Via ODiSy March 22, 2012 PHILIPPINE STOCK EXCHANGE ... - BDO

- 43 -4. RISK MANAGEMENTBy their nature, BDO Unibank Group’s activities are principally related to the use offinancial instruments including derivatives. BDO Unibank Group accepts depositsfrom customers at fixed and floating rates for various periods and seeks to earnabove-average interest margins by investing these funds in high-quality assets. BDOUnibank Group seeks to increase these margins by consolidating short-term funds andlending for longer periods at higher rates, while maintaining sufficient liquidity to meetall claims that might fall due. BDO Unibank Group also trades in financial instrumentswhere it takes positions in traded and over-the-counter instruments, includingderivatives, to take advantage of short-term market movements in equities and bondsand in currency and interest rate prices.To manage the risk for holding financial assets and liabilities, BDO Unibank Groupoperates an integrated risk management system to address the risks it faces in itsbanking activities, including liquidity, interest rate, credit and market risks. BDOUnibank Group’s risk management objective is to adequately and consistently evaluate,manage, control, and monitor the risk profile of BDO Unibank Group’s statements offinancial position to optimize the risk-reward balance and maximize return on BDOUnibank Group’s capital. BDO Unibank Group’s Risk Management Committee (RMC)has overall responsibility for BDO Unibank Group’s risk management systems and setsrisk management policies across the full range of risks to which BDO Unibank Group isexposed. Specifically, BDO Unibank Group’s RMC places trading limits on the level ofexposure that can be taken in relation to both overnight and intra-day market positions.With the exception of specific hedging arrangements, foreign exchange and interest rateexposures associated with these derivatives are normally offset by entering intocounterbalancing positions, thereby controlling the variability in the net cash amountsrequired to liquidate market positions.Within BDO Unibank Group’s overall risk management system, the Assets andLiabilities Committee (ALCO) is responsible for managing the Group’s statement offinancial position, including BDO Unibank Group’s liquidity, interest rate and foreignexchange related risks. In addition, ALCO formulates investment and financial policiesby determining the asset allocation and funding mix strategies that are likely to yield thetargeted financial results.Separately, the Risk Management Group (RMG) is mandated to adequately andconsistently evaluate, manage, control, and monitor the over-all risk profile of theBank’s activities across the different risk areas (i.e., credit, market, liquidity, andoperational) to optimize the risk-reward balance and maximize return on capital.RMG has responsibility for the setting of risk policies across the full range of risks towhich BDO Unibank Group is exposed to.In the performance of its function, RMG observes the following framework:• It is responsible for policy formulation in coordination with the relevantbusinesses/functions and ensures that proper approval for the manuals/policiesis obtained from the appropriate body.