2011 Annual Report Financial Supplements - BDO

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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
NOTES TOFINANCIAL STATEMENTSDECEMBER 31, 2011, 2010 AND 2009(Amounts in Millions of Philippine Pesos, Except Per Share Data or As Indicated)The BDO Unibank Group’s definition of its loan classification and corresponding credit riskratings are as follows: Current/Unclassified : Grades AAA to B Watchlisted : Grade B Loans Especially Mentioned : Grade C Substandard : Grade D Doubtful : Grade E Loss : Grade FOnce an account is Watchlisted or Adversely Classified, the resulting risk rating grade isaligned based on the above classification.(i) UnclassifiedThese are individual credits that do not have a greater-than-normal risk and do notpossess the characteristics of adversely classified loans as to be defined below. These arecredits that have the apparent ability to satisfy their obligations in full and therefore noloss in ultimate collection is anticipated. These are adequately secured by readilymarketable collateral or other forms of support security or are supported by sufficientcredit and financial information of favorable nature to assure repayment as agreed.(ii) WatchlistedSince early identification of troublesome or potential accounts is vital in portfoliomanagement, a “Watchlisted” classification of credit accounts is maintained. Theseaccounts are not adversely classified but they require more than normal attention toprevent these accounts from deteriorating to said category.Past due or individually impaired comprise accounts under the following risk ratings:(iii) Adversely Classifieda. Loans Especially Mentioned (LEM)Accounts classified as “Loans Especially Mentioned” (LEM) are individual creditsthat have potential weaknesses particularly on documentation or credit administrationthat deserve management’s close attention. These potential weaknesses, if leftuncorrected, may affect the repayment prospects of the loan and thus heighten thecredit risk to the BDO Unibank Group.A credit may also be classified as “Loans Especially Mentioned” if there is evidenceof weakness in the borrower’s financial condition or credit worthiness, or the credit issubject to an unrealistic repayment program or inadequate source of funds.
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REPORT OFINDEPENDENT AUDITORSReport
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STATEMENTS OFINCOMEFOR THE YEARS EN
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BALANCE AT JANUARY 1, 2009 P 23,020
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FOR THE YEARS ENDED DECEMBER 31, 20
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1.02 Approval of Financial Statemen
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NOTES TOFINANCIAL STATEMENTSDECEMBE
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COMPANY HEADQUARTERSBDO Unibank, In
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2011 Annual Report Financial Supplements - BDO

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