000,000 1,564,000,000
Clearing accounts 578,802,018 927,887,897
8,168,802,018 2,491,887,897

Special deposit accounts classified as cash equivalents are fixed-term demand Philippine Peso deposits
maintained in compliance with the simplified minimum reserve requirements of the BSP (Note 10).

Clearing accounts represent temporary deposit accounts wherein funds flow from cleared checks are credited
against or debited for.

As at December 31, 2020, Due from BSP includes special deposit placements of P7.56 billion
(2019 - P1.56 billion) with maturities of not more than 28 days. Average interest rate on due from BSP at
December 31, 2020 is 1.48% (2019 - 3.63%). Total interest earned on due from BSP amounts to P110,178,504 for
the year ended December 31, 2020 (2019 - P62,636,689).

Due from BSP is classified as current as at December 31, 2020 and 2019.

Note 5 - Investment security at fair value through other comprehensive income (FVOCI)

The account consists of listed equity security which amounts to P9,914 as at December 31, 2020 (2019 - P5,560).

On June 8, 2019, the investment in corporate bond matured. The Bank has not made any additional purchase
of investments in 2019 and 2020.

For the year ended December 31, 2019, interest rate on corporate bond is 6.27%. Interest income on corporate
bond amounted to P2,691,160 for the year ended December 31, 2019.

Movements in investment security at FVOCI for the years ended December 31 are as follows:

2020 2019
At January 1 5,560 100,065,545
Fair value adjustment 4,354 (2,540)
Maturity - (100,057,445)
At December 31 9,914 5,560

Investment securities at FVOCI at December 31, 2020 and 2019 are classified as current.

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Note 6 - Loans and advances, net

The account as at December 31 consists of:

2020 2019
Corporate entities
Large corporate customers 167,247,134 180,725,544
Small and medium enterprises 18,461,827 13,185,240
Retail customers
Real estate mortgages 1,856,302,312 2,239,232,875
Auto loans 1,907,373 336,859
Others 10,345,227,640 10,476,581,268
12,389,146,286 12,910,061,786
Accrued interest receivable 375,893,781 287,291,416
Unearned discount (54,475) (54,475)
12,764,985,592 13,197,298,727
Allowance for impairment (2,041,531,797) (1,003,754,574)
10,723,453,795 12,193,544,153

Average effective interest rate on loans and advances is 28.02% at December 31, 2020 (2019 - 29.04%).
Interest income from loans and advances amounts to P3,029,657,113 for the year ended December 31, 2020
(2019 - P2,828,710,528).

Maturity profile of loans and advances, net of accrued interest receivable and unearned discount as at
December 31 follows:

2020 2019
Current (within 12 months) 5,622,450,703 5,530,068,659
Non-current (over 12 months) 7,142,534,889 7,667,230,068
12,764,985,592 13,197,298,727

Movements in allowance for impairment for the years ended December 31 are as follows:

2020 2019
Balance, January 1 1,003,754,574 670,366,462
Provision for loan impairment 1,908,839,332 573,300,328
Write-offs (834,069,371) (218,908,836)
Transfers/other movements (36,992,738) (21,003,380)
Balance, December 31 2,041,531,797 1,003,754,574

In 2020, the Bank purchased the personal loan portfolio of its Parent Bank amounting to P3,155,464,600
(2019 - P5,667,482,100).

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Note 7 - Bank premises, furniture, fixtures and equipment, net

The movements in the account for the years ended December 31 are summarized as follows:

2020
Leasehold
Furniture, Leasehold rights and
fixtures, and rights and Computer improvements
equipment improvement equipment in progress Buildings Total
Cost
January 1, 2020 325,526,643 616,844,398 41,788,649 1,797,056 486,956,402 1,472,913,148
Additions 62,199,340 74,253,068 209,672 237,755 40,672,173 177,572,008
Retirement - - - - (6,478,304) (6,478,304)
December 31, 2020 387,725,983 691,097,466 41,998,321 2,034,811 521,150,271 1,644,006,852
Accumulated depreciation
and amortization
January 1, 2020 152,971,063 184,527,585 30,842,188 - 102,493,378 470,834,214
Depreciation and
amortization 103,351,082 130,927,642 6,689,492 - 117,144,093 358,112,309
Retirement - - - - (1,273,712) (1,273,712)
December 31, 2020 256,322,145 315,455,227 37,531,680 - 218,363,759 827,672,811
Net book value,
December 31, 2020 131,403,838 375,642,239 4,466,641 2,034,811 302,786,512 816,334,041

2019
Leasehold
Furniture, Leasehold rights and
fixtures, and rights and Computer improvements
equipment improvement equipment in progress Buildings Total
Cost
January 1, 2019 245,273,533 373,079,907 32,768,389 458,540 472,027,176 1,123,607,545
Additions 80,253,110 243,724,491 9,020,260 1,378,516 14,929,226 349,305,603
Transfers - 40,000 - (40,000) - -
December 31, 2019 325,526,643 616,844,398 41,788,649 1,797,056 486,956,402 1,472,913,148
Accumulated depreciation
and amortization
January 1, 2019 77,493,710 90,574,898 22,912,490 - - 190,981,098
Depreciation and
amortization 75,477,353 93,952,687 7,929,698 - 102,493,378 279,853,116
December 31, 2019 152,971,063 184,527,585 30,842,188 - 102,493,378 470,834,214
Net book value,
December 31, 2019 172,555,580 432,316,813 10,946,461 1,797,056 384,463,024 1,002,078,934

Effective January 1, 2019, the Bank has recognized right-of-use assets from the long-term leases of spaces for its
main office and branches (Note 19).

In 2020, the Bank terminated certain lease contracts for its branch offices. Loss from such retirement is included
as part of Occupancy and equipment-related expenses in the statement of income.

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

Bank premises, furniture, fixtures and equipment are all considered non-current assets.

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Note 8 - Deferred income tax assets, net

Deferred income tax assets and liabilities at December 31 consist of:

2020 2019
Deferred income tax assets
Allowance for impairment 632,257,141 312,292,507
Expense accruals and provisions 15,644,850 5,727,420
Amortization of past service cost 22,289,507 14,530,358
Net operating loss carry-over (NOLCO) 3,829,196 -
Minimum corporate income tax (MCIT) 49,262,177 -
723,282,871 332,550,285
Deferred income tax liabilities
Retirement benefit asset 7,090,462 5,511,984
Deferred income tax assets, net 716,192,409 327,038,301

In 2020, the Bank recognized deferred income tax asset on NOLCO amounting to P3,829,196 due to the
expectation that it will be able to generate sufficient taxable income to take full advantage of the related tax
benefits within the prescribed period. On September 30, 2020, the Bureau of Internal Revenue (BIR) issued
Revenue Regulations (RR) No. 25-2020, Rules and Regulations Implementing Section 4 (bbbb) of Bayanihan
Act I relative to NOLCO under Section 34 (D)(3) of the National Internal Revenue Code, as amended, allowing
qualified businesses or enterprises which incurred net operating loss for taxable years 2020 and 2021 to carry
over the same as a deduction from its gross income for the next five (5) consecutive taxable years immediately
following the year of such loss. Ordinarily, NOLCO can be carried over as deduction from gross income for the
next three (3) consecutive years only. Accordingly, the NOLCO incurred by the Bank in 2020 shall be carried
over for the next five years until 2025.

The Bank also recognized deferred income tax asset on excess MCIT over regular corporate income tax
amounting to P49,262,177 for the year ended December 31, 2020, which will expire in the next 3 years.

Movements in the net deferred income tax assets for the years ended December 31 are summarized below:

Note 2020 2019

At January 1 327,038,301 237,456,216
Amounts credited to statement of income 340,779,787 89,011,503
Amounts credited to other comprehensive income 13 (887,856) 570,582
Recognition of MCIT 49,262,177 -
At December 31 716,192,409 327,038,301

The deferred tax credit in the statement of income for the years ended December 31 comprises the following
temporary differences:

2020 2019
Allowance for impairment (319,964,634) (82,239,386)
Net operating loss carry-over (NOLCO) (3,829,196) -
Others (16,985,957) (6,772,117)
(340,779,787) (89,011,503)

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Note 9 - Other resources, net

The account at December 31 consists of:

Notes 2020 2019

Accounts receivable 83,653,755 20,263,513
Prepaid expenses 55,869,379 32,210,111
Rental deposits 18,19 31,318,797 29,460,675
Pension asset 17 23,634,875 18,373,278
Injunction bond 21,048,262 1,834,660
Computer software 5,107,879 9,514,675
Membership shares 2,500,000 2,500,000
Accrued interest receivable 635,914 3,832,005
E-money - 63,652,791
Miscellaneous 120,506,484 156,629,335
344,275,345 338,271,043
Allowance for impairment (15,697,166) (4,519,028)
328,578,179 333,752,015

Other resources are expected to be realized as follows:

2020 2019
Current 313,032,591 307,883,089
Non-current 31,242,754 30,387,954
344,275,345 338,271,043

E-money represents cash deposited in G-Cash facility, which is used to finance accounts of the Bank’s clients
accessible through mobile phones, stored value cards and other access devices. In 2020, the Bank no longer
has accounts under the G-cash facility.

Accounts receivables include employee cash advances, commissions and receivables from ATM cards.

Miscellaneous assets include returned checks and float items which are expected to clear in one to two days.

Allowance for impairment pertains to accounts receivables that are doubtful of collection.

The movements in the allowance for impairment as at December 31 are as follows:

2020 2019
At January 1 4,519,028 2,459,317
Provision for impairment 11,178,138 2,059,711
At December 31 15,697,166 4,519,028

Note 10 - Deposit liabilities

The account as at December 31 consists of:

2020 2019
Demand 454,063,012 388,193,759
Savings 12,288,601,514 10,095,687,526
Time 5,105,422,736 3,477,232,161
17,848,087,262 13,961,113,446

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Deposit liabilities are expected to be settled as follows:

2020 2019
Current 7,493,037,073 5,434,571,008
Non-current 10,355,050,189 8,526,542,438
17,848,087,262 13,961,113,446

Related interest expense on deposit liabilities for the years ended December 31 is broken down as follows:

2020 2019
Demand 2,364,939 2,000,213
Savings 145,383,366 96,417,837
Time 217,043,842 35,931,941
364,792,147 134,349,991

Under current and existing BSP regulations, the Bank should comply with a minimum reserve requirement.
Further, BSP requires all reserves be kept at the central bank.

In 2019, the reserve ratio decreased to 4% from 8% following the BSP’s decision to reduce the requirements. In
2020, the BSP approved the further reduction in reserves which brought the requirement down to 3% for thrift
banks effective July 31, 2020 by virtue of BSP Circular No. 1092.

The required reserve as reported to BSP as at December 31, 2020 amounts to P529,423,847 (2019 - P552,433,944),
which is included in Due from BSP (Note 4). The Bank is in full compliance with the reserve requirement as at
December 31, 2020 and 2019.

Note 11 - Accrued taxes, interest and other expenses

The account as at December 31 consists of:

2020 2019
Accrued expenses 110,315,960 79,515,302
Accrued interest 53,545,532 36,399,472
Accrued taxes and licenses 52,610,612 54,095,077
Accrued income tax 283 26,930,760
216,472,387 196,940,611

Accrued expenses mainly pertain to accruals for utilities, penalties and outsourced services by the Bank.

The above accrued expenses are all considered current.

Note 12 - Other liabilities

The account at December 31 consists of:

Note 2020 2019

Accounts payable 470,437,094 602,569,628
Lease liabilities 19 330,620,134 401,466,789
Withholding taxes payable 10,281,247 12,616,529
Miscellaneous 692,216,391 79,589,079
Total 1,503,554,866 1,096,242,025

Miscellaneous liabilities mainly include mandatory contributions payable to SSS, Medicare and Philhealth, and
float items which are expected to clear in one to two days. In 2020, the float items increased as a result of the
time gaps in registering deposits or withdrawals caused by the delay in processing paper checks, which were
subsequently cleared in January 2021.

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The lease liabilities are measured at the present value of the remaining lease payments using an incremental
borrowing rate applied by the Bank (Note 19).

Other liabilities are considered current, except for the non-current portion of the lease liabilities disclosed in
Note 19.

Note 13 - Capital funds

Details of share capital at December 31, 2020 are as follows:

Authorized Issued and Outstanding

Number of Number of
Shares Amount Shares Amount
Common shares, at P100 par value per share
Class A 37,400,000 3,740,000,000 8,455,721 845,572,100
Class B 2,000,000 200,000,000 600,000 60,000,000
39,400,000 3,940,000,000 9,055,721 905,572,100
Preferred shares, at P100 par value per share,
12% cumulative, participating and redeemable
Class A 200,000 20,000,000 - -
Class B 400,000 40,000,000 - -
600,000 60,000,000 - -
40,000,000 4,000,000,000 9,055,721 905,572,100

Details of share capital at December 31, 2019 are as follows:

Authorized Issued and Outstanding

Number of Number of
Shares Amount Shares Amount
Common shares, at P100 par value per share
Class A 3,500,000 350,000,000 3,455,721 345,572,100
Class B 600,000 60,000,000 600,000 60,000,000
4,100,000 410,000,000 4,055,721 405,572,100
Preferred shares, at P100 par value per share,12%
cumulative, participating and redeemable
Class A 200,000 20,000,000 - -
Class B 400,000 40,000,000 - -
600,000 60,000,000 - -
4,700,000 470,000,000 4,055,721 405,572,100

On February 24, 2016, the BOD of the Bank approved the merger with BPI Globe BanKo, Inc. (“BanKo”), a
fellow subsidiary, with the Bank as the surviving entity. The merger is aimed at integrating the banking
operations of BanKo into the Bank and at bringing efficiency and scale to the surviving entity. The merged
business is expected to leverage on a bigger customer base and will benefit from cost-savings and operational
synergies.

On September 14, 2016, in preparation for the merger, the BOD approved the change in the authorized capital
structure of the Bank as follows:

• Increase in authorized Class A common shares from P330 million consisting of 3.3 million common shares
at P100 par value per share to P350 million consisting of 3.5 million shares at P100 par value per share;
and
• Decrease in authorized Preferred Class A common shares from P40 million consisting of 400 thousand
shares at P100 par value per share to P20 million consisting of 20 thousand shares at P100 par value per
share

The above changes, which were approved by the SEC on December 29, 2016, did not affect the total authorized
capital stock of the Bank which remained at P470 million.

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The Class A (common and preferred) shares are available only to Philippine nationals while the Class B
(common and preferred) shares may be issued to non-Filipinos. The Bank, at its option, may redeem the
preferred shares after ten years from issue date.

On December 29, 2020, the SEC approved the Bank’s increase in authorized capital stock from P470 million in
2019 to P4 billion in 2020. On September 30, 2020, the Bank received P500 million from the Parent Bank as a
capital infusion to strengthen the Bank’s capital position against the economic effects of the COVID-19 pandemic.

Surplus

As at December 31, 2020, the Bank has surplus in excess of its paid-up capital amounting to P841,763,807
(2019 - P2,093,844,758). The Bank intends to use its excess surplus for future branch expansions which are
expected to materialize within the next twelve months after year end.

