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CHAPTER I

INTRODUCTION

Company Profile

Banco De Oro (BDO), legally known as BDO Unibank, Inc, is one of the

most trusted and leading banking company in the Philippines which is a product

of a merger between Equitable PCI Bank. It offers a variety of financial services

and products through its 1,100 operating branches, over 4,000 ATMs nationwide

and through their local subsidiaries. Aside from manual banking, BDO offers a

convenient way of banking for their customers through mobile and online

banking. BDO continues to grow and expand into new markets locally and

internationally.

Products and services

 Deposit-taking  Credit cards

 Lending (corporate,  Corporate cash management

commercial, consumer, and  Remittances

SME)  Leasing and financing

 Foreign Exchange  Investment banking

 Brokering  Private banking

 Treasury  Rural banking

 Trust and Investments  Bancassurance

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 Insurance brokerage

 Stock brokerage services

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CHAPTER II

RESEARCH DESIGN AND METHODOLOGY

The group will use descriptive research design to describe the existing

factors that affects the performance of BDO. This includes their strengths,

weaknesses, opportunities and threats. We’ll also look into their company,

environment, finance, and human resource to assess their current situation. This

will help use formulate a strategic paper.

We will obtain information from online sources such as BDO’s website

(www.bdo.com.ph) and PSE Electronic Disclosure Generation Technology

(edge.pse.com.ph) for financial purposes. Also, we will have an interview with

one of the employees of BDO and we are still in the process of approval for the

interview with one of the management.

All gathered information will serve as the basis for this paper. The group

will thoroughly assess all aspects in order to come up with a long term strategy

that will help BDO.

CHAPTER III
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VISION AND MISSION

There are two important tools needed for a strategic planning to be

effective: a mission and vision statements. It serves as a guide for creating

objectives and goals of an organization. It serves a road map to be followed by

everyone.

There are nine element criteria that will help in creating a mission statement

and according to David, these are: Employees, Survival Growth Profit,

Customers, Products and Services, Markets, Technology, Philosophy, Self-

concept and Public Image. While Vision statement is an agreement that a firm

wants to achieve in a long run for the firm’s success.

Mission Statement of BDO

“To be the preferred bank in every market we serve by consistently providing

innovative products and flawless delivery of services, proactively reinventing

ourselves to meet market demands, creating shareholders value through

superior returns, cultivating in our people a sense of pride and ownership, and

striving to be always better than what we are today… tomorrow.”

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New Mission Statement

“To provide our customers the finest financial service that will satisfy and fulfill

their needs and to operate with integrity and fairness at all times as we contribute

to the nation’s growth with competent and upright professionals.”

Vision Statement of BDO

BDO has no vision statement.

New Vision Statement

“To be the leading bank and your most trusted partner in finance that can provide

a complete and globally competitive financial service tailored for your

convenience.
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CHAPTER IV

ENVIRONMENTAL ANALYSIS

PORTER’S FIVE FORCES ANALYSIS

1. Threat of new entrants

It is always considered a threat when new potential competition comes in the

industry. In the Philippines, there’s a high capital requirement before establishing

a bank as prescribed by Bangko Sentral ng Pilipinas (BSP). It will not be easy to

comply with this high capital requirement. Also, existing banks have loyal

customers to their brand since they’ve already established a reputation on the

quality of service they can offer.

2. Bargaining power of buyers

The bargaining power of buyers has a huge effect on the competition in the

banking industry. Customers can opt to manage and invest their money in

another bank any time if they are not satisfied with the services offered by their

current bank. Banks recognize this problem and continuously try to come up with

new innovative financial services that they can offer to customers to differentiate

themselves from competitors. But even though customers can choose another

bank if they’re dissatisfied, one factor that can affect their decision to change

bank is the high switching costs. It can be a long process and most of all costly to
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move all of deposits, investments, bill payments etc., to another bank so majority

still choose to stay in their current bank.

3. Bargaining power of suppliers

The suppliers of banks are the depositors. The depositors contribute to the

capital and profit of the bank. The depositors have low bargaining power with the

banks since banks need to follow the rules and regulations of BSP. BSP gets to

decide the banking policies in the country and that includes the interest rates of

the banks so depositors cannot really bargain for lower interest rates.

