Notes to Financial Statements - BDO

More documents

Recommendations

Info

Notes to Financial StatementsDECEMBER 31, 2008, 2007 AND 2006(Amounts in Millions Except Per Share Data)assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly to reduce any differencesbetween loss estimates and actual loss experience.The Group carries certain financial assets at fair value, which requires the extensive use of accounting estimates and judgment.Significant components of fair value measurement were determined using verifiable objective evidence such as foreign exchange rates,interest rates and volatility rates. However, the amount of changes in fair value would differ if the Group utilized different valuationmethods and assumptions. Any change in fair value of these financial assets and liabilities would affect profit and loss and equity.Total provisions for impairment losses on financial assets (reported as part of Impairment Losses in the income statements) amountedto P4,737 in 2008, P3,292 in 2007 and P1,259 in 2006 in the Group financial statements and P4,575 in 2008, P3,117 in 2007 and P1,083in 2006 in the Parent Bank financial statements (see Note 14).(b)Fair Value of Financial Assets and LiabilitiesAt December 31, 2008, the following table summarizes the carrying amounts and fair values of those financial resources and liabilitiesnot presented in the statement of condition at their fair value.December 31, 2008:GroupParent BankCost Fair Value Cost Fair ValueFinancial Resources:Due from other banks and BSP P 79,771 P 79,771 P 74,821 P 75,198Available-for-sale securities – unquoted 3,442 * 1,918 *Held-to-maturity investments 114,128 109,780 105,276 101,095Loans and other receivables 491,986 496,494 467,590 470,677Financial Liabilities:Deposit liabilities 636,754 621,402 612,967 597,615Bills payable 51,436 51,171 43,242 43,088Subordinated notes payable 20,146 20,891 20,146 20,891December 31, 2007:Financial Resources:Due from other banks and BSP P 70,151 P 70,151 P 64,422 P 64,422Available-for-sale securities – unquoted 5,780 * 2,175 *Held-to-maturity investments 67,944 69,444 62,571 63,741Loans and other receivables 311,675 308,427 297,631 301,530Financial Liabilities:Deposit liabilities 445,397 435,145 434,295 423,958Bills payable 52,483 53,053 41,192 40,885Subordinated notes payable 18,631 19,037 18,631 19,037* not available(i)Due from other Banks and BSPDue from BSP pertains to deposits made by the Group to BSP for clearing and reserve requirements. Due from other banksincludes interbank placements and items in the course of collection. The fair value of floating rate placements and overnightdeposits is their carrying amount. The estimated fair value of fixed interest bearing deposits is based on discounted cash flowsusing prevailing money-market interest rates for debts with similar credit risk and remaining maturity, which for short term depositsapproximates the nominal value.(ii) Available-for-sale securitiesThe fair value of available-for-sale securities is determined by direct reference to published price quoted in an active market fortraded securities. On the other hand, unquoted available-for-sale securities are carried at cost because the fair value cannot bereliably determined either by reference to similar financial instruments or through valuation technique.(iii) Held-to-maturity investmentsFair value for held-to-maturity assets is based on market prices. Where this information is not available, fair value has beenestimated using quoted market prices for securities with similar credit, maturity and yield characteristics or through valuationtechniques using discounted cash flow analysis.(iv) Loans and other receivablesLoans and other receivables are net of provisions for impairment. The estimated fair value of loans and receivables represents thediscounted amount of estimated future cash flows expected to be received. Expected cash flows are discounted at current marketrates to determine fair value.24Thinking Ahead To Get You Ahead • Annual Report 2008
Notes to Financial StatementsDECEMBER 31, 2008, 2007 AND 2006(Amounts in Millions Except Per Share Data)(v)Deposits and borrowingsThe estimated fair value of demand deposits with no stated maturity, which includes non-interest-bearing deposits, is the amountrepayable on demand. The estimated fair value of long-term fixed interest-bearing deposits and other borrowings without quoted marketprice is based on discounted cash flows using interest rates for new debts with similar remaining maturity.(c)Fair Value of DerivativesThe fair value of derivative financial instruments that are not quoted in an active market is determined through valuation techniques usingthe net present value computation.Valuation techniques are used to determine fair values which are validated and periodically reviewed. To the extent practicable, modelsuse observable data, however, areas such as credit risk (both own and counterparty), volatilities and correlations require management tomake estimates. Changes in assumptions could affect reported fair value of financial instruments. The Group uses judgment to select avariety of methods and make assumptions that are mainly based on market conditions existing at each statement of condition date.