2011 Annual Report - BDO

The Bank’s lead regulator, the BSP, sets and monitors capital requirements for the Bank. Inimplementing current capital requirements, the BSP requires the Bank to maintain a prescribedratio of qualifying capital to risk-weighted assets.The BSP, under Circular 538 dated August 4, 2006 has prescribed guidelines inimplementing the revised risk-based capital adequacy framework for the Philippine bankingsystem to conform to Basel II Accord recommendations. The new BSP guidelines took effecton July 1, 2007.Under current banking regulations, the combined capital accounts of each bank should not beless than an amount equal to ten percent of its risk assets. The qualifying capital of the Bankfor purposes of determining the capital-to-risk assets ratio is total equity excluding:a. unbooked valuation reserves and other capital adjustments as may be required by theBSP;b. total outstanding unsecured credit accommodations to directors, officers, stockholdersand 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 the 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 determined by theMonetary Board of the BSP.The Bank’s policy is to maintain a strong capital base as to maintain investor, creditor andmarket confidence and to sustain future development of the business. The impact of the levelof capital on shareholder’s return is recognized by the Bank as well as the need to maintaina balance between the higher returns that might be possible with greater gearing and theadvantages and security afforded by a sound capital position.Under existing BSP regulations, the determination of the Bank’s compliance with regulatoryrequirements and ratios is based on the amount of the Bank’s “unimpaired capital” (regulatorynet worth) as reported to the BSP, which is determined on the basis of regulatory accountingpolicies, which differ from PFRS in some aspects. The combined capital accounts of theBank should not be less than an amount equal to ten percent (10%) of its risk assets. Asof December 31, 2011 and 2010, the Bank is in compliance with the capital adequacy ratiorequirement of the BSP. The Bank’s capital to risk assets ratio for combined credit, marketand operational risk stood at 32% and 25% as of December 31, 2011 and 2010, respectively.www.bdo.com.ph 71