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

- 102 -On December 29, 2009, BSP issued Circular No. 677 effectively extending theimplemention of ICAAP from January 2010 to January 2011.In October 2009, the BDO Unibank Group presented its ICAAP and submitted theinitial draft of its ICAAP document to the BSP. Based on comments from the BSP,BDO Unibank Group subsequently revised its ICAAP document and secured approvalfrom its BOD in January 8, 2011.The ICAAP document articulates the BDO Unibank Group’s capital planning strategyand discusses governance, risk assessment, capital assessment and planning, capitaladequacy monitoring and reporting, as well as internal control reviews.The lead regulator of the banking industry, the BSP, sets and monitors capitalrequirements for the BDO Unibank Group. In implementing current capitalrequirements, the BSP requires BDO Unibank Group to maintain a prescribed ratio ofqualifying capital to risk-weighted assets.Under current banking regulations, the combined capital accounts of a bank should notbe less than an amount equal to ten percent of its risk assets. The qualifying capital ofthe BDO Unibank Group for purposes of determining the capital-to-risk assets ratio istotal equity excluding:(a) Unbooked valuation reserves and other capital adjustments as may be required bythe BSP;(b) Total outstanding unsecured credit accommodations to directors, officers,stockholders and related interests (DOSRI);(c) Deferred tax asset or liability;(d) Goodwill;(e) Sinking fund for redemption of redeemable preferred shares; and,(f) Other regulatory deductions.Risk assets consist of total assets after exclusion of cash on hand, due from BSP, loanscovered by hold-out on or assignment of deposits, loans or acceptances under letters ofcredit to the extent covered by margin deposits, and other non-risk items as determinedby the MB of the BSP.The amount of surplus funds available for dividend declaration is determined also onthe basis of regulatory net worth after considering certain adjustments.The BDO Unibank Group’s policy is to maintain a strong capital base to promoteinvestor, creditor and market confidence and to sustain future development of thebusiness. The impact of the level of capital on shareholder’s return is also recognizedand BDO Unibank Group recognizes the need to maintain a balance between thehigher returns that might be possible with greater gearing and the advantages andsecurity afforded by a sound capital position.The regulatory capital is analyzed into two tiers, which are Tier 1 Capital plus Tier 2Capital less deductions from the total of Tier 1 and Tier 2 capital for the following:(a) Investments in equity of unconsolidated subsidiary banks and other financial alliedundertakings, but excluding insurance companies;(b) Investments in debt capital instruments of unconsolidated subsidiary banks;(c) Investments in equity of subsidiary insurance companies and non-financial alliedundertakings;