2004 - Asianbanks.net

In addition, a portion of the Parent Company’s surplus corresponding to the undistributed accumulated equity in netearnings of subsidiaries and associates amounting to P=3.5 billion and P=3.8 billion as of December 31, 2004 and2003, respectively, is not available for dividend declaration until realized by the Parent Company through distributionof cash dividends by the subsidiaries and associates.The determination of the Parent Company’s compliance with regulatory requirements and ratios is based on theamount of the Parent Company’s unimpaired capital (regulatory capital) as reported to the BSP, which is determinedon the basis of regulatory accounting practices which differ from Philippine GAAP in some respects.Specifically, under existing banking regulations, the combined capital accounts of each commercial bank should notbe less than an amount equal to ten percent (10%) of its risk assets. Risk assets is defined as total assets less cashon hand, due from BSP, loans covered by hold-out on or assignment of deposits, loans or acceptances under lettersof credit to the extent covered by margin deposits and other non-risk items determined by the MB of the BSP.Under BSP Circular No. 360, effective July 1, 2003, the capital-to-risk assets ratio (CAR) is to be inclusive of amarket risk change. Using this formula, the CAR of the Group was 14% and 17% (as restated) as of December 31,2004 and 2003, respectively, while that of the Parent Company is 13% and 15% (as restated), respectively.Under the previous computation provided for under BSP Circular No. 280, which BSP Circular No. 360 aboveamended, the CAR of the Group as of December 31, 2004 and 2003 was 14% and 17% (as restated), respectively,while that of the Parent Company was 13% and 15% (as restated), respectively.17. Retirement PlansThe Group has separate funded noncontributory defined benefit retirement plans covering substantially all its officersand regular employees. Under these retirement plans, all covered officers and employees are entitled to cashbenefits after satisfying certain age and service requirements. The principal actuarial assumptions used to determineretirement benefits consist of: (1) retirement age of 60 and 65 years and average remaining working life of coveredofficers and employees of 12 to 15 years; and (2) investment yield and projected salary increases of 8% to 11% and5% to 10% per annum, respectively. The latest actuarial valuation studies of the retirement plans were made onvarious dates in 2004. Based on such studies, the aggregate unfunded past service liabilities of the Groupamounted to P=494.8 million and P=726.0 million as of December 31, 2004 and 2003, respectively, net of plan assetsat fair value amounting to P=850.6 million and P=593.0 million as of December 31, 2004 and 2003, respectively. Totalretirement expense charged against operations in 2004 and 2003 consisting of the normal cost, interest cost onunfunded past service liability and amortization of transition liability and actuarial gains or losses amounted to P=221.1million and P=303.5 million, respectively.18. Lease ContractsThe Parent Company leases the premises occupied by some of its branches, including those of its subsidiaries. Thelease contracts are for periods ranging from 1 to 20 years and are renewable at the Group’s option under certainterms and conditions. Various lease agreements include escalation clauses, most of which bear an annual rentincrease of 5% to 10%. As of December 31, 2004, the Group had no contingent rent payable.Total rent expense incurred by the Group (included under Occupancy and other equipment-related expenses)amounted to P=602.6 million in 2004, P=470.4 million (as restated) in 2003 andP=525.0 million (as restated) in 2002 of which P=499.7 million in 2004, P=395.4 million (as restated) in 2003 and P=456.0million (as restated) in 2002 was incurred by the Parent Company.Future minimum lease rentals payable under non-cancelable operating leases follow:- 69-