BANK OF THE PHILIPPINE ISLANDS
STATEMENTS OF CONDITION
DECEMBER 31, 2008 AND 2007
(In Millions of Pesos)

Notes

Consolidated
2007
2008

Parent
2008

2007

RESOURCES
CASH AND OTHER CASH ITEMS

7

P 22,366

P 13,243

P 21,781

P 12,760

DUE FROM BANGKO SENTRAL NG PILIPINAS
DUE FROM OTHER BANKS

7

48,422

72,878

41,428

62,107

7

14,278

6,969

8,114

1,845

INTERBANK LOANS RECEIVABLE AND SECURITIES
PURCHASED UNDER AGREEMENTS TO RESELL

7, 8

22,584

31,772

21,107

29,161

DERIVATIVE FINANCIAL ASSETS

10

2,182

3,123

2,182

3,123

TRADING SECURITIES

9

34,399

9,194

32,999

7,571

INVESTMENT SECURITIES
- AVAILABLE-FOR-SALE SECURITIES, net

11

63,787

103,564

50,731

81,971

- HELD-TO-MATURITY SECURITIES, net

12

72,884

52,432

63,196

45,555

LOANS AND ADVANCES, net

13

320,216

273,756

240,681

207,435

BANK PREMISES, FURNITURE, FIXTURES AND
EQUIPMENT, net

14

11,176

10,898

7,654

7,841

INVESTMENT PROPERTY, net

15

2,828

2,816

2,817

2,785

ASSETS HELD FOR SALE, net

4

14,837

16,844

12,168

14,013

EQUITY INVESTMENTS, net

16

766

933

6,747

7,799

ASSETS ATTRIBUTABLE TO INSURANCE OPERATIONS

5

22,068

22,004

DEFERRED INCOME TAX ASSETS, net

17

5,676

6,151

4,981

5,544

18

8,143
P 666,612

10,708
P 637,285

6,800
P 523,386

8,579
P 498,089

OTHER RESOURCES, net
Total resources
(forward)

24

-

-

BANK OF THE PHILIPPINE ISLANDS
STATEMENTS OF CONDITION
DECEMBER 31, 2008 AND 2007
(In Millions of Pesos)

Notes

Consolidated
2007
2008

Parent
2008

2007

LIABILITIES AND CAPITAL FUNDS
DEPOSIT LIABILITIES
Demand
Savings
Time

P 92,496
162,465
285,391
540,352

P 86,923
129,955
296,566
513,444

P 86,116
140,543
214,230
440,889

P 81,309
112,084
225,250
418,643

DERIVATIVE FINANCIAL LIABILITIES

10

2,547

3,360

2,547

3,360

BILLS PAYABLE

19

9,934

5,375

5,373

2,090

DUE TO BANGKO SENTRAL NG PILIPINAS AND
OTHER BANKS

1,496

1,303

1,462

1,271

MANAGER’S CHECKS AND DEMAND DRAFTS
OUTSTANDING

2,723

2,713

2,164

2,081

ACCRUED TAXES, INTEREST AND OTHER EXPENSES

4,150

4,670

3,020

3,448

UNSECURED SUBORDINATED DEBT

20

5,000

LIABILITIES ATTRIBUTABLE TO INSURANCE
OPERATIONS

5

18,813

16,484

-

-

21

17,725
602,740

18,805
566,154

14,927
475,382

16,774
447,667

32,456
1,374
(478)
14,652
48,004

27,044
1,360
2,122
19,896
50,422

48,004
P 523,386

50,422
P 498,089

DEFERRED CREDITS AND OTHER LIABILITIES
Total liabilities
CAPITAL FUNDS ATTRIBUTABLE TO THE EQUITY
HOLDERS OF BPI
Capital stock
Paid-in surplus
Translation adjustments
Reserves
Surplus

-

5,000

-

22

11

MINORITY INTEREST
Total capital funds
Total liabilities and capital funds

32,456
1,374
(692)
(863)
30,659
62,934
938
63,872
P 666,612

27,044
1,360
(580)
4,402
37,785
70,011
1,120
71,131
P 637,285

(The notes on pages 1 to 75 are an integral part of these financial statements.)

25

352 482 13.655 466 (938) 23.159 3.370 864 2.081 17.364 6.398 (898) 13.297 INTEREST EXPENSE On deposits On bills payable and other borrowings NET INTEREST INCOME IMPAIRMENT LOSSES NET INTEREST INCOME AFTER IMPAIRMENT LOSSES OTHER INCOME Fees and commissions Income from foreign exchange trading and trading securities Income attributable to insurance operations Other operating income Gross receipts tax Consolidated 2007 22 1.193 4.056 2008 P 23.329) 33.570 2.226 P 9.829 4.344 4.311 7.658 4.485 16.502 1.107 9.543 4. 13.100 P P P P P 2.565 5.668 2.123 862 2. 11.524 17.533 17.904 4.012 214 P 10.894 3.984 P 7.460 3.911 18.80 .829 8.826 2.984 P 9.325 515 (1.058 3.850 1.002 463 13.250 14.539 9.339 296 9.339 1.305 P 8.781 1.604 2.558 19.234 P 8.301 (497) 10.542 12.579 14.873 P 7.253) 32.196 588 6.303 4.847 5.754 24.563 (567) 10.834 19.844 2.826 2.769 2.423 407 1.333 13.747 2.137 2.268 8.BANK OF THE PHILIPPINE ISLANDS STATEMENTS OF INCOME FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31.194 1.145 1.423 134 P 6.663 5.) 26 2.950 1. 18 5 24 14.823 4.302 5.205 251 2.324) (1.853 5.196 1.058 500 14.985 P 6.857 10.641 903 8.622 357 10.312 8.226 2.179 846 10.054 13.98 3.767 P 10.947 962 4.100 4.993 11.979 14.672 13.503 1.79 (The notes on pages 1 to 75 are an integral part of these financial statements.265 18.020) 25.542 13.46 P 4.038 1.424 449 1.650 10.855 6.477 3.691 3.893 6.465 18.098 5.830 P 9.100 P 9.305 1.098 (617) 10.194 P 8.557 2.305 P 7.456 P 9.930 13.958 13.408 359 2.635 14.321 3. 2008 (In Millions of Pesos.814 P 16.266 Parent 2007 2006 P 15.09 2.341 3.958 282 9.100 P 6.930 2.066 3.599 (704) 10.045 P 16.017 674 (1.040 154 P 9.339 4.240 15.428 372 (1. Except Per Share Amounts) Notes INTEREST INCOME On loans and advances On held-to-maturity securities On available-for-sale securities On deposits with BSP and other banks On trading securities Gross receipts tax 2008 OTHER EXPENSES Compensation and fringe benefits Occupancy and equipment-related expenses Other operating expenses INCOME BEFORE INCOME TAX PROVISION FOR INCOME TAX Current Deferred P 21. 15 26 27 17 NET INCOME FOR THE YEAR Attributable to: Equity holders of BPI Minority interest Earnings per share for net income attributable to the equity holders of BPI during the year: Basic and diluted 2006 P 24.56 2.635 4.919 757 325 (1.751 3.415 13.811 (649) 10.908 1.463 1.026 1.700 3.984 1.557 P 10.712 4.484 9.027) 33.

507) 30.456 14 P 1.356 (95) 89 5.434) (142) 71.872 .048 (254) 65.573) (646) 65. December 31.012 10.487 27.402 (2.043 1.077 57 1 4 27.356 (95) 5.368) 6.573) (4.015 9.226 8.164) - - - (1.409) (80) P 30.337 1.043 1. 2006 Effect of change in accounting policy on pre-need reserves of a pre-need subsidiary (Note 2) Balance as adjusted.423 P (692) 44 (21) 80 P (863) (8.722 - (49) 3.544 (254) 30.048 89 (7.434) (130) 37.374 (The notes on pages 1 to 75 are an integral part of these financial statements.898) 10.060) (5.120 146 (2.540 (316) P 938 3.480) 6.113) (5.749 - - 283 - (49) (49) - 315 4.507 27.073 P (46) P 1.557 1.479 P 1.233 - - (485) (1.044 1.591 (646) 1. net Net loss recognized directly in equity Net income for the year Total recognized income and expenses for the year Employee stock option plan: Value of employee services Exercise of options Cash dividends Stock dividends Transfer from surplus to reserves Other changes in minority interest Balance.) 27 - Total P 60.785 (142) 1.064 91 9.749 (49) 44 (4) (8. net of deferred income tax effect Currency translation differences Fair value reserve on investments of insurance subsidiaries. December 31.413) (1.360 (580) - - (112) (4.064 4.255) - - - (112) (112) (1. 2008 Consolidated Attributable to equity holders of BPI (Note 22) Capital Paid-in Translation stock surplus adjustments Reserves Surplus P 22.368) (5.328 146 (5) 130 4.BANK OF THE PHILIPPINE ISLANDS STATEMENTS OF CHANGES IN CAPITAL FUNDS FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31.209 57 283 - 4. January 1.113) (5. net of deferred income tax effect Currency translation differences Fair value reserve on investments of insurance subsidiaries. 2008 (In Millions of Pesos) Balance.131 - - (4. net Net loss recognized directly in equity Net income for the year Total recognized income and expenses for the year Employee stock option plan: Value of employee services Exercise of options Cash dividends Transfer from surplus to reserves Other changes in minority interest Balance.068 - - - Minority interest P 1. net Net income (loss) recognized directly in equity Net income for the year Total recognized income and expenses for the year Issuance of shares Change in paid-in surplus Transfer from surplus to reserves Value of employee services under the stock option plan Cash dividends Stock dividends Other changes in minority interest Balance. December 31.413) 10. January 1.012 214 214 (249) (1.164) (485) - - (485) (485) (249) (1.040 9.194 13.255) (112) 134 134 (1.040 (91) 154 154 - 315 4.659 3 5. 2007 Net change in available-for-sale securities.300 P 33.544 (7. 2006 Net change in available-for-sale securities. net of deferred income tax effect Currency translation differences Fair value reserve on investments of insurance subsidiaries. 2007 Net change in available-for-sale securities.409 P 32.423 6.060) (316) P 63.

409) 80 (80) P (478) P 14.100 (91) 2.305 (2. net of deferred income tax effect Net loss recognized directly in equity Net income for the year Total recognized income and expenses for the year Employee stock option plan: Value of employee services Exercise of options Cash dividends Stock dividends Transfer from surplus to reserves Balance. 2006 Net change in available-for-sale securities.696) (2.360 117 (5) 130 2.004 (The notes on pages 1 to 75 are an integral part of these financial statements. net of deferred income tax effect Net loss recognized directly in equity Net income for the year Total recognized income and expenses for the year Employee stock option plan: Value of employee services Exercise of options Cash dividends Transfer from surplus to reserves Balance.073 P 232 P 17.482 2. 2006 Net change in available-for-sale securities.696) (2.696) 8. net of deferred income tax effect Net income recognized directly in equity Net income for the year Total recognized income and expenses for the year Issuance of shares Change in paid-in surplus Transfer from surplus to reserves Value of employee services under the stock option plan Cash dividends Stock dividends Balance. December 31.507) 14.652 P 48. December 31.456 P 1.060) (8.305 8.122 - - (2.482 9.582 57 283 - 4. 2008 (In Millions of Pesos) Capital stock P 22.356 70 2.479 Balance.100 11.BANK OF THE PHILIPPINE ISLANDS STATEMENTS OF CHANGES IN CAPITAL FUNDS FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31.989 (2. 2008 - Parent (Note 22) Paid-in surplus Reserves Surplus P 1.476 70 (7.573) 45.984 (995) (995) 7.750 - - (995) (995) (995) 7.331 . December 31.696) - 3 14 5.609 57 - - 1 4 27.984 6.422 8.547 283 - 2.044 1.043 1.482 91 9.434) (130) 19.875 (7.896 117 (2.573) (4.100 9.984 7.482 2.374 37 37 (21) (4) (8.) 28 Total P 41. January 1.060) (5.305 5.696) (2.434) 50.507 27. 2007 Net change in available-for-sale securities.482 2.409 P 32.

671) 20.499 9.280) Assets held for sale 1.423) (33.635 (9.450 28.899 (21.669) (1.232 (17.127) 9.167 37.358 37 (4.524 1.465 (13.088) Net cash (used in) generated from operating activities before income tax (28.851) 706 (846) (3.421) (965) (13.735) 15.017 Held-to-maturity securities.626 13.095) 1.490 13.975 (30.306) 503 2.952 (721) (451) 53 (886) (1.854 481 - (1.191 70 (2.509) Trading securities.421) 24.928) (26.081 1. 15 2. fixtures and equipment. 2008 (In Millions of Pesos) Notes 2008 CASH FLOWS FROM OPERATING ACTIVITIES Income before income tax P 9.507 (1.296) (1.232 .930 Depreciation and amortization 14. net 11 35.734) 19.226 69 2.114) 1.247) 1.206) Loans and advances.658 10.631) (24.470) (2.948) Bank premises. net 9 (25.857 2006 P 10.991 (16. interest and other expenses (268) Liabilities attributable to insurance operations 2.851) Income taxes paid (2.752) 25.966 22.626) Interest received 34.336 10.724 (13.188 Share in net (income) loss of associates 28 Share-based compensation 23 44 Dividend income 24 (67) Interest income (34.669) 1.650 P 10.446) 5.640) (5.930 1.888) 16.391 10.252 2.727 (2.900) - (1. 11.329 Derivative financial instruments 128 Deferred credits and other liabilities (1.979 (10.361) CASH FLOWS FROM INVESTING ACTIVITIES (Increase) decrease in: Available-for-sale securities.368 46.699 10. net 12 (19.667 706 69 4.406) Investment property.099 (2.089) (148) (32) (1.737 4.580 (1.086) Operating income before changes in operating assets and liabilities 13.052 - 212 (431) 2.625) (14.847) 148 3.287 148 2.815 3.340) 18.621) (8.873 9. 18 1.510) Net cash (used in) generated from operating activities (31.539 P 9.171) 3. furniture. net (12) Dividends received 67 Equity investments (1.849) 27. net (47.519) 846 1.694 46.239 5.250 1.908 Due to Bangko Sentral ng Pilipinas and other banks 193 Manager’s checks and demand drafts outstanding 10 Accrued taxes.157 Increase (decrease) in: Deposit liabilities 26.737 4.002 9.558 (14.061) (25.506) 541 (4.836 9 146 (53) (33.322 Changes in operating assets and liabilities (Increase) decrease in: Due from Bangko Sentral ng Pilipinas (772) Interbank loans receivable and securities purchased under agreements to resell (1.541 15. net 14 (2.824 14.464 (410) 1.668) 33.155) 98 2.542 Adjustments for: Impairment losses 4.509) (25.063) (9.560) 40.930 14.200 5. 13.777 17.834 Interest paid (14.484 1.535 Interest expense 13.276 297 232 191 290 805 464 356 325 (894) 83 (157) 183 463 310 (1.372) 1.293) 24.164) (10.124) (28.819) 16.565) 1.470) (2.224) 89 47 (1.145 (1.511 (1.842 28.435 26.615) (9.192 117 (2.611 (36) 89 (47) (35.365 128 (1.338 Assets attributable to insurance operations 887 Other resources 2.574) (2.078) 33.815 (31.993 P 11.340 2.283 1.BANK OF THE PHILIPPINE ISLANDS STATEMENTS OF CASH FLOWS FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31.246 33.954 8.353 (forward) 29 Consolidated 2007 2006 2008 Parent 2007 P 12.402) Assets attributable to insurance operations (963) Net cash generated from (used in) investing activities 10.240 (9.

000 - - 5.283 (7.BANK OF THE PHILIPPINE ISLANDS STATEMENTS OF CASH FLOWS FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31.299 31.463) 340 (7.107 29.299 P 62.351 P 67.) 30 65.172 P 82.739) (13.855) (8.463) 340 (9.190 .060) 4.821 15.826 P 49.917) 7 82.509) 223 (15.254) 15.131) 5.499 (7.572) (341) (4.579 19.913) (11.127 35.528 (19.559 (7.167) (4.528 P 65. 2008 (In Millions of Pesos) Notes CASH FLOWS FROM FINANCING ACTIVITIES Cash dividends Collection on stock subscriptions Increase (decrease) in bills payable Proceeds from issuance of unsecured subordinated debt Net cash generated from (used in) financing activities NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS January 1 December 31 20 2008 Consolidated 2007 2006 2008 Parent 2007 2006 (8.060) 3.172 49.000 - - 1.107 P 49.572) (1.790 (The notes on pages 1 to 75 are an integral part of these financial statements.978) (8.702 67.