4. Threat of substitutes

The threat of available substitutes for the banking industry is not usually from

competing banks but from non-bank competitors like pawnshops, loan sharks,

cooperatives etc. Loans and insurances are some of the services that the non-

bank competitors offer with lower interest rate to attract more customers. Even if

these non-bank competitors offer some services that are the same with banks,

many customers still choose to select banks for their financial transactions

because of the risk they’ll be taking, the security of their money and the high cost

of switching.
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5. Rivalry among competing firms

In the banking industry, the threat of competition is high. Banks continuously

try to explore and expand into new innovative measures and technology to be

able to offer a different service than what the other competing banks can offer.

Nowadays, it is hard to differentiate one bank from another since banks offer

almost the same financial services (loans, savings). It will be a matter of who can

offer faster service, customer security, good customer service and minimal

requirements/fees to name a few factors to improve and focus on.

PORTER’S FIVE FORCES EVALUATION

1. Threat of new entrants LOW

2. Bargaining power of buyers MODERATE

3. Bargaining power of suppliers LOW

4. Threat of substitutes MODERATE

5. Rivalry among competing firms HIGH

EXTERNAL ENVIRONMENT ANALYSIS

1. Political, governmental and legal forces

Political, governmental and legal forces can greatly affect business

organizations and how they operate. These forces include new financial reforms,
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legislation, tax policies, political decisions/influence etc. It affects the competition

in the banking industry and possible restrictions on how a business can operate.

Bangko Sentral ng Pilipinas (BSP) is the central bank of the republic of the

Philippines. It provides and regulates the money and banking policies in the

country. It also oversees the operations of banks and non-banks with quasi-

banking functions. In 2017, they approved a new set of regulations for granting

licenses to banks and other financial institutions after they lifted the 17-year old

ban on giving out license to new domestic banks. The 1999 ban on the approval

of new licenses was in response to the Asian financial crisis. They only allowed

the establishment of banks in unbanked areas focused on microfinance. Now

that the ban is lifted, it will clearly affect the competition in the banking industry. A

lot of new banks and financial institution will enter the industry and that means

more competition for the existing banks in the country.

2. Economic forces

The economic forces affect how the businesses operate and distribute

their services. It includes inflation rate, exchange rate, value of peso,

employment rate and population growth to name a few. The current state of the

Philippine economy is crucial and has an immense impact in the operations of

banks in our country.

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In 2018, Bangko Sentral ng Pilipinas (BSP) raised its benchmark interest

rates five times to tame inflation. The BSP’s overnight reverse repurchase (RRP)

facility was raised by 25 basis points. A total increase of 175 basis points was

made by BSP in the five times they raised their benchmark interest rates. The

overnight reverse repurchase is now at 4.75 percent, the overnight deposit rate

at 4.25 percent and the overnight lending facility at 5.25 percent. The Philippine

Statistics Authority (PSA) announced that the inflation rate became lower this

March 2019 to 3.3%. These changes in inflation rates cause changes in interest

rates that hugely affect the banking industry and its financial stability. When the

interest rates are lower, it enables the banks to offer cheap loans to customers

and it attracts them to apply for loans to buy the things that they need and want.

It boosts the economy and the profit of banks. But when the interest rates are

higher, people will try not to use credit cards or apply for a loan. Fluctuating

inflation rates causes uncertainty not only to Philippine economy but also to the

stability of banking industry.

3. Socio-cultural and demographic forces

Socio-cultural forces are the lifestyles, traditions, trends, attitudes and

values of people. These forces are important to all businesses because it affects

the buying behavior of consumers. The preferences of consumers change over

time. In relation to the banking industry, the socio-cultural forces affect how

consumers use banking services.

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According to Bangko Sentral ng Pilipinas (BSP) survey, about 52.8 million

Filipino adults (adults are ages 15 years old and above based on the survey)

don’t have bank accounts compared to 15.8 million who own one. 60% of people

in the survey who don’t have bank account stated that they don’t have enough

money for banks, 21% don’t see the need for it, 18% don’t have the necessary

documents required, 10% can’t afford the cost of opening an account, 9% lack of

knowledge on how to open an accounts, 8% are unemployed; and 8% lack of

awareness. It is a huge amount of new target customer for the banking industry.

They should know how to attract these Filipinos to save, invest and loan money

in banks.

