2011 Annual Report Financial Supplements - BDO

Parent BankImpact onImpact on othernet profit after tax comprehensive incomeincrease (decrease) increase (decrease)2011 2010 2011 2010AFS securities P - P - P 38 P 1504.02.04 Credit RiskCredit risk is the risk that the counterparty in a transaction may default and arises fromlending, trade finance, treasury, derivatives and other activities undertaken by theBDO Unibank Group. BDO Unibank Group manages its credit risk and loan portfoliothrough the RMG, which undertakes several functions with respect to credit riskmanagement.The RMG undertakes credit analysis and review to ensure consistency in BDO UnibankGroup’s risk assessment process. The RMG performs risk ratings for corporate accounts andassists the design and development of scorecards for consumer accounts. It also ensures thatBDO Unibank Group’s credit policies and procedures are adequate to meet the demands ofthe business. The RMG is also responsible for developing procedures to streamline andexpedite the processing of credit applications.The RMG also undertakes portfolio management by reviewing BDO Unibank Group’s loanportfolio, including the portfolio risks associated with particular industry sectors, loan size andmaturity, and development of a strategy for BDO Unibank Group to achieve its desiredportfolio mix and risk profile.BDO Unibank Group structures the levels of credit risk it undertakes by placing limits on theamount of risk accepted in relation to one borrower, or groups of borrowers, and to industrysegments. Such risks are monitored on a revolving basis and subject to an annual or morefrequent review.Exposure to credit risk is managed through regular analysis of the ability of borrowers andpotential borrowers to meet interest and capital repayment obligations and by changing theselending limits when appropriate. Exposure to credit risk is also managed in part by obtainingcollateral and corporate and personal guarantees.4.02.04.01 Exposure to Credit RiskLoan classification and credit risk rating are an integral part of the BDO Unibank Group’smanagement of credit risk. On an annual basis, loans are reviewed, classified and rated basedon internal and external factors that affect its performance. On a quarterly basis, loanclassifications of impaired accounts are assessed and the results are used as basis for thereview of loan loss provisions.www.bdo.com.ph 71