BANK OF THE PHILIPPINE ISLANDS NOTES TO FINANCIAL STATEMENTS AS OF DECEMBER 31. asset management. The BPI shares have been traded in the Philippine Stock Exchange since October 12. Ayala Avenue corner Paseo de Roxas. 1943. corporate finance.089 employees (2007 .1 Basis of preparation The financial statements of the BPI Group have been prepared in accordance with Philippine Financial Reporting Standards (PFRS). The areas involving a higher degree of judgment or complexity. 2. or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 4. This license was extended for another 50 years on January 4. securities distribution. Philippine Interpretations Committee (PIC)/Standing Interpretations Committee (SIC)/International Financial Reporting Interpretations Committee (IFRIC) interpretations which have been approved by the Financial Reporting Standards Council (FRSC) and adopted by the SEC. These policies have been consistently applied to all the years presented. 2008 Note 1 . consumer banking. and all derivative contracts.925 employees) and operated 831 branches. 1. the BPI Group had 12.556 ATMs and 21. unless otherwise stated.General Information Bank of the Philippine Islands (BPI or the “Parent Bank”) is a domestic commercial bank with an expanded banking license and with principal office at BPI Building. mobile phone and the internet.Summary of Significant Accounting Policies The principal accounting policies applied in the preparation of these financial statements are set out below. the pre-need subsidiary of the Parent Bank continues to follow the provisions of the Pre-Need Uniform Chart of Accounts (PNUCA) prescribed by the SEC. investment banking. The BPI Group also serves its customers through alternative electronic banking channels such as telephone.11. and insurance services. The Parent Bank was registered with the Securities and Exchange Commission (SEC) on January 4. These financial statements have been approved and authorized for issuance by the Executive Committee of the Board of Directors of the Parent Bank on February 11. 1971. 2008. Note 2 . Philippines Accounting Standards (PAS). Makati City. It also requires management to exercise its judgment in the process of applying the BPI Group’s accounting policies. 1 . 2009. 2008 AND 2007 AND FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31. At December 31. These financial statements have been prepared under the historical cost convention. As allowed by the SEC. 1993. as modified by the revaluation of available-for-sale financial assets and trading securities. BPI and its subsidiaries (collectively referred to as the “BPI Group”) offer a whole breadth of financial services that include corporate banking. The preparation of these financial statements in conformity with PFRS requires the use of certain critical accounting estimates.771 point-of-sale terminals to support its delivery of services. The term PFRS in general includes all applicable PFRS.

in which the consideration received for the sale of goods and services (from which award credits are earned) is allocated to (a) the goods or service delivered. For Philippine financial reporting purposes. Likewise.PAS 19. Likewise. 2008 shall take effect only from the date of reclassification. the following standards. This interpretation will affect the BPI Group’s accounting for its obligation under its existing card reward redemption program however. 2009 but the BPI Group has not early adopted. an entity shall apply those amendments from July 1. interpretations and amendments to published standards effective beginning January 1. For purposes of measuring defined benefit asset. This interpretation did not have a significant impact on the BPI Group’s financial statements.Standards. The amendments permit an entity to reclassify non-derivative financial assets (other than those designated at fair value through profit or loss by the entity upon initial recognition) out of the fair value through profit or loss category in rare circumstances or if the financial asset is no longer held for the purpose of selling or repurchasing it in the near term. This interpretation did not have a significant impact on the BPI Group’s financial statements. 2007) provides guidance on whether share-based transactions involving treasury shares or involving group entities (for example. PFRS 2. it also allows transfer from the available-for-sale (AFS) category to the loans and receivables category a financial asset that would have met the definition of loans and receivables (if the financial asset had not been designated as AFS). this interpretation addresses an issue on when refunds or reductions in future contributions should be regarded as available. 2008). Minimum Funding Requirements and their Interaction. This interpretation clarifies that loyalty programmes are multiple element arrangements. management expects that the impact will not be significant. (effective on or after January 1. These amendments did not have an impact on the BPI Group as no reclassification of its trading securities was made nor did it reclassify certain AFS investments to loans and receivables. 2008). and (b) the award credits that will be redeemed in the future. The Limit on a Defined Benefit Asset. Group and Treasury Share Transactions (effective from March 1. if the entity has the intention and ability to hold that financial asset for the foreseeable future. Reclassification of Financial Assets. amendments and interpretations to existing standards have been published and are applicable for the BPI Group beginning on or after January 1. Customer Loyalty Program. • Amendments to PAS 39 and PFRS 7. 2008 and any reclassification of a financial asset made in periods beginning on or after November 15. 2008 and onwards The BPI Group adopted the following accounting standards and interpretations approved by the FRSC which are effective for annual periods beginning on or after January 1. options over a parent's shares) should be accounted for as equity-settled or cash-settled share-based payment transactions in the stand-alone accounts of the parent and group companies. (effective for accounting periods beginning on or after July 1. 2 . • Philippine Interpretation IFRIC 13. • Philippine Interpretation IFRIC 14 . particularly when minimum funding requirement exists. 2008: • Philippine Interpretation IFRIC 11.

2009. Any remaining interest in the entity is re-measured to fair value and a gain or loss is recognized in profit or loss. The amendments will not have an impact on the BPI Group as there are no qualifying assets. The amendment requires an entity to capitalize borrowing costs directly attributable to the acquisition. Dividends recognized as distributions to owners and related per share amounts should be presented on the face of the statement of changes in equity or in the notes and not on the face of the statement of comprehensive income or the face of the income statement. Presentation of Financial Statements. 2010. 2010. the entity shall estimate the dividend payable by considering both the fair value of each alternative and the associated probability of owners selecting each alternative.e. (b) identifying situations where hedging instruments that are hedges of a net investment in a foreign operation can qualify for hedge accounting under PAS39. (effective from January 1. At the end of each reporting period and at the date of settlement. 2009). An entity is not permitted to present components of comprehensive income (i. This interpretation provides guidance on the following: (a) identifying the foreign currency risks that can qualify as a "hedged risk" in the hedge of a net investment in a foreign operation. If an entity gives its owners a choice of receiving either a non-cash asset or a cash alternative. Borrowing Costs (effective from January 1.e.• Philippine Interpretation IFRIC 16. The standard also specifies the accounting when control is lost. owner changes in equity) to be presented separately from non-owner changes in equity. An entity shall measure a liability to distribute non-cash assets as a dividend to its owners at the fair value of the assets to be distributed. Distribution of Non-Cash Assets to Owners (effective for accounting periods beginning on or after July 1. The BPI Group will apply this revised standard prospectively to transactions with non-controlling interests from January 1. non-owner changes in equity) in the statement of changes in equity. 2009). 2009). and (c) determining the amounts to be reclassified from equity to profit and loss for both the hedging instrument and the hedged item when using hedge accounting under PAS39. Hedges of a Net Investment in a Foreign Operation (effective for accounting periods beginning on or after October 1. • Philippine Interpretation IFRIC 17. • PAS 1. This interpretation will be adopted by the BPI Group on its financial statements beginning January 1. The option of immediately expensing those borrowing costs has been removed. This interpretation addresses accounting by an entity that makes a non-cash asset distribution to owners. Consolidated and Separate Financial Statements (effective from July 1. • PAS 23 (Amendment). 3 . 2009). The revised standard requires the effects of all transactions with non-controlling interests to be recorded in equity if there is no change in control and these transactions will no longer result in goodwill or gains and losses. The amendment requires that all changes in equity arising from transactions with owners in their capacity as owners (i. This interpretation will not have a significant impact on the BPI Group’s financial statements as net investments in foreign operations are currently not hedged. • PAS 27 (Revised). the entity shall review and adjust the carrying amount of the dividend payable. with any changes in the carrying amount of the dividend payable recognized in equity as adjustments to the amount of the distribution. construction or production of a qualifying asset (one that takes a substantial period of time to get ready for use or sale) as part of the cost of that asset. 2008). The changes in the presentation will be adopted by the BPI Group on its financial statements beginning January 1.

the liabilities assumed and any non-controlling interest in the acquiree. • PFRS 2 (Amendment). This new standard requires a “management approach”. and PAS 1 (Amendment). 2009). 2010. that is. It clarifies that vesting conditions are service conditions and performance conditions only. provided the financial instruments have particular features and meet specific conditions. reliability and comparability of the information that an entity provides in its financial statements about a business combination and its effects by establishing principles and requirements for how an acquirer (a) recognizes and measures in its financial statements the identifiable assets acquired. but it appears likely that the number of reportable segments. Financial Instruments: Presentation. if any from January 1. These amendments are part of the annual improvements project published by the International Accounting Standards Board (IASB) in May 2008. 2009). The amended standards require entities to classify puttable financial instruments. The following are the relevant amendments to PFRS that will result in changes in accounting. This revised standard will be applied by the BPI Group in its financial statements for the period commencing January 1. This amendment is not expected to have a significant impact on the BPI Group’s financial statements. should receive the same accounting treatment. as well as the manner in which the segments are reported. First-time Adoption) (effective from July 1. A consequential amendment to PFRS 1 states that these amendments are applied prospectively from the date of transition to PFRS. presentation. The expected impact is still being assessed in detail by management. whether by the entity or by other parties. 2009). The BPI Group will apply this amendment prospectively to all partial disposals of subsidiaries. The amendment clarifies that all of a subsidiary's assets and liabilities are classified as held for sale if a partial disposal sale plan results in loss of control. All cancellations. This amendment will not have a significant impact on the BPI Group’s financial statements. under which segment information is presented on the same basis as that used for internal reporting purposes. 2010. The amended standard deals with vesting conditions and cancellations. Operating Segments (effective January 1. 4 .• PAS 32 (Amendment). the change will also require management to reallocate goodwill to the newly identified operating segments. recognition and measurement. 2009). and (c) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. Business Combinations (effective July 1. As such these features would need to be included in the grant date fair value for transactions with employees and others providing similar services.Puttable Financial Instruments and Obligations Arising on Liquidation (effective from January 1. Non-current Assets Held for Sale and Discontinued Operations (and consequential amendment to PFRS 1. will change in a manner that is consistent with the internal reporting provided to the chief operating decision-maker. As goodwill is allocated to groups of cash-generating units based on segment level. or components of instruments that impose on the entity an obligation to deliver to another party a pro rata share of the net assets of the entity only on liquidation as equity. Presentation of Financial Statements . and relevant disclosure should be made for this subsidiary if the definition of a discontinued operation is met. these features would not impact the number of awards expected to vest or valuation thereof subsequent to grant date. (b) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase. 2009). • PFRS 3 (Revised). It also includes amendments that are terminology or editorial changes only which have either minimal or no effect on accounting. Share-based Payment (effective from January 1. Other features of a share-based payment are not vesting conditions. • PFRS 5 (Amendment). Management does not anticipate that this will result in any material impairment to the goodwill balance. • PFRS 8. This revision enhances the relevance.

Employee Benefits (effective from January 1. The BPI Group will apply this amendment to impairment tests related to investment in associates and any related impairment losses from January 1. 2009). 2009). respectively. 2009). Entities whose ordinary activities comprise renting and subsequently selling assets should present proceeds from the sale of those assets as revenue and should transfer the carrying amount of the asset to inventories when the asset becomes held for sale. A consequential amendment to PAS 7 states that cash flows arising from purchase. PAS 19 has been amended to be consistent with PAS 37. Property. 2009).• PAS 1 (Amendment). The amendment will not have an impact on the BPI Group’s operations as there are no interests held in joint ventures. Presentation of Financial Statements (effective from January 1. 5 . Provisions. 2009. respectively. distinction between short term and long term employee benefits and plan amendments that are considered curtailment. 2009. rental and sale of those assets are classified as cash flows from operating activities. • PAS 27. only certain rather than all disclosure requirements in PAS 31 need to be made in addition to disclosures required by PAS 32 and PFRS 7. for example. • PAS 36 (Amendment). Reversals of impairment are recorded as an adjustment to the investment balance to the extent that the recoverable amount of the associate increases. • PAS 28 (Amendment). 2009. The definition of borrowing costs has been amended so that interest expense is calculated using the effective interest method defined in PAS 39. Contingent Liabilities and Contingent assets. 2009). Where fair value less costs to sell is calculated on the basis of discounted cash flows. Where an investment in joint venture is accounted for in accordance with PAS 39. Impairment of Assets (effective from January 1. “Statement of Cash Flows”) (effective from January 1. This amendment is not expected to have a significant impact on the BPI Group. disclosures equivalent to those for value-in-use calculation should be made. Investments in Associates (and consequential amendments to PAS 32 and PFRS 7. An investment in associate is treated as a single asset for the purposes of impairment testing and any impairment loss is not allocated to specific assets included within the investment. Interests in Joint Ventures (and consequential amendments to PAS 32 and PFRS 7) (effective from January 1. This amendment is not expected to have an impact on the BPI Group’s financial statements. The amendment clarifies that some rather than all financial assets and liabilities classified as held for trading in accordance with PAS 39 are examples of current assets and liabilities. The BPI Group will apply this amendment and provide the required disclosure where applicable for impairment tests from January 1. goodwill. 2009). Plant and Equipment (and consequential amendment to PAS 7. This eliminates the inconsistency of terms between PAS 39 and PAS 23. 2009). • PAS 16 (Amendment). 2009). if any from January 1. The amendment will not have a significant impact on the BPI Group’s financial statements. The amendments include clarification on the definition of return on plan assets. Financial Instruments: Disclosures) (effective from January 1. • PAS 19 (Amendment). The BPI Group will apply this amendment prospectively to the capitalization of borrowing costs on qualifying assets. This amendment requires measurement of subsidiary held for sale that is accounted for under PAS 39 or at cost be measured under PFRS 5 and PAS 39. • PAS 31 (Amendment). Consolidated and Separate Financial Statements (effective from January 1. • PAS 23 (Amendment). Borrowing Costs (effective from January 1. Likewise.

such property is. Investments in associates in the consolidated financial statements are accounted for by the equity method of accounting and are initially recognized at cost. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. the property is measured at cost until the earlier of the date construction is completed and the date at which fair value becomes reliably measurable. • PAS 39 (Amendment). However. 2009). generally accompanying a shareholding of between 20% and 50% of the voting rights. The amendment will not have a significant impact on the BPI Group’s financial statements. 2009). Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the BPI Group controls another entity.2 Consolidation (a) Subsidiaries Subsidiaries are all entities over which the BPI Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights.• PAS 38 (Amendment). The accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the BPI Group. balances and unrealized gains on transactions between the BPI Group of companies are eliminated. This amendment clarifies that it is possible to have movements into and out of the fair value through profit or loss category where a derivative commences or ceases to qualify as a hedging instrument in cash flow or net investment hedge. This amendment will not have a significant impact on the BPI Group’s financial statements. equity instruments issued and liabilities incurred or assumed at the date of exchange. They are de-consolidated from the date on which control ceases. The purchase method of accounting is used to account for the acquisition of subsidiaries by the BPI Group. measured at fair value. Intangible Assets (effective from January 1. (b) Associates Associates are all entities over which the BPI Group has significant influence but not control. Property that is under construction or development for future use as investment property is within the scope of PAS 40. 2. The BPI Group’s investment in associates includes goodwill identified on acquisition (net of any accumulated impairment loss). (effective from January 1. Where the fair value model is applied. irrespective of the extent of any minority interest. plus costs directly attributable to the acquisition. The cost of an acquisition is measured as the fair value of the assets given. A prepayment may only be recognized in the event that payment has been made in advance for obtaining right of access to goods or receipt of services. The excess of the cost of acquisition over the fair value of the BPI Group’s share of the identifiable net assets acquired is recorded as goodwill. Intercompany transactions. • PAS 40 (Amendment). This amendment is not expected to have an impact on the BPI Group’s financial statements. Subsidiaries are fully consolidated from the date on which control is transferred to the BPI Group. Investment Property (and consequential amendments to PAS 16) (effective from January 1. where fair value of investment property under construction is not reliably measurable. 6 . 2009). therefore.

00 100. (BPI Family Bank) BPI Capital Corporation (BPI Capital) BPI Leasing Corporation (BPI Leasing) BPI Direct Savings Bank. The subsidiaries’ financial statements are prepared for the same reporting periods as the Parent Bank.67 50.00 100.4 Equity investments The financial statements include the consolidated financial statements of the BPI Group and the separate financial statements of the Parent Bank. When the BPI Group’s share of losses in an associate equals or exceeds its interest in the associate. Hong Kong (BPI IFL) BPI Europe Plc. 2.85 2. Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the BPI Group. and its share of post-acquisition movements in reserves is recognized in the statement of capital funds. 7 .00 Philippines Philippines 98. unless it has incurred obligations or made payments on behalf of the associate. and subsidiaries (ALAI) BPI/MS Insurance Corporation (BPI/MS) Country of incorporation Philippines Philippines Philippines Philippines Hong Kong England and Wales % of ownership 100. The percentages of effective ownership of BPI in major operating subsidiaries at December 31. A geographical segment is engaged in providing products or services within a particular economic environment that is subject to risks and returns that are different from those of segments operating in other economic environments. Unrealized gains on transactions between the BPI Group and its associates are eliminated to the extent of its interest in the associates. Inc.BPI’s share of its associates’ post-acquisition profits or losses is recognized in the statement of income. Equity investments in the Parent Bank’s separate financial statements which represent investments in subsidiaries and associates are accounted for at cost method in accordance with PAS 27.00 100. 2008 and 2007 are as follows: BPI Family Savings Bank.00 100. including any other unsecured receivables. The consolidated financial statements comprise the financial statements of the Parent Bank and its subsidiaries. (BPI Direct) BPI International Finance Limited.00 100.3 Segment reporting A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. income from investment is recognized in the statement of income only to the extent that the investor receives distributions from accumulated net income of the investee arising subsequent to the date of acquisition. (Note 16) Insurance companies: Ayala Life Assurance. Inc. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. it does not recognize further losses. Inc. Under the cost method.

Due from Bangko Sentral ng Pilipinas (clearing account). A financial asset is classified as held for trading if it is acquired or incurred principally for the purpose of selling or repurchasing in the near term or if it is part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit-taking.2.5 Cash and cash equivalents Cash and cash equivalents consist of Cash and other cash items. and those designated at fair value through profit or loss at inception. 2. Information about these financial assets is provided internally on a fair value basis to the BPI Group entity’s key management personnel. loans and receivables.6 Financial assets 2. Significant accounts falling under this category are Loans and advances. and available-for-sale securities. 8 . (a) Financial assets at fair value through profit or loss This category has two sub-categories: financial assets held for trading. Management determines the classification of its investments at initial recognition. (b) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and with no intention of trading. (c) Held-to-maturity securities Held-to-maturity securities are non-derivative financial assets with fixed or determinable payments and fixed maturities that the BPI Group’s management has the positive intention and ability to hold to maturity. Interbank loans receivable and securities purchased under agreements to resell (other than those classified as cash equivalents) and other receivables. and Interbank loans receivable and securities purchased under agreements to resell with maturities of less than three months from the date of acquisition and that are subject to insignificant risk of changes in value. held-to-maturity securities. Financial assets held for trading (other than derivatives) are shown as “Trading securities” in the statement of condition.6. Financial assets designated at fair value through profit or loss at inception are those that are managed and their performance is evaluated on a fair value basis. Due from BSP (liquidity and statutory reserve account) and other banks. Due from other banks.1 Classification The BPI Group classifies its financial assets in the following categories: financial assets at fair value through profit or loss. Derivatives are also categorized as held for trading unless they are designated as hedging instruments. the entire category would be reclassified as available-for-sale. in accordance with a documented BPI Group’s investment strategy. If the BPI Group were to sell other than an insignificant amount of held-to-maturity assets.

and no reversals of fair value gains or losses recorded before reclassification date are subsequently made. If there is no active market for a financial asset. Financial assets other than loans and receivables are permitted to be reclassified out of the held for trading category only in rare circumstances arising from a single event that is unusual and highly unlikely to recur in the near term. until the financial asset is derecognized or impaired at which time the cumulative gain or loss previously recognized in capital funds should be recognized in the statement of income. Effective interest rates for financial assets reclassified to loans and receivables and held-to-maturity categories are determined at the reclassification date. Loans are recognized when cash is advanced to the borrowers. discounted cash flow analysis. Financial assets are derecognized when the rights to receive cash flows from the financial assets have expired or where the BPI Group has transferred substantially all risks and rewards of ownership. the date on which the BPI Group commits to purchase or sell the asset. held-to-maturity securities and available-for-sale securities are recognized on trade-date. Available-for-sale securities and financial assets at fair value through profit or loss are subsequently carried at fair value. interest calculated on these securities using the effective interest method and foreign currency gains and losses on monetary assets classified as available-for-sale are recognized in the statement of income. Gains and losses arising from changes in the fair value of available-for-sale securities are recognized directly in the statement of capital funds. Further increases in estimates of cash flows adjust effective interest rates prospectively. option pricing models and other valuation techniques commonly used by market participants. the BPI Group establishes fair value by using valuation techniques.6.2 Financial asset reclassification The BPI Group may choose to reclassify a non-derivative trading financial asset out of the held for trading category if the financial asset is no longer held for the purpose of selling it in the near term. In addition.3 Recognition and measurement Regular-way purchases and sales of financial assets at fair value through profit or loss. 2. Dividends on equity instruments are recognized in the statement of income when the BPI Group’s right to receive payment is established. These include the use of recent arm’s length transactions. 9 . Loans and receivables and held-to-maturity securities are subsequently carried at amortized cost using the effective interest method. Fair value becomes the new cost or amortized cost as applicable. reference to other instruments that are substantially the same.6. Gains and losses arising from changes in the fair value of the financial assets at fair value through profit or loss are included in the statement of income in the year in which they arise. However.(d) Available-for-sale securities Available-for-sale securities are non-derivatives that are either designated in this category or not classified in any of the other categories. The fair values of quoted investments in active markets are based on current bid prices. Financial assets are initially recognized at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. the BPI Group may choose to reclassify financial assets that would meet the definition of loans and receivables out of the held-for-trading or available-for-sale categories if the BPI Group has the intention and ability to hold these financial assets for the foreseeable future or until maturity at the date of reclassification Reclassifications are made at fair value as of the reclassification date. 2.