Other comprehensive income

The movements in the account for the years ended December 31 are summarized below:

2020 2019
Fair value reserve on investment securities at FVOCI
At January 1 (10,852) (297,074)
Unrealized fair value gain (loss) before tax 4,354 (2,540)
Deferred income tax effect - 762
Transferred to profit or loss - 288,000
At December 31 (6,498) (10,852)
Remeasurement loss on defined benefit plan, net
At January 1 (18,180,213) 3,256,257
Remeasurement loss before tax (21,776,787) (22,006,290)
Deferred income tax effect (887,856) 569,820
At December 31 (40,844,856) (18,180,213)
(40,851,354) (18,191,065)

Note 14 - Miscellaneous income

The account for the years ended December 31 consists of:

Note 2020 2019

Recoveries 6 36,600,046 40,917,632
Other income 440,276 5,873,926
Gross receipts tax (2,597,706) (3,298,821)
34,442,616 43,492,737

The Bank was able to recover collections on personal loans purchased from the Parent Bank and the amounts
received were recognized as income for the years ended December 31, 2020 and 2019.

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Note 15 - Other operating expenses

The account for the years ended December 31 consists of:

Note 2020 2019

Shared operating costs 18 185,484,201 277,491,274
Travel and communications 86,449,223 111,016,367
Insurance 71,837,357 57,198,509
Stationery and supplies used 33,093,332 29,019,076
Taxes and licenses 30,740,516 16,322,026
Fines, penalties, and other charges 15,289,083 7,197,934
Advertising and publicity 7,601,387 48,319,216
Litigation expenses 5,794,393 6,919,228
Membership fees 5,000,336 4,458,364
Regulatory examination fees 4,537,608 3,378,204
Others 42,878,473 45,242,875
488,705,909 606,563,073
Other operating expenses pertain mainly to professional fees, representation and entertainment, freight expenses
and other outsourced service costs.

Note 16 - Income taxes

A reconciliation between the provision for income tax at the statutory income tax rate to the actual provision for
income tax for the years ended December 31 is presented below:

2020 2019
Amount % Amount %
Statutory income tax (318,761,793) (30.00) 127,831,565 30.00
Effect of items not subject to statutory tax rate
Income subject to lower tax rates (15,003,412) (1.41) (8,527,654) (2.00)
Others 23,306,847 2.19 34,145,711 8.01
Actual provision for income tax (310,458,358) (29.22) 153,449,622 36.01

Others mainly consist of permanent non-deductible expenses such as fines, penalties and interest expense above
the allowed ceiling.

Note 17 - Retirement plan

BPI and its subsidiaries, which include the Bank, have a trustee, non-contributory retirement benefit plans
covering all qualified officers and employees.

Effective January 1, 2016, the Bank implemented a defined contribution plan which is accounted for as a
defined benefit plan with minimum guarantee. The description of the plans follows:

Under the BPI plan, the normal retirement age is 60 years. Normal retirement benefit consists of a lump sum
benefit equivalent to 200% of the basic monthly salary of the employee at the time of his retirement for each
year of service, if he has rendered at least 10 years of service, or up to 150% of his basic monthly salary, if he
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 as in voluntary retirement.

For the defined contribution plan, 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 Republic Act (RA) No. 7641. All non-unionized employees hired on
or after October 1, 2016 are automatically under the new defined contribution (DC) plan. Employees hired
prior to October 1, 2016 shall have the option to elect to become members of the new DC plan.

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The net defined benefit cost and contributions to be paid by the Bank are determined by an independent
actuary.

Plan assets are held in trusts, governed by local regulations and practice in the Philippines.

Following are the amounts recognized that relate to the Bank based on the recent actuarial valuation reports:

Defined benefit retirement plan

(a) Pension asset as at December 31 recognized under Other resources in the statement of condition follows:

2020 2019
Fair value of plan assets 49,839,130 58,377,552
Present value of defined benefit obligation (14,232,590) (11,972,097)
Surplus 35,606,540 46,405,455
Effect of the asset ceiling (11,971,665) (28,032,177)
Pension asset recognized in the statement of condition 23,634,875 18,373,278

The movements in plan assets for the years ended December 31 are summarized as follows:

2020 2019
At January 1 58,377,552 38,953,726
Asset return at net interest cost 3,230,260 3,260,427
Contributions 500,834 7,091,443
Remeasurement (loss) gain (12,269,516) 9,071,956
At December 31 49,839,130 58,377,552

The carrying value of the plan assets as at December 31, 2020 is equivalent to its fair value of P50 million
(2019 - P58 million).

The plan assets at December 31 are comprised of the following:

2020 2019
Amount % Amount %
Debt securities 23,558,957 47 22,767,245 39
Equity securities 20,648,352 42 27,437,449 47
Others 5,631,821 11 8,172,858 14
49,839,130 100 58,377,552 100

The plan assets of the unified retirement plan include investment in BPI’s common share with
aggregate fair value of P390 million at December 31, 2020 (2019 - P421 million). An officer of the
Parent Bank exercises the voting rights over the plan’s investment in BPI’s common shares.

The movements in the present value of defined benefit obligation for the years ended December 31 are
summarized as follows:

2020 2019
At January 1 11,972,097 9,614,795
Current service cost 687,107 549,961
Interest cost 659,663 804,758
Remeasurement gain (loss)
Changes in financial assumptions 2,323,715 3,482,234
Experience adjustments (1,409,992) (2,479,651)
At December 31 14,232,590 11,972,097

The Bank has no further transactions with the plan other than the contributions for the years ended
December 31, 2020 and 2019.

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(b) Retirement benefit income recognized in the statement of income for the years ended December 31:

2020 2019
Current service cost 687,107 549,961
Net interest income (1,026,024) (776,887)
Total (338,917) (226,926)

The principal assumptions used for the actuarial valuations of the defined benefit plan of the Bank at
December 31 are as follows:

2020 2019
Discount rate 3.96% 5.51%
Salary increase rate 5.00% 5.00%

Discount rate

The discount rate is determined by reference to PHP Bloomberg Valuation (BVAL) rates and adjusted to
reflect the term similar to the estimated term of the benefit obligation as determined by the actuary as at the
end of the reporting period as there is no deep market in high quality corporate bonds in the Philippines.

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.

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 Bank 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 risks. 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 Bank. However, the Bank believes that due to the long-term
nature of the pension liability and the strength of the Bank itself, the mix of debt and equity securities holdings
of the plan is an appropriate element of the Bank’s long term strategy to manage the plan efficiently.

The Bank 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
Bank’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.

The average remaining service life of employees under the BPI unified retirement plan as at December 31, 2019
is 21 years (2019 - 19 years). The Bank contributes to the plan depending on the suggested funding contribution
as calculated by an independent actuary. The expected contribution for the year ending December 31, 2021 for the
Bank amounts to P 1.2 million.

The weighted average duration of the defined benefit obligation as at December 31, 2020 is 11.92 years
(2019 - 12.78 years).

(13)
The projected maturity analysis of retirement benefit payments as at December 31 is as follows:

2020 2019
Between 1 to 5 years 966,725 1,043,337
Between 5 to 10 years 10,009,376 10,065,480
Between 10 to 15 years 5,839,665 5,659,273
Between 15 to 20 years 18,104,232 10,955,197
Over 20 years 36,438,987 28,841,629

The sensitivity of the defined benefit obligation to changes in the weighted principal assumptions follows:

Impact on defined benefit obligation

Change in Increase in Decrease in
December 31, 2020 assumption assumption assumption
Discount rate 0.5% Decrease by 11.0% Increase by 12.9%
Salary growth rate 1.0% Increase by 12.6% Decrease by 11.0%
Impact on defined benefit obligation
Change in Increase in Decrease in
December 31, 2019 assumption assumption assumption
Discount rate 0.5% Decrease by 6.1% Increase by 6.7%
Salary growth rate 1.0% Increase by 13.9% Decrease by 11.9%

The above 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
within the statement of condition.

Defined contribution retirement plan subject to the requirements of RA No. 7641

2020 2019
Fair value of plan assets 89,024,300 33,071,598
Present value of defined benefit obligation under RA No. 7641 (102,853,859) (41,897,573)
Deficit (13,829,559) (8,825,975)
Effect of asset ceiling - -
Pension liability recognized in the statement of condition (13,829,559) (8,825,975)

The movements in the present value of the defined benefit obligation for the years ended December 31 follow:

2020 2019
At January 1 41,897,573 18,279,619
Current service cost 21,600,777 18,299,076
Interest cost 2,333,695 904,739
Past service cost (64,107) -
Remeasurement gain
Changes in financial assumptions 31,108,095 1,931,752
Experience adjustments 5,977,826 2,482,387
At December 31 102,853,859 41,897,573

(14)
The movements in the fair value of plan assets for the years ended December 31 follow:

2020 2019
At January 1 33,071,598 1,694,050
Benefits paid (64,107) -
Asset return at net interest cost 2,411,929 152,634
Contributions 42,278,894 26,860,175
Remeasurement gain - return on plan assets 11,325,986 4,364,739
At December 31 89,024,300 33,071,598

Total retirement benefit expense for the year ended December 31, 2020 under the defined contribution plan
amounts to P21,522,543 (2019 - P19,051,181).

The principal assumptions used for the actuarial valuation of the defined contribution plan of the Bank at
December 31 are as follows:

2020 2019
Discount rate 3.95% 5.57%
Salary increase rate 5.00% 5.00%

The major categories of plan assets as a percentage of the fair value of total plan assets at December 31 follow:

2020 2019
Amount % Amount %
Debt securities 41,877,031 47 6,005,373 18
Equity securities 43,372,639 49 23,389,348 71
Others 3,774,630 4 3,676,877 11
89,024,300 100 33,071,598 100

The asset allocation of the plan is set and reviewed from time to time by the plan trustees taking into account
the membership profile, the liquidity requirements of the plan and risk appetite of the plan sponsor.

Contributions are determined on the plan provisions. The expected contribution of the Bank for the year ending
December 31, 2021 amounts to P44,540,501.

(15)
Note 18 - Related party transactions

In the ordinary course of business, the Bank has transactions with its directors, officers, stockholders and related
interests (DOSRI) and with its Parent Bank such as cash deposit arrangements, purchase of investment securities
and outsourcing of certain services, primarily loans operations, branch operations and human resource-related
functions.

Significant related party transactions are summarized below:

As at and for the year ended December 31, 2020

Transactions Outstanding
for the year balance Terms and conditions
Deposits to:
Parent Bank (37,999,461) 704,206,721 - These are demand, savings and
Fellow subsidiary (22,167,149) 37,472,073 time deposits bearing the following
average interest rates:
Savings - 0.24% to 0.97%
Time - 0.99% to 4.17%
(60,166,610) 741,678,794
Deposits from:
Fellow subsidiary 1,700,000 1,700,000 These are time deposits bearing
average interest rates of 2.25% to
3.80%.
1,700,000 1,700,000
Accounts receivable:
Parent Bank (9,000,000) - - Unsecured, unguaranteed and non-
interest bearing advances
- Collectible in cash at gross amount
and on demand but not later than 12
months from reporting period
(9,000,000) -
Accounts payable:
Parent Bank 449,329,934 381,987,911 - Shared operating costs, occupancy
Fellow subsidiary 35,304,306 - and equipment related costs and
office rental
- Unsecured, unguaranteed and
non-interest bearing
- Payable in cash at gross amount
and on demand but not later than
12 months from reporting period
Refer to Notes (a), (b) and (c) below
484,634,240 381,987,911

(16)
As at and for the year ended December 31, 2019

Transactions Outstanding
for the year balance Terms and conditions
Deposits to:
Parent Bank (67,573,736) 742,206,182 - These are demand, savings and
Fellow subsidiary (3,297,050) 57,515,882 time deposits bearing the following
average interest rates:
Savings - 0.66% to 1.11%
Time - 1.68% to 2.83%
(70,870,786) 799,722,064
Deposits from:
Fellow subsidiary (1,700,000) - - These are time deposits bearing
average interest rates of 1.13% to
1.14%.
(1,700,000) -
Accounts receivable:
Parent Bank 9,000,000 9,000,000 - Unsecured, unguaranteed and non-
interest bearing advances
- Collectible in cash at gross amount
and on demand but not later than
12 months from reporting period
9,000,000 9,000,000 -
Accounts payable:
Parent Bank 170,352,312 529,399,203 - Shared operating costs, occupancy
and equipment related costs and
office rental
- Unsecured, unguaranteed and
non-interest bearing
- Payable in cash at gross amount
and on demand but not later than
12 months from reporting period
Refer to Notes (a), (b) and (c) below
170,352,312 529,399,203

The aggregate amounts included in the determination of income before income tax for the years ended
December 31 that resulted from transactions with each class of related parties are as follows:

Notes 2020 2019

Interest income 2
Parent Bank 88,660 2,597,070
Fellow subsidiaries 1,286,474 252,757
1,375,134 2,849,827
Interest expense
Fellow subsidiaries 1,060 138,226
Shared operating costs [Refer to Note (a) below]
Parent Bank 15 185,484,201 277,491,274
Occupancy and equipment related costs [Refer to
Note (b) below]
Parent Bank 194,930,547 196,375,614
Office rental [Refer to Note (c) below]
Parent Bank 5,910,910 5,910,910
Retirement benefits 130,029 799,511
Salaries, allowances and other short-term benefits
Key management personnel 8,078,579 6,662,588
Directors’ remuneration 4,345,000 2,035,000

(17)
(a) Shared operating costs

These pertain to the Parent Bank’s outsourcing of services relating to anti-money laundering services, accounting
and securities administration services, loan operations, treasury operations, human resource-related functions
and information systems. Shared operating costs are billed based on rate and terms agreed by the parties. The
agreement remains in force unless terminated by the parties.

(b) Occupancy and equipment related costs

These pertain to the Parent Bank’s services relating to shared technology costs. It is billed based on rate and
terms agreed by the parties. The agreement remains in force unless terminated by the parties.

(c) Office rental

In 2017, the Bank transferred its office premise at BPI Greentop Condominium building, a property of the Parent
Bank, for a lease period of 5 years from December 1, 2014 to November 30, 2019. The rent shall increase by 5%
yearly starting on the second year and by 7% on the fourth year thereafter. The security deposit in relation to the
lease is presented as part of Other resources, net in the statement of condition. The lease was renewed for another
5 years with the same terms and conditions.

The Bank has no DOSRI loans at December 31, 2020 and 2019.

The Bank is in full compliance with the General Banking Act as at December 31, 2020 and 2019.

Note 19 - Other commitments and contingent liabilities

As a result of the merger, the existing lease agreements by BanKo was assumed by the Bank effective
December 29, 2016. The lease term of the Bank’s main office space commenced on December 1, 2014 and
ended on November 30, 2019 but was renewed thereafter. Likewise, the branch office spaces have various lease
agreements that are renewable under certain terms and conditions. The rent is subject to 5% to 10% escalation
rate. This agreement requires the Bank to pay security deposit which is presented at Other resources, net in the
statement of condition.

Lease terms are negotiated either on a collective or individual basis and contain a wide range of different terms
and conditions. The lease agreements do not impose any covenants other than the security interests in the leased
assets that are held by the lessor. Leased assets cannot be used as security for borrowing purposes.

The balances arising from these leases are presented below:

a) Right-of-use assets and lease liabilities (PFRS 16)

The Bank has recognized right-of-use assets and lease liabilities from its long-term leases.

Details of right-of-use assets and lease liabilities at December 31 are as follows:

Notes 2020 2019

Right-of-use assets
(included in Bank premises, furniture and equipment, net) 7
Building 302,786,512 384,463,024
Lease liabilities (included in Other liabilities) 12
Current 6,019,703 104,118,385
Non-current 324,600,431 297,348,404
330,620,134 401,466,789

Additions to the right-of-use assets in 2020 aggregated P41 million (2019 - P15 million) (Note 7).

