2011 Annual Report - BDO

NOTES TOFINANCIAL STATEMENTSShown below are the Bank’s minimum capital-to-risk assets ratio as reported to the BSP as ofDecember 31, 2011 and 2010.2011 2010Tier 1 capital P 5,035,570,104 P 4,489,887,181Tier 2 capital 28,188,138 27,634,538Gross qualifying capital 5,063,758,242 4,517,521,719Less: Required reductions 36,624,225 34,304,870Total qualifying capital P 5,027,134,017 P 4,483,216,849Risk weighted assets P 15,950,424,411 P 17,909,659,403Tier 1 capital ratio 31.34% 25.00%Tier 2 capital ratio 0.18% 0.15%Risk-based capital adequacy ratio 31.52% 25.03%Further, under an existing BSP circular, commercial banks must meet a minimum capitalthreshold amounting to P2.4 billion. As of December 31, 2011 and 2010, the Bank hassatisfactorily complied with this externally imposed capitalization requirement.There have been no material changes in the Bank’s management of capital during the period.2.17.02 Capital AllocationThe allocation of capital between specific operations and activities is, to a large extent drivenby optimization of the return achieved on the capital allocated. The amount of capitalallocated to each operation or activity is based primarily upon the regulatory capital, butin some cases the regulatory requirements do not reflect fully the varying degree of riskassociated with different activities. In such cases the capital requirements may be flexed toreflect differing risk profiles subject to the overall level of capital to support a particularoperation or activity not falling below the minimum required for regulatory purposes. Theprocess of allocating capital to specific operations and activities is undertaken independentlyof those responsible of the operation and is subject to review by the ALCO.Although maximization of the return on risk-adjusted capital is the principal basis used indetermining how capital is allocated within the Bank to particular operations or activities, itis not the sole basis used for decision-making. Synergies with other operations and activities,the availability of management and other resources, and the fit of the activity with the Bank’slonger term strategic objectives are also taken into account. The Bank’s policies in respect ofcapital management and allocation are reviewed regularly by the Board.