it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. • Deterioration of the borrower’s competitive position. For the purposes of a collective evaluation of impairment. past-due status and other relevant factors). geographical location. The amount of impairment loss is measured as the difference between the financial asset’s carrying amount and the present value of estimated future cash flows discounted at the asset’s original effective interest rate (recoverable amount). Impairment loss is recognized in the statement of income and the carrying amount of the asset is reduced through the use of an allowance. industry. equity ratio. 10 .e. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.. • Cash flow difficulties experienced by the borrower (for example. financial assets are grouped on the basis of similar credit risk characteristics (i. Those characteristics are relevant to the estimation of future cash flows for groups of such assets by being indicative of the debtors’ ability to pay all amounts due according to the contractual terms of the assets being evaluated. and • Deterioration in the value of collateral. whether or not foreclosure is probable. on the basis of the BPI Group’s grading process that considers asset type.7 Impairment of financial assets (a) Assets carried at amortized cost The BPI Group assesses at each balance sheet date whether there is objective evidence that a financial asset or group of financial assets is impaired. • Initiation of bankruptcy proceedings. • Breach of loan covenants or conditions. net income percentage of sales). The calculation of recoverable amount of a collateralized financial asset reflects the cash flows that may result from foreclosure less costs of obtaining and selling the collateral. and collectively for financial assets that are not individually significant.2. The BPI Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant. collateral type. If the BPI Group determines that no objective evidence of impairment exists for an individually assessed financial asset. Financial assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognized are not included in a collective assessment of impairment. The criteria that the BPI Group uses to determine that there is objective evidence of an impairment loss include: • Delinquency in contractual payments of principal or interest. whether significant or not.

it is written off against the related provision for loan impairment. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect the period on which the historical loss experience is based and to remove the effects of conditions in the historical period that do not currently exist. the fair value of a debt instrument previously impaired increases and the increase can be objectively related to an event occurring after the impairment loss was recognized. the previously recognized impairment loss is reversed by adjusting the allowance account. 2. including recent market transactions. The cumulative loss (difference between the acquisition cost and the current fair value) is removed from capital funds and recognized in the statement of income when the asset is determined to be impaired. Reversal of impairment losses recognized previously on equity instruments is made directly to capital funds. and valuation techniques. a significant or prolonged decline in the fair value below cost is considered in determining whether the securities are impaired. 11 . 2. For an equity security classified as available-for-sale. If in a subsequent period.Future cash flows in a group of financial assets that are collectively evaluated for impairment are estimated on the basis of the contractual cash flows of the assets in the BPI Group and historical loss experience for assets with credit risk characteristics similar to those in the BPI Group. (b) Assets classified as available-for-sale The BPI Group assesses at each balance sheet date whether there is evidence that a debt security classified as available-for-sale is impaired. or realize the asset and settle the liability simultaneously. If in a subsequent period. the impairment loss is reversed through the statement of income.8 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. as appropriate. All derivatives are carried as assets when fair value is positive and as liabilities when fair value is negative. The amount of the reversal is recognized in the statement of income as a reduction of impairment losses for the year.9 Derivative financial instruments Derivatives are initially recognized at fair value on the date on which a derivative contract is entered into and are subsequently re-measured at their fair value. The methodology and assumptions used for estimating future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience. Such loans are written off after all the necessary procedures have been completed and the amount of the loss has been determined. When a loan is uncollectible. Fair values are obtained from quoted market prices in active markets. the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized (such as an improvement in the debtor’s credit rating). (c) Renegotiated loans Loans that are either subject to collective impairment assessment or individually significant and whose terms have been renegotiated are no longer considered to be past due but are treated as new loans. including discounted cash flow models and options pricing models.

The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. All bank premises. fixtures and equipment are stated at historical cost less accumulated depreciation.10 years) and the useful life of the related improvement. only when it is probable that future economic benefits associated with the item will flow to the BPI Group and the cost of the item can be measured reliably. Depreciation is calculated using the straight-line method to allocate cost or residual values over the estimated useful lives of the assets.11 Investment property Property that is held either to earn rental income or for capital appreciation or for both and that is not significantly occupied by the BPI Group is classified as investment property. The embedded derivatives are measured at fair value with changes in fair value recognized in the statement of income.Certain derivatives embedded in other financial instruments are treated as separate derivatives when their economic characteristics and risks are not closely related to those of the host contract and the host contract is not carried at fair value through profit or loss. furniture. as appropriate. 2. All other repairs and maintenance are charged to the statement of income during the year in which they are incurred. The assets’ residual values and useful lives are reviewed at each reporting date. Historical cost includes expenditure that is directly attributable to the acquisition of the items. fixtures and equipment Land and buildings comprise mainly of branches and offices. furniture. Gains and losses on disposals are determined by comparing proceeds with carrying amount and are recognized in the statement of income. 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 assessment of whether an embedded derivative is required to be separated from the host contract is done when the BPI Group first becomes a party to the contract. 12 . 2.10 Bank premises. Subsequent costs are included in the asset’s carrying amount or are recognized as a separate asset. Reassessment of embedded derivative is only done when there are changes in the contract that significantly modify the contractual cash flows. as follows: Building Furniture and equipment 25-50 years 3-5 years Leasehold improvements are depreciated over the shorter of the lease term (normally ranging from 5 . Major renovations are depreciated over the remaining useful life of the related asset.

Each cash-generating unit is represented by each primary reporting segment. Computer software is included in “Miscellaneous assets” under Other resources. Goodwill is allocated to cash-generating units for the purpose of impairment testing. furniture.12 Foreclosed assets 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. Separately recognized goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. and equipment. These costs are amortized on the basis of the expected useful lives (three to five years). Investment property is stated at cost less accumulated depreciation. which is the higher of the property’s fair value less costs to sell and value in use. 13 .13 Intangible assets (a) Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the BPI Group’s share in the net identifiable assets of the acquired subsidiary/associate at the date of acquisition. Foreclosed assets not classified as Assets held for sale are accounted for in any of the following classification using the measurement basis appropriate to the asset as follows: (a) Investment property is accounted for using the cost model under PAS 40. fixtures.Investment property comprises land and building. Impairment test is conducted when there is an indication that the carrying amount of the asset may not be recovered. and (c) Financial assets are classified as available-for-sale. Gains and losses on the disposal of a subsidiary/associate include carrying amount of goodwill relating to the subsidiary/associate sold. Depreciation on investment property is determined using the same policy as applied to Bank premises. The cost of assets foreclosed includes the carrying amount of the related loan less allowance for impairment at the time of foreclosure. Costs associated with developing or maintaining computer software programs are recognized as an expense as incurred. Impairment loss is recognized for any subsequent write-down of the asset to fair value less cost to sell. An impairment loss is recognized for the amount by which the property’s carrying amount exceeds its recoverable amount. (b) Computer software Acquired computer software licenses are capitalized on the basis of the costs incurred to acquire and bring to use the specific software. (b) Bank-occupied property is accounted for using the cost model under PAS 16. 2. Goodwill on acquisitions of subsidiaries is included in “Miscellaneous assets” under Other resources. Goodwill on acquisitions of associates is included in Equity investments. 2.

2. The financial statements are presented in Philippine Peso. which is the Parent Bank’s functional and presentation currency. Once a financial asset or a group of similar financial assets has been written down as a result of an impairment loss.16 Fee and commission income Fees and commissions are generally recognized on an accrual basis when the service has been provided. transaction costs and all other premiums or discounts.2. any difference between the proceeds. 2.15 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 method. Borrowings are subsequently stated at amortized cost. 14 . net of transaction costs incurred. When calculating the effective interest rate.14 Borrowings Borrowings are recognized initially at fair value. Related borrowing costs are recognized as expense in the year in which they are incurred. 2. usually on a time-proportionate basis. Portfolio and other management advisory and service fees are recognized based on the applicable service contracts. interest income is recognized using the rate of interest used to discount future cash flows for the purpose of measuring impairment loss. net of transaction costs and the redemption value is recognized in the statement of income over the period of the borrowings using the effective interest method.17 Dividend income Dividend income is recognized in the statement of income when the BPI Group’s right to receive payment is established. the BPI Group estimates cash flows considering all contractual terms of the financial instrument but does not consider future credit losses. 2.18 Foreign currency translation (a) Functional and presentation currency Items in the financial statements of each entity in the BPI Group are measured using the currency of the primary economic environment in which the entity operates (“the functional currency”). Asset management fees related to investment funds are recognized ratably over the period in which the service is provided. The calculation includes all fees paid or received between parties to the contract that are an integral part of the effective interest rate. being their issue proceeds.

19 Provisions Provisions are recognized when the BPI Group has a present legal or constructive obligation as a result of past events. it is more likely than not that an outflow of resources will be required to settle the obligation. (c) Foreign subsidiaries The results and financial position of BPI’s foreign subsidiaries (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows: (i) assets and liabilities are translated at the closing rate at reporting date. such exchange differences are recognized in the statement of income as part of the gain or loss on sale. in which case income and expenses are translated at the dates of the transactions). 15 . and other changes in carrying amount are recognized in capital funds. Provisions are not recognized for future operating losses. Changes in the fair value of monetary securities denominated in foreign currency classified as availablefor-sale are analyzed between translation differences resulting from changes in the amortized cost of the security. Translation differences are recognized in profit or loss. 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 assessment of the time value of money and the risk specific to the obligation. and (iii) all resulting exchange differences are recognized as a separate component (Translation adjustments) of capital funds.(b) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. (ii) income and expenses are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates. and other changes in the carrying amount of the security. and the amount has been reliably estimated. When a foreign operation is sold. 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. The increase in the provision due to the passage of time is recognized as interest expense. 2.

2009. carry-forward of unused tax losses (net operating loss carryover or NOLCO) and unused tax credits (excess minimum corporate income tax or MCIT) to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized. The more salient provisions of the Act included: 1) change in normal corporate income tax from 32% to 35% effective November 1.2. on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. which was passed into law in May 2005. The BPI Group has a defined benefit plan that shares risks among entities within the group.20 Income taxes (a) Deferred income tax Deferred income tax is provided in full. years of service and compensation. The BPI Group has substantial income from its investment in government securities subject to final withholding tax. 2005 and 30% effective January 1. that at the time of the transaction affects neither accounting nor taxable profit or loss. 16 . The deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction. 2) change in allowable deduction for interest expense from 38% to 42% effective November 1. (b) Recent tax laws Republic Act 9337 (the Act). 2008. The regulation prescribed the rules for the OSD application by corporations in the computation of their final taxable income. using the liability method. amended certain provisions of the National Internal Revenue Code of 1997. Revenue Regulations No. 2009. On December 20. Such income is presented at its gross amount and the tax paid or withheld is included in Current provision for income tax. The BPI Group did not avail of the OSD for purposes of income tax calculation in 2008. The schemes are funded through payments to trusteeadministered funds. determined by periodic actuarial calculations. 2005 and 33% beginning January 1. A defined benefit plan is a pension plan that defines an amount of pension benefit that an employee will receive on retirement. and 3) revised rates for gross receipts tax (GRT). 16-2008 on the Optional Standard Deduction (OSD) was published. Deferred income tax assets are recognized for all deductible temporary differences. usually dependent on one or more factors such as age. other than a business combination. The BPI Group reassesses at each balance sheet date the need to recognize a previously unrecognized deferred income tax asset. 2. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by 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.21 Employee benefits (a) Pension obligations The BPI Group operates various pension schemes.

Cumulative actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions in excess of the greater of 10% of the value of plan assets or 10% of the defined benefit obligation are spread to income over the employees’ expected average remaining working lives. are credited to capital stock (par value) and paid-in surplus for the excess of exercise price over par value.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 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. Diluted EPS is computed in the same manner as basic EPS.22 Capital stock Common shares are classified as capital stock. on a discretionary basis. Past-service costs are recognized immediately in income. When the stock options are exercised. 2. and their fair value is recognized as an employee benefits expense with a corresponding increase in reserve equity over the vesting period. 17 . The options are subject to certain service vesting condition. (b) Share-based compensation The BPI Group’s management awards high-performing employees bonuses in the form of stock options. the past-service costs are amortized on a straight-line basis over the vesting period. Where the calculation results in a benefit to the BPI Group. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. net income attributable to common shares and the weighted average number of shares outstanding are adjusted for the effects of all dilutive potential common shares. together with adjustments for unrecognized actuarial gains or losses and past service costs. the unified plan assets are allocated among the BPI Group entities 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. For individual financial reporting purposes. the recognized asset is limited to the net total of any unrecognized actuarial losses and past service costs. 2. In this case. and the present value of any reductions in future contributions to the plan. however. unless the changes to the pension plan are conditional on the employees remaining in service for a specified period of time (the vesting period). the proceeds received. and that have terms to maturity approximating the terms of the related pension liability. net of tax. net of any directly attributable transaction costs. from time to time. Incremental costs directly attributable to the issue of new shares or options are shown in capital funds as a deduction from the proceeds.23 Earnings per share (EPS) Basic EPS is calculated by dividing income applicable to common shares by the weighted average number of common shares outstanding during the year with retroactive adjustments for stock dividends.

(ii) Finance lease . Rental income under operating leases is recognized in the statement of income on a straight-line basis over the period of the lease. the lessor.properties (land and building) leased out under operating leases are included in Investment property in the statement of condition.when assets are leased out under a finance lease. 2.24 Dividends on common shares Dividends on common shares are recognized as a liability in the BPI Group’s financial statements in the year in which they are approved by the Board of Directors and the Bangko Sentral. 2. Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the finance balance outstanding. the present value of the lease payments is recognized as a receivable.leases of assets where the BPI Group has substantially all the risks and rewards of ownership are classified as finance leases. including prepayments. which reflects a constant periodic rate of return. trusts. The interest element of the finance cost is charged to 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. Payments. retirement benefit plans and other institutions. Lease income under finance lease is recognized over the term of the lease using the net investment method before tax. (ii) Finance lease . The difference between the gross receivable and the present value of the receivable is recognized as unearned income. (b) BPI Group is the lessor (i) Operating lease . These assets and income arising thereon are excluded from these financial statements.26 Leases (a) BPI Group is the lessee (i) Operating lease . are classified as operating leases.leases in which substantially all risks and rewards of ownership are retained by another party. as they are not assets of the BPI Group (Note 30).2.25 Fiduciary activities The BPI Group commonly acts as trustees and in other fiduciary capacities that result in the holding or placing of assets on behalf of individuals. 18 . made under operating leases (net of any incentives received from the lessor) are charged to the statement of income on a straight-line basis over the period of the lease. Finance leases are capitalized at the commencement of the lease at the lower of the fair value of the leased property and the present value of the minimum lease payments.

and (e) financial assets and liabilities are measured following the classification and valuation provisions of PAS 39. Investment contracts are those contracts that transfer financial risk with no significant insurance risk. and policy administration expenses as well as investment income backing up such liabilities. the life insurance subsidiary defines as significant insurance risk the possibility of having to pay benefits on the occurrence of an insured event that are at least 10% more than the benefits payable if the insured event did not occur. (c) a liability adequacy test is performed which compares the subsidiary’s reported insurance contract liabilities against current best estimates of all contractual future cash flows and claims handling. 19 . (b) Non-life insurance The more significant accounting policies observed by the non-life insurance subsidiary follow: (a) premiums from short duration insurance contracts are recognized as revenue over the period of the contracts using the 24th method. the computation of related assumptions is validated by a qualified actuary of the subsidiary. 2007. with any deficiency immediately charged to income. As allowed by the SEC. The increase or decrease in pre-need reserves during the year is charged or credited to income. Such contracts may also transfer financial risk.2. (c) financial assets and liabilities are measured following the classification and valuation provisions of PAS 39 (d) a liability adequacy test is performed which compares the subsidiary’s reported insurance contract liabilities against current best estimates of all contractual future cash flows and claims handling. (b) acquisition costs are deferred and charged to expense in proportion to the premium revenue recognized. The more significant of the accounting principles of the life insurance subsidiary follow: (a) premiums are recognized as revenue when received instead of over the life of the policy. and (d) insurance premium reserves which represent the amount that must be set aside by the pre-need subsidiary to pay for premiums for insurance coverage of fully paid planholders. with an allowance for estimated uncollectible amounts. (c) pre-need reserves is set up for all pre-need benefits guaranteed and payable by the pre-need company as defined in the pre-need plan contract. the SEC issued a notice revising the requirements on the reserving and recognition of actuarial liability of pre-need companies effective January 1. 2007. (d) amounts recoverable from reinsurers and loss adjustment expenses are classified as assets. (b) commissions relating to the sale of pre-need plans are expensed as incurred. (c) Pre-need The more significant provisions of the PNUCA as applied by the pre-need subsidiary follow: (a) income from the sale of pre-need pension and education plans is recognized as earned when collected. subject to the same amortization method as the related acquisition costs. are actuarially computed based on standards and guidelines set forth by the SEC. (b) policy acquisition costs are charged to current operations as incurred rather than amortized over the premium-paying periods of the policies. reinsurance commissions are deferred and deducted from the applicable deferred acquisition costs.27 Insurance operations (a) Life insurance The BPI’s life insurance subsidiary issues contracts that transfer insurance risk or financial risk or both. the additional pre-need reserves amounting to P254 million calculated by the pre-need subsidiary following the revised guidelines of the SEC were recognized against the surplus balance as of January 1. with any deficiency immediately charged to income. Insurance contracts are those contracts that transfer significant insurance risk. 2007. As a general guideline. On April 2. and policy administration expenses as well as investment income backing up such liabilities.

