Notes to Financial Statements - BDO

Notes to Financial StatementsDECEMBER 31, 2008, 2007 AND 2006(Amounts in Millions Except Per Share Data)Parent BankMoreOne to than three More than Morethree months to one year to than threemonths one year three years years TotalTotal Liabilities and Equity (Brought Forward) P 121,279 P 53,719 P 9,716 P 401,775 P 586,489On-book gap 114,865 ( 10,917 ) 51,333 ( 155,281 ) -Cumulative on-book gap 114,865 103,948 155,281 - -Contingent assets 62,574 16,480 2,388 113 81,555Contingent liabilities 39,737 14,053 448 111 54,349Off-book gap 22,837 2,427 1,940 2 27,206Net Periodic Gap 137,702 ( 8,490 ) 53,273 ( 155,279 ) 27,206Cumulative Total Gap P 137,702 P 129,212 P 182,485 P 27,206 P -4.2 Market RiskThe Group’s exposure to market risk, the risk of future loss from changes in the price of a financial instrument, relates primarily to its holdingsin foreign exchange instruments, debt securities and derivatives. The Group manages its risk by identifying, analyzing and measuring relevantor likely market risks. Market Risk Management recommends market risk limits based on relevant activity indicators for approval by the Group’sRMC and Board of Directors.4.2.1 Foreign Exchange RiskThe Group manages its exposure to effects of fluctuations in the foreign currency exchange rates by maintaining foreign currency exposurewithin the existing regulatory guidelines and at a level that it believes to be relatively conservative for a financial institution engaged in thattype of business.The Group’s net foreign exchange exposure is computed as its foreign currency assets less foreign currency liabilities. BSP regulationsimpose a cap of 20% of unimpaired capital or US$50 million, whichever is lower, on the group excess foreign exchange holding of banks inthe Philippines. The Group’s foreign exchange exposure is primarily limited to the day-to-day, over-the-counter buying and selling of foreignexchange in the Group’s branches as well as foreign exchange trading with corporate accounts and other financial institutions. The Group,being a major market participant in the Philippine Dealing System, may engage in proprietary trading to take advantage of foreign exchangefluctuations.The Group’s foreign exchange exposure during the day is guided by the limits set forth in the Group’s Risk Management Manual. Theselimits are within the prescribed ceilings mandated by the BSP. At the end of each day, the Group reports to the BSP on its compliance withthe mandated foreign currency exposure limits. In addition, it also reports to the BSP on the respective foreign currency positions of itssubsidiaries.The breakdown of the financial resources and liabilities as to foreign and peso-denominated balances as of December 31, 2008 and 2007follows:Group2008 2007ForeignForeignCurrency Peso Total Currency Peso TotalResources:Cash and other cash itemsand Due from BSP P - P 84,439 P 84,439 P 9,970 P 57,878 P 67,848Due from other banks 16,973 128 17,101 19,869 821 20,690Trading and Investmentsecurities:At FVTPL 3,562 3,287 6,849 8,300 12,652 20,952AFS Securities 13,808 21,365 35,173 49,289 26,315 75,604HTM 84,269 29,860 114,129 48,369 19,575 67,944Loans and other receivables 68,815 423,171 491,986 41,785 269,890 311,675Other resources 1,138 13,829 14,967 1,825 13,865 15,690P 188,565 P 576,079 P 764,644 P 179,407 P 400,996 P 580,403Thinking Ahead To Get You Ahead • Annual Report 2008 29