(d)Useful Lives of Premises, Furniture, Fixtures and Equipment and Investment PropertiesThe Group estimates the useful lives of premises, furniture, fixtures and equipment and investment properties based on the period overwhich the assets are expected to be available for use. The estimated useful lives of premises, furniture, fixtures and equipment andinvestment properties are reviewed periodically and are updated if expectations differ from previous estimates due to physical wear andtear, technical or commercial obsolescence and legal or other limits on the use of the assets. In addition, estimation of the useful livesof premises, furniture, fixtures and equipment and investment properties is based on collective assessment of industry practice, internaltechnical evaluation and experience with similar assets.It is possible, however, that future results of operations could be materially affected by changes in estimates brought about by changesin factors mentioned above. The amounts and timing of recorded expenses for any period would be affected by changes in these factorsand circumstances. A reduction in the estimated useful lives of premises, furniture, fixtures and equipment and investment propertieswould increase recorded operating expenses and decrease premises, furniture, fixtures and equipment and investment properties.(e)Realizable Amount of Deferred Tax AssetsThe Group reviews its deferred tax assets at each statement of condition date and reduces the carrying amount to the extent that it is nolonger probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized.(f)Impairment of Non-financial AssetsExcept for intangible assets with indefinite useful lives, PFRS requires that an impairment review be performed when certain impairmentindicators are present. The Group’s policy on estimating the impairment of non-financial assets is discussed in detail in Note 2.21. Thoughmanagement believes that the assumptions used in the estimation of fair values reflected in the financial statements are appropriateand reasonable, significant changes in these assumptions may materially affect the assessment of recoverable values and any resultingimpairment loss could have a material adverse effect on the results of operations.Provisions for impairment losses (reported as part of Impairment Losses in the income statements) amounted to P495 in 2008, P826 in2007, and P754 in 2006 in the Group financial statements and P596 in 2008, P685 in 2007 and P909 in 2006 in the Parent Bank financialstatements (see Note 14).(g)Retirement BenefitsThe determination of the Group’s obligation and cost of pension and other retirement benefits is dependent on the selection of certainassumptions used by actuaries in calculating such amounts. Those assumptions are described in Note 23 and include, among others,discount rates, expected return on plan assets and salary increase rate. In accordance with PFRS, actual results that differ from theassumptions are accumulated and amortized over future periods and therefore, generally affect the recognized expense and recordedobligation in such future periods.The retirement benefit asset and net unrecognized actuarial losses amounted to P14 and P3,778 respectively, in 2008 and P55 andP3,627, respectively, in 2007 in the Group financial statements. In the Parent Bank financial statements, the retirement benefit assetand net unrecognized actuarial losses amounted to P58 and P3,603, respectively, in 2008 and P69 and P3,553 respectively, in 2007(see Note 23).4. RISK MANAGEMENTBy their nature, the Group’s activities are principally related to the use of financial instruments including derivatives. The Group acceptsdeposits from customers at fixed and floating rates for various periods, and seeks to earn above-average interest margins by investing thesefunds in high-quality assets. The Group seeks to increase these margins by consolidating short-term funds and lending for longer periods athigher rates, while maintaining sufficient liquidity to meet all claims that might fall due. The Group also trades in financial instruments whereit takes positions in traded and over-the-counter instruments, including derivatives, to take advantage of short-term market movements inequities and bonds and in currency and interest rate prices.To manage the financial risk for holding financial assets and liabilities, the Group operates an integrated risk management system to addressthe risks it faces in its banking activities, including liquidity, interest rate, credit and market risks. The Group’s risk management objective isto adequately and consistently evaluate, manage, control, and monitor the risk profile of the Group’s statement of condition to optimize theThinking Ahead To Get You Ahead • Annual Report 2008 25
Page 1 and 2: ATTUNED TO THE TIMES, WE AREALWAYS
Page 3 and 4: Financial HighlightsIn Billion Peso
Page 5 and 6: Report of Independent AuditorsTo th
Page 7 and 8: Income StatementsFor the Years Ende
Page 9 and 10: Cash Flow StatementsFOR THE YEARS E
Page 11 and 12: Notes to Financial StatementsDECEMB
Page 19: Notes to Financial StatementsDECEMB
Page 76 and 77:
Notes to Financial StatementsDECEMB
Page 78 and 79:
Page 80 and 81:
Page 82 and 83:
Page 84:
BDO Corporate Center7899 Makati Ave
show all

Notes to Financial Statements - BDO

You also want an ePaper? Increase the reach of your titles

Delete template?

Save as template?