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

- 58 -Parent BankImpact onImpact on othernet profit after tax comprehensive incomeincrease (decrease) increase (decrease)2011 2010 2011 2010AFS securities P - P - P 38 P 1504.02.04 Credit RiskCredit risk is the risk that the counterparty in a transaction may default and arises fromlending, trade finance, treasury, derivatives and other activities undertaken by theBDO Unibank Group. BDO Unibank Group manages its credit risk and loan portfoliothrough the RMG, which undertakes several functions with respect to credit riskmanagement.The RMG undertakes credit analysis and review to ensure consistency in BDO UnibankGroup’s risk assessment process. The RMG performs risk ratings for corporateaccounts and assists the design and development of scorecards for consumer accounts.It also ensures that BDO Unibank Group’s credit policies and procedures are adequateto meet the demands of the business. The RMG is also responsible for developingprocedures to streamline and expedite the processing of credit applications.The RMG also undertakes portfolio management by reviewing BDO Unibank Group’sloan portfolio, including the portfolio risks associated with particular industry sectors,loan size and maturity, and development of a strategy for BDO Unibank Group toachieve its desired portfolio mix and risk profile.BDO Unibank Group structures the levels of credit risk it undertakes by placing limitson the amount of risk accepted in relation to one borrower, or groups of borrowers,and to industry segments. Such risks are monitored on a revolving basis and subject toan annual or more frequent review.Exposure to credit risk is managed through regular analysis of the ability of borrowersand potential borrowers to meet interest and capital repayment obligations and bychanging these lending limits when appropriate. Exposure to credit risk is also managedin part by obtaining collateral and corporate and personal guarantees.4.02.04.01 Exposure to Credit RiskLoan classification and credit risk rating are an integral part of the BDO UnibankGroup’s management of credit risk. On an annual basis, loans are reviewed, classifiedand rated based on internal and external factors that affect its performance. On aquarterly basis, loan classifications of impaired accounts are assessed and the results areused as basis for the review of loan loss provisions.