The reclassifications include amounts due from BSP of P37. and reports are regularly provided to the Board of Directors. among others. The BPI Group’s risk management policies are designed to identify and analyze these risks. The BPI Group regularly reviews its risk management policies and systems to reflect changes in markets.152 million (2006 . Market risk includes currency risk. and the operational risks are an inevitable consequence of being in business. In addition. or in the prospects of a particular industry segment that may represent a concentration in the BPI Group’s portfolio. The Risk Management Office (RMO) and the Finance and Risk Management Committee (FRMC) are responsible for the management of market and liquidity risks. debt securities and other bills. Their objective is to minimize adverse impacts on the BPI Group’s financial performance due to the unpredictability of financial markets.257 million (2006 . as well as written policies covering specific areas. liquidity risk and use of derivative and non-derivative financial instruments. Credit exposures arise principally in loans and advances. Significant changes in the economy. Management therefore carefully manages its exposure to credit risk. such as foreign exchange risk. The Board of Directors provides written principles for overall risk management. The BPI Group’s aim is therefore to achieve an appropriate balance between risk and return and minimize potential adverse effects on the BPI Group’s financial performance. Note 3 . 3. to set appropriate risk limits and controls. market risk and other operational risk.28 Reclassification Certain amounts in the 2007 and 2006 financial statements and supporting note disclosures have been reclassified to conform to the current year’s presentation.761 million) and P28. There is also credit risk in off-balance sheet financial arrangements.1 Credit risk The BPI Group takes on exposure to credit risk. products and emerging best practices. The Credit Policy Group works with the Credit Committee in managing credit risk.P22. which resulted to a better presentation of accounts.Financial Risk Management The BPI Group’s activities expose it to a variety of financial risks and those activities involve the analysis. The most important risks that the BPI Group manages are credit risk. did not have any impact on the net income or surplus reported in 2007 and 2006. liquidity risk. respectively. and to monitor the risks and adherence to limits by means of reliable and up-to-date information systems.794 million) which were not reflected as Cash equivalents in the 2007 and 2006 consolidated and parent statements of cash flows. which is the risk that a counterparty will cause a financial loss to the BPI Group by failing to discharge an obligation.2. acceptance and management of some degree of risk or combination of risks. Market and credit risks management is carried out through policies approved by the Risk Management Committee (RMC)/Executive Committee/Board of Directors. evaluation. Taking risk is core to the financial business. could result in losses that are different from those provided for at the reporting date. interest rate and other price risks. Internal Audit is responsible for the independent review of risk assessment measures and procedures and the control environment. credit risk.P32. 20 . The above reclassifications however. interest rate risk.

economic or political nature.these are loans which appear to involve a substantial degree of risk to the BPI Group because of unfavorable record or unsatisfactory characteristics. external ratings such as Standard & Poor’s. The BPI Group assesses the probability of default of individual counterparties using internal rating tools tailored to the various categories of counterparty. the BPI Group considers three components: (i) the probability of default by the client or counterparty on its contractual obligations.1.these are loans which have the weaknesses similar to those of the Substandard classification with added characteristics that existing facts. conditions.these are loans which are considered uncollectible and of such little value that their continuance as bankable assets is not warranted although the loans may have some recovery or salvage value. may affect the repayment of the loan and thus increase the credit risk of the BPI Group. exposures migrate between classes as the assessment of their probabilities of default changes. 21 . • Doubtful . and (iii) the likely recovery ratio on the defaulted obligations. These potential weaknesses. The rating tools are reviewed and upgraded as necessary.3. maintain a readily available source to meet funding requirements. managerial. if any. • Unclassified . these are loans with welldefined weaknesses which may include adverse trends or development of a financial. Clients of the BPI Group are segmented based on their internal ratings and are mapped to the following standard BSP classifications. Moody’s and Fitch’s ratings or their equivalent are used by the BPI Group for managing credit risk exposures. The counterparty has the ability to satisfy the obligation in full and therefore minimal loss. if left uncorrected. (b) Debt securities and other bills For debt securities and other bills.these are loans that have potential weaknesses that deserve management’s close attention.these are loans that do not have a greater-than-normal risk and do not possess the characteristics of loans classified below. The BPI Group regularly validates the performance of the rating and their predictive power with regard to default events. (ii) current exposures to the counterparty and its likely future development. and values make collection or liquidation in full highly improbable and substantial loss is probable. In the BPI Group’s rating scale.1 Credit risk management (a) Loans and advances In measuring credit risk of loans and advances at a counterparty level. • Substandard . or a significant deterioration in collateral. • Loans especially mentioned . Investments in these securities and bills are viewed as a way to gain better credit quality mix and at the same time. • Loss . is anticipated. Further.

limits and controls concentrations of credit risk wherever they are identified − in particular. and equities. foreign exchange currencies. (b) Derivatives The BPI Group maintains strict control limits on net open derivative positions (ie. (a) Collateral One of the most traditional and common practice in mitigating credit risk is requiring security particularly for loans and advances. Exposure to credit risk is also managed through regular analysis of the ability of existing and potential borrowers to meet interest and capital repayment obligations and by changing these lending limits where appropriate.3. Daily settlement limits are established for each counterparty to cover the aggregate of all settlement risk arising from the BPI Group’s market transactions on any single day. or equities is made in the expectation of a corresponding receipt in cash. The principal collateral types for loans and advances are: • Mortgages over real estate properties and chattels.and off-balance sheet exposures. the BPI Group seeks additional collateral from the counterparty when impairment indicators are observed for the relevant individual loans and advances. 22 . to individual counterparties and groups.2 Risk limit control and mitigation policies The BPI Group manages. Settlement risk arises in any situation where a payment in cash. to industries and sovereigns. Actual exposures against limits are monitored regularly. The BPI Group employs a range of policies and practices to mitigate credit risk. In order to minimize credit loss. Some of these specific control and mitigation measures are outlined below. The BPI Group structures the levels of credit risk it undertakes by placing limits on the amount of risk accepted in relation to one borrower. Such risks are monitored on a regular basis and subject to an annual or more frequent review. when considered necessary. and • Hold-out on financial instruments such as debt securities deposits. foreign exchange currencies. securities. Collateral or other security is not usually obtained for credit risk exposures on these instruments (except where the BPI Group requires margin deposits from counterparties). or notional values used to express the volume of instruments outstanding. by both amount and term. and to geographical and industry segments. Limits on large exposures and credit concentration are approved by the Board of Directors. or groups of borrowers.1. The exposure to any one borrower is further restricted by sub-limits covering on. together with potential exposures from market movements. or equities. which in relation to derivatives is only a small fraction of the contract. The introduction of the delivery versus payment facility in the local market has brought down settlement risk significantly. securities. This credit risk exposure is managed as part of the overall lending limits with customers. the amount subject to credit risk is limited to the net current fair value of instruments resulting in a net receivable amount for the BPI Group. At any one time. The BPI Group implements guidelines on the acceptability of specific classes of collateral for credit risk mitigation. the difference between purchase and sale contracts).

or letters of credit. Standby letters of credit carry the same credit risk as loans. 3. With respect to credit risk on commitments to extend credit. Commitments to extend credit represent unused portions of authorizations to extend credit in the form of loans. Documentary and commercial letters of credit which are written undertakings by the BPI Group on behalf of a customer authorizing a third party to draw drafts on the BPI Group up to a stipulated amount under specific terms and conditions . as most commitments to extend credit are contingent upon customers maintaining specific credit standards. all amounts with the counterparty are terminated and settled on a net basis. the BPI Group is potentially exposed to loss in an amount equal to the total unused commitments. However.(c) Master netting arrangements The BPI Group further restricts its exposure to credit losses by entering into master netting arrangements with counterparties with which it undertakes a significant volume of transactions. as it is affected by each transaction subject to the arrangement. the credit risk associated with favorable contracts (asset position) is reduced by a master netting arrangement to the extent that if a default occurs. however. as transactions are usually settled on a gross basis.are collateralized by the underlying shipments of goods to which they relate and therefore carry less risk than a direct loan.1. are recognized for financial reporting purposes only for losses that have been incurred at the reporting date based on objective evidence of impairment (Note 2. The BPI Group monitors the term to maturity of credit commitments because longer-term commitments generally have a greater degree of credit risk than shorterterm commitments.3 Impairment and provisioning policies As described in Note 3.1. The BPI Group’s overall exposure to credit risk on derivative instruments subject to master netting arrangements can change substantially within a short period. (d) Credit-related commitments The primary purpose of these instruments is to ensure that funds are available to a customer as required. Impairment provisions.7). the BPI Group’s credit-quality mapping on loans and advances is based on the standard BSP loan classifications. Master netting arrangements do not generally result in an offset of balance sheet assets and liabilities.1. 23 . However. the likely amount of loss is less than the total unused commitments.

13 0.04 91.38 0.00 100.62 1.80 15.01 69.98 1.35 0.33 100.10 100.00 Loans and advances (%) 93.27 1.09 4.25 62.93 61.97 13.50 12.41 2.18 2.20 1.62 2.50 100.74 11.00 100.03 1.83 100.00 2007 Allowance for impairment (%) 0.11 3.76 1.The table below shows the percentage of the BPI Group’s loans and advances and the related allowance for impairment.00 Parent Unclassified Loans especially mentioned Substandard Doubtful Loss Loans and advances (%) 94.00 24 2008 Allowance for impairment (%) 0.09 1.40 1.20 88.17 95.59 5.00 3.89 .29 67.34 1.93 0. Unclassified Loans especially mentioned Substandard Doubtful Loss Consolidated 2007 2008 Loans and Allowance for Loans and Allowance for advances (%) impairment (%) advances (%) impairment (%) 94.17 0.99 0.

and • The BPI Group has introduced a more stringent selection process of granting loans and advances. • Mortgage loans are backed by collateral. net 22.694 1.622 P 220.017 52.3.278 8. 25 .757 45.114 Due from BSP Due from other banks Interbank loans receivable and securities purchased under agreements to resell (SPAR) Derivative financial assets Trading securities .216 4.046 2.107 P 48.428 6.584 2.238 7.182 34.772 3.091 P 213.121 7.Available-for-sale-debt securities .362 7.916 979 Undrawn loan commitments Bills for collection Unused letters of credit Others The above table represents the maximum credit risk exposure of the BPI Group at December 31.077 3.313 12.91%).182 32. without taking into account any collateral held or other credit enhancements.107 2.737 7.878 P 62.756 5.980 21. the exposures set out above are based on net carrying amounts as reported in the statement of condition.431 81.427 P 223.196 240.168 Credit risk exposures relating to off-balance sheet items are as follows: Consolidated Parent 2007 2007 2008 2008 (In Millions of Pesos) P 230.969 1.532 63.143 12.318 31.Held-to-maturity.845 14. net Other resources.123 8.946 6. 2008 and 2007.381 101.568 50. • 95% of the loans and advances portfolio is considered to be neither past due nor impaired (2007 .debt securities Investment securities .555 207.4 Maximum exposure to credit risk before collateral held or other credit enhancements Credit risk exposures relating to significant on-balance sheet financial assets are as follows: Consolidated Parent 2007 2007 2008 2008 (In Millions of Pesos) P 72.435 4.432 273.681 3.194 72.571 62.1.339 6. For on-balance-sheet assets. net Loans and advances.161 3.884 320.999 29.123 7.422 P 41. Management is confident in its ability to continue to control and sustain minimal exposure to credit risk of the BPI Group resulting from its loan and advances portfolio based on the following: • 96% of the loans and advances portfolio is categorized in the top two classifications of the internal rating system in 2008 and 2007.

352 P 196. where appropriate or necessary.1.P805 million) represents the portfolio provision.305) (7.543 6.866) P 273.740 327.354 280.120 8.5 Loans and advances Loans and advances are summarized as follows: Consolidated Parent 2007 2007 2008 2008 (In Millions of Pesos) P 256. During the year ended December 31. the BPI Group’s total loans and advances increased by 17% as a result of the expansion of the lending business. The total consolidated impairment provision for loans and advances is P1.374 212.3.P1.5c) and collectively assessed for impairment.618) (5.163 million) of which P582 million (2007 .719 2.756 P207.517) (5. Further information of the impairment allowance for loans and advances is provided in Note 13.P358 million) represents provision for individually impaired loans and the remaining amount of P663 million (2007 .244 12.547 (6. 26 .388 841 15.1. the BPI Group focuses on corporate accounts and retail customers with good credit rating and customers providing sufficient collateral.101 P 233. 2008.070 P 310. When entering into new markets or new industries. The increase in impaired category in 2008 is due to large secured corporate accounts whose expected recoverable amounts from the foreclosure of the underlying collateral fell below the carrying amounts of the loans.761 9.681 Neither past due nor impaired Past due but not impaired Impaired Allowance for impairment Impaired category as shown in the table above includes loan accounts which are individually (Note 3.216 P 240.901 15.245 million (2007 .733 246.435 P 320.

066 P 171.582 P 196. Consolidated 2007 2008 Large Small and Large Small and corpora medium Retail corpora medium Retail te te enterprises customer Total enterprise customer custom s custom s s ers ers (In Millions of Pesos) Past due up to 30 days Past due 31 . Collateralized past due loans are not considered impaired when the cash flows that may result from foreclosure of the related collateral are higher than the carrying amount of the loans.254 9.517 12.277 14. Details of these accounts follow: Consolidated Parent 2007 2008 2008 (In Millions of Pesos) Corporate entities: Large corporate customers Small and medium enterprises Retail customers: Mortgages Credit cards Others 2007 P 215.580 69 P 310.(a) Loans and advances neither past due nor impaired Loans and advances that were neither past due nor impaired consist mainly of accounts with Unclassified rating and those loans accounts in a portfolio to which an impairment has been allocated on a collective basis until the loss can be specifically identified with the individual loan account.382 P 780 P 8.083 691 115 499 P P 2.087 Fair value of collateral P 1.898 26.169 9.641 P 178.120 (b) Loans and advances past due but not impaired The table below presents the gross amount of loans and advances that were past due but not impaired and classified by type of borrowers.070 751 12.091 .580 57 P 233.462 29.084 27 963 899 180 3.950 342 4.682 P 193.180 days Over 180 days P 56 96 15 127 P 294 P 410 299 70 228 P 1.101 38.339 P Total 479 756 162 985 P 485 295 - P 1.582 90 P 256.927 1.90 days Past due 91 .007 P 617 296 30 144 P 1.352 1.543 P 10.388 P 5.381 P 3.324 P 2.092 20.294 61.

710 P 5. a large corporate account amounting to P69 million was renegotiated (2007 .035 2.451 P 1.Parent Past due up to 30 days Past due 31 .449 163 3.488 Fair value of collateral Total P 1.158 P 11.720 P 1.nil).030 P 13.719 P 7. are as follows: Consolidated Parent 2007 2008 2008 (In Millions of Pesos) Corporate entities: Large corporate customers Small and medium enterprises Retail customers: Mortgages Credit cards Fair value of collateral P 7.043 3.263 P 7.030 P 11.044 4.422 3 739 P 8.819 P 6.288 1.326 14 1. along with the fair value of related collateral held by the BPI Group as security.779 (d) Loans and advances renegotiated/restructured In 2008.052 767 127 P P P 542 P 780 P 841 269 P 30 4.90 days Past due 91 .026 (c) Loans and advances individually impaired The breakdown of the gross amount of individually impaired loans and advances (included in Impaired category) by class.456 P 8.180 days Over 180 days 2007 2008 Large Small and Large Small and corpora medium Retail corpora medium Retail te te enterprisesCustomer Total enterprise Customer custom s custom s s ers ers (In Millions of Pesos) P P P 353 P 485 55 P 6 638 P 165 P 414 96 668 486 189 295 285 15 93 70 15 103 24 3.221 419 739 P 9.797 P 10. 28 2007 .757 P 7.943 2.072 460 1.624 P 6.

166 A.to AA+ 338 414 1.7 P 3.757 P 134.017 P 162.115 AA. 2008 Consolidated Parent Trading Held-to- Available- Trading Held-to- Available- securities maturity for-sale securities maturity for-sale Total Total (In Millions of Pesos) AAA P 21.030 4.921 36.738 739 666 1.627 95.194 P 169.712 P 11.to A+ 700 11 - 4. Foreclosed collaterals include real estate (land.571 P 45. the BPI Group acquired assets by taking possession of collaterals held as security for loans and advances with carrying amount of P1.190 56.563 P 23. The related foreclosed collaterals have aggregate fair value of P1. building.196 P 50. treasury bills and other government securities The table below presents the ratings of debt securities. 2008 and 2007 based on Standard & Poor’s: At December 31. treasury bills and other government securities at December 31.549 711 700 - - 68. auto or chattel.118 P 1.673 69 21 2.532 P 146.138 P 21.896 2.983 476 561 - - 476 476 37.to A+ 85 Lower than A- 12.311 million (2007 .132 2.884 P 62.563 P 30.1.P1.733 P 8.to AA+ A.056 P 52.999 P 63.491 AA.297 P 34.771 million (2007 .413 2 388 666 1.918 215 414 920 1.318 P 72.868 105.432 P 101.133 million).135 2.489 11.308 P 41.245 120.262 60.1.118 P 1.544 P 35.429 P 7.026 P 33.6 Debt securities.727 At December 31.980 Lower than AUnrated 3.985 32.733 P 8. 2007 Consolidated Parent Trading Held-to- Available- Trading Held-to- Available- securities maturity for-sale securities maturity for-sale Total Total (In Millions of Pesos) AAA P 3.195 P 42.883 Repossessed or foreclosed collaterals In 2008.571 Unrated 70.712 P 18. bond and stocks.030 4.555 P 81. Repossessed properties are sold as soon as practicable and are classified as “Assets held for sale” in the statement of condition.225 144 21 2.3. and improvements).983 475 478 4.990 115.201 42.P1.705 8 P 8.720 million).856 475 478 4.396 P 32.840 1. 29 700 .

net At December 31 2008 P 117.8 Concentrations of risks of financial assets with credit risk exposure The BPI Group’s main credit exposure at their carrying amounts.1.821 P 62.037 29.418 72.106 - 31 - 45 - 2.386 - 72.3.647) P 556.318 6.592 80. net Other resources.893 123.695 P (7.728 - 62.194 498 - - - 72.029 P 29. as categorized by industry sectors follow: Consolidated Financial institutions Consumer Manufacturing Real estate Others Less – allowance Total (In Millions of Pesos) Due from BSP - P 48.030 P 250.335 - - 32.769 - 697 - 54.debt securities 1.182 Trading securities .407 (1.592 P 81.216 - - - - 5.584 - - - - - 22.Held-to-maturity Loans and advances.459 2007 P 133.495 30 .767 P 49.278 Interbank loans receivable and SPAR 22.543) P 581.Available-for-sale .422 14.381 1 - P Investment securities .422 Due from other banks P 48.793 (7.debt securities .829 P 67.884 21.341 P (8.146 P 72.982 - 34.584 Derivative financial assets 2.026) 4.278 P - - P - - P - - P - - 14.894 P 289.517) 320.