(18)
Movements in lease liabilities for the years ended December 31 are as follows:

2020 2019
Balance, January 1 401,466,789 472,027,176
Additions during the year
Lease liabilities on contracts entered 33,810,425 11,941,404
Interest accretion on lease liabilities 27,641,477 29,652,558
Payments during the year
Principal portion of lease liabilities (104,193,556) (87,788,282)
Interest on lease liabilities (28,105,001) (24,366,067)
Balance, December 31 330,620,134 401,466,789

Total cash outflow for leases in 2020 amounted to P132.3 million (2019 - P112.15 million).

Amounts recognized under Occupancy and equipment-related expenses in the statement of income for the years
ended December 31 relating to leases:

2020 2019
Depreciation expense
Building (Note 7) 117,144,093 102,493,377
Interest expense on lease liabilities 27,641,477 29,652,558
Expenses relating to low-value leases 17,719,465 4,280,100
162,505,035 136,426,035

The Bank has received COVID-19 related rent discount and deferral of the escalation of lease payments and has
applied the requirements of practical expedients allowed under PFRS 16, Leases, introduced in May 2020 in
accounting for the rent concessions. The rent concessions, however, did not have a significant impact to the
Bank’s financial statements. The Bank has recognized minimal gain of P47,003 from rent concessions.

Note 20 - Subsequent events

Corporate Recovery and Tax Incentives for Enterprises Act

The Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act which seeks to lower corporate income
tax rates and to rationalize fiscal incentives had been approved by the House of Representatives on
September 13, 2019 and by the Senate on the third and final reading on November 26, 2020. The bill was
approved by the Bicameral Conference Committee on February 4, 2021 but has yet to be signed into law by the
President of the Philippines. Under the CREATE bill, effective July 1, 2020, the more significant changes are as
follows:

• Reduction of corporate income tax (CIT) rate to 20% applicable to domestic corporations with total net
taxable income not exceeding P5 million and with total assets not exceeding P100 million (excluding land on
which the business entity’s office, plant and equipment are situated);
• Reduction of CIT rate to 25% shall be applicable to all other corporations subject to regular CIT; and,
• Minimum Corporate Income Tax (MCIT) rate shall also be amended to 1%, instead of 2%, for the period
beginning July 1, 2020 until June 30, 2023.

Since the CREATE bill has not been substantively enacted by the time the Bank’s financial statements were
authorized for issue, no disclosures were made in the Bank’s financial statements to reflect the potential impact of
the proposed changes in the CIT rate.

(19)
Financial Institutions Strategic Transfer (FIST) Law

On February 16, 2021, Republic Act (RA) No. 11523, otherwise known as FIST, was signed into law. The law takes
effect immediately after its publication in the Official Gazette and a newspaper in general circulation. Under this
law, financial institutions’ strategic transfer corporations (FISTC) will have the powers to invest in or acquire the
non-performing assets (NPA) of financial institutions and engaged third parties to manage, operate, collect and
dispose of NPAs acquired from a financial institution. The transfer of NPAs to a FISTC will be exempt from
documentary stamp tax, capital gains tax, creditable withholding taxes and value-added tax. The Bank is still in
the process of evaluating how they can avail the benefit from the provisions of the FIST Law.

Note 21 - Critical accounting estimates and judgments

The Bank makes judgments, estimates and assumptions that affect the reported amounts of resources and
liabilities. Judgments, estimates and assumptions 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
judgments, estimates and assumptions made at reporting date and could result in the adjustment to the carrying
amount of affected assets and liabilities.

21.1 Critical accounting estimates

(i) Measurement of the expected credit loss (ECL) allowance

The measurement of the ECL for loans and advances is an area that requires the use of complex models and
significant assumptions about future economic conditions and credit behavior (e.g. the likelihood of customers
defaulting and the resulting losses).

A number of significant judgements are also required in applying the accounting requirements for measuring
ECL, such as:

• Determining criteria for significant increase in credit risk (SICR);

• Choosing appropriate models and assumptions for the measurement of ECL;
• Establishing the number and relative weightings of forward-looking scenarios for each type of product and
the associated ECL; and
• Establishing groups of similar financial assets for the purposes of measuring ECL.

Forward-looking scenarios

Three distinct macroeconomic scenarios (baseline, upside and downside) are considered in the Bank’s estimation
of ECL in Stage 1 and Stage 2. These scenarios are based on assumptions supported by economic theories and
historical experience. The downside scenario reflects a negative macroeconomic event occurring within the first
12 months, with conditions deteriorating for up to two years, followed by a recovery for the remainder of the
period. This scenario is grounded in historical experience and assumes a monetary policy response that returns
the economy to a long-run, sustainable growth rate within the forecast period. The probability of each scenario
is determined using expert judgment and recession probability tools provided by reputable external service
providers. The baseline case incorporates the Bank’s outlook for the domestic and global economy. The best and
worst case scenarios take into account certain adjustments that will lead to a more positive or negative economic
outcome.

Other forward-looking considerations not otherwise incorporated within the above scenarios, such as the
impact of any regulatory, legislative or political changes is likewise considered, if material.

(20)
The Bank has performed historical analyses and identified the key economic variables impacting credit risk and
ECL for each portfolio. The most significant period-end assumptions used for the ECL estimate at December 31
are set out below. The scenarios “base”, “upside” and “downside” were used for all portfolios.

2020
Base Scenario Upside Scenario Downside Scenario
Next 12 2 to 5 years Next 12 2 to 5 years Next 12 2 to 5 years
Months (Average) Months (Average) Months (Average)
Real GDP growth (%) 7.4 5.9 8.4 6.9 5.4 3.9
Inflation Rate (%) 3.0 2.5 2.0 1.5 4.7 3.5
PDST-R2 5Y (%) 3.0 3.6 2.5 3.1 5.5 6.1
US Treasury 5Y (%) 0.5 0.5 0.7 0.7 0.3 0.3
Exchange Rate 49.848 53.780 48.375 49.672 51.340 58.171

2019
Base Scenario Upside Scenario Downside Scenario
Next 12 2 to 5 years Next 12 2 to 5 years Next 12 2 to 5 years
Months (Average) Months (Average) Months (Average)
Real GDP growth (%) 6.3 6.6 6.6 7.2 0.0 4.2
Inflation Rate (%) 3.0 3.1 2.7 2.4 11.0 5.9
PDST-R2 5Y (%) 4.5 4.7 4.0 4.3 11.2 10.3
US Treasury 5Y (%) 2.5 2.5 2.8 3.4 1.4 1.3
Exchange Rate 52.300 54.874 51.550 52.856 56.970 62.653

Sensitivity analysis

The Bank’s loan portfolio has different sensitivities to movements in macroeconomic variables (MEVs), so the
above three scenarios have varying impact on the ECL of the Bank’s portfolio. The allowance for impairment is
calculated as the weighted average of ECL under the baseline, upside and downside scenarios. The impact of
weighting these multiple scenarios was an increase in the allowance for impairment by P0.05 million from the
baseline scenario as at December 31, 2020 (2019 - P P0.9 million).

Transfers between stages

Transfers from Stage 1 and Stage 2 are based on the assessment of SICR from initial recognition. The impact of
moving from 12 months ECL to lifetime ECL, or vice versa, varies by product and is dependent on the expected
remaining life at the date of the transfer. Stage transfers may result in significant fluctuations in ECL. Assuming
all Stage 2 accounts are considered as Stage 1, allowance for impairment would have decreased by P11.9 million as
at December 31, 2020 (2019 - P10.6 million).

(ii) Fair value of financial instruments (Note 22)

The fair values of financial instruments that are not quoted in active markets are determined by using generally
accepted valuation techniques. Where valuation techniques (for example, discounted cash flow models) are used
to determine fair values, they are validated and periodically reviewed by qualified personnel independent of the
area that created them. Inputs used in these models are from observable data and quoted market prices in respect
of similar financial instruments.

All models are approved by the BOD before they are used, and models are calibrated to ensure that outputs reflect
actual data and comparative market prices. Changes in assumptions about these factors could affect reported fair
value of financial instruments.

The Bank considers that it is impracticable to disclose with sufficient reliability the possible effects of sensitivities
surrounding the fair value of financial instruments that are not quoted in active markets.

(21)
(iii) Pension liability on defined benefit plan (Note 17)

The Bank estimates its pension benefit obligation and expense for defined benefit pension plans based on the
selection of certain assumptions used by actuaries in calculating such amounts. Those assumptions are
described in Note 17 and include, among others, the discount rate and future salary increases. The Bank
determines the appropriate discount rate at the end of each year. 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.

The present value of the defined benefit obligation of the Bank at December 31, 2020 and 2019 are determined
using the market yields on Philippine government bonds with terms consistent with the expected payments of
employee benefits. Plan assets are invested in either equity securities, debt securities or other forms of
investments. Equity markets may experience volatility, which could affect the value of pension plan assets. This
volatility may make it difficult to estimate the long-term rate of return on plan assets. Actual results that differ
from the Bank’s assumptions are reflected as remeasurements in other comprehensive income. The Bank’s
assumptions are based on actual historical experience and external data regarding compensation and discount
rate trends.

The sensitivity analysis on key assumptions is disclosed in Note 17.

(iv) Valuation of assets held for sale

In determining the fair value of assets held for sale, the Bank analyzed the sales prices by applying appropriate
units of comparison, adjusted by differences between the subject asset or property and related market data.
Should there be a subsequent write-down of the asset to fair value less cost to sell, such write-down is
recognized as provision for impairment in the statement of income.

In 2020, the Bank has recognized provision for impairment loss on its foreclosed assets amounting to
P126,128 (2019 - P150,799) as a result of the decline in fair market values of properties.

The Bank considers that it is impracticable to disclose with sufficient reliability the possible effects of
sensitivities surrounding the fair value of assets held for sale.

(v) Useful lives of bank premises, furniture, fixtures and equipment (Note 7)

The Bank determines the estimated useful lives of its bank premises, furniture, fixtures and equipment based
on the period over which the assets are expected to be available for use. The Bank annually reviews the
estimated useful lives of bank premises, furniture, fixtures and equipment based on factors that include asset
utilization, internal technical evaluation, technological changes, environmental and anticipated use of assets
tempered by related industry benchmark information. It is possible that future results of operations could be
materially affected by changes in these estimates brought about by changes in the factors mentioned.

The Bank considers that it is impracticable to disclose with sufficient reliability the possible effects of
sensitivities surrounding the carrying values of bank premises, furniture, fixtures and equipment.

(vi) Determination of incremental borrowing rate (Note 19)

To determine the incremental borrowing rate, the Bank:

• uses a build-up approach that starts with a risk-free interest rate adjusted for credit risk for leases held
which do not have recent third-party financing, and
• makes adjustments specific to the lease, (e.g. term, currency and security).

The Bank’s weighted average incremental borrowing rates applied to the lease liabilities range from 3.28% to
7.74% (2019 - 7.63% to 7.74%).

The Bank considers that it is impracticable to disclose with sufficient reliability the possible effects of sensitivities
surrounding its lease liabilities.

(22)
21.2 Critical accounting judgments

(i) Determining the lease term (Note 19)

In determining the lease term, the Bank considers all facts and circumstances that create an economic
incentive to exercise an extension option. Extension options are only included in the lease term if the lease is
reasonably certain to be extended.

(ii) Classification of assets held for sale

Management follows the principles in PFRS 5 in classifying certain foreclosed assets (consisting of real estate and
auto or chattel) as assets held for sale when the carrying amount of the assets will be recovered principally
through sale. Management is committed to a plan to sell these foreclosed assets and the assets are actively
marketed for sale at a price that is reasonable in relation to their current fair value.

(iii) Realization of deferred income tax assets (Note 8)

Management reviews at each reporting date the carrying amounts of deferred tax assets. The carrying amount of
deferred tax assets is reduced to the extent that the related tax assets cannot be utilized due to insufficient taxable
profit against which the deferred tax losses will be applied. Management believes that sufficient taxable profit will
be generated to allow all or part of the deferred income tax assets to be utilized.

Note 22 - Financial risk and capital management

Risk management in the Bank 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 BOD is the Bank’s
principal risk and capital manager, and the Bank’s only strategic risk taker. The BOD provides written policies for
overall risk management, as well as written procedures for the management of credit risk, foreign exchange risk,
interest rate risk, equity risk, liquidity risk, and contingency risk, among others.

The primary objective of the Bank is the generation of recurring acceptable returns to shareholders’ capital. To
this end, the Bank’s policies, business strategies, and business activities are directed towards the generation of
cash flows that are in excess of its fiduciary and contractual obligations to its depositors, and to its various other
funders and stakeholders.

To generate acceptable returns to its shareholders’ capital, the Bank understands that it has to bear risk, that
risk-taking is inherent in its business. Risk is understood by the Bank as the uncertainty in its future income - an
uncertainty that emanates from the possibility of incurring losses that are due to unplanned and unexpected
drops in revenues, increases in expenses, impairment of asset values, or increases in liabilities.

The possibility of incurring losses is, however, compensated by the possibility of earning more than expected
income. Risk-taking is, therefore, not entirely a bad step to be avoided. Risk-taking presents opportunities if risks
are accounted, deliberately taken, and are kept within rationalized limits.

The most important financial risks that the Bank manages are credit risk, liquidity risk and market risk.

22.1 Credit risk

The Bank takes on exposure to credit risk, which is the risk that may arise if a borrower or counterparty fails to
meet its obligations in accordance with agreed terms. Credit risk is the single largest risk for the Bank’s business;
management therefore carefully manages its exposure to credit risk as governed by relevant regulatory
requirements and international benchmarks.

Credit risk may also arise due to substantial exposures to a particular counterparty which the Bank manages by
adopting proper risk controls and diversification strategies to prevent undue risk concentrations from excessive
exposures to particular counterparties, industries, countries or regions.

The most evident source of credit risk is loans and advances; however, other sources of credit risk exist
throughout the activities of the Bank, including in credit-related activities recorded in the banking, investment
securities in the trading books and off-balance sheet transactions.

(23)
22.1.1 Credit risk management

The Credit Policy and Risk Management division of the Parent Bank supports the Credit Committees in
coordination with various business lending and operations units in managing credit risk, and reports are
regularly provided to the Bank’s Senior Management and the BOD. A rigorous control framework is applied in
the determination of ECL models. The Parent Bank has policies and procedures that govern the calculation of
ECL and such policies are consistently being observed by the Bank. All ECL models are regularly reviewed by
the Risk Management Office to ensure that necessary controls are in place and the models are applied
accordingly.

The review and validation are performed by groups that are independent of the team that prepares the
calculations, e.g., Risk Models Validation and Internal Auditors. Expert judgements on measurement
methodologies and assumptions are reviewed by a group of internal experts from various functions.

The Bank employs a range of policies and practices to mitigate credit risk. The Bank monitors its portfolio
based on different segmentation to reflect the acceptable level of diversification and concentration. Credit
concentration arises from substantial exposures to particular counterparties. Concentration risk in credit
portfolios is inherent in banking and cannot be totally eliminated. However, said risk may be reduced by
adopting proper risk control and diversification strategies to prevent undue risk concentrations from excessive
exposures to particular counterparties, industries, countries or regions.

The Bank 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 subjected to annual or more frequent review, when deemed necessary. Limits
on large exposures and credit concentration are approved by the BOD through the Risk Management
Committee (RMC).

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.