4. Technological forces

The developments in technology have a huge impact on how businesses

operate all around the world. Before technology transformed the banking

industry, banking for people means going out of the house, waiting in line for

hours and lots of paper work. But with the continuous evolution of technology, it

opens new opportunities for the banking sector. The banking operations

transformed from paper to automated and networked services. They now offer

services that are more accessible and convenient for the customers.

Technological advancements enabled the banking industry to offer services like

Automatic Teller Machines, Telephone Banking, Electronic Fund Transfer, Online

banking, Mobile banking etc.

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OPPORTUNITIES THREATS

1. Possible branches to rural areas 1. Increasing number of competitors

2. Expansion to foreign market 2. Continuous rise of inflation rate

3. Merger and acquisition of banks 3. New government policies and

4. Innovation of new banking products regulations

and services 4. Substitute products/services

5. Changing socio-cultural and 5. Changing customer behaviour

demographic forces 6. Mobile malware and fraud in mobile

banking

EXTERNAL FACTORS EVALUATION MATRIX

Key Internal Factors Weight Rating Weighted

Score
Opportunities
1. Possible branches to rural areas 0.11 3 0.33

2. Expansion to foreign market 0.09 2 0.18

3. Merger and acquisition of banks 0.06 2 0.12

4. Innovation of new banking products 0.15 4 0.6

and services

5. Changing socio-cultural and 0.09 2 0.18

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demographic forces

Threats
1. Increasing number of competitors 0.07 1 0.07

2. Fluctuation of inflation rate 0.18 4 0.72

3. New government policies and 0.05 1 0.05

regulations

4. Substitute products/services 0.09 2 0.18

5. Mobile malware and fraud in mobile 0.11 3 0.33

banking

Total 1.00 - 2.76

4 - Superior response, 3 - Above average response

2 - Average response, 1 Poor response

Brief Description of Competitors

Metropolitan bank and Trust (Metrobank)

Metropolitan Bank and Trust Company, or also known as Metrobank, founded in

September 5, 1962 and became the premier universal bank in the Philippines. A

group of Filipino businessmen provide financial service to Filipino – Chinese

community.
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Bank of the Philippines Island (BPI)

One of the oldest banks in the country and still in operation and it is the 3rd

largest bank and company in terms of assets. It is founded in 1851 and the first

bank in the Philippines and Southeast Asian Region. It is owned by Ayala

corporation.

Philippine National Bank (PNB)

Land Bank

It is the largest formal credit institution in rural areas and ranks to the top five

commercial banks in the country in terms of deposits, assets and loans. It is a

government owned bank that focuses on serving the needs of farmers and

fishermen. It strikes of promoting countryside development while remaining

financially viable.
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CHAPTER V

COMPANY ANALYSIS

MCKINSEY’S 7-S MODEL

The McKinsey 7s Framework as shown above will be used to conduct the

company analysis for BDO. It will identify the internal aspects that should be

aligned in order for the company to be successful.

SHARED VALUES

The shared or “core” values that BDO has are the following:

 Commitment to Customers
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We are committed to deliver products and services that surpass customer

expectations in value and every aspect of customer services, while remaining to

be prudent and trustworthy stewards of their wealth.

 Commitment to a Dynamic and Efficient Organization

We are committed to creating an organization that is flexible, responds, to

change and encourages innovation and creativity. We are committed to the

process of continuous improvement in everything we do.

 Commitment to Employees

We are committed to our employees’ growth and development and we will

nurture them in an environment where excellence, integrity, teamwork,

professionalism and performance are valued above all else.

 Commitment to Shareholders

We are committed to provide our shareholders with superior returns over the long

term.

BDO placed its commitment to the three most important people that

makes the company successful. The customers, as they are the primary people

that they give service to. The employees, as they are the ones who directly

provide the company’s services to the customers. The shareholders, who

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invested and owns a share in the company’s stock. Also, they are committed to

an ever changing organization that responds to changes internally and externally.

STRUCTURE

The organizational chart above shows the hierarchy of the people and

departments in BDO. It shows that at the top of the hierarchy are the Board of

Directors and the Chairman. All final decisions regarding the company will come

from them. Then after them is the Corporate Secretary who assists them. There

are different committees in charge of different aspects of the company that are
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equally functioning and important. They have subsidiaries under them such as

Internal Audit, Compliance, Risk Management, and Trust and Investments. After

the committees, are the management groups that are being handled by the

President. The subsidiaries under the Relationship, Product, and Support and

Delivery Management Groups are in charge of the daily operations and are

directly providing service to the customers.