387 (5.769 - 697 - 43. Market risk is managed by the FRMC guided by policies and procedures approved by the RMC and confirmed by the Executive Committee/Board of Directors. As such. As part of the management of market risk.866) 240.681 - - - - 4.114 Interbank loans receivable and SPAR 21. net Other resources.106 - 31 - 45 - 2. Loans and advances under the same category pertain to loans granted to individual and retail borrowers belonging to various industry sectors. the BPI Group computes the statistical “value at risk” (VAR) of its trading and non-trading portfolios.281 P (6.216 15.049 P 79.421 (990) 3.the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices.300) P 442.2 Market risk management The BPI Group is exposed to market risk -. The BPI Group reviews and controls market risk exposures of both its trading and non-trading portfolios.504 105.391 27.119 P 27. 31 . 3.856) P 463.107 - - - - - 21.664 - 32. there remains 1% statistical probability that portfolios’ actual loss could be greater than the VAR estimate.428 Consumer Manufacturing Real estate P P - P - - Others P - Less allowance P Total - P 41.573 P 15.008 P 62. the BPI Group undertakes various hedging strategies.532 63.182 1. Likewise.772 Trading and investment securities under “Others” category include local and US treasury bills.Parent Financial institutions Due from BSP P 41. Trading portfolios include those positions arising from the BPI Group’s market-making transactions.723 P (6.debt securities Investment securities .999 - - Trading securities .049 78. at 99% degree of confidence.107 Derivative financial assets 2. net 50. Nontrading portfolios primarily arise from the interest rate management of the BPI Group’s retail and commercial banking assets and liabilities. The BPI Group also enters into interest rate swaps to match the interest rate risk associated with fixed-rate long-term debt securities.957 P 18.335 - - - 31.Available-for-sale .670 P 113.114 - - - - - 8.431 Loans and advances.Held-to-maturity 498 - - - 62.698 - 20. The VAR measurement estimate.428 Due from other banks 8.504 P 247. To estimate its exposure to market risk.debt securities 6.196 At December 31 2008 2007 P 101.139 P 34. is the maximum loss due to adverse market movements that could be incurred by portfolios over assumed holding periods.066 - .195 P 220.

346 Parent 2007 2008 (In Millions of Pesos) P 822 P 830 165 196 126 45 29 13 12 P 1. 3. categorized by currency. Results of stress tests are reviewed by senior management and by the RMC. The Board of Director sets limits on the level of exposure by currency and in aggregate for both overnight and intra-day positions.The average daily VAR follows: Consolidated 2008 Local fixed-income Foreign fixed-income Equity securities Derivatives Foreign exchange P 969 210 124 29 14 P 1. 32 . Included in the table are the BPI Group’s financial instruments at carrying amounts. Stress tests indicate the potential losses that could arise in extreme conditions. VAR limits for all trading portfolios are set by the RMC. 2008 and 2007.171 P 1. Actual market risk exposures vis-à-vis market risk limits are reported daily to the FRMC. Price risk and liquidity risk stress tests are conducted quarterly aside from the historical tests of the VAR models. Concluded tests indicate that BPI will be able to hurdle both stress scenarios.2. The table below summarizes the BPI Group’s exposure to foreign currency exchange rate risk at December 31.067 2007 P 607 161 45 12 P 825 VAR is an integral part of the BPI Group’s market risk control system.1 Foreign exchange risk The BPI Group takes on exposure to the effects of fluctuations in the prevailing exchange rates on its foreign currency financial position and cash flows. which are monitored daily.

097 265 277 781 108.468 27.674 5.767 P 2.926 P 17.Consolidated USD As at December 31.606 7.421 13.117 51 - 271 - - 107.089 1.245 376 29 28 1.133 114.806 P 240 P P 1.190 13.110 93.470 1.debt securities Investment securities .936 1.647 2 - 2.762 P (233) P 20.488 Less allowance P - Total P 1.351 12 18 301 - 328 1.debt securities .Available-for-sale .777 193 111.748 (275) (1) (276) 30.225 2.449 .329 232 119.Held-to-maturity Loans and advances.710 3.692 1.393 399 63 11 3. net Other resources.735 1 3. 2007 Total financial assets Total financial liabilities Net on-balance sheet financial position P JPY 1.657 1.024 262 P (233) - P 117.683 1.750 10.796 1.307 P 33 732 3 - 12.057 10 409 4 - 21.593 P 2.734 1 189 2.657 3.839 38 145 2.632 P (276) P P 111.949 P 250 P 894 P 1.813 - 21. 2008 Financial Assets Cash and other cash items Due from other banks Interbank loans receivable and SPAR Derivative financial assets Trading securities .833 1.304 P 1.603 P EUR GBP (In Millions of Pesos) 75 211 P 60 906 P 9 1.233 96.748 - - - 28.097 265 2.069 25. net Total financial assets Financial Liabilities Deposit liabilities Derivative financial liabilities Bills payable Due to BSP and other banks Manager’s checks and demand drafts outstanding Other liabilities Total financial liabilities Net on-balance sheet financial position As at December 31.208 11.933 102.499 1.

637 P 2.577 7.Held-to-maturity Loans and advances.088 1.974 P 17.933 3.965 34 432 96 (275) (1) (276) 22.762 P 75 210 EUR GBP (In Millions of Pesos) P 51 690 P 8 45 Less allowance P Total - P 1.646 P 262 166 P (233) - P 106.708 25.443 6.230 12 217 - 308 994 104.282 1.748 - - - - 21.534 1.876 1.939 88.861 P 2.710 3.575 1 189 2.543 12.089 P 249 P 795 P 215 P (276) P P 102.101 51 - 205 - - 98.936 1.debt securities Investment securities .097 265 2.647 2 - 2.227 P 239 P 636 P P (233) P 17.806 21.057 10 409 4 3 - 12.470 1. 2007 Total financial assets Total financial liabilities Net on-balance sheet financial position USD JPY P 1.735 1 3. net Total financial assets Financial Liabilities Deposit liabilities Derivative financial liabilities Bills payable Due to BSP and other banks Manager’s checks and demand drafts outstanding Other liabilities Total financial liabilities Net on-balance sheet financial position As at December 31.487 1.debt securities .789 1.Parent As at December 31.Available-for-sale .839 38 40 2.707 11.300 209 107.025 376 - 93.097 265 257 765 99.664 1.525 P 1.393 399 63 16 3.072 .777 193 101.107 27. net Other resources.774 11.748 20. 2008 Financial Assets Cash and other cash items Due from other banks Interbank loans receivable and SPAR Derivative financial assets Trading securities .752 85.657 3.

727 - 30.248 .381 Derivative financial assets Trading securities .191 10.211 P 19.723 2. Fair value interest rate risk is the risk that the value of a financial instrument will fluctuate because of changes in market interest rates. net Other resources.884 71.964 196. which is monitored daily by the FRMC.Available-for-sale .Held-to-maturity Loans and advances.251 320.459 261.216 4.547 Bills payable - - 2.348 581.318 - - 59. The Board of Directors sets limits on the level of mismatch of interest rate repricing that may be undertaken.598 92.496 1.278 Interbank loans receivable and SPAR - - - 22.496 540.531 327.727 30.528 Total financial liabilities Total interest gap 988 - P (62.000 5. Interest margins may increase as a result of such changes but may also result in losses in the event that unexpected movements arise.278 14.853 21.000 Other liabilities - - - 16. 2008 Financial Assets Due from BSP P - P - P - P 48.194 - - 72.723 Unsecured subordinated debt - - - 5. categorized by the earlier of contractual repricing or maturity dates.230 62.debt securities . The BPI Group takes on exposure to the effects of fluctuations in the prevailing levels of market interest rates on both its fair value and cash flow risks.422 Due from other banks - - - 14.531 - 201.352 Financial Liabilities Deposit liabilities Derivative financial liabilities 2.381 4.debt securities 2.598 126.584 - - - - 34.946 9.3.422 P 48.934 Due to BSP and other banks - - - 1. Consolidated Repricing Up to 1 year Over 1 up to 3 years Non-repricing Over 3 years Total (In Millions of Pesos) As at December 31.496 Manager’s checks and demand drafts outstanding - - - 2.464) P 3.2 Interest rate risk Cash flow interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates.182 - - 2. The table below summarizes the BPI Group’s exposure to interest rate risk.2.318 34.067 176.182 Investment securities .159 264.159 16.707 - 21.884 72. net Total financial assets 2.191 10.749) 35 P (154.933 P 200.820 578.602 176.584 22.547 - - 8.

619 5.146 P 197.196 37.480 P (107.666 P 21.651 - 3.894 13.222 P 122.151 142.015 P 36.547 Manager’s checks and demand drafts outstanding - - - 2.385 5.106 P 49.574 - - 10.116 440.548 P (7.428 Due from other banks - - - 8.986 543.278 6.087) Parent Repricing Up to 1 year Over 1 up to 3 years Non-repricing Over 3 years Total (In Millions of Pesos) As at December 31.295) 36 11.167 463.689 105.911 P 228.198) 5.681 Derivative financial assets Trading securities .164 Unsecured subordinated debt - - - 5. 2007 Total financial assets Total financial liabilities Total interest gap 234.462 2.686 142.Available-for-sale debt securities .889 Financial Liabilities Deposit liabilities Derivative financial liabilities 2.768 P 13.423) 22. 2008 Financial Assets Due from BSP - P 41.408) P (136.182 Investment securities .754 P 556.107 - - - - 32. net Total financial assets 2.547 - - 988 - - 4.999 32.278 104.debt securities P - P 2.147 Total interest gap P (38.164 Bills payable Due to BSP and other banks - - 2.045) P 5.Held-to-maturity Loans and advances.670 P 206.648 P 142.722 442.000 5.869 97.182 - - P P 41.495 129.532 - - 63.196 63.132 6.003 86.894 210.329 Total financial liabilities Total interest gap P (19.532 P 190 .226 P P 27.999 - - 47.568 50.324 240.964 186.021 471.574 10.114 8.000 Other liabilities - - - 13.462 1.Repricing Up to 1 year Over 1 up to 3 years Non-repricing Over 3 years Total As at December 31.521 P (37.882 P 442.659) As at December 31.373 - - 1.476 P (93.428 - 2.670 207.431 191.193 13.724 Total financial liabilities P 294.651 255.431 3. net Other resources.114 Interbank loans receivable and SPAR - - - 21. 2007 Total financial assets P 255.619 5.107 21.801 P 108.003 113.

counterparty. the level and type of undrawn lending commitments.2 Funding approach Sources of liquidity are regularly reviewed by the BPI Group to maintain a wide diversification by currency.1 Liquidity risk management process The BPI Group’s liquidity management process. • Monitoring liquidity ratios against internal and regulatory requirements.3 and 3. This includes replenishment of funds as they mature or are borrowed by customers. 3.4) and the expected collection date of the financial assets. the usage of overdraft facilities and the impact of contingent liabilities such as standby letters of credit. • Managing the concentration and profile of debt maturities. geography. week and month as these are key periods for liquidity management.3. 3.3. product and term.3. The amounts disclosed in the table are the expected undiscounted cash flows. The BPI Group also monitors unmatched medium-term assets. which the BPI Group uses to manage the inherent liquidity risk. managed by monitoring future cash flows to ensure that requirements can be met.3 Liquidity risk Liquidity risk is the risk that the BPI Group is unable to meet its payment obligations associated with its financial liabilities when they fall due and to replace funds when they are withdrawn. Monitoring and reporting take the form of cash flow measurement and projections for the next day. The consequence may be the failure to meet obligations to repay depositors and fulfill commitments to lend. The starting point for these projections is an analysis of the contractual maturity of the financial liabilities (Notes 3. and • Performing periodic liquidity stress testing on the BPI Group’s liquidity position by assuming a faster rate of withdrawals in its deposit base.3.3. • Maintaining a portfolio of highly marketable assets that can easily be liquidated as protection against any unforeseen interruption to cash flow.3. 3. as carried out within the BPI Group and monitored by the RMC and the FRMC includes: • Day-to-day funding.3 Non-derivative cash flows The table below presents the significant cash flows payable by the BPI Group under non-derivative financial liabilities by expected maturities at the reporting date. 37 .

Consolidated

Up to 1 year

Over 1 up to 3
years

Over 3 years

Total

(In Millions of Pesos)
As at December 31, 2008
Financial Liabilities
Deposit liabilities

P 259,770

P 180,733

P 106,571

Bills payable

8,674

877

570

Due to BSP and other banks

1,496

-

-

1,496

Manager’s checks and demand drafts
outstanding

2,723

-

2,723

Unsecured subordinated debt
Other liabilities

423
16,159
P 289,245

Up to 1 year

845

7,996

9,264

-

16,159

P 182,455
Over 1 up to 3
years

P 547,074
10,121

P 115,137

Over 3 years

P 586,837

Total

(In Millions of Pesos)
As at December 31, 2007
Financial Liabilities
P 402,991

P 99,002

P 128,654

P 630,647

Bills payable

3,626

1,065

1,051

5,742

Due to BSP and other banks

1,303

-

-

1,303

Manager’s checks and demand drafts
outstanding

2,713

-

-

2,713

16,820

-

-

16,820

P 100,067

P 129,705

Over 1 up to 3
years

Over 3 years

Deposit liabilities

Other liabilities

P 427,453

P 657,225

Parent
Up to 1 year

Total

(In Millions of Pesos)
As at December 31, 2008
Financial Liabilities
Deposit liabilities

P 208,369

P 144,381

P 92,273

P 445,023

Bills payable

4,237

863

550

5,650

Due to BSP and other banks

1,462

-

-

1,462

Manager’s checks and demand drafts
outstanding

2,164

-

-

2,164

Unsecured subordinated debt
Other liabilities

423
13,894
P 230,549

38

845
P 146,089

7,996
P 100,819

9,264
13,894
P 477,457

Up to 1 year

Over 1 up to 3
years

Over 3 years

Total

(In Millions of Pesos)
As at December 31, 2007
Financial Liabilities
Deposit liabilities
Bills payable

P 309,216

P 61,538

P 80,623

341

1,065

1,051

P 451,377
2,457

Due to BSP and other banks

1,271

-

-

1,271

Manager’s checks and demand drafts
outstanding

2,081

-

-

2,081

Other liabilities

15,087
P 327,996

P 62,603

P 81,674

15,087
P 472,273

Assets available to meet all of the liabilities include cash, due from BSP and other banks, trading securities,
available-for-sale securities and loans and advances to customers. In the normal course of business, a
proportion of customer loans contractually repayable within one year will be extended. The BPI Group
would also be able to meet unexpected net cash outflows by accessing additional funding sources.
On April 20, 2007, the Monetary Board of the Bangko Sentral ng Pilipinas approved the Bank’s issuance of
P5,000 million worth of Long-Term Negotiable Certificates of Deposits (LTNCD) Series 1. The LTNCD
(included in Deposit liabilities) will mature five years and one month from the date of issue and carries a
fixed rate interest of 6.125%.
3.3.4

Derivative cash flows

(a) Derivatives settled on a net basis
The BPI Group’s derivatives that are settled on a net basis consist only of interest rate swaps. The table
below presents the contractual undiscounted cash outflows of interest rate swaps based on the remaining
period from December 31 to the contractual maturity dates.
Consolidated and Parent

Up to 1 year
Interest rate swap contracts - held for trading
2008
2007

P (25)
P (84)

39

Over 1 up
Over 3
to 3 years
years
(In Millions of Pesos)
P (158)
P (283)

P (93)
P (106)

Total

P (276)
P (473)

(b) Derivatives settled on a gross basis
The BPI Group’s derivatives that are settled on a gross basis include foreign exchange derivatives mainly,
currency forwards, currency swaps and spot contracts. The table below presents the contractual
undiscounted cash flows of foreign exchange derivatives based on the remaining period from reporting date
to the contractual maturity dates.
Consolidated and Parent

Up to 1 year
Foreign exchange derivatives - held for trading
2008
- Outflow
- Inflow
2007
- Outflow
- Inflow

Over 1 up to 3
years
(In Millions of Pesos)

Total

P (84,865)
84,992

P -

P (84,865)
84,992

P (133,905)
133,761

P (209)
207

P (134,114)
133,968

3.4 Fair value of financial assets and liabilities
The table below summarizes the carrying amount and fair value of those significant financial assets and
liabilities not presented on the statement of condition at fair value at December 31.

40

Consolidated
Carrying amount
Fair value
2007
2007
2008
2008
(In Millions of Pesos)
Financial assets
Due from BSP
Due from other banks
Interbank loans receivable and SPAR
Investment securities
Held-to-maturity, net
Loans and advances, net
Other resources, net
Financial liabilities
Deposit liabilities
Bills payable
Due to BSP and other banks
Manager’s checks and demand drafts
outstanding
Unsecured subordinated debt
Other liabilities

P 48,422
14,278
22,584

P 72,878
6,969
31,772

P 48,422
14,278
22,584

P 72,878
6,969
31,772

72,884
320,216
4,381

52,432
273,756
5,568

74,299
323,830
4,381

56,606
278,896
5,568

540,352
9,934
1,496

513,444
5,375
1,303

540,352
9,934
1,496

513,444
5,375
1,303

2,723
5,000
16,159

2,713
16,820

2,723
5,000
16,159

2,713
16,820

41

087 2.Parent Carrying amount Fair value 2007 2007 2008 2008 (In Millions of Pesos) Financial assets Due from BSP Due from other banks Interbank loans receivable and SPAR Investment securities Held-to-maturity. net Financial liabilities Deposit liabilities Bills payable Due to BSP and other banks Manager’s checks and demand drafts outstanding Unsecured subordinated debt Other liabilities P 41.894 2.555 207.168 440.271 440.271 2.168 64.081 15.845 29.364 241.164 5.114 21. 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.161 P 41.889 5.373 1.435 4.090 1. (ii) Investment securities Fair value of held-to-maturity assets is based on market prices or broker/dealer price quotations.196 240. Where this information is not available.107 P 62.889 5.107 1.081 15.000 13.894 2.462 418.090 1.962 4. is the amount repayable on demand.000 13.681 3. net Loans and advances.637 3. net Other resources.431 49.845 29. 42 . maturity and yield characteristics.164 5.373 1.107 P 62. (iv) Financial liabilities The estimated fair value of deposits with no stated maturity.643 2. (iii) 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 at current market rates to determine fair value.087 (i) Due from BSP and other banks and Interbank loans receivable and SPAR The fair value of floating rate placements and overnight deposits approximates their carrying amount.099 207. which includes non-interest-bearing deposits.428 8.161 63.114 21.428 8.107 1. fair value is estimated using quoted market prices for securities with similar credit.462 418.431 45.643 2.

actuarial study and risk appetite or aversion.16 12.365 P 40. or the absolute amount that they are ready to assume insurance risk from one event. They also accredit reinsurers based on certain criteria and set limits as to what can be reinsured. 3.52 P 51. experience.46 14.310 P 405. net unrealized fair value gains on available-for-sale investments. The qualifying capital of the Parent Bank consists of core tier 1 capital and tier 2 capital.882 P 351. BPI currently uses the Standardized Approach (for credit risk and market risk) and the Basic Indicator Approach (for operational risk).016 P 326.The estimated fair value of fixed interest-bearing deposits and other borrowings not quoted in an active market is based on discounted cash flows using interest rates for new debts with similar remaining maturity. In excess of the retention. In quantifying its CAR. 2008 and 2007. and general loan loss provisions for BSP reporting purposes. CAR (%) Qualifying capital Total risk weighted assets Consolidated Parent 2007 2007 2008 2008 (In Millions of Pesos) 14.272 P 31. Capital adequacy reports are filed with the BSP every quarter. 3. paid-in surplus. (v) Other resources/liabilities Carrying amounts of other resources/liabilities which have no definite repayment dates are assumed to be their fair values.61 11. surplus including net income for the year. these subsidiaries arrange reinsurances either thru treaties or facultative placements.781 P 57. surplus reserves and minority interest less deductions such as deferred income tax. Tier 2 capital includes unsubordinated debt (see Note 20). The retention amount is a function of capital.022 P 277.1 Insurance risk management The life and non-life insurance subsidiaries decide on the retention. 43 . Tier 1 capital comprises paid-up capital stock. unsecured credit accommodations to DOSRI. Qualifying capital and risk-weighted assets are computed based on BSP regulations.2 Capital management The BPI Group manages its capital following the framework of Basel Committee on Banking Supervision Accord II (Basel II) and its implementation in the Philippines by the BSP. The reinsurance treaties and the accreditation of reinsurers require Board of Directors’ approval. The BSP through its Circular 538 requires each bank and its financial affiliated subsidiaries to keep its Capital Adequacy Ratio (CAR) – the ratio of qualified capital to risk-weighted exposures – to be no less than 10%. The table below summarizes the CAR of the BPI Parent and BPI consolidated under the Basel II framework for the years ended December 31. goodwill and unrealized fair value losses on available-for-sale securities. The Basel II framework following BSP Circular 538 took into effect on July 1.593 The BPI Group has fully complied with the CAR requirement of the BSP. 2007.

