2011 Annual Report - BDO

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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
NOTES TOFINANCIAL STATEMENTSThe notional amounts of certain types of financial instruments provide a basis for comparisonwith instruments recognized in the statements of financial position but do not necessarilyindicate the amounts of future cash flows involved or the current fair value of the instrumentsand, therefore, do not indicate the Bank’s exposure to credit or price risks. The derivativeinstruments become favorable or unfavorable as a result of fluctuations in market interestrates, foreign exchange rates and other underlying relative to their terms. The aggregatecontractual or notional amount of derivative financial instruments on hand, the extent towhich instruments are favorable or unfavorable, and thus the aggregate fair values of derivativefinancial assets and liabilities, can fluctuate significantly from time to time.The fair values of derivative instruments held are set out below.NotionalFair ValuesAmount Assets LiabilitiesDecember 31, 2011Free-standing:Forward contractsSell: USD/PHP P 26,250,996,736 P 597,596,985 P -Buy: USD/PHP 26,249,533,909 - 599,851,958Cross currency swaps 26,033,801,177 1,250,997,052 823,470,485Interest rate swaps 788,400,000 4,349,515 23,623,410P 79,322,731,822 P 1,852,943,552 P 1,446,945,853NotionalFair ValuesAmount Assets LiabilitiesDecember 31, 2010Free-standing:Forward contractsSell: USD/PHP P 27,787,829,088 P 601,514,317 P -Buy: USD/PHP 27,796,515,495 - 636,210,311Cross currency swaps 18,225,514,050 1,101,010,594 840,129,272Interest rate swaps 1,514,480,000 27,188,491 71,047,123Credit default swaps 818,300,000 642,144 -P 76,892,638,633 P 1,730,355,546 P 1,547,386,706The fair value gains or losses recognized as part of Trading and Securities Gain – netaccount in the statements of income determined using a valuation technique amounted toP176,220,771 and P35,316,503 in 2011 and 2010, respectively, representing changes in fairvalue of the derivative financial assets and liabilities of the Bank.
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TABLE OFCONTENTS246Corporate Missio
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OUR COMMITMENTOur commitment to pro
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We remain steadfast in our vision a
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The Storywww.bdo.com.ph 9
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• Execution. If you are more of a
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ELIZABETH T. SY,Director59 years ol
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ADVISERSHarley T. Sy Ian T. Fish Ra
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CORPORATEGOVERNANCEBDO Private Bank
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CORPORATEGOVERNANCEChairman: Nestor
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Awardswww.bdo.com.ph 23
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Best Private Bankin the Philippines
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REPORT OFINDEPENDENT AUDITORSTHE BO
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STATEMENTS OFINCOMEFOR THE YEARS EN
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STATEMENTS OFCHANGES IN EQUITYFOR T
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www.bdo.com.ph 33
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2.01 Basis of Preparation of Financ
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2010Notes FRSP Difference PFRSChang
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Bank is not subject to minimum fund
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losses on AFS, can be reclassified
Page 44 and 45: i. only in rare circumstances and i
Page 46 and 47: together with the host contract wit
Page 48 and 49: If there is objective evidence that
Page 50 and 51: Bills payable are recognized initia
Page 52 and 53: In considering each possible relate
Page 54 and 55: translated into the Bank’s presen
Page 56 and 57: Deferred tax is provided, using the
Page 58 and 59: • The Risk Management Unit is res
Page 60 and 61: 2.15.02.01 Foreign Exchange RiskThe
Page 62 and 63: The following table shows the amoun
Page 64 and 65: 2011More MoreOne to than three than
Page 66 and 67: 2010More MoreOne to than three than
Page 68 and 69: The following table sets out the cr
Page 70 and 71: December 31, 2010Loans - Trading an
Page 72 and 73: The Bank’s lead regulator, the BS
Page 74 and 75: 3. CRITICAL ACCOUNTING ESTIMATES AN
Page 76 and 77: Details of impairment losses (recov
Page 78 and 79: payable) with repricing frequencies
Page 80 and 81: and any resulting impairment loss c
Page 82 and 83: from 0.0% to 9.13% per annum in 201
Page 84 and 85: 6.01 Collateralized Debt Obligation
Page 86 and 87: P9,483,508 in 2011 and 2010, respec
Page 88 and 89: this transaction amounted to P84,58
Page 90 and 91: In 2010, the Bank has assessed two
Page 92 and 93: A reconciliation of the carrying am
Page 96 and 97: 14. ACCRUED TAXES AND OTHER LIABILI
Page 98 and 99: 15.05 Surplus ReserveIn compliance
Page 100 and 101: Changes in the present value of the
Page 102 and 103: Assumptions rgarding future mortali
Page 104 and 105: 21. TAXES21.01 Current and Deferred
Page 106 and 107: The Bank is subject to MCIT which i
Page 108 and 109: The composition of the Bank’s AUM
Page 110 and 111: www.bdo.com.ph 109
Page 112: PRODUCTSAND SERVICESWEALTH ADVISORY
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2011 Annual Report - BDO

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