Notes to Financial Statements - BDO

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Notes to Financial StatementsDECEMBER 31, 2008, 2007 AND 2006(Amounts in Millions Except Per Share Data)As to currency, this account is composed of the following:GroupParent Bank2008 2007 2008 2007Foreign currency P 13,808 P 49,289 P 11,887 P 44,166Peso 21,365 26,315 19,769 24,397P 35,173 P 75,604 P 31,656 P 68,563Government debt securities issued by the Republic of the Philippines and foreign sovereigns and other debt securities issued by resident andnon-resident corporations earn interest at annual rate ranging from 0% to 13% in 2008, 4.2% to 18% in 2007 and 4.2% to 22.9% in 2006 in theGroup financial statements and 0% to 13% in 2008, 5.2% to 18% in 2007 and 4.2% to 22.9% in 2006 in the Parent Bank financial statements.Other debt securities also include investments in a foreign financial institution under bankruptcy amounting to P5,053 both in the Group andParent Bank Financial statements. As of December 31, 2008, allowance for impairment losses on such investments amounted to P4,440 in theGroup and Parent Bank financial statements.In 2008, all CLNs linked to ROP bonds were reclassified to loans and other receivables together with the embedded derivative (see Note9.4). As of December 31, 2007, other debt securities include the host contract of CLNs with carrying value of P7,637 while the embeddedderivatives were bifurcated and presented separately from the CLN as FVTPL (see Note 9.1).A CLN is an instrument under which the issuer issues a note to the investor whereby both parties agree that upon the occurrence of a creditevent in relation to the reference entity, the CLN accelerates and the investor is delivered the defaulted asset of the reference entity, or paid anet settlement amount equal to the market price of the defaulted asset or reference obligation adjusted for any transaction unwind costs.Unquoted equity securities consist of club shares, preferred shares and common shares of various unlisted local companies.The fair values of government debt and quoted available-for-sale securities (other debt securities and equity shares) have been determineddirectly by reference to published prices generated in an active market. For unquoted available-for-sale securities, the fair value is not reliablydeterminable either by reference to similar financial instruments or through valuation technique using the net present value of the future cashflows. Accordingly, unquoted available-for-sale securities are carried at cost.Total unrealized fair value gain (loss) on the balance of available-for-sale securities amounted to (P6,132), (P684) and P1,180 as of December31, 2008, 2007 and 2006, respectively, in the Group financial statements and (P5,081), (P224) and P1,052 as of December 31, 2008, 2007 and2006, respectively, in the Parent Bank financial statements.Changes in available-for-sale securities are presented below:GroupParent Bank2008 2007 2008 2007Balance at beginning of year P 75,604 P 56,428 P 68,563 P 49,679Additions 385,018 136,952 380,230 134,367Disposals ( 378,020 ) ( 114,589 ) ( 378,643 ) ( 113,931 )Reclassification to HTM (Note 9.4) ( 25,540 ) - ( 22,474 ) -Reclassification to loans andother receivables (Note 9.4) ( 18,590 ) - ( 14,166 ) -Reclassification from FVTPL (Note 9.4) 102 - - -Reclassification from loans andother receivables (Note 10) 438 - 438 -Unrealized fair value losses in equity ( 6,132 ) ( 684 ) ( 5,081 ) ( 224 )Foreign currency revaluation 7,330 ( 1,682 ) 7,245 ( 1,155 )Allowance for impairment loss ( 5,037 ) ( 821 ) ( 4,456 ) ( 173 )P 35,173 P 75,604 P 31,656 P 68,563In 2008, the Group and Parent Bank reclassified private and sovereign debt securities with total carrying value of P25,540 and P22,474,respectively, to held-to-maturity investments (see Note 9.4). In addition, the Group and the Parent Bank reclassified all CLNs that are linked toROP bonds, with carrying value of P18,590 and P14,166, respectively, to loans and other receivables (see Note 9.4).In 2008, the Group recognized a total of P4,440 provision for impairment losses on available-for-sale securities in the income statements (nilin 2007).46Thinking Ahead To Get You Ahead • Annual Report 2008
Notes to Financial StatementsDECEMBER 31, 2008, 2007 AND 2006(Amounts in Millions Except Per Share Data)9.3 Held-to-Maturity InvestmentsThe balance of this account is composed of the following:GroupParent BankNote 2008 2007 2008 2007Government debt securities P 92,220 P 43,864 P 83,752 P 38,827Other debt securities:Listed 13,388 6,877 13,388 6,540Nonlisted 9,193 18,047 8,809 18,048114,801 68,788 105,949 63,415Allowance for impairment 14 ( 673 ) ( 844 ) ( 673 ) ( 844 )Net P 114,128 P 67,944 P 105,276 P 62,571Government debt securities issued by the Republic of the Philippines and foreign sovereigns include securities deposited with BSP as securityfor the Group’s faithful compliance of its fiduciary obligations in connection with the Group’s trust operations (see Notes 25 and 31.3).Other debt securities include investments in a sinking fund set up by the Group as required by BSP in connection with the Group’s redemptionof the preferred shares it issued to SM Prime Holdings, Inc. (SMPHI) at the original issue price five years from the date of issue(see Note 16). The carrying balance of the sinking fund as of December 31, 2008 and 2007 amounted to P2,110 and P1,357, respectively, inthe Group and Parent Bank financial statements.As to currency, held-to-maturity investments comprise of the following:GroupParent Bank2008 2007 2008 2007Foreign currency P 84,268 P 48,369 P 80,325 P 45,901Peso 29,860 19,575 24,951 16,670The maturity profile of this account is presented below:P 114,128 P 67,944 P 105,276 P 62,571GroupParent Bank2008 2007 2008 2007Less than one year P 11,678 P 6,527 P 11,026 P 5,703One to five years 49,079 37,841 44,671 35,721Beyond five years 53,371 23,576 49,579 21,147Changes in the held-to-maturity account are summarized below:P 114,128 P 67,944 P 105,276 P 62,571GroupParent Bank2008 2007 2008 2007Balance at beginning of year P 67,944 P 84,730 P 62,571 P 80,610Additions 82,650 76,518 79,210 73,518Maturities ( 76,479 ) ( 81,265 ) ( 72,882 ) ( 79,725 )Reclassification from FVPTL (Note 9.4) 6,297 - 6,297 -Reclassification from AFS (Note 9.4) 25,540 - 22,474 -Foreign currency revaluation 8,670 ( 12,039 ) 8,100 ( 11,832 )Impairment during the year ( 494 ) - ( 494 ) -P 114,129 P 67,944 P 105,276 P 62,571Thinking Ahead To Get You Ahead • Annual Report 2008 47
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
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Page 84: BDO Corporate Center7899 Makati Ave

Notes to Financial Statements - BDO

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