Changes in assumptions about these factors could affect reported fair value of financial instruments. and models are calibrated to ensure that outputs reflect actual data and comparative market prices.for example selling an insignificant amount close to maturity . 44 . the BPI Group makes judgments as to whether there is any observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of loans before the decrease can be identified with an individual loan in that portfolio. (d) Held-to-maturity securities (Note 12) The BPI Group follows the guidance of PAS 39 on classifying non-derivative financial assets with fixed or determinable payments and fixed maturity as held-to-maturity. including factors such as industry and sector performance. It is reasonably possible that the outcomes within the next financial year could differ from assumptions made at reporting date and could result in the adjustment to the carrying amount of affected assets or liabilities. This classification requires significant judgment. volatilities and correlations require management to make estimates. All models are approved by the Board of Directors before they are used. Management uses estimates based on historical loss experience for loans with credit risk characteristics and objective evidence of impairment similar to those in the portfolio when scheduling its future cash flows. In making this judgment.Note 4 .Critical Accounting Estimates and Judgments The BPI Group makes estimates and assumptions that affect the reported amounts of assets and liabilities. If the BPI Group fails to keep these investments to maturity other than for the specific circumstances . areas such as credit risk (both own and counterparty). changes in technology and operational and financing cash flows. Where valuation techniques (for example. models) are used to determine fair values. or national or local economic conditions that correlate with defaults on assets in the group. (a) Impairment losses on loans and advances (Note 13) The BPI Group reviews its loan portfolios to assess impairment at least on a monthly basis.it will be required to reclassify the entire class as available-for-sale. however. and the financial health and near-term business outlook of the issuer. including expectations of future events that are believed to be reasonable under the circumstances. Estimates and judgments are continually evaluated and are based on historical experience and other factors. This evidence may include observable data indicating that there has been an adverse change in the payment status of borrowers in a group. To the extent practical. This determination requires significant judgment. In making this judgment.4 and 10) The fair value of financial instruments that are not quoted in active markets are determined by using valuation techniques. (b) Fair value of derivatives and other financial instruments (Notes 3. among other factors. the BPI Group evaluates its intention and ability to hold such investments to maturity. In determining whether an impairment loss should be recorded in the statement of income. the models use only observable data. the BPI Group evaluates. the duration and extent to which the fair value of an investment is less than its cost. The investments would therefore be measured at fair value and not at amortized cost. (c) Impairment of available-for-sale securities (Note 11) The BPI Group follows the guidance of PAS 39 to determine when an available-for-sale security is impaired. they are validated and periodically reviewed by qualified personnel independent of the area that created them.

The carrying amount of deferred tax assets is reduced to the extent that the related tax assets can not be utilized due to insufficient taxable profit against which the deferred tax losses will be applied.251 P 18.732 2.095 P 16.735 1. such write-down is recognized as impairment loss in the statement of income.484 . Should there be a subsequent write-down of the asset to fair value less cost to sell.068 Cash and cash equivalents (Note 7) Insurance balances receivable. as assets held for sale when the carrying amount of the assets will be recovered principally through sale. In 2008.813 P 15. (f) Realization of deferred income tax assets (Note 17) Management reviews at each reporting date the carrying amounts of deferred tax assets. accrued expenses and other payables 45 P 17. sales prices are analyzed by applying appropriate units of comparison.Assets and Liabilities Attributable to Insurance Operations Details of the assets and liabilities attributable to insurance operations as of December 31 are as follows: 2007 2008 (In Millions of Pesos) P 79 P 63 1. net Investments Land. 562 1.004 P 22.093 P 22. Note 5 .(e) Valuation and 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). 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. adjusted by differences between the subject asset or property and related market data. building and equipment Accounts receivable and other assets Reserves and other balances Accounts payable.389 1.P87 million).476 16.961 1. the BPI Group has recognized an impairment loss on its foreclosed assets amounting to P669 million (2007 . In determining the fair value of assets held for sale.771 17. Management believes that sufficient taxable profit will be generated to allow all or part of the deferred income tax assets to be utilized.461 701 1.

before income tax and minority interest for the years ended December are as follows: 2007 2006 (In Millions of Pesos) P 3. auto loans and credit card finance as well as the remittance business.this segment consists of the entire lending.155 4.030 1.280 1. claims and maturities Increase in actuarial reserve liabilities Management and general expenses Commissions Other expenses Income before income tax and minority interest Note 6 . 46 .855 P 962 P 588 2008 Premiums earned and related income Investment and other income Benefits.279 P 1.this segment addresses the individual and retail markets.639 4.349 1. These customers include both high-end corporations as well as various middle market clients.534 1. trade and cash management services provided by the BPI Group to corporate and institutional customers. Transactions between business segments are on normal commercial terms and conditions.Details of income attributable to insurance operations.300 3. trust and fiduciary services as well as proprietary trading and investment activities. and dealing in activities other than lending and deposit taking.680 333 5. It covers deposit taking and servicing. • Investment Banking . It includes the entire transaction processing and service delivery infrastructure consisting of the BPI and BPI Family Bank network of branches.068 755 823 755 248 403 581 48 34 206 3. ATMs and point-of-sale terminals as well as phone and Internet-based banking platforms. asset management. leasing. These services cover corporate finance.921 P 4.333 1.Business Segments The BPI Group derives revenue from the following main operating business segments: • Consumer Banking . consumer lending such as home mortgages. securities distribution.this segment includes the various business groups operating in the investment markets.867 1. • Corporate Banking .822 P 2.669 969 1.601 4.

480 561.767) 10.061 895 1.898 2.113) 5.178 3.930) 9.886 187.330 (14. 2008.433 P 9.568) 218.154 2.269 486 602 1.387 8.312 (14.441 23.515 (1.836 .557 666.565 9.311) 14.412 16.126 8.002 P 4.532 2.945 1.088 204.695) (872) (632) P 16.554 (18.The segment assets.243 (1.585 8.716 202.876) (807) (1.993 (2.370 21.269 8. 2007 and 2006 are as follows: Consumer Banking Net interest income and other income Operating and other expenses Income before impairment losses and income tax Impairment losses Income before income tax Provision for income tax Net income for the year Segment assets Segment liabilities Other segment items: Capital expenditures Depreciation and amortization P 19.557 (972) 2.070 1.217 (800) 4.051 2007 Corporate Investment Corporate/ Banking Banking Others (In Millions of Pesos) P 5.413 817 79 611 14 14 439 394 47 Total P 29.124 223.076 P 1.472 (1.226 637.784 (18.129) 3.516 (1) 3.421 535.417 4.128 Total P 32.612 602.985) 6.065 5.381) 1.733 (1.285 566.542 (2.312) 11.740 2.568) (1.247) 3.307 (1.584 224.250) 12.612 22.393 747 9 19 435 467 Consumer Banking Net interest income and other income Operating and other expenses Income before impairment losses and income tax Impairment losses Income before income tax Provision for income tax Net income for the year Segment assets Segment liabilities Other segment items: Capital expenditures Depreciation and amortization 2008 Corporate Investment Corporate/ Banking Banking Others (In Millions of Pesos) P 7. liabilities and results of operations of the reportable segments of the BPI Group as of and for the years ended December 31.388 P (936) (2.931 (880) 1.

766) (539) (1.243 37.Consumer Banking Net interest income and other income Operating and other expenses Income before impairment losses and income tax Impairment losses Income before income tax Provision for income tax Net income for the year Segment assets Segment liabilities Other segment items: Capital expenditures Depreciation and amortization P 18.194 583.038) 148.969 14.777 P 6.874 3.840 12.924 14. Segment result is represented by income before income tax. furniture.114 .278 P 13.856 10.249 1.794 4.303 484. Note 7 .524) 11.839 (28) 5.185 19.520 234.011 (975) 3. Capital expenditures comprise additions to bank premises.781 35.923 8.528 2006 2008 (In Millions of Pesos) P 13.611 Segment revenue includes net interest income and other non-interest income.Cash and Cash Equivalents This account at December 31 consists of: Cash and other cash items Due from Bangko Sentral ng Pilipinas Due from other banks Interbank loans receivable and securities purchased under agreements to resell Cash and cash equivalents attributable to insurance operations 2008 Consolidated 2007 P 22.779) 5.837 (16.228 758 6 382 4 15 1.790 79 P 82. no geographical segment is presented.579) 4.366 11.245 8.133 517.763 P 21.038) (2. The BPI Group and the Parent Bank mainly derive revenue (more than 90%) within the Philippines. support units and corporate offices.172 48 Parent 2007 2006 P 12.107 P 49.613 7.650 (2.760 28.771 9.845 P 13.152 6. accordingly.663) (2.161 6.257 1.811 Total P 29.289 63 P 62.290 22.011 456 13.682 22.841 2006 Corporate Investment Corporate/ Banking Banking Others (In Millions of Pesos) P 5.159 24. fixtures and equipment. The business segment results presented above include internal transfer pricing adjustments across segments as deemed appropriate by management.174 (1.362 (521) 4.754 2. The Corporate/Others column includes insurance operations.604 P 49.141 (12.190 P 65.378 P (459) (1.646 3.871 168.456) 9.299 36 P 67. Segment assets of corporate banking segment include foreclosed assets classified as assets held for sale in the statement of condition.036 5.501 31.

877 721.487 405.161 P 12.633 P 9.893 8.469) (166) (231) 197 276 (774) (774) 1.listed At December 31 P 8.935 1.318 81 P 34.980 214 P 9.339 32.926 73 32.034 million (2007 .571 The movement in trading securities is summarized as follows: Consolidated Parent 2007 2007 2008 2008 (In Millions of Pesos) P 14.99 4.194 P 31.Note 8 .194 P 7. Interbank loans receivable and SPAR maturing within 90 days from the date of acquisition are classified as cash equivalents (Note 7).349 34.P28.503 7.935 (152) (163) 5 P 9.889 million).68 Peso-denominated accounts US dollar-denominated accounts 2007 4.362) (409.999 P 7. SPAR of the BPI Group include reverse purchase agreement with Bangko Sentral aggregating P7.231 87 34.53 2.194 P 7.883 million).P2.927) (571. The account also included lendings to various banks of P13.571 509.Trading Securities The account at December 31 consists of: Consolidated Parent 2007 2007 2008 2008 (In Millions of Pesos) Debt securities Government securities Commercial papers of private companies P 32.000 594.893 87 8.790 million (2007 .503 68 7.571 P 7.882 1.399 P 32.771) (697.Interbank Loans Receivable and Securities Purchased under Agreements to Resell (SPAR) Interbank loans receivable of the Parent Bank in 2008 include overnight lendings to BPI Leasing of P180 million (2007 .571 P 34.P272 million).399 Accrued interest receivable Equity securities . Average effective interest rate (%) of interbank loans receivable of the BPI Group at December 31 follow: 2008 5.97 Note 9 .587 1.681 (513.999 P 32.999 At January 1 Additions Disposals Fair value adjustments Exchange differences Net change in accrued interest receivable At December 31 49 .

the BPI Group assesses counterparties using the same techniques as for its lending activities.820 48 255 - P (1. The notional amounts of certain types of financial instrument provide a basis for comparison with instruments recognized on the statement of condition but do not necessarily indicate the amounts of future cash flows involved or the current fair value of the instruments and.Note 10 . can fluctuate significantly from time to time.Derivative Financial Instruments The derivatives held by the BPI Group for non-hedging purposes are as follows: • Currency forwards represent commitments to purchase foreign and domestic currency.802 5. therefore. based on a notional principal amount.063 32.171 88 914 9 P 2. No exchange of principal takes place. do not indicate the BPI Group’s exposure to credit or price risks.152) (35) P (2. a proportion of the notional amount of the contracts and the liquidity of the market.348) (12) (1.123 P (2.834 27. The derivative instruments become favorable (assets) or unfavorable (liabilities) as a result of fluctuations in market interest rates or foreign exchange rates relative to their terms. To control the level of credit risk taken.245 11. The aggregate contractual or notional amount of derivative financial instruments on hand. Consolidated and Parent Contract/ Notional Amount 2007 2008 Freestanding derivatives Foreign exchange derivatives Currency swaps Currency forwards Interest rate swaps Embedded credit derivatives Total derivatives assets (liabilities) held for trading P 79.497 - P 129.836) (180) (344) - P 2.360) . The BPI Group’s credit risk represents the potential cost to replace the swap contracts if counterparties fail to fulfill their obligation. Swaps result in an economic exchange of currencies or interest rates (for example. including undelivered spot transactions. The fair values of derivative instruments held are set out below. This risk is monitored on an ongoing basis with reference to the current fair value. except for certain currency swaps.547) P (3. and thus the aggregate fair values of derivative financial assets and liabilities. fixed rate for floating rate) or a combination of all these (ie. Forward rate agreements are privately negotiated interest rate futures that call for a cash settlement at a future date for the difference between a contracted rate of interest and the current market rate.563 - 50 Fair Values Assets 2007 2008 (In Millions of Pesos) Liabilities 2007 2008 P 1. the extent to which instruments are favorable or unfavorable. cross-currency interest rate swaps).182 P 3. • Currency and interest rate swaps are commitments to exchange one set of cash flows for another.

787 P 50.Note 11 .017 81.914) (1.666 P 103.134 7.731) (1.865) (211.972 1.336) (2.731 At January 1 Additions Disposals Reclassification to Held-to-maturity (Note 12) Amortization of (premium)/discount Fair value adjustments (Note 22) Exchange differences Net change in allowance for impairment Net change in accrued interest receivable At December 31 51 .971 878.980 99.23 Peso-denominated accounts Foreign currency-denominated accounts 2007 6.250) 930 632 (1.555 80.989 (202) P 63.795 63.564 11 388 399 50.532 Debt securities Government securities Others Accrued interest receivable Equity securities Listed Unlisted 1.564 P 81.827 103.320) (261.638 P 53.194 50.971 Average effective interest rates (%) of available-for-sale debt securities of the BPI Group at December 31 follow: 2008 6.844 (280) P 103.439 (28) (34) 78 7 159 126 (493) (312) P 103.731 143 278 421 82.462 1.931 (200) P 50.450) (808.225 49.435 (857.757 62.042) (28.971 P 63.208 969 896 101.06 5.05 The movement in available-for-sale securities is summarized as follows: Consolidated Parent 2007 2007 2008 2008 (In Millions of Pesos) P 90.636 1.564 P 81.787 Allowance for impairment 2.Available-for-Sale Securities This account at December 31 consists of: Consolidated Parent 2007 2007 2008 2008 (In Millions of Pesos) P 98.909) 1.549 61.656 938 911 8.617 P 79.091 P 41.640 248.07 4.979) (948) (330) 515 (4.431 396 2.207 204.680 P 72.276) (26.249 822.178 (207) P 81.268 527 1.

388 1.026 61.317 1.97 4.1 billion to held-to-maturity category.445 3.552 1. amounts to P1.858 1.196 Government securities Commercial papers of private companies Accrued interest receivable 2007 44.115 P P 67. Management believes that despite the market uncertainties.42 Peso-denominated accounts Foreign currency-denominated accounts 52 2007 8.73 4.05 .167 45.115 71.On October 22. 2008.757 million.388 44.711 million.Held-to-Maturity Securities This account at December 31 consists of: Consolidated Parent 2007 2008 2008 (In Millions of Pesos) P 51.348 51. 2008. Likewise. on November 12. the BPI Group has the capability to hold those reclassified securities until maturity dates.432 P P 72. 2008.644 P 52.581 P 58.6 million (or peso equivalent of P9.204 3. and which will be amortized over the remaining lives of the instruments using the effective interest rate method amounts to P1.2 billion) was further reclassified from available-for-sale to held-to-maturity (Note 12). Unamortized fair value loss as of December 31.555 Average effective interest rates (%) of held-to-maturity securities at December 31 of the BPI Group follow: 2008 8. The aggregate fair value loss of those securities at reclassification dates still recognized in Reserves (under Capital funds). an additional portfolio of US dollardenominated available-for-sale securities totaling US$171. the BPI Group reclassified certain available-for-sale securities aggregating P19.884 P 63. The reclassification was triggered by management’s change in intention over the securities in the light of volatile market prices due to global economic downturn. The reconciliation of the allowance for impairment at December 31 is summarized as follows: Consolidated Parent 2007 2008 2008 (In Millions of Pesos) P 252 P 280 P 207 34 (78) (7) (6) P 280 P 202 P 200 At January 1 Provision for impairment losses Write-offs At December 31 2007 P 173 34 P 207 Note 12 .