The following are the Board of Directors:

 Teresita T. Sy – The Chairperson. She is a 67 years old Filipino that has

been a member of Board of Directors of BDO since 1977.

 Jesus A. Jacinto, Jr. – The Vice Chairman. He is a 70 years old Filipino

that was elected as Vice Chairman of the Board since May 25, 1996.

 Nestor V. Tan – Director. He is a 60 years old Filipino that is the President

and CEO of BDO.

 Christopher A. Bell-Knight – Director. He is a 73 years old Canadian that

was elected last July 27, 2013.

 Jose F. Buenaventura – Independent Director. He is a 83 years old

Filipino that was elected last April 19, 2013.

 Jones M. Castro Jr. – Independent Director. He is a 69 years old Filipino-

American that was elected last April 20, 2012.

 Antonio C. Pacis – Director. He is a 77 years old Filipino that was elected

last June 25, 2004.

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 Dioscoro I. Ramos – Independent Director. He is a 59 years old Filipino

that was elected last January 9, 2016.

 Josefina N. Tan – Director. She is a 72 years old Filipino that was a

Director from February 3, 2001 to August 2005 and was re-elected in July

27, 2007.

 Jimmy T. Tang – Independent Director. He is a 82 years old Filipino that

was elected last July 27, 2002.

 Gilberto C. Teodoro, Jr. – Independent Director. He is a 53 years old

Filipino that was elected last April 25, 2014.

All Directors has experiences in Banking and are also currently holding

positions in different companies.

STAFF

BDO’s staff comprises of the following:

Branch

 Branch Accountants

 Branch Managers

 Branch Operations Officers

 Service Officers

Non-Branch

 Account Brokers
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 Account Officers (Insurance, Loans, Leasing, Investment,

Trust)

 Auditors

 Business Development Officers

 CI/Appraisers

 Collection Officers

 Customer Service Officers

 Credit Analysts (Risk Management)

 Credit Officers (Loans)

 Information Technology Officers

 Loan Documentation Officers

 Merchant Acquiring Officers

 Product Marketing Officers

 Programmers/Analysts

 Sales Officers

 Settlements Operations Officers

All employees must have backgrounds in accounting, banking and

finance, business, management, sales and programming. Their specific skills and

competency differs depending on the job.

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SKILLS

In BDO, since they are part of the Banking Industry, the following skills are

important:

 Customer Service

 Technical Skills

 Problem Solving

 Team Work

 Numeracy Skills

 Time Management

 Leadership Skills

To make sure that all of their employees will maintain and even improve their

skills, BDO offers BDO Life Training Plan. It includes four program: (1) New

Employees On-boarding Program (2) Staff Development Program (3)

Supervisory Development Program (4) Management Development Program.

STRATEGY

The Bank’s strategy is focused on three (3) core areas, namely:

1. Building a diversified and sustainable earnings stream on client

acquisition through branch expansion, provincial lending and deposit taking

initiatives, and increased fee income via cross-selling.

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2. Creating operating leverage by building a platform that supports future

growth and an innovative digital strategy.

3. Prudently managing its balance sheet by conservatively provisioning for

risk, complementing current funding with long-term funding sources and

ensuringsufficient capital to support growth.

Following these three core areas as a guide for their strategies, BDO

successfully implemented the following initiatives:

• One Network Bank (ONB) — which pilot testson micro-SMEs (small- and

mediumsized enterprises) lending model. This was conducted in six areas in

Davao and Iloilo.

• BDO Life —Financial Advisor(FA) coverage of BDO branches was raised

in the end of 2017 vs. June 2016 to 89% vs. 84% respectively.

• BDO Nomura — initiated a research on over 40 Philippines stocks.

• Digital Initiatives —introduction of biometrics (fingerprintauthentication for

mobile banking),creating a virtual bank and different initiatives to support modern

IT.

With these initiatives, BDO received various awards and recognition such

as Best Bank in the Philippines, Best Retail Bank in the Philippines, Best

Corporate Institutional Bank in the Philippines, Best Investment Bank in the

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Philippines, Bank of the Year, and Best Private Bank in the Philippines, proving

that their strategy was successful and gave them competitive advantage.