Settlement risk arises in any situation where a payment in cash, securities, foreign exchange currencies, or
equities is made in the expectation of a corresponding receipt in cash, securities, foreign exchange currencies, or
equities. Daily settlement limits are established for each counterparty to cover the aggregate of all settlement risk
arising from the Bank’s market transactions on any single day. For certain securities, the introduction of the
delivery versus payment facility in the local market has brought down settlement risk significantly.

The Bank employs a range of policies and practices to mitigate credit risk. Some of these specific control and
risk mitigation measures include collateral or guarantees.

Collateral or guarantees

One of the most traditional and common practice in mitigating credit risk is requiring security particularly for
loans and advances. The Bank implements guidelines on the acceptability of specific classes of collateral for
credit risk mitigation. The Bank assesses the valuation of the collateral obtained as part of the loan origination
process. This assessment is reviewed periodically. The common collateral types for loans and advances are:

• Mortgages over physical properties (e.g., real estate and personal) and
• Mortgages over financial assets (e.g., guarantees).

In order to minimize credit loss, the Bank seeks additional collateral from the counterparty when impairment
indicators are observed for the relevant individual loans and advances.

The Bank’s policies regarding obtaining collateral have not significantly changed during the reporting period
and there has been no significant change in the overall quality of the collaterals held by the Bank since the prior
period.

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22.1.2 Credit risk rating

The Bank uses internal credit risk gradings that reflect its assessment of the probability of default (PD) of
individual counterparties. The Bank uses internal rating models tailored to the various categories of
counterparty. Borrower and loan specific information collected at the time of application (such as disposable
income, and level of collateral for retail exposures; and turnover and industry type for wholesale exposures) is
fed into this rating model. In addition, the models enable expert judgement from the Credit Review Officer to
be fed into the final internal credit rating for each exposure. This allows for considerations which may not be
captured as part of the other data inputs into the model.

The Bank has put in place a credit classification system to promptly identify deteriorating exposures and to
determine the appropriate credit losses. Classification is being done on the basis of Bank’s existing internal
credit risk rating system, credit models or determined using reputable external rating agencies. The following
are the considerations observed by the Bank in classifying its exposures:

• Standard monitoring refers to accounts which do not have a greater-than-normal risk and do not possess the
characteristics of special monitoring and defaulted loans. The counterparty has the ability to satisfy the
obligation in full and therefore minimal loss, if any, is anticipated.

• Special monitoring are accounts which need closer and frequent monitoring to prevent any further
deterioration of the credit. The counterparty is assessed to be vulnerable to highly vulnerable and its capacity
to meet its financial obligations is dependent upon favorable business, financial, and economic conditions.

• Default refers to accounts which exhibit probable to severe weaknesses wherein possibility of non-repayment
of loan obligation is ranging from high to extremely high severity.

The mapping of internal credit risk ratings with the Bank’s standard account classification is shown below:

(a) Loans and advances

The Bank’s internal credit risk rating system comprises a 30-scale rating with eighteen (18) ‘pass’ rating levels for
large corporate accounts; and 14-scale rating system with ten (10) ‘pass’ rating grades for loans mapped based on
reputable external rating agency.

The Bank uses automated scoring models to assess the level of risk for retail accounts. Behavioral indicators are
considered in conjunction with other forward-looking information (e.g., industry forecast) to assess the level of risk
of a financial asset. After the date of initial recognition, the payment behavior of the borrower is monitored on a
periodic basis to develop a behavioral score which is mapped to a PD.

Self-employed and
Classifications PL, Auto, Housing microentrepreneurs
Standard monitoring Current to 30 dpd Current to 7 dpd
Special monitoring 31-90 dpd -
Default >90, IL, Loss 8 dpd and up

(b) Treasury and debt securities

Investments in high grade securities 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. The level of credit risk for treasury and other
investment debt securities and their associated PD are determined using reputable external ratings and/or
available and reliable qualitative and quantitative information. In the absence of credit ratings, a comparable
issuer or guarantor rating is used. Should there be a change in the credit rating of the chosen comparable,
evaluation is made to ascertain whether the rating change is applicable to the security being assessed for
impairment.

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 Classifications Credit Risk Grade following S&P or its equivalent
Standard monitoring Investment Grade (AAA to BBB-)
Special monitoring Non-Investment Grade (BB+ to C)
Default Default (D)

(b) Other financial assets

For other financial assets (accounts receivable and rental deposits), the Bank applies the simplified approach,
as permitted by PFRS 9, in measuring ECL which uses a lifetime ECL methodology. These financial assets are
grouped based on shared risk characteristics and aging profile. For some of these, impairment is assessed
individually at a counterparty level.

22.1.3 Maximum exposure to credit risk

The following tables contain an analysis of the credit risk exposure of each financial instrument for which an ECL
allowance is recognized. The gross carrying amount of financial assets below also represents the Bank’s maximum
exposure to credit risk on these assets at December 31.

Credit quality of loans and advances, net

2020
ECL Staging
Stage 1 Stage 2 Stage 3
12-month ECL Lifetime ECL Lifetime ECL Total

Credit grade
Standard monitoring 9,665,666,782 372,073,681 - 10,037,740,463
Special monitoring 2,328,192 334,866,064 - 337,194,256
Default - - 2,390,050,873 2,390,050,873
Gross carrying amount 9,667,994,974 706,939,745 2,390,050,873 12,764,985,592
Loss allowance (638,662,588) (33,767,764) (1,369,101,445) (2,041,531,797)
Carrying amount 9,029,332,386 673,171,981 1,020,949,428 10,723,453,795

2019
ECL Staging
Stage 1 Stage 2 Stage 3
12-month ECL Lifetime ECL Lifetime ECL Total

Credit grade
Standard monitoring 11,556,258,740 183,863,229 - 11,740,121,969
Special monitoring 1,137,755 267,407,275 - 268,545,030
Default - - 1,188,631,728 1,188,631,728
Gross carrying amount 11,557,396,495 451,270,504 1,188,631,728 13,197,298,727
Loss allowance (355,616,788) (15,932,104) (632,205,682) (1,003,754,574)
Carrying amount 11,201,779,707 435,338,400 556,426,046 12,193,544,153

Treasury and other investment securities

Credit risk exposures relating to treasury and other investment securities at December 31 are as follows:

2020 2019
Due from other banks 815,738,983 830,391,583
Interbank loans receivable - 393,634,185
Due from BSP 8,168,802,018 2,491,887,897
8,984,541,001 3,715,913,665

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Credit quality of other financial assets

2020
ECL Staging
Stage 1 Stage 2 Stage 3
12-month ECL Lifetime ECL Lifetime ECL Total

Credit grade
Standard monitoring
Due from other banks 815,738,983 - - 815,738,983
Interbank loans receivables - - - -
Due from BSP 8,168,802,018 - - 8,168,802,018
Gross carrying amount 8,984,541,001 - - 8,984,541,001
Loss allowance - - - -
Carrying amount 8,984,541,001 - - 8,984,541,001

2019
ECL Staging
Stage 1 Stage 2 Stage 3
12-month ECL Lifetime ECL Lifetime ECL Total

Credit grade
Standard monitoring
Due from other banks 830,391,583 - - 830,391,583
Interbank loans receivables 393,634,185 - - 393,634,185
Due from BSP 2,491,887,897 - - 2,491,887,897
Gross carrying amount 3,715,913,665 - - 3,715,913,665
Loss allowance - - - -
Carrying amount 3,715,913,665 - - 3,715,913,665

The Bank’s other financial assets generally arise from transactions with various unrated counterparties with
good credit standing. The Bank applies the simplified approach, as permitted by PFRS 9, in measuring ECL
which uses a lifetime expected loss methodology for other financial assets.

To measure the ECL, other financial assets have been grouped based on shared credit risk characteristics and the
days past due. The expected loss rates are based on the payment profiles of receivables over a period of
36 months and corresponding historical credit losses experienced within the said period. The impact of
forward-looking variables on macroeconomic factors is considered insignificant in calculating ECL provisions for
other financial assets.

22.1.4 Credit impaired loans and advances

The Bank closely monitors collateral held for financial assets considered to be credit-impaired, as it becomes
more likely that the Bank will take possession of collateral to mitigate potential credit losses. Financial assets
that are credit-impaired and related collateral held at December 31 in order to mitigate potential losses are
shown below:

2020 2019
Gross Impairment Carrying Gross Impairment Carrying
exposure allowance amount exposure allowance amount
Credit-impaired assets
Corporate entities 50,000,000 50,000,000 - 50,000,000 50,000,000 -
Retail customers 2,340,050,873 1,319,101,445 1,020,949,428 1,138,631,728 582,205,682 556,426,046
Total credit-impaired assets 2,390,050,873 1,369,104,445 1,020,949,428 1,188,631,728 632,205,682 556,426,046
Fair value of collateral 380,075,402 - 1,020,949,428 244,352,710 - 556,426,046

As at December 31, 2020, the Bank acquired assets by taking possession of collaterals held as security for loans
and advances with carrying amount of P8,301,742 (2019 - P23,992,147). The related foreclosed collaterals at
December 31, 2020 have aggregate fair value of P145,392,206 (2019 - P147,751,044).

As at December 31, 2020, the allowance for impairment of foreclosed collateral amounts to P4,219,127
(2019 - P4,388,448). Foreclosed collaterals include real estate (land, building, and improvements) and chattel.

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Repossessed properties are sold as soon as practicable and are classified as assets held for sale in the statement of
condition.

22.1.5 Loss allowance

The loss allowance recognized in the period is affected by a variety of factors, as described below:

• Transfers between Stage 1 and Stages 2 or 3 due to financial instruments experiencing significant increases
(or decreases) of credit risk or becoming credit-impaired in the period, and the consequent “step up”
(or “step down”) between 12-month and lifetime ECL;
• Additional allowances for new financial instruments recognized during the period, as well as releases for
financial instruments de-recognized in the period;
• Impact on the measurement of ECL due to changes in PDs, Exposure at Default (EAD) and Loss Given
Default (LGD) in the period;
• Impact on the measurement of ECL due to changes made to models and assumptions;
• Foreign exchange retranslations for assets denominated in foreign currencies and other movements; and
• Financial assets derecognized during the period and write-offs of allowances related to assets that were
written off during the period.

The following table summarizes the changes in the loss allowance for loans and advances between the
beginning and the end of the annual period.

For the year ended December 31, 2020

Stage 1 Stage 2 Stage 3

12-month ECL Lifetime ECL Lifetime ECL Total
Loss allowance, beginning 355,616,788 15,932,104 632,205,682 1,003,754,574
Movements with P&L impact
Transfers:
Transfer in (out of) Stage 1 (455,815,276) 24,173,857 830,909,902 399,268,483
Transfer in (out of) Stage 2 263,197 (6,902,852) 31,436,858 24,797,203
Transfer in (out of) Stage 3 192,029 502,291 (3,503,048) (2,808,728)
New financial assets originated 894,792,480 - - 894,792,480
Financial assets derecognized during the year (16,573,394) (916,219) (8,914,809) (26,404,422)
Changes in assumptions and other movements
in provision 681,474,525 881,530 (63,161,739) 619,194,316
1,104,333,561 17,738,607 786,767,164 1,908,839,332
Write-offs and other movements (820,923,365) 97,054 (50,235,798) (871,062,109)
Loss allowance, ending 639,026,984 33,767,765 1,368,737,048 2,041,531,797

For the year ended December 31, 2019

Stage 1 Stage 2 Stage 3

12-month ECL Lifetime ECL Lifetime ECL Total
Loss allowance, beginning 328,566,683 22,433,268 319,366,511 670,366,462
Movements with P&L impact
Transfers:
Transfer in (out of) Stage 1 (202,687,596) 8,648,295 309,928,996 115,889,695
Transfer in (out of) Stage 2 469,646 (12,614,908) 21,061,302 8,916,040
Transfer in (out of) Stage 3 45,297 1,343,690 (6,711,620) (5,322,633)
New financial assets originated 398,099,581 - - 398,099,581
Financial assets derecognized during the year (154,931,427) (1,973,924) (21,285,666) (178,191,017)
Changes in assumptions and other movements
in provision 82,869,073 (2,097,606) 153,137,195 233,908,662
123,864,574 (6,694,453) 456,130,207 573,300,328
Write-offs and other movements (96,814,469) 193,289 (143,291,036) (239,912,216)
Loss allowance, ending 355,616,788 15,932,104 632,205,682 1,003,754,574

No movement analysis of allowance for impairment for other financial assets subject to impairment as the related
loss allowance is deemed insignificant for financial reporting purposes.

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Write-off policy

The Bank writes off financial assets when it has exhausted all practical recovery efforts and has concluded there
is no reasonable expectation of recovery. Indicators that there is no reasonable expectation of recovery include
(i) ceasing enforcement activity and (ii) where the Bank’s recovery method is foreclosing on collateral and the
value of the collateral is such that there is no reasonable expectation of recovering in full.

The Bank may write-off financial assets that are still subject to enforcement activity. The write-off of loans is
approved by the Board of Directors in compliance with the BSP requirements. Loans written-off in 2020 and
2019 are fully covered with allowance.

22.1.6 Concentration of financial assets with credit exposure

The Bank’s main credit exposures based on carrying amounts and categorized by industry sectors are
summarized below:

Business
Financial services and Private Less -
Institutions Manufacturing real estate households Others Allowance Total
At December 31, 2020
Due from other banks 815,738,983 - - - - - 815,738,983
Due from BSP - - - - 8,168,802,018 - 8,168,802,018
Loans and advances,
net 76,738,169 413,504,217 1,965,213,690 6,944,063,461 3,365,466,054 (2,041,531,797) 10,723,453,794
Other resources, net - - - - 116,380,608 (15,697,166) 100,683,442
892,477,152 413,504,217 1,965,213,690 6,944,063,461 11,650,648,680 (2,057,228,963) 19,808,678,237

Business
Financial services and Private Less -
Institutions Manufacturing real estate households Others Allowance Total
At December 31, 2019
Due from other banks 830,391,583 - - - - - 830,391,583
Interbank loans - - - - 393,634,185 - 393,634,185
Due from BSP - - - - 2,491,887,897 - 2,491,887,897
Loans and advances,
net 30,509,431 387,628,943 321,500,026 9,151,111,950 3,306,548,377 (1,003,754,574) 12,193,544,153
Other resources, net - - - - 53,030,734 (4,519,028) 48,511,706
860,901,014 387,628,943 321,500,026 9,151,111,950 6,245,101,193 (1,008,273,602) 15,957,969,524

22.2 Market risk

The Bank 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 is managed by the Risk Management Office and
confirmed by the BOD.

Market risk management

Market risk management is incumbent on the Board of Directors through its Risk Management Committee.
Market risk management in the Bank 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 Risk Management Office, headed by the Bank’s Chief Risk Officer
who reports directly to the Risk Management Committee. In addition, Internal Audit is responsible for the
independent review of risk assessment measures and procedures and the control environment.

The Bank reviews and controls market risk exposures of both its trading and non-trading portfolios. Trading
portfolios include those positions arising from the Bank’s market-making transactions. Non-trading portfolios
primarily arise from the interest rate management of the Bank’s retail and commercial banking assets and
liabilities.