432 P 45.The movement in held-to-maturity securities is summarized as follows: Consolidated Parent 2007 2007 2008 2008 (In Millions of Pesos) P 68.555 P 72.548) 729 725 49 49 20 15 541 477 P 52.930 8.124 111.618) P 273.547 (5.740 (5.517) P 320.739 329.627 (277) 246.665 P 301.305) P 207.532) (123.914 (2.200) 280.427) (613) (584) (1.886) 327.056 (214) 212.018 11.600 Loans and discounts Customers’ liability on drafts under letters of credit/trust receipts and bank’s acceptances Bills purchased 18.Loans and Advances Major classifications of this account at December 31 are as follows: Consolidated Parent 2007 2007 2008 2008 (In Millions of Pesos) P 255.153) (72.264 63.555 114.298 282.374 (6.276 26.884 P 63.752 P 61.329 (3.435 .853 60.245 1.733 245.432 P 45.024) 28.197 1.931 P 217.216 Accrued interest receivable Unearned discount/income Allowance for impairment 53 15.355 P 52.939 11.929 P 185.196 At January 1 Additions Maturities Reclassification from Available-for-sale (Note 11) Amortization of premium Exchange differences Net change in allowance for impairment Net change in accrued interest receivable At December 31 Note 13 .133 (126.294 211.334) (70.864 8.898 1.756 18.600 2.681 14.550) (1.733 (7.019 (3.866) P 240.431) (2.

P2.291 P 279. renting and other related activities Agriculture and forestry Wholesale and retail trade Financial institutions Others Consolidated 2007 2008 29.942 129.65 100.076 13.920 P 52.10 31.276 million (2007 .50 5.991 196.95 7.00 8.66 10.65 6.148 68.615 16.789 14.67 12. Average effective interest rates (%) of loans and advances of the BPI Group at December 31 follow: Commercial loans Peso-denominated loans Foreign currency-denominated loans Mortgage loans Auto loans 54 2008 2007 6.87 100.71 11.837 million (2007 .090 million) are used as security for bills payable (Note 19) of the BPI Group and Parent Bank. Loans and advances aggregating P6.03 28.18 22. trust receipts.21 12. standby letters of credit. quedan/warehouse receipts.199 120.P2. respectively.17 7.892 124.06 6.Details of the loans and advances portfolio of the BPI Group at December 31 are as follows: 1) As to industry/economic sector (in %) Consumer Manufacturing Real estate.42 13.714 Unsecured loans P 98.041 66.61 10.31 5.08 .18 24.37 9.98 10.045 P 58.971 144.34 12.754 149.11 28.77 4.960 P 325.80 2007 8. government securities and bonds.47 100.90 12. mortgage trust indentures.53 8.01 12.023 16.00 11.87 9.854 1.684 Other collaterals include hold-out deposits.713 P 211. and deposit substitutes.20 15.721 P 244.53 10.90 100.07 15.163 2.00 Parent 2) As to collateral Consolidated Parent 2007 2007 2008 2008 (In Millions of Pesos) Secured loans Real estate mortgage Chattel mortgage Others P 111.754 128.144 63.00 15.124 million) and P2.09 2008 6.16 14.

490 469 1.041 Credit Mortgages cards (In Millions of Pesos) P 193 P 636 P 1.381 Others Total P 660 P 6.812 P 10.805 Net NPL 30 Reconciliation of allowance for impairment by class at December 31 follows: Consolidated Corporate entities Large Small and corporate medium customers enterprises At January 1 Provision for impairment losses Transfers / Reallocation Write-off/disposal Unwind of discount At December 31 2008 Retail customers P 4.088 113 (1.533 P 7. net of accounts in the “loss” category follow: Consolidated Parent 2007 2007 2008 2008 (In Millions of Pesos) P 10.010 2.153 2.15% 3.965 P 12.602 3.517 .573) (75) (16) P 2.08% Non-performing accounts (NPL 90) “Loss” category loans with 100% reserves Net NPL 90 NPL ratio The non-performing accounts (over 30 days past due) of the BPI Group and the Parent Bank.408 P 10.50% 3.425 P 10.66% 3.451 2.776 P 10.325 P 7. net of accounts in the “loss” category and covered with 100% reserves (excluded under BSP Circular 351).972 P 8.245 31 (341) (36) P 7.900 P 8.205 55 129 1 P 766 515 (222) P 1.618 19 17 (21) P 675 1.Non-performing accounts (over 90 days past due) of the BPI Group and the Parent Bank. are as follows: Consolidated Parent 2007 2007 2008 2008 (In Millions of Pesos) P 13.525 2.884 P 10.586 (23) (20) P 2.

893) (188) P 4.088 249 (1.089 85 (5) (3) P 660 1.273 P 221 P 1.618 Parent Corporate entities Large Small and corporate medium customers enterprises At January 1 Provision for (reversal of) impairment losses Transfers / Reallocation Write-off/disposal Unwind of discount At December 31 P 720 112 1.866 .Corporate entities Large Small and corporate medium customers enterprises At January 1 Provision for impairment losses Transfer / Reallocation Write-off/disposal Unwind of discount At December 31 P 6.866 (74) (16) P 2.088 Others Total P 583 P 9.041 78 (104) (21) (22) P 193 2007 Retail customers Credit Mortgages cards (In Millions of Pesos) P 360 P 1.836) (7) (19) P 1.305 3 33 (21) P 15 890 30 (324) (35) P 5.061 290 (14) P 636 430 (403) P 1.660 56 (19) P 202 515 (222) P 1.823 P 262 280 19 (2.163 (90) (3.608 2008 Retail customers Credit Mortgages cards (In Millions of Pesos) P 3.334) (210) P 6.381 Others Total P P 5.

273 178 (2) P 221 430 (403) P 1.820 1.121 P 2.597 P 10.836) (179) P 5.798 P 3. 2008 Consolidated Buildings and Furniture leasehold and Equipment improvements equipment for lease (In Millions of Pesos) Total P 3.865 8.527 P 4.527 1.634 150 (52) 1.327 (540) 3.898 (1.088 Others Total P 17 P 7.176 57 .769 P 2.114) (23) P 720 208 19 (315) (156) P 3. 2008 Additions Disposals/amortizations Transfers December 31.452 10.786 1.061 32 (2.385 388 (208) 32 4. 2008 Net book value. 2008 Accumulated depreciation January 1. Fixtures and Equipment This account at December 31 consists of: Land Cost January 1.506 1. Note 14 .784 1.622 P 11.825 Credit Mortgages cards (In Millions of Pesos) P 3.573 P 21. 2008 Depreciation Disposals/transfers December 31.732 P 2.101 P 2. Furniture.465 (12) (2) P 3 836 19 (2.2007 Retail customers Corporate entities Large Small and corporate medium customers enterprises At January 1 Provision for (reversal of) impairment losses Transfers / Reallocation Write-off/disposal Unwind of discount At December 31 P 2.Bank Premises.039) 11.841 (1.332 680 652 (211) 1.178 (860) (1) 11. December 31.817) (1) 22.763 5 (209) (32) 3.517 P 45 P 1.718 2.305 In 2007. the BPI Group sold non-performing loans with aggregate net carrying amount of P642 million (2008 nil).039 (776) 8.

2008 Depreciation Disposals/transfers December 31.352 (663) 10.997 1. 2007 Accumulated depreciation January 1.876 1.314 (1.784 P 1.518 (695) 10.654 58 . 2008 Net book value. 2007 Additions Disposals/amortizations Transfers December 31.196 P 2.385 P 10.024 (724) 10.506 P 2.Land Cost January 1.721 P 7.079 1.634 P 2.525 P 2.434 7. 2008 Additions Disposals/amortizations Transfers December 31.142) 3.724 2.276 (366) 2.329 1.036 900 (430) 8.820 P 10. December 31.826 286 (187) 34 3.449 124 (48) 1.959 P 10. 2008 Consolidated Buildings and Furniture leasehold and Equipment improvements equipment for lease (In Millions of Pesos) Parent Buildings and leasehold Furniture and improvements equipment (In Millions of Pesos) Total P 3. 2007 Net book value.751 8.337 P 17.898 Land Cost January 1.307 4 (192) (40) 3. 2008 Accumulated depreciation January 1.037 1.809) (1.375 P 3.142) 21.095 1.763 1.103) (6) 17.763 P 4. 2007 Total P 5.718 P 3.133 2 (230) (1.664 120 (150) 1.620 315 (550) 4.945 (1.141 9. December 31.278 297 498 (115) 680 P 2.049 (657) 9.170 1.786 P 21. 2007 Depreciation Disposals December 31.079 P 3.106 9.880 925 (609) 8.

365 P 2.115) 3.123 P 3.170 P 3. Note 15 .785 P 2.157 8.307 1.409 1. 2007 Additions Disposals/amortizations Transfers December 31.329 P 7.253) (1.253) P 2.990 210 (374) 3. 2007 Net book value.233) (1.253) (1.650 2 (230) (1.449 P 2.732 1.037 P 18.049 1.444 806 (370) 7.816 P 2.754 1.785 1.150 P 3.272 (629) (15) 10. 2007 Depreciation Disposals/transfers December 31.208 P 3.826 P 9.354 P 2.816 P 2. 2007 Parent Buildings and leasehold Furniture and improvements equipment (In Millions of Pesos) Total P 4.930 906 (507) 9.747 4.218 1.307 P 3.377 7.828 P 2.130) 17.253) (1.817 At January 1 Transfers Disposals Depreciation At December 31 Investment property has an aggregate fair value of P4.962 4.198 94 94 (673) (673) (20) (94) (94) (62) (62) P 2.202 1.841 Depreciation is included in Occupancy and equipment-related expenses in the statement of income.828 P 2. 2007 Accumulated depreciation January 1.816 P 2. 59 .486 100 (137) 1.Land Cost January 1.Investment Property This account at December 31 consists of: Consolidated Parent 2007 2007 2008 2008 (In Millions of Pesos) P 3.888 4.817 Land Buildings Accumulated depreciation Allowance for impairment The movement in investment property is summarized as follows: Consolidated Parent 2007 2007 2008 2008 (In Millions of Pesos) P 2. December 31.855 4.228 million as of December 2008 and 2007.880 P 2.949 (819) (817) (881) (879) (1.785 P 2.484 (1.738 1.

000 million. redeemed its previously issued preferred shares held by the Parent Bank.398 P 7.799 BPI Europe Plc. This wholly-owned subsidiary is established primarily to expand the BPI Group’s banking services to overseas Filipinos.747 P 7.910 1.910 573 768 645 428 392 303 P 1.799 P 7. at its option. was incorporated as a bank in England and Wales on July 27.747 204 150 39 1. In 2008.914 (104) (7) P (111) Acquisition cost 2007 2008 BPI Europe Plc.573 768 645 428 392 303 Allowance for impairment 2007 2008 (In Millions of Pesos) P P - 204 150 143 1. Note 16 .342 P 6. BPI Capital.335 P 6.387 P 7. 60 .573 768 645 428 392 303 204 150 39 1.Equity Investments This account at December 31 consists of investments in shares of stock: Consolidated Parent 2007 2007 2008 2008 (In Millions of Pesos) Carrying value (net of impairment) Investments at equity method Investments at cost method P 766 P 766 P 933 P 933 P 6.858 204 150 143 1. The preferred shares were redeemed at par value totaling P1.910 573 768 645 428 392 303 P 1.747 P 6.Depreciation is included in Occupancy and equipment-related expenses in the statement of income.799 The details of equity investments at cost method in the separate financial statements of the Parent Bank at December 31 are as follows: P 1.910 1. BPI Capital ALAI BPI Leasing Pilipinas Savings Bank BPI Direct FGU Insurance Corporation National Reinsurance Corporation of the Philippines (PhilNaRe) BPI Family Bank BPI IFL Other equity investments (104) (11) P (115) Carrying value 2007 2008 P 1. 2006 and started commercial operations in October 2007.

355) P 6.104) P 4.544 The movement in the deferred income tax account is summarized as follows: Consolidated Parent 2007 2007 2008 2008 (In Millions of Pesos) P 6.104) (1.413 1.085 P 3.838 P 6.731 (1.981 (12) (39) (1.878 2.Deferred Income Taxes The significant components of deferred income tax assets and liabilities at December 31 are as follows: Consolidated Parent 2007 2007 2008 2008 (In Millions of Pesos) Deferred income tax assets Allowance for impairment Net operating loss carry over (NOLCO) Fair value loss on available-for-sale securities Minimum corporate income tax (MCIT) Others Total deferred income tax assets Deferred income tax liabilities Revaluation gain on properties Leasing income differential between finance and operating leases Excess pension asset contribution Others Total deferred income tax liabilities P 4.506 P 3.412 290 457 513 6.151 (1.092 1.429 298 529 480 6.Note 17 .136) (1.136) (11) (37) (1.358 P 5.225 2.136 224 466 802 7.544 (359) (449) (862) (864) At January 1 Income statement charge Fair value adjustment on available-for-sale securities Others At December 31 74 313 P 5.152) P 5.676 (68) (111) (40) (1.104) (1.676 (79) 231 P 6.134 218 433 721 6.187) P 5.981 (73) 228 P 5.544 The deferred tax charge in the statement of income comprises the following temporary differences: Allowance for impairment NOLCO Pension Leasing income differential Others 2008 Consolidated 2007 P (214) 708 (34) 57 345 P 862 P 754 (187) 10 (94) (124) P 359 61 2006 2008 (In Millions of Pesos) P 794 P (188) (396) 722 37 (12) (63) (121) 342 P 251 P 864 Parent 2007 P 712 (185) 7 (85) P 449 2006 P 864 (396) 37 (98) P 407 .828 P 3.151 72 229 P 4.151 P 5.

469 1.245 1.136 P 2.103 6.389 934 934 7.462 3.096 4.389 1.469 1.245 3.762 4.389 1. The details of MCIT at December 31 are as follows: Year of Incurrence Year of Expiration 2008 2007 2006 2005 2011 2010 2009 2008 Consolidated Parent 2007 2007 2008 2008 (In Millions of Pesos) P P P 268 P 229 258 228 258 228 208 205 208 205 207 207 673 640 734 662 (207) (207) (205) (205) P 466 P 433 P 529 P 457 Derecognized MCIT 62 .116) (1.412 Used portion during the year Expired portion during the year Tax rate Deferred income tax asset on NOLCO NOLCO expiring in 2009 includes losses sustained from sale of non-performing assets to special purpose vehicle (SPV) entities in 2004 which are carried forward for a period of five years in accordance with the Philippine SPV law.151 6.245 3.037 7.389 1.The outstanding NOLCO at December 31 consists of: Year of Incurrence Year of Expiration 2008 2007 2004/2006 2005 2004 2011 2010 2009 2008 2007 Consolidated Parent 2007 2007 2008 2008 (In Millions of Pesos) P P P 48 P 1.245 3.096 (1.030 6.429 P 1.134 P 1.116) (934) (934) (273) (273) 6.462 1.707 35% 35% 30% 30% P 2.

020 1.350 1.peso-denominated Bangko Sentral ng Pilipinas Private firms and individuals 63 2007 10.19 7.254 4.96 10.00 Foreign banks Local banks .041 3.406 101 101 870 870 3.737 9.169 7.143 P 6.865 P 2.27 5.097 2.090 P 9.434 1.Note 18 .790 (1.029) (995) (1.75 .934 P 5.95 4.Bills Payable This account at December 31 consists of: Consolidated Parent 2007 2007 2008 2008 (In Millions of Pesos) P P P 3.579 P 8.097 P 3.533 P 5. Note 19 .708 P 8.069 P 2. goodwill and miscellaneous checks.724 11.574 9.572 P 3.989 1.373 Foreign banks Local banks Bangko Sentral ng Pilipinas Private firms and individuals Average interest rates (%) of bills payable of the BPI Group follow: 2008 2.051 490 431 690 623 922 850 486 426 304 191 480 323 479 387 434 361 328 273 325 269 494 457 290 254 22 201 332 208 200 198 190 442 437 92 86 4.30 7.800 Accounts receivable Residual value of equipment for lease Prepaid expenses Other accrued interest receivable Creditable withholding tax Deferred charges Documentary stamp tax Sales contracts receivable Inter-office float items Accrued trust income Returned checks and other cash items Miscellaneous assets Allowance for impairment Miscellaneous assets include deposits on leased properties.461 2.Other Resources The account at December 31 consists of the following: Consolidated Parent 2007 2007 2008 2008 (In Millions of Pesos) P 3.026) (990) P 10.202 960 1.375 P 2.

series of 2001.dormant Withholding tax payable Due to the Treasurer of the Philippines Miscellaneous liabilities 64 .000 million worth of unsecured subordinated notes (the “Notes”) eligible as Lower Tier 2 capital pursuant to BSP Circular No.082 607 279 279 774 774 638 638 750 750 378 330 396 335 370 300 392 311 156 118 178 164 1. Loans and advances of the BPI Group arising from these financing programs serve as security for the related bills payable (Note 13).Bills payable include funds borrowed from Land Bank of the Philippines (LBP).444 1.600 2. Development Bank of the Philippines (DBP) and Social Security System (SSS) which were relent to customers of the BPI Group in accordance with the financing programs of LBP.762 983 1.45% per annum and will mature on December 12.774 P 17.927 Bills purchased . the applicable interest rate will be increased to the rate equal to 80% multiplied by the 5-year on-the-run Philippine Treasury benchmark bid yield (benchmark rate) on the first day of the 21st interest period plus the step-up spread. 280. rank pari passu and without any preference among themselves and at least equally with all other present and future unsecured and subordinated obligations of the Parent Bank.667 3. Note 20 . The step-up spread is equal to 150% of 8. 2013 (redemption date) subject to the satisfaction of certain regulatory approval requirements. the Parent Bank issued P5.039 736 1.187 630 590 1. 2008 until December 11.Unsecured Subordinated Debt On December 12. Note 21 . 2013. DBP and SSS.805 P 16. The Notes will at all times.849 1.45% less 80% multiplied by the benchmark rate.Deferred Credits and Other Liabilities The account at December 31 consists of the following: Consolidated Parent 2007 2007 2008 2008 (In Millions of Pesos) P 11. Unless the Notes are earlier redeemed on December 13. as amended.188 P 11. The interest is payable quarterly in arrears from December 12.673 P 8. 2018. except obligations mandatorily preferred by law.556 P 18.144 2. The Notes bear interest at the rate of 8.183 P 8.725 P 14. 2018 (maturity date). The Notes are redeemable in whole and not only in part at the exclusive option of the Parent Bank on December 13.contra Accounts payable Deposit on lease contract Sundry credits Vouchers payable Acceptances outstanding Other credits . 2008 (issue date).