FINANCIAL ANALYSIS
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As shown above, there is a raise of 15% on the total assets of BDO. From

2.3 billion pesos in 2016, it went up to 2.6 billion pesos in 2017. In the income

statement, the net interest also went up from 65.6 billion to 81.8 billion. However,

when you look into their profitability, the returns in average common equity,

average equity and average assets went down to 12.7% to 10.2%, 12.5% to

10.2% and 1.2% to 1.1% respectively. There also an increase in manpower from

31,443 to 33,747 as 76 new branches opened.

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STRENGTHS AND WEAKNESSES

STRENGTHS WEAKNESSES

6. Wide array of services 15. Limited branches in rural areas

7. Advanced technology 16. Often system failures

8. Well-established brand recognition 17. Problems with ATM machines

9. Number of branches 18. Weak protection of its customers

10. Extended bank hours towards unauthorized transactions

11. Highest number of remittances

abroad

12. Brand loyalty

13. Employee’s skills

14. Good quality services

INTERNAL FACTORS EVALUATION MATRIX

Key Internal Factors Weight Rating Weighted

Score
Strengths
1. Wide array of services 0.02 3 0.06

2. Advanced technology 0.14 4 0.56

3. Well-established brand recognition 0.18 4 0.72

4. Number of branches 0.04 3 0.12

5. Extended bank hours 0.06 3 0.18

6. Highest number of remittances abroad 0.05 3 0.15

7. Brand loyalty 0.12 4 0.48

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8. Employee’s skills 0.07 4 0.28

9. Good quality services 0.05 3 0.15

Weaknesses
1. Limited branches in rural areas 0.01 2 0.02

2. Often system failures 0.08 1 0.08

3. Problems with ATM machines 0.07 2 0.14

4. Weak protection of its customers 0.11 1 0.11

towards unauthorized transactions

Total 1.00 - 3.05

4 - Major strength, 3 - Minor strength,

2 - Minor weakness, 1 - Major weakness

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CHAPTER VI

STRATEGIC (LONG-TERM) OBJECTIVE

The following are the objectives to become the continuous leading bank in the

industry:

 Expand market coverage

BDO should really expand their market coverage especially those in rural

areas to increase their client coverage and to expand ATMs and other digital

outlets.

 Invest in technology

BDO will invest in technology such as cloud computing, big data and

analytics, and cybersecurity to deliver financial services conveniently and quickly

because technology had been useful and helpful as it grows rapidly due to the

need of humans.

 To remain loyal to its customer service philosophy

Their commitment to their customers will provide them to give the highest

level of customer service. This commitment of them is best summed up in their

philosophy of “We Find Ways”.

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CHAPTER VII

External Opportunities External Threats (T)

(O) 1. Increasing number of
1.Increasing number of branches competitors
TOWS MATRIX 2 The use of social media 2. Cancelation of transactions
platforms 3. Competitor’s Product
3. Merging in other banks 4. Weak Peso
4. Banking Technology 5. Increase of interest and
5. Expansion to foreign market inflation rate
6. Policies and regulations set
by the government
7. Climate Change Effects
8. Inflation rate
9. Improvement of Competitors
prodcut

Internal Strengths SO ST
(S) Update Banking technology (S1, Develop services and products
1. Advanced Technology O4) (S4, T3)
2. Customer Loyalty
3. Employees Increased
4.Expanded services
5.Extended bank hours
6. Aggressive use of
advertising
7. highest number of
remittances abroad
8.brand recognition
9 Good quality service

Internal Weaknesses (W) WO WT

1.Limited branches in rural Possible branches in rural areas Innovate their system (W3, T2)
areas (W1, O1)
2.Policy implementation More secure protection for its
3. Weak protection of customers towards unauthorized
customer’s information transactions (W3, O4)
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STRATEGY FORMULATION

It is where the company is choosing the right actions in achieving their

goals. It provides framework for the actions that will to anticipated results. It also

enables an organization to evaluate its resources, budgets and carefully

strategize the plans.

Recommended Business Strategies

1. Market Development

In Metro Manila, BDO is a well-known bank, but in some parts of the

country especially the provinces and rural areas, people there tend to go to rural

banks. With this, they can serve more customers anywhere and would be more

efficient for the people in provinces. Hence, BDO should really expand their

branches and provide provincial lending and deposit taking initiatives.