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Value-at-Risk (VaR) measurement is an integral part of the Bank’s market risk control system. This metric
estimates, at 99% confidence level, the maximum loss that a trading portfolio may incur over a trading day.
This metric indicates as well that there is 1% statistical probability that the trading portfolios’ actual loss would
be greater than the computed VaR. In order to ensure model soundness, the VaR is periodically subject to
model validation and back testing. VaR is supplemented by other risk metrics and measurements that would
provide preliminary signals to Treasury and to the management to assess the vulnerability of Bank’s positions.
To control the risk, the RMC sets risk limits for trading portfolios which are consistent with the Bank’s goals,
objectives, risk appetite, and strategy.

Stress tests indicate the potential losses that could arise in extreme conditions that would have detrimental
effect to the Bank’s positions. The Bank periodically performs stress testing (price risk and liquidity risk) to
assess the Bank’s condition on assumed stress scenarios. Contingency plans are frequently reviewed to ensure
the Bank’s preparedness in the event of real stress. Results of stress tests are reviewed by senior management
and by the RMC.

The average daily VaR for the trading portfolios in 2020 is at 221 (2019 - 177).

22.3 Interest rate risk

There are two types of interest rate risk - (i) fair value interest rate risk and (ii) cash flow interest rate risk. Fair
value interest rate risk is the risk that the fair value of a financial instrument will fluctuate because of changes in
market interest rates. 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.

The Bank 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 BOD sets limits on the level of mismatch of interest rate repricing that may be undertaken, which is
monitored daily by the RMO.

Interest rate risk in the banking book arises from the Bank’s core banking activities. The main source of this type
of interest rate risk is repricing risk, which reflects the fact that the Bank’s assets and liabilities are of different
maturities and are priced at different interest rates.

Over 1 year and Over

Up to 1 year up to 3 years 3 years Non-repricing Total
As at December 31, 2020
Financial assets
Cash and other cash
items - - - 254,412,943 254,412,943
Due from other banks - - - 815,738,983 815,738,983
Due from BSP - - - 8,168,802,018 8,168,802,018
Financial assets at - - - 9,914 9,914
FVOCI
Loans and advances, 1,723,671,671 163,395,048 106,797,451 8,729,589,625 10,723,453,795
net
Other resources, net - - - 100,683,442 100,683,442
Total financial assets 1,723,671,671 163,395,048 106,797,451 18,069,236,925 20,063,101,095
Financial liabilities
Deposit liabilities 7,493,037,073 4,142,020,075 6,213,030,113 - 17,848,087,261
Accrued interest and
other expenses - - - 163,861,491 163,861,491
Other liabilities - - - 815,025,506 815,025,506
Total financial liabilities 7,493,037,073 4,142,020,075 6,213,030,113 978,886,997 18,826,974,258
Total interest gap (5,769,365,402) (3,978,625,027) (6,106,232,662) 17,090,349,928 1,236,126,837

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 Over 1 year and Over
Up to 1 year up to 3 years 3 years Non-repricing Total
As at December 31, 2019
Financial assets
Cash and other cash
items - - - 216,587,760 216,587,760
Due from other banks - - - 830,391,583 830,391,583
Interbank loans - - - 393,634,185 393,634,185
Due from BSP - - - 2,491,887,897 2,491,887,897
Financial assets at - - - 5,560 5,560
FVOCI
Loans and advances, 1,984,469,491 185,899,103 103,080,209 9,920,095,350 12,193,544,153
net
Other resources, net - - - 48,511,706 48,511,706
Total financial assets 1,984,469,491 185,899,103 103,080,209 13,901,114,041 16,174,562,844
Financial liabilities
Deposit liabilities 5,434,571,008 8,526,542,438 - - 13,961,113,446
Accrued interest and
other expenses - - - 115,914,774 115,914,774
Other liabilities - - - 1,004,036,417 1,004,036,417
Total financial liabilities 5,434,571,008 8,526,542,438 - 1,119,951,191 15,081,064,637
Total interest gap (3,450,101,517) (8,340,643,335) 103,080,209 12,781,162,850 1,093,498,207

The Bank uses a simple version of the Balance Sheet VaR (BSVaR) whereby only the principal and interest
payments due and relating to the banking book as at particular valuation dates are considered. The BSVaR
assumes a static balance sheet, i.e., it is assumed that there will be no new transactions moving forward, and no
portfolio rebalancing will be undertaken in response to future changes in market rates.

The BSVaR is founded on re-pricing gaps, or the difference between the amounts of rate sensitive assets and the
amounts of rate sensitive liabilities. An asset or liability is considered to be rate-sensitive if the interest rate
applied to the outstanding principal balance changes (either contractually or because of a change in a reference
rate) during the interval.

The BSVaR estimates the “riskiness of the balance sheet” and compares the degree of risk-taking activity in the
banking books from one period to the next. In consideration of the static framework, and the fact that income from
the positions is accrued rather than generated from marking-to-market, the probable loss (that may be exceeded
1% of the time) that is indicated by the BSVaR is not realized in accounting income.

The cumulative BSVaR for the banking or non-trading book in 2020 amounts to P330,000,000 (2019 - P25,261,000).

22.4 Foreign exchange risk

Foreign exchange risk is the risk that the fair value or future cash flows of financial instrument will fluctuate
because of changes in foreign exchange rates. It arises on financial instruments that are denominated in a foreign
currency other than the functional currency which they are measured.

The Bank takes on exposure to the effects of fluctuations in the prevailing exchange rates on its foreign currency
financial position and cash flows. The table below summarizes the Bank’s exposure to foreign currency exchange
rate risk relative to its financial assets and liabilities denominated in United States Dollar (US Dollar) at
December 31.

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 2020 2019
Financial assets
Due from other banks 223,481,234 233,212,291
Other resources 3,414 130,497
223,484,648 233,342,788
Financial liabilities
Deposit liabilities 205,215,211 227,922,425
Accrued interest - 45,866
205,215,211 227,968,291
Net foreign exchange exposure 18,269,437 5,374,497

At December 31, 2020, if the Philippine Peso had weakened/strengthened by 4% (2019 - 3.70%) against the US
Dollar based on historical information in the last five years with all other variables held constant, net income as
at and for the year ended December 31, 2020 would have been P511,302 higher/lower (2019 - P198,856
higher/lower), mainly as a result of foreign exchange gains/losses on translation of US Dollar-denominated
deposits with other banks and deposit liabilities.

22.5 Liquidity risk

Liquidity risk is the risk that the Bank 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 obligations to repay depositors and fulfill commitments to lend.

The Bank’s liquidity profile is observed and monitored through its metric, the Minimum Cumulative Liquidity
Gap (MCLG). The MCLG is the smallest net cumulative cash inflow (if positive) or the largest net cumulative
cash outflow (if negative) over the next three (3) months. The MCLG indicates the biggest funding requirement
in the short term and the degree of liquidity risk present in the current cash flow profile of the Bank. The
MCLG is computed monthly and reported in the RMC meetings. A red flag is immediately raised and reported
to management and the RMC when the MCLG level projected over the next 3 months breaches the RMC
prescribed MCLG limit.

22.5.1 Liquidity risk management process

The Bank’s liquidity management process, as carried out within the Bank and monitored by the RMC and the
RMO includes:

• day-to-day funding, which includes replenishment of funds as they mature or are borrowed by customers,
managed by monitoring future cash flows to ensure that requirements can be met;
• 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;
• managing the concentration and profile of debt maturities; and
• performing periodic liquidity stress testing on the Bank’s liquidity position by assuming a faster rate of
withdrawals in its deposit base.

Monitoring and reporting take the form of cash flow measurement and projections for the next day, week and
month as these are key periods for liquidity management. The starting point for those projections is an analysis
of the contractual maturity of the financial liabilities and the expected collection date of the financial assets.

The Bank also monitors unmatched medium-term assets, the level and type of undrawn lending commitments,
the usage of overdraft facilities and the impact of contingent liabilities (if any).

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Liquidity Coverage Ratio (LCR)

Pursuant to BSP Circular No. 905 issued in 2016, the Bank is required to hold and maintain an adequate level
of unencumbered High Quality Liquid Assets (HQLA) that are sufficient to meet its estimated total cash
outflows over a 30 calendar-day period of liquidity stress. The LCR is the ratio of HQLAs to total net cash
outflows which should be no lower than 100% on a daily basis. It is designed to promote short-term resilience
of the Bank’s liquidity risk profile to withstand significant liquidity shocks that may last over 30 calendar days.
HQLA represent the Bank’s stock of liquid assets that qualify for inclusion in the LCR which consist mainly of
cash, regulatory reserves and unencumbered high-quality liquid securities. HQLAs therefore, serve as defense
against potential stress events.

The main drivers of the Bank’s LCR comprise the changes in the total stock of HQLA as well as changes in net
cash outflows related to deposits, unsecured borrowings and commitment facilities, if any.

Net Stable Funding Ratio (NSFR)

On January 1, 2019, the Bank adopted BSP Circular No. 1007 issued in 2018 regarding the NSFR requirement.
The NSFR is aimed at strengthening the Bank’s long-term resilience by maintaining a stable funding in relation
to its assets and off-balance sheet items as well as to limit the maturity transformation risk of the Bank. The
NSFR is expressed as the ratio of available stable funding and the required stable funding and complements
the LCR as it takes a longer view of the Bank’s liquidity risk profile. The Bank’s capital and retail deposits are
considered as stable funding sources whereas the Bank’s assets including, but not limited to, performing and
non-performing loans and receivables, HQLA and non-HQLA securities as well as off-balance sheet items form
part of the required stable funding. The Bank’s NSFR is well-above the regulatory minimum of 100%.

The Bank maintains a well-diversified funding base and has a substantial amount of core deposits, thereby
avoiding undue concentrations by counterparty, maturity, and currency. The Bank manages its liquidity
position through asset-liability management activities supported by a well-developed funds management
practice as well as a sound risk management system. As part of risk oversight, the Bank monitors its liquidity
risk on a daily basis, in terms of single currency and significant currencies, to ensure it is operating within the
risk appetite set by the BOD and to assess ongoing compliance with the minimum requirement of the liquidity
ratios. Furthermore, the Bank has a set of policies and escalation procedures in place that govern its day-to-day
risk monitoring and reporting processes.

The table below shows the actual liquidity metrics of the Bank as at December 31:

2020 2019
Liquidity coverage ratio 460.22% 162.86%
Net stable funding ratio 1.74% 124.42%
Leverage ratio 7.24% 12.64%
Total exposure measure 21,723,332,511 17,779,755,263

22.5.2 Funding approach

Sources of liquidity are regularly reviewed by the Bank to maintain a wide diversification by currency,
geography, counterparty, product and term.

22.5.3 Non-derivative cash flows

The table below presents the maturity profile of non-derivative financial instruments at December 31 based on
undiscounted cash flows, including interest, which the Bank uses to manage the inherent liquidity risk. The
analysis takes into account the maturity grouping 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.

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 Over 1 up to
Up to 1 year 3 years Over 3 years Total
2020
Financial assets
Cash and other cash items 254,412,943 - - 254,412,943
Due from other banks 815,738,983 - - 815,738,983
Interbank loans - - - -
Due from BSP 8,168,802,018 - - 8,168,802,018
Investment securities at FVOCI 9,914 - - 9,914
Loans and advances 5,246,611,398 5,390,580,269 1,751,954,620 12,389,146,287
Other resources 100,683,442 - - 100,683,442
Total financial assets 14,586,258,698 5,390,580,269 1,751,954,620 21,728,793,587
Financial liabilities
Deposit liabilities 7,493,037,073 4,142,020,075 6,213,030,113 17,848,087,261
Accrued interest and other
expense 163,861,491 - - 163,861,491
Other liabilities - - 815,025,506 815,025,506
Total financial liabilities 7,656,898,564 4,142,020,075 7,028,055,619 18,826,974,258
Total maturity gap 6,929,360,134 1,248,560,194 (5,276,100,999) 2,901,819,329

Over 1 up to
Up to 1 year 3 years Over 3 years Total
2019
Financial assets
Cash and other cash items 216,587,760 - - 216,587,760
Due from other banks 830,391,583 - - 830,391,583
Interbank loans 393,634,185 - - 393,634,185
Due from BSP 2,491,887,897 - - 2,491,887,897
Investment securities at FVOCI 5,560 - - 5,560
Loans and advances 5,943,538,832 7,955,675,809 3,432,466,439 17,331,681,080
Other resources 48,511,706 - - 48,511,706
Total financial assets 9,924,557,523 7,955,675,809 3,432,466,439 21,312,699,771
Financial liabilities
Deposit liabilities 5,441,203,910 8,526,542,438 - 13,967,746,348
Accrued interest and other
expense 115,914,774 - - 115,914,774
Other liabilities 706,688,013 284,390,498 12,957,906 1,004,036,417
Total financial liabilities 6,263,806,697 8,810,932,936 12,957,906 15,087,697,539
Total maturity gap 3,660,750,826 (855,257,127) 3,419,508,533 6,225,002,232

The maturity gap is being managed through the minimum cumulative liquidity gap.

22.6 Fair values of financial assets and liabilities

The table below summarizes the carrying amounts and fair values of those financial assets and liabilities at
December 31 not presented in the statement of condition at fair value.

Carrying Value Fair Value

2020 2019 2020 2019
Financial assets
Cash and other cash items 254,412,943 216,587,760 254,412,943 216,587,760
Due from other banks 815,738,983 830,391,583 815,738,983 830,391,583
Interbank loans receivable - 393,634,185 - 393,634,185
Due from BSP 8,168,802,018 2,491,887,897 8,168,802,018 2,491,887,897
Loans and advances, net 10,723,453,795 12,193,544,153 10,723,453,795 12,193,544,153
Other resources, net 100,683,442 48,511,706 100,683,442 48,511,706
Financial liabilities
Deposit liabilities 17,848,087,262 13,961,113,446 17,848,087,262 13,961,113,446
Accrued interest and other
expenses 163,861,491 115,914,774 163,861,491 115,914,774
Other liabilities 815,025,506 1,004,036,417 815,025,506 1,004,036,417

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Cash and other cash items, due from BSP and other banks and interbank loans receivable

The fair value of floating rate placements and overnight deposits approximates their carrying amounts. The
estimated fair value of fixed interest-bearing deposits is based on discounted cash flows using prevailing
money-market interest rates for debts with similar credit risk and remaining maturity. All of these financial
assets have a maturity of one year, thus their fair values approximate their carrying amounts.

Loans and advances

The estimated fair value of loans and advances represents the discounted amount of estimated future cash
flows expected to be received. Expected cash flows are discounted with the use of assumptions regarding
appropriate credit spread for the loan, derived from other market instruments.

Financial liabilities

The estimated fair value of deposits with no stated maturity, which includes non-interest bearing deposits, is
the amount repayable on demand.

The estimated fair value of fixed interest-bearing deposits is based on discounted cash flows using interest
rates for new debts with similar remaining maturity.

Other resources and other liabilities

Carrying amounts of other resources and other liabilities which have no definite repayment dates are assumed
to be their fair values.