240 540.733.600 2007 (In Number of Shares) 2.704.450) 28.812 450. 2008.000 600 P 29.900.000 To Amount (In Millions of Pesos) P 29.376 2.988.414 29.432 (8. There are no preferred shares issued and outstanding at December 31.6 billion to P49.170 As of December 31.648.244.792 and 13. 2008 and 2007.988.245.6 billion as follows: From Number of shares Authorized shares (at P10 par value per share) Common shares Preferred A shares 2.769 318. 65 9. 2008.000 P 49. distributed to all common shareholders of record 15 working days after the approval by the SEC of the increase in authorized capital stock of the Parent Bank as discussed below.414 1.Capital Funds Details of authorized capital stock of the Parent Bank follow: 2008 Authorized capital (at P10 par value per share) Common shares Preferred A shares 2007 2006 (In Millions of Pesos Except Par Value Per Share) P 29.704.000.452.877 common stockholders.000 600 P 29.600 P 29.000.600 On March 18.370.Note 22 .339 2.370.000 600 P 29. the Parent Bank has 13.018.704. the SEC approved the Parent Bank’s application for increase in its authorized capital stock from P29.000.711.000 60. respectively.238 28.704.170 28.000 600 P 49.170 2.240 2006 2. the Parent Bank declared 20% stock dividends on total issued and outstanding common shares.812) 29.000 600 P 49.000 60.600 2008 Issued common shares At January 1 Transfer from subscribed shares Stock dividends Issuance of shares during the year At December 31 Subscribed common shares At January 1 Full payment of common shares subscribed At December 31 Amount (In Millions of Pesos) Number of shares 4.263 8.900.940. 2008 and 2007.450 80.229 3.620 (1. On June 24.452.600 P 49.620 .000.

2006 November 15.749 4.150 (1.921 Cash dividends declared are payable to common shareholders of record as of 15th day from receipt by the Parent Bank of the approval by the Bangko Sentral and distributable on the 15th day from the said record date.972 (995) 977 2006 P (510) 2.986 P 401 3.043 P (863) 833 130 963 P 4. 2008 December 17.164) 2.434 1.705 0.986 (4.90 2.90 P 2. 2007 June 18. net of deferred income tax At January 1 Net change in fair value (Note 11) At December 31 Fair value reserve on investments of insurance subsidiaries.875 Cash dividends declared by the Board of Directors of the Parent Bank during the years 2006 to 2008 follow: Date Declared June 21.269) P 4.043 P (478) 963 80 1.90 2.90 2.482 1. 2006 December 11.122 70 70 742 91 833 P 2. 2006 June 7.434 1.719) - Parent 2007 P 1.255) (1. 66 .113) (890) 472 (249) 223 157 315 472 230 (21) 44 253 89 (5) 146 230 89 89 182 (21) 37 198 742 91 833 P 5.00 2. 2006 October 18.402 P 977 (2.434 0.90 2.150 223 (1. 2006 April 18.705 0.696) (1. 2008 August 3. 2007 November 21. 2008 Date Approved by the Bangko Sentral July 13. 2008 January 18.544 963 80 1.00 2. net of deferred income tax At January 1 Net change in fair value At December 31 Stock option scheme (Note 23) At January 1 Exercise of options Value of employee services At December 31 Surplus reserve At January 1 Transfer from surplus At December 31 Consolidated 2007 2006 2008 (In Millions of Pesos) P 2.921 0.90 2.972 - - 70 (5) 117 182 833 130 963 P 2.Details of movement in reserves for the years ended December 31 follow: 2008 Fair value reserve on available-for-sale securities. 2007 November 21. 2008 Pending approval Amount of Dividends Per Share Total (In Millions of Pesos) 0. 2007 January 18. 2006 November 20.434 0.

25%.48. Except Earnings Per Share Amounts) P 6.80 The equivalent common shares arising from potential exercise of stock options (Note 23) have insignificant effect on the calculation of diluted EPS thus.516 Options granted in 2008 represent additional entitlement as a result of the declaration of stock dividends by the Parent Bank (Note 22).663 (1.445 2.56 3.290 2.338) 11.201. The option to purchase shares under this plan shall expire five years from grant date.245 P 2. Note 23 . All outstanding options are fully exercisable as at December 31.704) 12. The significant inputs into the model were share prices of P61.926. standard deviation of expected share price returns of 30%.728.305 P 7.012 P 9. 2008 have remaining contractual life of 2 years and weighted exercise price of P31.245 P 2.79 3.182) (54.926. The weighted average share price for share options exercised in 2008 is P31.246 P 2.246 P 1.568. and annual risk free interest rate of 5. exercise price of P37.98 3. Movements in the number of share options are as follows: 2008 11. basic and diluted EPS are the same for the years presented.423 P 10. The fair value of options granted in 2007 using the Black-Scholes model amounted to P80 million.040 P 8. 2008.78).770.041. 67 . and (b) 60% after the third anniversary of the option grant date.78.09 3.The calculation of earnings per share (EPS) is shown below: 2008 a) Net income attributable to equity holders of the Parent Bank b) Weighted average number of common shares outstanding during the year after retroactive effect of stock dividends c) Basic EPS (a/b) Consolidated Parent 2007 2006 2007 2006 2008 (In Millions.067 12.421 (322.245 P 3.345.245 P 2.48 (2007 .50 at the grant date.728. Options outstanding at December 31.Stock Option Plan The BPI Group grants options to qualified officers under its Executive Stock Option Plan (ESOP).P37. The options vest over a period of three years as follows: (a) 40% after the second anniversary of the option grant date.238) (361. option life of 3 years.067 At January 1 Granted Exercised Cancelled At December 31 Exercisable 2007 10. The volatility measured at the standard deviation of expected share price returns is based on statistical analysis of daily share prices over the last three years.290 4.984 P 9.100 3.46 3.

041 703 53 1.Other Operating Income Details of other operating income follow: Trust and asset management fees Gain on sale of assets Rental income Credit card income Dividend income Others 2008 Consolidated 2007 P 1.631 931 P 6.472 P 1.558 672 P 4.611 P 6.301 Parent 2007 P 1.Leases The BPI Group and the Parent Bank have various lease agreements which are renewable under certain terms and conditions.512 1.478 1.259 785 67 946 P 6.563 Gain on sale of assets arises mainly from disposals of properties.599 2006 P 1.488 404 986 737 309 593 785 47 4.417 262 311 593 2. The rentals (included in Occupancy and equipment-related expenses) under these lease contracts are as follows: Consolidated Parent (In Millions of Pesos) P 813 P 562 763 524 718 485 2008 2007 2006 The future minimum lease payments under non-cancellable operating leases of the BPI Group are as follows: 2007 2008 (In Millions of Pesos) P 97 P 30 54 P 97 P 84 No later than 1 year Later than 1 year but no later than 5 years 68 .Note 24 .398 2006 2008 (In Millions of Pesos) P 1.604 1.418 615 301 703 2.928 1. foreclosed collaterals and non-performing assets.811 P 8. Note 25 .437 1.052 P 6.098 P 1.061 1. Dividend income recognized by the Parent Bank substantially pertains to dividend distribution of subsidiaries.

170 765 680 517 348 2006 2008 (In Millions of Pesos) P 1.98) (18.08 .80 31.768) 1.054 198 183 53 30 956 P 3.767 (3.265 166 394 120 33 572 P 4.548 35.698 P 2.18) (17.Other Operating Expenses Details of other operating expenses follow: Supervision and examination fees Advertising Litigation expenses Travel and communication Documentary stamps Management and other professional fees Office supplies Insurance Representation and entertainment Others 2008 Consolidated 2007 Parent 2007 2006 P 1.29 (371) (2.340 Consolidated 2007 2006 Rate Rate Rate Amount (%) Amount (%) (%) (In Millions of Pesos) P 4.485 110 199 37 24 1.078 35. net Actual income tax 69 (428) (2.55) 6.96) 8.29) (18.456 (3.045) 794 P 2.074 P 997 636 628 633 467 501 388 356 58 P 1.985 (2.00 (285) (1.Income Taxes A reconciliation between the provision for income tax at the statutory tax rate and the actual provision for income tax for the years ended December 31 follows: P 3.81 21.00 P 4.54 21.463) 1.29 2008 Amount Statutory income tax Effect of items not subject to statutory tax rate: Income subjected to lower tax rates Tax-exempt income Others.195 P 5.53) 17.011 P 4.00 35.354 P 4.579 112 338 32 27 928 P 4.Note 26 .958 Note 27 .911 178 256 125 31 1.219 802 586 511 118 P 960 609 538 404 344 P 911 482 474 404 346 252 226 148 38 1.110 P 2.

53) (16. 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.830 (3.36 19.P 3.41) (18.234 (26.06 3.46) (18.Basic Quantitative Indicators of Financial Performance The key financial performance indicators follow (in %): Consolidated 2007 2008 15.95) 6.03) 30. the benefit is equivalent to 112.73 1.450 35. shall be determined on the same basis as in voluntary retirement. noncontributory retirement benefit plans covering all qualified officers and employees. Note 28 .00 P 3.00 35.50% 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.00 (105) (1.Retirement Plans BPI and its subsidiaries.900) 551 P 2.688 Parent 2007 2006 Rate Rate Rate Amount (%) Amount (%) (%) (In Millions of Pesos) P 3.77 3. on the other hand. net Actual income tax (336) (1.83 3.64 Note 29 .76 3.72 2007 15.12 16.20 2008 Amount Statutory income tax Effect of items not subject to statutory tax rate: Income subjected to lower tax rates Tax-exempt income Others.842) 232 P 1.85) 2. Under this plan.826 35.69 21. if he has rendered less than 10 years of service.873 (3. Death or disability benefit.74 “Others.00 (386) (1.01 1.34 10. if he has rendered at least 10 years of service.46 1. or to 150% of his basic monthly salary. 70 . and the insurance company subsidiaries have separate trusteed. the normal retirement age is 60 years. For voluntary retirement.868) 627 P 1.99 1.76 Return on average equity Return on average assets Net interest margin Parent 2008 16. net” in 2008 includes impact of change in corporate income tax rates from 35% to 30% on future deductible and taxable differences. The description of the plans follows: BPI BPI has a unified plan which includes its subsidiaries other than insurance companies.

223) (952) 2008 Experience gain on plan liabilities Experience gain (loss) on plan assets 71 2006 P 1. whichever is earlier.598 1.919) (2.615) (4.645 P 9.053) P 6.033 5 (1.Insurance company subsidiaries The insurance company subsidiaries have separate retirement benefit plans which are either funded or unfunded and non-contributory.373) 2. the normal retirement age is 60 years or the employee should have completed at least 10 years of service.851) 2008 Present value of defined benefit obligations Fair value of plan assets Present value of unfunded obligation Unrecognized actuarial losses Liability (Asset) recognized in the statement of condition P 54 P (321) P (324) P 251 Parent 2007 2006 P 7.180) 2.386 P 2. Following are the amounts recognized based on recent actuarial valuations: (a) Liability (Asset) recognized in the statement of condition Consolidated 2007 2006 2008 (In Millions of Pesos) P 9. Death or disability benefit for all employees of the insurance company subsidiaries shall be determined on the same basis as in normal or voluntary retirement as the case may be.487 (4. Normal retirement benefits for ALAI employees consist of a lump sum benefit equivalent to 175% of the monthly salary of the employee at the time of his retirement for each year of service or the sum of all contributions made by the respective companies on his behalf including related investment earnings.456 P 16 P 1.898 707 .831) (5.019 (2. Voluntary retirement is allowed for ALAI employees who have attained at least age 50 years and have completed at least 20 years of continuous service and the benefit is determined on the same basis as normal retirement.519 (1.349 (493) 1.566) P P (34) (47) Pension liability and asset are included in “Miscellaneous liabilities” (Note 21) and “Miscellaneous assets” (Note 18).607 P 7.199 (5. The normal retirement age under these plans is 60 years. The normal retirement benefit is equal to 150% of the final basic monthly salary for each year of service for below 10 years and 175% of the final basic monthly salary for each year of service for 10 years and above.138) (3. Under the plan.968) 1. Experience adjustments at December 31 follow: Consolidated Parent 2007 2006 2007 2008 (In Millions of Pesos) P 34 P 1.475 (6.814 3992 3.938) (2.664) (6. BPI/MS has a separate trusteed defined benefit plan. respectively.262 P 8. whichever is larger.102 (2.

2008 and 2007.475 P 7.846 333 686 - - - (850) (110) P 9.645 530 692 P 5.968 2005 P 3.033 P 6.437 943 P 8.876 58 52 P 3.156 million at December 31.732 41 47 2.The movement in plan assets is summarized as follows: Consolidated 2007 2006 P 6.607 (953) 348 P 9.373 Pension plan assets of the unified retirement plan include investment in BPI’s common shares with fair value of P2.500 P 7.262 72 Parent 2005 2007 2006 2008 (In Millions of Pesos) P3.487 216 396 252 417 500 519 521 598 1.487 2005 P 2.664 553 471 (850) - P 6.313 359 241 (325) 406 (111) P 3.664 1.199 (65) (479) 1.370 million and P3.004 58 P2.664 100 100 P 5.500 .645 P 5.262 536 769 P 8. respectively.272 578 605 (657) - Parent 2005 2007 2006 2008 (In Millions of Pesos) P4.274 2.373 P 5. The actual return on plan assets was P670 million loss and P327 million gain at December 31.564 P 4.131 (325) 650 P 4.272 2008 At January 1 Expected return on plan assets Contributions Benefit payments Assets acquired from business combination Portion of assets allocated to subsidiaries due to transfer of employees Actuarial gains (losses) At December 31 5 (952) P 4. The movement in the present value of defined benefit obligation is summarized as follows: 2008 At January 1 Current service cost Interest cost Liability acquired from business combination Portion of liability allocated to subsidiaries due to transfer of employees Benefit payments Actuarial (gains) losses At December 31 Consolidated 2007 2006 P 9.846 - - (738) (648) 535 (91) P 7.041 56 1 1 52 1 58 P 6.124 41 2.615 (493) P 6.535 154 355 1.131 (657) (508) 2.180 P 4.615 52 47 1 100 Parent 2007 2007 2008 Amount % % Amount % Amount (In Millions of Pesos Except for Rates) P 3.180 100 P4.968 503 596 426 430 337 349 496 363 (508) (738) (479) (648) 406 - (1.223) P 5.883 P 5.831 820 459 (953) - P 5.883 The plan assets are comprised of the following: Consolidated Equity securities Debt securities Others 2008 Amount % P2.180 (65) 707 P 4.199 P 6.658 P 3.920 2.758 P 6.831 (124) P 5. 2008 and 2007. respectively.636 59 P5.

2008 and 2007.00% Discount rate Expected return on plan assets Future salary increases 2007 8.80% 8. Note 30 . 2009 amounts to P1.(b) Expense recognized in the statement of income Consolidated 2007 2006 2008 (In Millions of Pesos) P 530 P 333 P 536 P 417 692 686 769 598 (820) (578) (553) (430) 2008 Current service cost Interest cost Expected return on plan assets Net actuarial loss recognized during the year Effect of asset ceiling Total expense included in Compensation and fringe benefits 95 - 61 - P 847 P 463 10 (153) P 298 Parent 2007 P 396 519 (596) 64 - 44 - P 649 P 363 2006 P 252 521 (426) 7 (153) P 201 The principal assumptions used for the actuarial valuations of the unified plan of the BPI Group were as follows: 2008 10. The BPI Group’s expected retirement expense for the year ending December 31.00% 6.Trust Assets At December 31.00% The expected return on plan assets was determined by considering the expected returns available on the assets underlying the current investment policy. Expected yields on fixed interest investments are based on gross redemption yields as at the reporting date.546 Government securities 73 . Expected returns on equity securities and property investments reflect long-term real rates of return experienced in the respective markets.418 P 2. Government securities deposited by the BPI Group and the Parent Bank with the Bangko Sentral in compliance with the requirements of the General Banking Act relative to the trust functions follow: Consolidated Parent 2007 2007 2008 2008 (In Millions of Pesos) P 2.199 P 2. The average remaining service life of employees under the BPI unified retirement plan as at December 31. 2008 and 2007 is 21 years.00% 2006 8. the net asset value of trust assets administered by the BPI Group amounts to about P290 billion and P251 billion. respectively. Assumptions regarding future mortality and disability experience are based on published statistics generally used for local actuarial valuation purposes.31% 12.98% 6.13% 6.714 P 2.00% 10.259 million.

lease of bank premises. and with its directors.843 P 1. 2008 follow: Consolidated Parent 2007 2007 2008 2008 (In Millions of Pesos) P 1. lending/borrowing of funds.82 Nil Nil At December 31. sale of assets.694 P 1.021 P 18.696 P 19.26 2.339 P 7.781 P 1.269 2. service arrangements and advances for operating expenses.69 Nil Nil 26.685 17.01 2.Note 31 . trading of government securities and commercial papers.336 P 7. investment advisory/management.248 7.178 17. 2008 and 2007.872 P 34. These transactions usually arise from normal banking activities such as deposit arrangements.178 32.Related Party Transactions Included in the financial statements are various transactions of the BPI Group with its domestic and foreign subsidiaries and affiliates. Significant related party transactions are summarized below: a) Loans and advances and deposits from related parties Details of DOSRI loans and interest income earned are as follows: Consolidated Parent 2007 2007 2008 2008 (In Millions of Pesos) P 7. stockholders and related interest (DOSRI). officers.36 3.381 Subsidiaries Others Total b) Details of income earned by the Parent Bank from subsidiaries are as follow: 2007 2006 (In Millions of Pesos) P 70 P 321 P 263 8 6 8 2008 Interest income Other income 74 . Deposits from related parties at December 31.97 Outstanding DOSRI loans % to total outstanding loans and advances % to total outstanding DOSRI loans Unsecured DOSRI loans Past due DOSRI loans Non-performing DOSRI loans 14.54 Nil Nil 14. the BPI Group is in full compliance with the General Banking Act and the Bangko Sentral regulations on DOSRI loans.696 32.477 P 34.83 Nil Nil 26.

75 2006 P 226 15 26 32 . if any. after reviewing all actions and proceedings and court decisions with legal counsels. there are lawsuits and claims and tax assessments pending against the BPI Group. resulting from them will not materially affect the financial statements.1. BPI and some of its subsidiaries are defendants in legal actions arising from normal business activities. arising therefrom will not have a material effect on the BPI Group’s financial position or financial performance. The BPI Group does not anticipate any material losses from these commitments. In the opinion of management. the aggregate liability or loss. In the normal course of business. if any. the BPI Group makes various commitments (Note 3.c) Details of expenses charged to the Parent Bank by related parties are as follows: 2008 Interest expense Subsidiaries Others Other expenses Subsidiaries 2007 2006 (In Millions of Pesos) P 20 221 P 22 140 220 297 P 5 104 278 d) Key management compensation Details of key management compensation and directors’ remuneration follow: 2008 Key management compensation Salaries and other short-term benefits Post-employment benefits Share-based compensation Directors’ remuneration P 404 99 8 40 Consolidated Parent 2007 2006 2007 2008 (In Millions of Pesos) P 316 89 28 36 P 263 18 29 35 P 240 70 4 34 P 175 61 15 31 Note 32 .Commitments and Contingencies At present.4) that are not presented in the financial statements. Management believes that these actions are without merit or that the ultimate liability.