2. Product and Service Development

To provide a quality service, DO should think outside of the box. They

should not be constrained by traditional ways of doing things so that they can

adopt to different culture needs to delight their costumers, maintain the right

attitude of the employees, and to have an excellent execution from beginning to

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end. Implementing this could improve more their strategy. It can increase sales

by innovating and improving their present services, enhance and train their

employees with proper customer relationship.

3. Approach to new markets

Every bank has a group of customers, so one way to be ahead of the

competition is to pursue other markets that other banks aren’t pursuing.

COMPETITIVE ADVANTAGE

One of the universal banks in the country is BDO. It was a product of a

merger with Dao Heng Bank on June 15, 2001. It boosted the branches as it

reached out to its increasing depositors. It has variety of services: Lending

(corporate, middle market, SME, and consumer), Deposit-taking, Foreign

Exchange, Brokering, Trust and Investments, Credit Cards, Corporate Cash

Management and Remittances and through subsidiaries, it offers Leasing and

Financing, Investment Banking, Private Banking, Bancassurance, Insurance

Brokerage and Stock Brokerage services.

It is owned by Mr. Henry Sy. In the year 2017, they are awarded as Best

Bank in the Philippines, Best Retail Bank in the Philippines, Best Corporate

Institutional Bank etc. With this, they should be able to compete with other banks

and still to continue to improve as their figures are increasing due to its strengths

and opportunities.
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STRATEGIC DIRECTION

BDO is now entering a new frontier in banking, as online/mobile banking usage is

accelerating. Now the customers will experience a lifestyle that will complement

them. To develop their capabilities in the underserved market and to venture

deeper into the life insurance space, their staff training should focus on building

bench strength with their expansion.

The future banking experience will be described as (1) prompted, it will be able

anticipate our future moves and be able to prepare it for us. (2) integrated, it ties

systems together and securely retains information. So that customer experience

will focus on fast, efficient and effortless banking transactions.

Quantitative Strategic Planning Matrix

Key Internal Factors MARKET DEVELOPMET MARKET PENETRATION

Internal Strengths Weight AS TAS AS TAS

Advanced Technology 0.20 4 0.80 4 0.20

Customer Loyalty 0.15 3 0.45 3 0.45

Employees Increased 0.10 3 0.30 1 0.10

Expanded Services 0.08 2 0.16 -

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Extended bank hours 0.15 2 0.30 1 0.15

Internal weakness

Limited branches in rural 0.12 2 0.24 3 0.36

areas

Policy Implementation 0.10 2 0.20 -

Weak Protection of 0.10 3 0.30 2 0.20

customers information

1.00

Key Internal Factors

Opportunities

Possible Branches in rural 0.08 3 0.24 2 0.16

areas

Expansion to foreign 0.08 4 0.32 4 0.32

market

Merger and acquisition of 0.10 4 0.40 2 0.20

banks

Innovation of new banking 0.10 3 0.30 1 0.10

products

Changing socio-cultural 0.11 4 0.44 3 0.33

and demographic forces

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Threats

Increase number of 0.09 2 0.18 -

competitors

Continuous rise of inflation 0.10 3 0.30 3 0.30

rate

New government policies 0.08 3 0.24 -

and regulations

Substitute 0.08 1 0.08 1 0.08

products/services

Changing 0.06 2 0.12 1 0.06

customer

behaviour

Mobile malware 0.12 3 0.36 2 0.24

and fraud in mobile

banking

1.0

Total Sum of 2.98 1.79

Attractiveness Score
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HUMAN RESOURCE DEVELOPMENT

CHAPTER X

HUMAN RESOURCE MANAGEMENT ACTION PLANS AND PROGRAMS

A. Human Resource Planning

Human Resource skills is the most important asset, the ability to hire and

retained skilled, diverse talent will provide BDO a strong potential to achieve

its vision. The success of the bank depends on the quality of their people, the

efficiency of their systems and the strength of the organization. They shall

continue to invest in their human resources to ensure service characterized

by the highest standards of dignity, probity and professionalism.

