2011 Annual Report - BDO

Interest rates on deposit liabilities ranged between 0.5% to 6.5% per annum both in 2011 and2010 for time deposits. While for demand deposits, interest rates ranged from 0.5% to 6.5%and 0.5% to 4.6% in 2011 and 2010, respectively.Under existing BSP regulations, non-FCDU deposit liabilities of the Bank are subject toliquidity reserve requirement equivalent to 11.0% both in 2011 and 2010 and statutory reserveequivalent to 10.0% and 8.0% in 2011 and 2010, respectively. As of December 31, 2011 and2010, the Bank is in compliance with such regulations.Management considers the carrying amounts of the short-term deposit liabilities recognizedin the statements of financial position to be reasonable approximation of their fair values. Onthe other hand, the fair value of the Bank’s outstanding long-term negotiable certificates ofdeposit (LTNCDs) and time deposits with maturities of more than one year is measured usingdiscounted cash flow.On April 26, 2007, the Monetary Board of the BSP authorized the Bank to issue up toP5,000,000,000 worth of fixed rate or zero coupon LTNCDs in one or more tranches. The firsttranche, consisting of P2,191,400,000 in zero coupon LTNCDs, was issued on June 18, 2007 andwill mature on December 18, 2012. These LTNCDs are presented net of discount and capitalizedtransaction costs amounting to P4.2 million and P8.0 million, in 2011 and 2010, respectively, as partof the Time Deposit Liabilities account in the statements of financial position.12. BILLS PAYABLEOutstanding bills payable as of 2011 and 2010 are unsecured and are due withinone year from the end of reporting periods.Bills payable represent the Bank’s borrowings from other local banks and entities which bearinterest rates of 3.9% per annum in 2011 and from 1.0% to 3.9% per annum in 2010.13. DERIVATIVE FINANCIAL INSTRUMENTSThe Bank uses derivative instruments for both hedging and non-hedging purposes. Currencyforwards represent commitments to purchase foreign and domestic currency, includingundelivered spot transactions. Currency and interest swaps are commitments to exchangeone set of cash flows for another. Swaps result in an economic exchange of currencies orinterest rates or a combination of all these. No exchange of principal takes place, except forcertain currency swaps. The Bank’s credit risk represents the potential cost to replace the swapcontracts if counterparties fail to perform their obligation.This risk is monitored on an ongoing basis with reference to the current fair value, aproportion of the notional amount of the contracts and the liquidity of the market. To controlthe level of credit risk taken, the Bank assesses counterparties using the same techniques as forits lending activities.www.bdo.com.ph 93