22.6.1 Fair value hierarchy

The following table presents the fair value hierarchy of the Bank’s financial assets and liabilities at December 31:

Fair value
2020 Level 1 Level 2 Total
Recurring measurements
Financial asset at FVOCI
Equity security 9,914 - 9,914
9,914 - 9,914

Non-recurring measurements
Assets held for sale, net - 145,392,206.24 145,392,206.24

Fair value
2020 Level 1 Level 2 Total
Financial assets
Cash and other cash items - 254,412,943 254,412,943
Due from other banks - 815,738,983 815,738,983
Due from BSP - 8,168,802,018 8,168,802,018
Loans and advances, net - 10,723,453,795 10,723,453,795
Other resources, net - 100,683,442 100,683,442
Financial liabilities
Deposit liabilities - 17,848,087,262 17,848,087,262
Accrued interest and other expenses - 163,861,491 163,861,491
Other liabilities - 815,025,506 815,025,506

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 Fair value
2019 Level 1 Level 2 Total
Recurring measurements
Financial assets at FVOCI
Equity security 5,560 - 5,560
5,560 - 5,560

Non-recurring measurements
Assets held for sale, net - 147,751,044 147,751,044

Fair value
2019 Level 1 Level 2 Total
Financial assets
Cash and other cash items - 216,587,760 86,383,976
Due from other banks - 830,391,583 884,795,667
Interbank loans receivable - 393,634,185 393,634,185
Due from BSP - 2,491,887,897 2,491,887,897
Loans and advances, net - 12,193,544,153 12,193,544,153
Other resources, net - 48,511,706 48,511,706
Financial liabilities
Deposit liabilities - 13,961,113,446 13,961,113,446
Accrued interest and other expenses - 115,914,774 115,914,774
Other liabilities - 1,004,036,417 1,004,036,417

There are no transfers between the fair value hierarchy above for the years ended December 31, 2020 and
2019.

22.7 Capital management

Capital management is understood to be a facet of risk management. The primary objective of the Bank is the
generation of recurring acceptable returns to shareholder’s capital. To this end, the Bank’s policies, business
strategies and activities are directed towards the generation of cash flows that are in excess of its fiduciary and
contractual obligations to its depositors, and to its various funders and stakeholders.

Cognizant of its exposure to risks, the Bank understands that it must maintain sufficient capital to absorb
unexpected losses, to stay in business for the long haul, and to satisfy regulatory requirements. The Bank
further understands that its performance, as well as the performance of its various units, should be measured
in terms of returns generated vis-à-vis allocated capital and the amount of risk borne in the conduct of
business.

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% and 7.5%, respectively. A capital conservation buffer of 2.5%, comprised of CET1 capital, was
likewise imposed. The minimum required capital adequacy ratio (CAR) remains at 10% which includes the
capital conservation buffer.

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The table below summarizes the Bank’s CAR under the Basel III framework for the years ended December 31:

2020 2019
Tier 1 capital 2,317,412,934 2,601,981,668
Tier 2 capital 108,538,715 127,967,043
Gross qualifying capital 2,425,951,649 2,729,948,711
Less: Required deductions 745,563,606 354,936,540
Total qualifying capital 1,680,388,043 2,375,012,171

Risk weighted assets 14,250,760,748 14,795,700,780

CET1 11.03% 15.19%
CAR (%) 11.79% 16.05%

The Bank has fully complied with the CAR requirement of the BSP as at December 31, 2020 and 2019.o

Note 23 - Summary of significant accounting policies

The principal accounting policies applied in the preparation of the Bank’s financial statements are set out below.
These policies have been consistently applied to both years presented, unless otherwise stated.

23.1 Basis of preparation

The financial statements of the Bank have been prepared in accordance with Philippine Financial Reporting
Standards (PFRSs). The term PFRSs in general includes all applicable PFRSs, 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 financial statements comprise the statement of condition, statement of income and statement of
comprehensive income shown as two statements, statement of changes in capital funds, the statement of cash
flows and the notes.

These financial statements of the Bank have been prepared under the historical cost convention, as modified by
the revaluation of investment security at FVOCI and plan assets of the Bank’s pension plans measured at fair
value.

The preparation of these financial statements in conformity with PFRSs requires the use of certain critical
accounting estimates. It also requires management to exercise its judgment in the process of applying the
Bank’s accounting policies. Changes in assumptions may have a significant impact on the financial statements
in the period the assumptions changed. Management believes that the underlying assumptions are appropriate
and that the financial statements therefore fairly present the financial position and results of the Bank. The
areas involving higher degree of judgment or complexity, or areas where assumptions and estimates are
significant to the financial statements are disclosed in Note 21.

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23.1.1 Changes in accounting policy and disclosures

(a) Amendments to existing standards adopted by the Bank

The Bank has adopted the following amendments to existing standards and the revised Conceptual Framework
effective January 1, 2020:

• Amendments to PAS 1, ‘Presentation of Financial Statements’, and PAS 8, ‘Accounting Policies, Changes
in Accounting Estimates and Errors’

The amendments clarify that the reference to obscuring information addresses situations in which the
effect is similar to omitting or misstating that information, and that an entity assesses materiality in the
context of the financial statements as a whole, and; the meaning of ‘primary users of general purpose
financial statements’ to whom those financial statements are directed, by defining them as ‘existing and
potential investors, lenders and other creditors’ that must rely on general purpose financial statements for
much of the financial information they need.

The adoption of the above amendments did not have a material impact on the Bank’s financial statements
as its materiality assessment is already made in the context of the financial statements as a whole.

• Revised Conceptual Framework for Financial Reporting

The revised Framework includes the following changes:

- increasing the prominence of stewardship in the objective of financial reporting;
- reinstating prudence as a component of neutrality;
- defining a reporting entity, which may be a legal entity, or a portion of an entity;
- revising the definitions of an asset and a liability;
- removing the probability threshold for recognition and adding guidance on derecognition;
- adding guidance on different measurement basis; and
- stating that profit or loss is the primary performance indicator and that, in principle, income and
expenses in other comprehensive income should be recycled where this enhances the relevance or
faithful representation of the financial statements.

No changes will be made to any of the current accounting standards. However, entities that rely on the
Framework in determining their accounting policies for transactions, events or conditions that are not
otherwise dealt with under the accounting standards will need to apply the revised Framework from
January 1, 2020.

The adoption of the revised framework did not have a material impact on the financial statements of the
Bank as the accounting policies of the Bank are still the same and appropriate under the revised
framework.

• Amendments to PFRS 16, “Leases”

The amendment provides lessees with an option to treat qualifying rent concessions in the same way as
they would if they were not lease modifications. In many cases, this will result in accounting for the
concessions as variable lease payments in the period in which they are granted.

The adoption of the above amendment did not have a material impact on the Bank’s financial statements.

There are no other standards, interpretations and amendments effective January 1, 2020 that are considered
relevant to the Bank’s financial statements.

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(b) Amendments to existing standards not yet effective and not yet adopted by the Bank

The following amendments to existing standards are not mandatory for December 31, 2020 reporting period
and have not been early adopted by the Bank:

• Amendments to PAS 1, “Presentation of Financial Statements”

The amendments to PAS 1 clarify that liabilities are classified as either current or non-current, depending
on the rights that exist at the end of the reporting period. Classification is unaffected by the expectations of
the entity or events after the reporting date (e.g. the receipt of a waiver or a breach of covenant).

• Amendments to PAS 16, “Property, Plant and Equipment”

The amendment prohibits an entity from deducting from the cost of an item of property, plant and
equipment any proceeds received from selling items produced while the entity is preparing the asset for its
intended use. It also clarifies that an entity is ‘testing whether the asset is functioning properly’ when it
assesses the technical and physical performance of the asset.

• PAS 37, “Provisions, Contingent Liabilities and Contingent Assets”

The amendment clarifies that the direct costs of fulfilling a contract include both the incremental costs of
fulfilling the contract and an allocation of other costs directly related to fulfilling the contract. Before
recognizing a separate provision for an onerous contract, the entity recognizes any impairment loss that
has occurred on assets used in fulfilling the contract.

• Annual Improvements to PFRS Standards 2018-2020

The following improvements were finalized in May 2020:

i. PFRS 9, “Financial Instruments”, clarifies which fees should be included in the 10% test for
derecognition of financial liabilities.
ii. PFRS 16, “Leases”, amendment to remove the illustration of payments from the lessor relating to
leasehold improvements, to remove any confusion about the treatment of lease incentives.

The adoption of the above amendments is not expected to have a material impact on the financial statements of
the Bank. There are also no new standards effective after December 31, 2020 that are expected to be relevant or
would have a material impact on the financial statements of the Bank.

23.2 Business combination between entities under common control

Business combinations under common control are accounted for using the predecessor cost method following the
guidance under the PIC Q&A No. 2011-02 and PIC Q&A 2012-01. Under this method, the Bank does not restate
the acquired businesses or assets and liabilities to their fair values. The net assets of the combining entities or
businesses are combined using the carrying amounts of assets and liabilities of the acquired entity. No amount is
recognized in consideration for goodwill or the excess of acquirer’s interest in the net fair value of acquired
identifiable assets, liabilities and contingent liabilities over their cost at the time of the common control
combination.

The financial statements incorporated the net assets and results of operations of the combining entities or
businesses at the date of acquisition. The difference between the consideration given and the aggregate book
value of the assets and liabilities acquired as of the date of the transaction are included in “Other reserves” under
the equity account.

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23.3 Financial assets

23.3.1 Classification

Th Bank classifies its financial assets in the following measurement categories:

• those to be measured subsequently at fair value through profit or loss (FVTPL);

• those to be measured subsequently at FVOCI; and
• those to be measured at amortized cost.

The classification depends on the Bank’s business model for managing the financial assets and the contractual
terms of the cash flows.

For assets measured at fair value, gains and losses will either be recorded in profit or loss or OCI. For
investments in equity instruments that are not held for trading, this will depend on whether Bank has made an
irrevocable election at the time of initial recognition to account for the equity investment at FVOCI.

The Bank reclassifies debt investments when and only when its business model for managing those assets
changes.

In the determination of the business model, the Bank considers its past experience on how the cash flows for
these assets were collected, how the assets’ performance are evaluated and how risks are assessed and
managed.

23.3.2 Recognition

Regular way purchases and sales of financial assets are recognized on trade date, the date on which the Bank
commits to purchase or sell the asset.

23.3.3 Measurement

The classification requirements for debt and equity instruments are described below:

At initial recognition, the Bank measures a financial asset at its fair value plus, in the case of a financial asset
not at FVTPL, transaction costs that are directly attributable to the acquisition of the financial asset.
Transaction costs of financial assets carried at FVTPL are expensed in profit or loss.

The Bank classifies its debt instruments at amortized cost. As at December 31, 2020 and 2019, the Bank did not
have any debt instruments classified and measured at FVTPL or FVOCI.

Assets that are held for collection of contractual cash flows where those cash flows represent SPPI, and that are
not designated at FVTPL, are measured at amortized cost. The carrying amount of these assets is adjusted by
any ECL allowance recognized and measured. Interest income from these financial assets is included in
‘Interest income’ using the effective interest rate method.

Financial assets at amortized cost at December 31, 2020 and 2019 include cash and other cash items, due from
BSP, due from other banks, interbank loans receivables, loans and advances, and other resources.

Cash and cash equivalents consist of cash and other cash items, due from BSP and other banks and interbank
loans receivable with maturities of less than three months from the date of acquisition and that are subject to
insignificant risk of changes in value.

Securities sold subject to repurchase agreements are reclassified in the financial statements as pledged assets
when the transferee has the right by contract or custom to sell or repledge the collateral; the counterparty
liability is included in deposits from banks or deposits from customers, as appropriate. The difference between
sale and repurchase price is treated as interest and accrued over the life of the agreements using the effective
interest rate method. Securities purchased under agreements to resell are recorded as loans and advances to
other banks and customers and included in the statement of condition under “Interbank loans receivable.”
Securities lent to counterparties are also retained in the financial statements.

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Business model: The business model reflects how the Bank manages the assets in order to generate cash flows.
That is, whether the Bank’s objective is solely to collect the contractual cash flows from the assets or is to
collect both the contractual cash flows and cash flows arising from the sale of assets. If neither of these is
applicable, then the financial assets are classified as part of ‘other’ business model and measured at fair value
through profit or loss. Factors considered by the Bank in determining the business model for a group of assets
include past experience on how the cash flows for these assets were collected, how the asset’s performance is
evaluated and reported to key management personnel, how risks are assessed and managed and how managers
are compensated.

SPPI: Where the business model is to hold assets to collect contractual cash flows or to collect contractual cash
flows and sell, the Bank assesses whether the financial instruments’ cash flows represent solely payments of
principal and interest (the ‘SPPI test’). In making this assessment, the Bank considers whether the contractual
cash flows are consistent with a basic lending arrangement i.e. interest includes only consideration for the time
value of money, credit risk, other basic lending risks and a profit margin that is consistent with a basic lending
arrangement. Where the contractual terms introduce exposure to risk or volatility that are inconsistent with a
basic lending arrangement, the related financial asset is classified and measured at FVTPL.

The Bank reclassifies debt investments when and only when its business model for managing those assets
changes. The reclassification takes place from the start of the first reporting period following the change. Such
changes are expected to be very infrequent and none occurred during the period.

Equity instruments

Equity instruments are instruments that meet the definition of equity from the issuer’s perspective; that is,
instruments that do not contain a contractual obligation to pay and that evidence a residual interest in the
issuer’s net assets.

The Bank subsequently measures equity investments at FVTPL, except where the Bank’s management has
elected, at initial recognition, to irrevocably designate an equity investment at FVOCI. The Bank’s policy is to
designate equity investments as FVOCI when those investments are held for purposes other than to generate
investment returns. When this election is used, fair value gains and losses are recognized in other
comprehensive income and are not subsequently reclassified to profit or loss, even on disposal. Impairment
losses and reversal of impairment losses, if any, are not reported separately from other changes in fair value.
Dividends, when representing a return on such investments, continue to be recognized in profit or loss as other
income when the Bank’s right to receive payments is established.

The Bank’s investment in a listed equity security at December 31, 2020 and 2019 is measured at FVOCI.

23.3.4 Impairment of financial assets at FVOCI and at amortized costs

The Bank assesses impairment as follows:

• individually for loans that exceed specified thresholds - where there is an objective evidence of impairment,
individually assessed provisions will be recognized; and
• collectively for loans below the specified thresholds noted above or if there is no objective evidence of
impairment. These loans are included in a group of loans with similar risk characteristics and collectively
assessed for impairment. If there is objective evidence that the group of loans is collectively impaired,
collectively assessed provisions will be recognized.

The Bank assesses on a forward-looking basis the ECL associated with its debt instruments carried at
amortized cost and FVOCI and with the exposure arising from loan commitments. The Bank recognizes a loss
allowance for such losses at each reporting date. The measurement of ECL reflects:

• An unbiased and probability-weighted amount that is determined by evaluating a range of possible

outcomes;
• The time value of money; and
• Reasonable and supportable information that is available without undue cost or effort at the reporting date
about past events, current conditions and forecasts of future economic conditions.

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PFRS 9 outlines a ‘three-stage’ model for impairment based on changes in credit quality since initial recognition
as summarized below:

• A financial instrument that is not credit-impaired on initial recognition is classified in “Stage 1” and has its
credit risk continuously monitored by the Bank.
• If a SICR since initial recognition is identified, the financial instrument is moved to “Stage 2” but is not yet
deemed to be credit-impaired. The Bank determines SICR based on prescribed benchmarks approved by the
Board of the Directors.
• If the financial instrument is credit-impaired, the financial instrument is then moved to “Stage 3”.
• Financial instruments in Stage 1 have their ECL measured at an amount equal to the portion of lifetime ECL
that results from default events possible within the next 12 months. Instruments in Stages 2 or 3 have their
ECL measured based on ECL on a lifetime basis.
• A pervasive concept in measuring ECL in accordance with PFRS 9 is that it should consider forward-
looking information.