B. Design of Jobs and Work Systems

C. Staffing and Placement

D. Training and Development

F. Performance Management

G. Labor Relations
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E. Compensation and Benefits

Employee Benefits

(a) Retirement Benefit Obligations

Pension benefits are provided to employees through a defined benefit plan,

as well as defined contribution plan. A defined benefit plan is a pension plan

that defines an amount of pension benefit that an employee will receive on

retirement, usually dependent on one or more factors such as age, years of

service and salary. The legal obligation for any benefits from this kind of

pension plan remains with the Group, even if plan assets for funding the

defined benefit plan have been acquired. Plan assets may include assets

specifically designated to a long-term benefit fund, as well as qualifying

insurance policies. The Group’s defined benefit pension plan covers all

regular full-time employees. The pension plan is tax-qualified, noncontributory

and administered by a trustee. The liability recognized in the statement of

condition for defined benefit pension plans is the present value of the defined

benefit obligation (DBO) at the statement of condition date less the fair value

of plan assets, together with adjustments for unrecognized actuarial gains or

losses and past service costs. The DBO is calculated by independent

actuaries using the projected unit credit method. The present value of the

DBO is determined by discounting the estimated future cash outflows using

interest rates of high quality corporate bonds that are denominated in the
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currency in which the benefits will be paid and that have terms to maturity

approximating to the terms of the related pension liability. Actuarial gains and

losses are not recognized as an expense unless the total unrecognized gain

or loss exceeds 10% of the greater of the obligation and related plan assets.

The amount exceeding this 10% corridor is charged or credited to profit or

loss over the employees’ expected average remaining working lives. Actuarial

gains and losses within the 10% corridor are disclosed separately. Past-

service costs are recognized immediately in the income statement, unless the

changes to the pension plan are conditional on the employees remaining in

service for a specified period of time (the vesting period). In this case, the

past service costs are amortized on a straight-line basis over the vesting

period. A defined contribution plan is a pension plan under which the Group

pays fixed contributions into an independent entity, such as the Social

Security System (SSS). The Group has no legal or constructive obligations to

pay further contributions after payment of the fixed contribution. The

contributions recognized in respect of defined contribution plans are

expensed as they fall due. Liabilities and assets may be recognized if

underpayment or prepayment has occurred.

(b) Termination Benefits Termination benefits are payable when employment is

terminated by the Group before the normal retirement date, or whenever an

employee accepts voluntary redundancy in exchange for these benefits. The

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Group recognizes termination benefits when it is demonstrably committed to

either: (a) terminating the employment of current employees according to a

detailed formal plan without possibility of withdrawal; or (b) providing termination

benefits as a result of an offer made to encourage voluntary redundancy.

Benefits falling due more than 12 months after the statement of condition date

are discounted to present value.

(c) Bonus Plans The Group recognizes a liability and an expense for bonuses

based on the Group’s bonus policy. The Group recognizes a provision where it is

contractually obliged to pay the benefits.

(d) Executive Stock Option Plan the Group grants stock option plan to its senior

officers (from vice-president up) for their contribution to the Group’s performance

and attainment of team goals. The amount of stock option allocated to the

qualified officers is based on the performance of the individual officers as

determined by the management and is determined based on the Group’s

performance in the preceding year and amortized over five years starting from

the date of the approval of the Board. The number of officers qualified at the

grant date is regularly evaluated during the vesting period (at least annually) and

the amount of stock option is adjusted in case there are changes in the number

of qualified employees arising from resignation or disqualification. The annual

amortization of stock option is shown as part of Employee Benefits in the income

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HUMAN RESOURCE DEVELOPMENT

statement and the cumulative balance is shown as Common Stock Option in the

statement of changes in equity.

(e) Compensated Absences

Compensated absences are recognized for the number of paid leave days

(including holiday entitlement) remaining at the statement of condition date.

These are included in Other Liabilities account at the undiscounted amount that

the Group expects to pay as a result of the unused entitlement.

Compensation Committee Chairperson : Teresita T. Sy-Coson Members :

Corazon S. De la Paz-Bernardo; Josefina N. Tan; Teodoro B. Montecillo The

Compensation Committee provides oversight on directors’ compensation and

senior management and other key personnel’s remuneration. It ensures

consistency of compensation policies and practices with the corporate culture,

strategy, and control environment as well as with peer institutions and designed

to attract and retain qualified and competent individuals. It evaluates and

recommends to the Board incentives and other equity-based plans for directors

and senior management. The Compensation Committee meets at least once

annually and is composed of at least three members of the Board, one of whom

is an independent director.