The Bank assesses on a forward-looking basis the ECL associated with its debt instrument assets carried at
amortized cost and FVOCI. The Bank recognizes a loss allowance for such losses at each reporting date.

The following diagram summarizes the impairment requirements under PFRS 9 (other than purchased originated
credit-impaired financial assets):

Change in credit quality since initial recognition

Stage 1 Stage 2 Stage 3

(Initial recognition) (Significant increase in credit (Credit-impaired assets)
risk since initial recognition)
12-month expected credit losses Lifetime expected credit losses Lifetime expected credit losses

For ECL provisions modelled on a collective basis, a grouping of exposures is performed on the basis of shared
risk characteristics, such that risk exposures within a group are homogeneous.

Determination of SICR

The Bank compares the probabilities of default occurring over its expected life as at the reporting date with the
probability of default occurring over its expected life on the date of initial recognition to determine significant
increase in credit risk. Since comparison is made between forward-looking information at reporting date
against initial recognition, the deterioration in credit risk may be triggered by the following factors:

• substantial deterioration in credit quality as measured by the applicable internal or external ratings, credit
score or shift from investment grade category to non-investment grade category;
• adverse changes in business, financial and/or economic conditions of the borrower;
• early warning signs of worsening credit where the ability of the counterparty to honor his obligation is
dependent upon favorable business or economic condition;
• the account has become past due beyond 30 days where an account is classified under special monitoring
category; and
• expert judgment for the other quantitative and qualitative factors which may result to SICR as defined by
the Bank.

Measuring ECL - Inputs, assumptions and estimation techniques

The ECL is measured on either a 12-month or lifetime basis depending on whether a significant increase in
credit risk has occurred since initial recognition or whether an asset is considered to be credit-impaired. ECLs
are the discounted product of the PD, EAD and LGD, defined as follows:

• The PD represents the likelihood that the borrower will default (as per “Definition of default and credit-
impaired” above), either over the next 12 months (12M PD), or over the remaining life (lifetime PD) of the
asset.

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• EAD is based on the amounts the Bank expects to be owed at the time of default, over the next 12 months
(12M EAD) or over the remaining life (lifetime EAD). For example, for a revolving commitment, the Bank
includes the current drawn balance plus any further amount that is expected to be drawn up to the current
contractual limit by the time of default, should it occur.

The 12-month and lifetime EADs are determined based on the expected payment profile, which varies by
product type.

• For amortizing products and bullet repayment loans, this is based on the contractual repayments owed
by the borrower over a 12-month or lifetime basis.
• For committed credit lines, the exposure at default is predicted by taking current drawn balance and
adding a “credit conversion factor” which allows for the expected drawdown of the remaining limit by
the time of default.

• LGD represents the Bank’s expectation of the extent of loss on a defaulted exposure. LGD varies by type of
counterparty, type and seniority of claim and availability of collateral or other credit support. LGD is
expressed as a percentage loss per unit of exposure at the time of default.

The LGDs are determined based on the factors which impact the recoveries made post-default.

• For secured products, this is primarily based on collateral type and projected collateral values,
historical discounts to market/book values due to forced sales, time to repossession and recovery costs
observed.
• For unsecured products, LGDs are typically set at product level due to the limited differentiation in
recoveries achieved across different borrowers. These LGDs are influenced by collection strategies and
historical recoveries.

The ECL is determined by multiplying the PD, LGD and EAD together for each individual exposure or
collective segment. This effectively calculates an ECL for each future year, which is then discounted back to the
reporting date and summed. The discount rate used in the ECL calculation is the original effective interest rate
or an approximation thereof.

The lifetime PD is developed by applying a maturity profile to the current 12M PD. The maturity profile looks
at how defaults develop on a portfolio from the point of initial recognition throughout the life of the loans. The
maturity profile is based on historical observed data and is assumed to be the same across all assets within a
portfolio and credit grade band.

Forward-looking economic information is also included in determining the 12-month and lifetime PD. These
assumptions vary by product type.

The assumptions underlying the ECL calculation such as how the maturity profile of the PDs and how collateral
values change are monitored and reviewed regularly.

The Bank’s forward-looking, point-in-time PD models are driven by internal forecasts of MEVs over the next
five years. These models were previously recalibrated annually, but in view of the COVID-19 pandemic, more
frequent review and update of these models were conducted starting April 2020 as MEV forecasts were revised
quarterly in response to changing macroeconomic conditions. Furthermore, the pandemic was expected to
dampen demand for auto and real estate collaterals and thus decrease market prices, so appropriate haircuts
were applied on estimated recoveries from collaterals. These haircuts, however, did not increase the Bank’s
LGD as these were offset by the Bank’s favorable collection experience.

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Forward-looking information incorporated in the ECL models

The Bank incorporates historical and current information, and forecasts forward-looking events and key
economic variables that are assessed to impact credit risk and ECL for each portfolio. Macroeconomic variables
that affect a specific portfolio’s non-performing loan rate(s) are determined through statistical modelling and
the application of expert judgement. The Bank’s economics team establishes possible global and domestic
economic scenarios. With the use of economic theories and conventions, expert judgement and external
forecasts, the economics team develops assumptions to be used in forecasting variables in the next five (5) years,
subsequently reverting to long run-averages. The probability-weighted ECL is calculated by running each
scenario through the relevant ECL models and multiplying it by the appropriate scenario weighting.

The estimation and application of forward-looking information requires significant judgment. As with any
economic forecasts, the projections and likelihood of occurrences are subject to a high degree of inherent
uncertainty and therefore the actual outcomes may be significantly different to those projected. The scenarios
and their attributes are reassessed at each reporting date. Information regarding the forward-looking economic
variables and the relevant sensitivity analysis is disclosed in Note 21.

Financial assets with low credit risk

Loss allowance for financial assets at amortized cost and FVOCI that have low credit risk is limited to 12-month
ECLs. Management considers “low credit risk” for listed government bonds to be an investment grade credit
rating with at least one major rating agency. Other debt instruments are considered to be low credit risk when
they have a low risk of default and the issuer has a strong capacity to meet its contractual cash flow obligations
in the near term.

Definition of default and credit-impaired assets

The Bank considers a financial instrument in default or credit-impaired, when it meets one or more of the
following criteria:

Quantitative criteria

The borrower is more than 90 days past due on its contractual payments (with the exception of credit cards
and micro-finance loans where a borrower is required to be 90 days past due and over 7 days past due,
respectively, to be considered in default).

Qualitative criteria

The counterparty is experiencing significant financial difficulty which may lead to non-payment of loan as may
be indicated by any or combination of the following events:

• The counterparty is in long-term forbearance;

• The counterparty is insolvent;
• The counterparty is in breach of major financial covenant(s) which lead(s) to event of default;
• An active market for the security has disappeared;
• Granting of concession that would not be otherwise considered due to economic or contractual reasons
relating to the counterparty’s financial difficulty;
• It is becoming probable that the counterparty will enter bankruptcy or other financial reorganization; and
• Financial assets are purchased or originated at a deep discount that reflects the incurred credit losses.

The criteria above have been applied to all financial instruments held by the Bank and are consistent with the
definition of default used for internal credit risk management purposes. The default definition has been
applied consistently to model the PD, EAD, and LGD throughout the Bank’s ECL calculations.

The Bank’s definition of default is substantially consistent with non-performing loan definition of the BSP. For
treasury and debt securities, these are classified as defaulted based on combination of BSP and external credit
rating agency definitions.

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23.3.5 Modification of loans

The Bank sometimes renegotiates or otherwise modifies the contractual cash flows of loans to customers. When
this happens, the Bank assesses whether or not the new terms are substantially different to the original terms.
The Bank does this by considering, among others, the following factors:

• If the borrower is in financial difficulty, whether the modification merely reduces the contractual cash flows
to amounts the borrower is expected to be able to pay.
• Significant extension of the loan term when the borrower is not in financial difficulty.
• Significant change in the interest rate.
• Change in the currency the loan is denominated in.
• Insertion of collateral, other security or credit enhancements that significantly affect the credit risk associated
with the loan.

If the terms are substantially different, the Bank derecognizes the original financial asset and recognizes a ‘new’
asset at fair value and recalculates a new effective interest rate for the asset. The date of renegotiation is
consequently considered to be the date of initial recognition for impairment calculation purposes, including for
the purpose of determining whether a significant increase in credit risk has occurred. However, the Bank also
assesses whether the new financial asset recognized is deemed to be credit-impaired at initial recognition,
especially in circumstances where the renegotiation was driven by the debtor being unable to make the
originally agreed payments. Differences in the carrying amount are also recognized in the statement of income
as a gain or loss on derecognition.

If the terms are not substantially different, the Bank recalculates the gross carrying amount of the financial
asset and recognizes a modification gain or loss in the statement of income. The gross carrying amount of the
financial asset shall be recalculated as the present value of the renegotiated or modified contractual cash flows
that are discounted at the financial asset’s original effective interest rate (or credit-adjusted effective interest
rate for purchased or originated credit-impaired financial assets.

Loan modifications in compliance with Bayanihan Acts 1 and 2, are treated in line with the Bank’s policies
discussed above.

23.3.6 Derecognition of financial assets other than modification

Financial assets, or a portion thereof, are derecognized when the contractual rights to receive the cash flows
from the assets have ceased, or when they have been transferred and either (i) the Bank transfers substantially
all the risks and rewards of ownership, or (ii) the Bank neither transfers nor retains substantially all the risks
and rewards of ownership and the Bank has not retained control.

The Bank derecognizes financial assets if the principal terms and conditions have been modified in accordance
with a new (restructured) agreement setting forth a new plan of payment or a schedule of payment on a
periodic basis. Derecognition of loan is necessary in cases where the deterioration in the financial position of
the borrower is such that the borrower can no longer service his debt, whether principal and/or interest,
according to existing terms and conditions. This would have been brought about by major operating losses
and/or serious and sustained impairment in cash flow, in turn caused by factors such as adverse economic and
industry trends, contraction of markets or revenue sources, heavy debt burden, poor business/financial
management, labor unrest, and product obsolescence which contributed to business financial difficulty.

The Bank enters into transactions where it retains the contractual rights to receive cash flows from assets but
assumes a contractual obligation to pay those cash flows to other entities and transfers substantially all of the
risks and rewards. These transactions are accounted for as ‘pass through’ transfers that result in derecognition
if the Bank:

(i) Has no obligation to make payments unless it collects equivalent amounts from the assets;
(ii) Is prohibited from selling or pledging the assets; and
(iii) Has an obligation to remit any cash it collects from the assets without material delay.

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23.3.7 Write-off policy

The Bank writes off financial assets when it has exhausted all practical recovery efforts and has concluded there
is no reasonable expectation of recovery. Indicators that there is no reasonable expectation of recovery include
(i) ceasing enforcement activity and (ii) where the Bank’s recovery method is foreclosing on collateral and the
value of the collateral is such that there is no reasonable expectation of recovering in full.

The Bank may write-off financial assets that are still subject to enforcement activity. The outstanding
contractual amounts of such assets written off during the year ended December 31, 2020 was P834.07 million.
(2019 - P218.91 million). The write-off of loans is being approved by the BOD in compliance with the BSP
requirements.

23.4 Financial liabilities

23.4.1 Classification

The Bank classifies its financial liabilities in the following categories: at FVTPL and at amortized cost. The
Bank has only financial liabilities at amortized cost as at December 31, 2020 and 2019.

Financial liabilities at amortized cost pertain to financial instruments not classified at FVTPL and contain
obligations to deliver cash or another financial assets to settle the obligations.

Financial liabilities measured at amortized cost include deposit liabilities, accrued interest and other expenses,
and other liabilities (except tax-related or statutory payables).

23.4.2 Recognition and measurement

Initial recognition and measurement

Financial liabilities at amortized cost are initially recognized at fair value plus transaction costs.

Subsequent measurement

Financial liabilities at amortized cost are subsequently measured at amortized cost using the effective interest
rate method.

23.4.3 Derecognition

Financial liabilities are derecognized when they have been redeemed or otherwise extinguished
(i.e. when the obligation is discharged or is cancelled or has expired).

23.5 Fair value measurement

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 measurement date.

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.

Financial instruments

The Bank 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. (PDEX), etc.).

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• 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 Bank considers
relevant and observable market prices in its valuations where possible. The Bank has no assets or liabilities
classified under Level 3 as at December 31, 2020 and 2019.

The appropriate level is determined on the basis of the lowest level input that is significant to the fair value
measurement.

For financial instruments traded in active markets, the determination of fair values of financial assets and
financial liabilities is based on quoted market prices or dealer price quotations. This includes listed equity
securities and quoted debt instruments on major exchanges and broker quotes mainly from PDEX and
Bloomberg.

A financial instrument is regarded as quoted in an active market 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. If the above
criteria are not met, the market is regarded as being inactive. Indications that a market is inactive are when
there is a wide bid-offer spread or significant increase in the bid-offer spread or there are few recent
transactions.

For all other financial instruments, fair value is determined using valuation techniques. In these techniques,
fair values are estimated from observable data in respect of similar financial instruments, using models to
estimate the present value of expected future cash flows or other valuation techniques, using inputs
(for example, LIBOR yield curve, FX rates, volatilities and counterparty spreads) existing at reporting dates.
The Bank uses widely recognized valuation models for determining fair values of non-standardized financial
instruments of lower complexity. For these financial instruments, inputs into models are generally market
observable.

In cases when the fair value of unlisted equity instruments cannot be determined reliably, the instruments are
carried at cost less impairment.

The fair value for loans and advances as well as liabilities to banks and customers are determined using a
present value model on the basis of contractually agreed cash flows, taking into account credit quality, liquidity
and costs. The fair values of contingent liabilities and irrevocable loan commitments correspond to their
carrying amounts.

Non-financial assets or liabilities

The Bank uses valuation techniques that are appropriate in the circumstances and applies the technique
consistently. Commonly used valuation techniques are as follows:

• Market approach - A valuation technique that uses observable inputs, such as prices, broker quotes and
other relevant information generated by market transactions involving identical or comparable assets or
group of assets.

• Income approach - A valuation technique that converts future amounts (e.g., cash flows or income and
expenses) to a single current (i.e., discounted) amount. The fair value measurement is determined on the
basis of the value indicated by current market expectations about those future amounts.

• Cost approach - A valuation technique that reflects the amount that would be required currently to replace
the service capacity of an asset (often referred to as current replacement cost).

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The fair values were determined in reference to observable market inputs reflecting orderly transactions, i.e.
market listings, published broker quotes and transacted deals from similar and comparable assets, adjusted to
determine the point within the range that is most representative of the fair value under current market
conditions.

The fair values of the Bank’s foreclosed assets (shown as Assets held for sale) fall under level 2 of the fair value
hierarchy using market approach. The Bank has no non-financial assets or liabilities classified under Level 3 as
at December 31, 2020 and 2019.

23.6 Offsetting of financial instruments

Financial assets and liabilities are offset and the net amount reported in the statement of condition 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. As at December 31, 2020 and 2019, there are no
financial assets and liabilities that have been offset.

23.7 Bank premises, furniture, fixtures and equipment

Bank premises, furniture, fixtures and equipment are stated at historical cost less accumulated depreciation.
Historical cost includes expenditure that is directly attributable to the acquisition of an asset which comprises
its purchase price, import duties and any directly attributable costs of bringing the asset to its working
condition and location for its intended use.

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
Bank and the cost of the item can be measured reliably. All other repairs and maintenance are charged to profit
or loss during the financial year in which they are incurred. Depreciation on furniture, fixtures and equipment
is calculated using the straight-line method to allocate their cost less residual values over the useful lives of
three to five years.

Depreciation on assets is calculated using the straight-line method to allocate cost of each asset less its
residual value over its estimated useful life as follows:

Estimated useful life

Based on lease term or life of the leased item
Leasehold, Rights and Improvements whichever is shorter
Furniture, Fixtures, and Equipment 36 months
FFE-Computer Equipment 36 months

Leasehold rights and improvements in progress are stated at cost. Costs are accumulated in the accounts
until these projects are completed upon which these are classified to the appropriate property accounts and
accordingly depreciated.

Major renovations are depreciated over the remaining useful life of the related asset. The assets’ residual
values and useful lives are reviewed, and adjusted if appropriate, at each reporting date. Assets are reviewed
for impairment whenever events or changes in circumstances indicate that the carrying amount may not be
recoverable.

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 or value-in-use.

An item of Bank premises, furniture, fixtures and equipment is derecognized upon disposal or when no future
economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on
derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying
amount of the item) is included in profit or loss in the period the item is derecognized.

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23.8 Computer software

Acquired computer software licenses are capitalized on the basis of the costs incurred to acquire and bring to use
the specified software. These costs are amortized on a straight-line basis over the expected useful lives of three to
five years. Computer software is included in Other resources, net.

Costs associated with maintaining computer software programs are recognized as an expense as incurred.
Development costs previously recognized as an expense are not recognized as an asset in a subsequent period.

Computer software is derecognized upon disposal or when no future economic benefits are expected from its use
or disposal.

23.9 Impairment of non-financial assets

Asset that have indefinite useful lives are not subject to amortization and depreciation and are tested annually
for impairment. Assets that have definite useful life are subject to amortization and are reviewed for
impairment whenever events or changes in circumstances indicate that the carrying amount may not be
recoverable. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its
recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in
use. For purposes of assessing impairment, assets are grouped at the lowest levels for which there is a
separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that
suffered impairment are reviewed for possible reversal of the impairment at each reporting date.

23.10 Foreclosed asset

Assets foreclosed shown as Assets held for sale in the statement of condition are accounted for at the lower of
cost and fair value less cost to sell, similar to the principles of PFRS 5. The cost of assets foreclosed includes the
carrying amount of the related loan less allowance for impairment at the time of foreclosure. Impairment loss
is recognized for any subsequent write-down of the asset to fair value less cost to sell.

These foreclosed assets are classified as assets held for sale since it is the intention of the Bank’s management
to principally recover the carrying amount through sale transactions and the sale is considered highly probable.

The sale is expected to be completed within one year from the date of classification. In case events or
circumstances may extend the period to complete the sale beyond one year, the extension of the period to
complete the sale does not preclude the asset from being classified as held-for-sale if the delay is caused by
events or circumstances beyond the Bank’s control and the Bank remains committed to its plan to sell the
asset.

23.11 Accrued expenses and other liabilities

Accrued expenses and other liabilities are recognized in the period in which the related money, goods or
services are received or when a legally enforceable claim against the Bank is established.

Accrued expenses and other liabilities are derecognized upon settlement, or when discharged, cancelled or
expired.

23.12 Provisions for legal or contractual obligations

Provisions are recognized when the Bank has a present legal or constructive obligation as a result of past events; it
is probable that an outflow of resources will be required to settle the obligation; and the amount has been 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.

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 the current market assessments of the time value of money and the risk specific
to the obligation. The increase in provision due to the passage of time is recognized as interest expense.

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23.13 Interest income and expense

Interest income and expense are recognized in the statement of income for all interest-bearing financial
instruments using the effective interest rate method.

When calculating the effective interest rate, the Bank 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.

23.14 Service fee income

The Bank recognized revenue when (or as) the Bank satisfies a performance obligation by transferring a promised
good or service to a customer (i.e. an asset). An asset is transferred when (or as) the customer obtains control of
that asset.

Fees and commissions are generally recognized over time when the service has been provided and the control
over the service is transferred to the customer. The service being rendered by the Bank represents a single
performance obligation.

Fees and commissions, mainly representing service fees, are recognized on an accrual basis when the service
has been provided. Fees and commission arising from loans, deposits and other banking transactions are
recognized as income based on agreed terms and conditions.

23.15 Foreign currency translation

Functional and presentation currency

Items in the financial statements of the Bank are measured using the currency of the primary economic
environment in which it operates (the functional currency). The financial statements are presented in
Philippine Peso, which is the Bank’s functional currency.

Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at
the dates of the transactions or valuations where items are remeasured. Foreign exchange gains and losses
resulting from the settlement of such transactions and from the translation at year-end exchange rates of
monetary assets and liabilities denominated in foreign currencies are recognized in the statement of income.

23.16 Income taxes

The tax expense for the period comprises current and deferred income tax. 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.

Current income tax

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the
reporting date in the country where the Bank operates and generates taxable income.

Management periodically evaluates positions taken in tax returns with respect to situations in which the
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.

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Deferred income tax

Deferred income tax is recognized on temporary differences arising between the tax bases of assets and
liabilities and their carrying amounts in the financial statements. The deferred income tax is not accounted for
if it arises from initial recognition of an asset or liability in a transaction, other than a business combination,
that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is
determined using tax rates (and laws) that have been enacted or substantively enacted at the 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 (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, unused tax losses
and unused tax credits can be utilized.

Deferred income tax liabilities are recognized in full for all taxable temporary differences. Deferred income tax
liabilities are provided on taxable temporary differences except for deferred income tax liability where the
timing of the reversal of the temporary difference is controlled by the Bank and it is probable that the
temporary difference will not reverse in the foreseeable future.

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 taxes assets and liabilities relate to
income taxes levied by the same taxation authority on either the taxable entity or different taxable entities
where there is an intention to settle the balances on a net basis.

23.17 Employee benefits

(a) Short-term benefits

The Bank recognizes a liability, net of amount already paid and an expense for services rendered by employees
during the accounting period. Short-term benefits given to its employees include salaries and wages, social
security contributions, short-term compensated absences and bonuses, and
non-monetary benefits.

Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the
related service is provided.

(b) Defined benefit retirement plan

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.

The liability recognized in the statement of condition in respect of defined benefit pension plan is the present
value of the defined benefit obligation at the reporting date less the fair value of plan assets. The defined
benefit obligation is calculated annually by an independent actuary 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 the currency in which the benefits will be
paid, and that have terms to maturity approximating the terms of the related pension liability.

The asset ceiling is the present value of any economic benefits available in the form of refunds from the plan or
reductions in future contributions to the plan. The amount of pension asset recognized in the books is reduced
by the amount of asset ceiling, as applicable.

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.

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For individual financial reporting purposes, the unified plan assets are allocated based on the level of the
defined benefit obligation attributable to each entity to arrive at the net liability or asset that should be
recognized in the individual financial statements.

(c) Defined contribution retirement plan

The Bank also maintains a defined contribution plan that covers certain full-time employees. Under its defined
contribution plan, the Bank pays fixed contributions based on the employees’ monthly salaries. The Bank,
however, is covered under RA No. 7641, otherwise known as The Philippine Retirement Pay 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 Bank 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 Bank determines the net interest expense (income) on the
net defined benefit liability (asset) for the period by applying the discount rate used to measure the defined
benefit obligation at the beginning of the annual period to the net defined benefit liability (asset) and then, it
takes into account any changes in the net defined benefit liability (asset) during the period as a result of
contributions and benefit payments. Net interest expense and other expenses related to the defined benefit
plan are recognized in the statement of income.

The defined contribution liability is measured at the fair value of 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.

Actuarial gains and losses arising from the remeasurements of the net defined contribution liability are
recognized immediately in other comprehensive income.

(d) Profit sharing and bonus plans

The Bank recognizes a liability and an expense for bonuses and profit-sharing, based on a formula that takes
into consideration the profit attributable to the Bank’s shareholder after certain adjustments. The Bank
recognizes a provision where contractually obliged or where there is a past practice that has created a
constructive obligation.

23.18 Share capital; Surplus

Share capital represents common shares.

Incremental costs directly attributable to the issue of new shares are shown in capital funds as a deduction
from the proceeds, net of tax.

Surplus includes current and prior years’ results of operations, with the excess being declared for dividend
payout or reserved for the Bank’s future use.

23.19 Dividends on common shares

Dividends are recognized as a liability in the Bank’s financial statements in the year in which they are approved by
the Board of Directors.

23.20 Leases

The Bank recognizes leases as a right-of-use asset and a corresponding liability at the date at which the leased
asset is available for use.

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Assets and liabilities arising from long-terms leases are initially measured on a present value basis. The interest
expense is recognized in the statement of income over the lease period so as to produce a constant periodic rate
of interest on the remaining balance of the liability for each period.

The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability
adjusted for any lease payments made at or before the lease commencement date plus any initial direct costs
incurred, less any lease incentives received. The right-of-use asset is subsequently depreciated on a
straight-line basis over the lease term. The right-of-use asset may be reduced by impairment losses, if any, and
adjusted for certain remeasurements of the lease liability.

The lease liability is initially measured at the present value of the lease payments that are not paid at the
commencement date, discounted using the rate implicit in the lease or, if that rate cannot be readily
determined, the Bank’s incremental borrowing rate. Generally, the Bank uses its incremental borrowing rate as
the discount rate. It is remeasured when there is a change in future lease payments arising from a change in an
index or rate, a change in the estimate of the amount expected to be payable under a residual value guarantee,
or as appropriate, changes in the assessment of whether a purchase or extension option is reasonably certain to
be exercised or a termination option is reasonably certain not to be exercised.

Payments associated with leases of low-value assets are recognized on a straight-line basis as an expense in the
statement of income. Low-value assets comprise certain IT-equipment and office furniture.

23.21 Related party relationships and transactions

Related party relationship 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 relationship also exists 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 shareholders. In considering each possible related party relationship, attention is
directed to the substance of the relationship, and not merely the legal form.

23.22 Subsequent events (or Events after the reporting date)

Post year-end events that provide additional information about the Bank’s financial position at reporting date
(adjusting events) are reflected in the financial statements. Post year-end events that are not adjusting events are
disclosed in the notes to the financial statements when material.

Note 24 - Supplementary information required by BSP Circular No. 1074

Presented below are the additional information required by BSP Circular No. 1074 issued on January 8, 2020.
This information is presented for BSP reporting purposes and is not required in the basic financial statements.

(i) Basic quantitative indicators of financial performance

The key financial performance indicators as at December 31 follow:

2020 2019
Return on average equity1 (30.13%) 10.49%
Return on average assets2 (3.38%) 1.78%
Net interest margin3 14.15% 20.38%
1Net income divided by average total equity for the period indicated. Average equity is based on the daily average balance of equity for the years ended
December 31, 2020 and 2019.
2Net income divided by average total assets as at period indicated. Average total assets are based on the daily average balance of total assets as at

December 31, 2020 and 2019.

Net interest income divided by average interest-earning assets. Average interest earning assets is based on the daily average balance of interest earning
assets as at December 31, 2020 and 2019.

(ii) Description of capital instrument issued

The Bank considers its common shares as capital instrument for the purpose of calculating its CAR as at
December 31, 2020 and 2019.

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(iii) Significant credit exposures

Details of the Bank’s loans and advances portfolio as to concentration to industry/economic sector (in %) at
December 31 are as follows:

2020 2019
Private household with employed persons 54.40 69.34
Wholesale and retail trade 26.36 25.05
Real estate, renting and other related activities 15.40 2.44
Manufacturing 3.24 2.94
Others 0.60 0.23
100.00 100.00

(iv) Breakdown of total loans

Details of the Bank’s loans and advances portfolio as to collateral (amounts net of unearned discounts and
accrued interest receivable) at December 31 are as follows:

2020 2019
Secured loans
Real estate mortgage 1,548,405,379 2,405,689,841
Chattel mortgage 1,852,898 262,824
1,550,258,277 2,405,952,665
Unsecured loans 10,838,833,534 10,791,346,062
12,389,091,811 13,197,298,727

Non-performing loans, net of allowance for credit losses, at December 31 are as follows:

2020 2019
Non-performing loans (NPL) 1,963,230,809 928,714,553
Accounts with specific allowance for credit losses (1,139,598,352) (537,795,977)
Net NPL 823,632,457 390,918,576

BSP Circular 941, Amendments to Regulations on Past Due and Non-Performing Loans, states that loans,
investments, receivables, or any financial asset shall be considered non-performing, even without any missed
contractual payments, when it is considered impaired under existing accounting standards, classified as doubtful
or loss, in litigation, and if there is an evidence that full repayment of principal and interest is unlikely without
foreclosure of collateral. All other loans, even if not considered impaired, shall be considered non-performing if
any principal and/or interest are unpaid for more than ninety (90) days from contractual due date, or accrued
interests for more than ninety (90) days have been capitalized, refinanced, or delayed by agreement. Microfinance
and other small loans with similar credit characteristics shall be considered non-performing after contractual due
date or after it has become past due. Restructured loans shall be considered non-performing. However, if prior to
restructuring, the loans were categorized as performing, such classification shall be retained.

(v) Information on related party loans

The Bank does not have DOSRI loans as at December 31, 2020 and 2019.

(vi) Liabilities and assets pledged as security

There are no loans and advances at December 31, 2020 and 2019 used as security for liabilities.

(vii) Contingencies and commitments arising from off-balance sheet items

The Bank does not have any contingencies and commitments arising from off-balance sheet items as at
December 31, 2020 and 2019.

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Note 25 - Supplementary information required by the Bureau of Internal Revenue (BIR)

Below is the additional information required by Revenue Regulations No. 15-2010 that is relevant to the Bank.
This information is presented for the purposes of filing with the BIR and is not a required part of the basic
financial statements.

(i) Documentary stamp tax

Documentary stamp taxes (DST) paid through the Electronic Documentary Stamp Tax System for the year ended
December 31, 2020 consist of DST on deposit documents amounting to P90,611,462 and DST on contracts of
lease amounting to P51,792.

(ii) Withholding taxes

Withholding taxes paid/accrued and/or withheld for the year ended December 31, 2020 consist of:

Paid Accrued Total

Creditable income taxes withheld (expanded) 29,151,508 3,916,199 33,067,707
Final income taxes withheld on interest on deposits
and yield on deposit substitutes 48,345,427 6,079,865 54,425,292
Income taxes withheld on compensation 12,212,589 285,183 12,497,772
Final income taxes withheld on the amount withdrawn
from decedent’s deposit account 79,013 - 79,013
Final income taxes withheld on income payment - - -
89,788,537 10,281,247 100,069,784

Withholding tax payable is presented as part of Accrued taxes, interest and other expenses in the statement of
condition.

(iii) All other local and national taxes

All other local and national taxes paid/accrued for the year ended December 31, 2020 consist of:

Paid Accrued Total

Gross receipts tax 195,651,791 52,610,612 248,262,403
Municipal taxes / Mayor’s permit 14,052,367 - 14,052,367
Fringe benefits tax 109,525 112,833 222,358
Others 7,310,320 - 7,310,320
217,124,003 52,723,445 269,847,448

Except for the gross receipts tax which is netted against the related income, local and national taxes are presented
as part of taxes and licenses under Other operating expenses in the statement of income.

(iv) Tax cases and assessments

As at reporting date, the Bank has pending cases filed in court and with the tax authorities contesting tax
assessments. Management is of the opinion that the ultimate outcome of the said case will not have a material
impact on the Bank’s financial statements.

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