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)The fair values of the held-to-maturity investments are as follows:GroupParent Bank2008 2007 2008 2007Government debt securities P 77,295 P 45,994 P 68,959 P 40,646Other debt securities 32,485 23,450 32,136 23,095P 109,780 P 69,444 P 101,095 P 63,741The fair value is determined through valuation techniques by determining the net present value of estimated future cash flows. Annual interestrates on these investments range from 0% to 16.5% in 2008, 0.9% to 18% in 2007 and 4% to 18% in 2006 for both the Group and the ParentBank accounts.9.4 Reclassification of Investment SecuritiesThe Group recognized the deterioration of the world’s financial markets that occurred in the third quarter of 2008. The enormity and extentof the global credit crisis was crystallized by the substantial government programs instituted by major economies in response to the crisis,including temporary liquidity facilities, outright purchase of commercial papers and mortgaged-baked securities, guarantee of new unsecureddebt issued by banks and purchase of equity stakes in financial institutions.Related to above in 2008, the Group chose to avail of the regulatory relief on specific financial assets granted by the BSP under the governingprovisions of Circular No. 628, which permitted the reclassification of certain financial assets to help banks cope with the adverse impact ofthe global financial crisis.Presented below are the reclassifications made by the Group and the Parent Bank in 2008:GroupAt Reclassification Date At December 31, 2008Carrying Estimated CarryingValue Fair Value Cash Flows Amount Fair ValueReclassification fromFVTPL to HTM P 6,297 P 6,297 P 9,174 P 6,400 P 6,219Reclassification of CLNsfrom AFS to Loans 18,590 18,590 22,591 19,973 19,232Reclassification of embeddedderivatives of CLNs fromFVTPL to Loans ( 183 ) ( 183 ) - - -Reclassification of debt securitiesfrom AFS to HTM 25,540 25,540 * 27,223 25,093Reclassification from FVTPL to AFS 102 102 * 36 36Parent BankAt Reclassification Date At December 31, 2008Carrying Estimated CarryingValue Fair Value Cash Flows Amount Fair ValueReclassification fromFVTPL to HTM P 6,297 P 6,297 P 9,174 P 6,400 P 6,219Reclassification ofCLNs from AFS to Loans 14,166 14,166 18,728 15,211 14,845Reclassification of embeddedderivatives of CLNs fromFVTPL to Loans ( 70 ) ( 70 ) - - -Reclassification debt securitiesfrom AFS to HTM 22,474 22,474 * 24,182 22,173* Not required to be disclosedTrading losses of FVTPL transferred to AFS amounted to P39. The net trading loss that would have been recognized in the period followingthe reclassification during 2008 if the reclassification had not been made would have amounted to P66.Total trading losses of FVTPL reclassified to HTM both in the Group and Parent Bank financial statements which were recognized in profit orloss amounted to P199. On the other hand, the net trading loss that would have been recognized in the period following the reclassificationduring 2008 if the reclassifications had not been made would have amounted to P125. Effective interest rates of FVTPL reclassified to HTMrange from 7% to 8.8% in the Group and Parent Bank financial statements.Unrealized fair value losses in equity of debt securities reclassified from AFS to HTM at reclassification dates amounted to P102 and P46 in theGroup and Parent Bank financial statements, respectively. The net trading loss that would have been recognized in equity during the periodfollowing the reclassification in 2008 if the reclassifications had not been made amounted to P2,132.48Thinking Ahead To Get You Ahead • Annual Report 2008
Notes to Financial StatementsDECEMBER 31, 2008, 2007 AND 2006(Amounts in Millions Except Per Share Data)Unrealized fair value losses in equity of CLNs linked to ROP bonds reclassified from AFS to Loans at reclassification dates amounted to P627and P624 in the Group and Parent Bank financial statements, respectively. Effective interest rates at reclassification date range from 4.7% to11.4% and 7.3% to 9.6% in the Group and Parent Bank financial statements. Additional unrealized fair value losses from the reclassificationdates to December 31, 2008 that would have been recognized in equity had the CLNs not been reclassified to loans and other receivableswould have amounted to P495 and P555 in the Group and Parent Bank financial statements, respectively. Additional trading losses to berecognized in profit or loss had the embedded derivatives not been reclassified totaled to P1,135 and P909 in the Group and Parent Bankfinancial statements, respectively.10. LOANS AND OTHER RECEIVABLESThis account consists of the following:GroupParent BankNote 2008 2007 2008 2007Receivables from customers:Loans and discounts P 322,729 P 239,233 P 313,728 P 229,192Customers’ liabilities underletters of creditand trust receipts 40,722 28,861 40,722 28,861Bills purchased 13,408 16,892 13,408 16,892Others 15,935 12,044 15,926 11,370392,794 297,030 383,784 286,315Allowance for impairment 14 ( 15,721 ) ( 16,606 ) ( 15,485 ) ( 16,269 )Net 377,073 280,424 368,299 270,046Other receivables:SPURRA 60,770 8,952 48,648 4,503Interbank loans receivables 29,194 15,514 29,194 15,096UDSCL (see Note 9) 20,388 413 15,626 413Accounts receivable 5,948 6,186 7,305 7,484Sales contract receivables 1,982 1,960 1,891 1,921Others 41 164 - 64118,323 33,189 102,664 29,481Allowance for impairment 14 ( 3,410 ) ( 1,938 ) ( 3,373 ) ( 1,896 )Net 114,913 31,251 99,291 27,585P 491,986 P 311,675 P 467,590 P 297,631Included in loans and other receivables are nonaccruing loans amounting to P23,110 and P24,551 as of December 31, 2008 and 2007,respectively, in the Group financial statements and P22,609 and P22,516 as of December 31, 2008 and 2007, respectively, in the Parent Bankfinancial statements.As of December 31, 2008, interbank loans receivables include loans to a foreign financial institution under bankruptcy amounting to P1,467with related allowance for impairment of P1,308.The Group’s concentration of credit as to industry follows:GroupParent Bank2008 2007 2008 2007Manufacturing (various industries) P 82,783 P 67,763 P 79,994 P 66,433Financial intermediaries 65,452 36,326 66,401 35,661Wholesale and retail trade 54,794 44,785 53,398 43,405Other community, social andpersonal activities 31,712 36,455 31,202 38,449Real estate, renting and otherrelated activities 30,609 23,893 30,331 19,610Transportation and communication 31,187 15,322 29,362 13,668Agriculture, fishing and forestry 5,229 3,728 5,182 3,671Others 91,028 68,758 87,914 65,418P 392,794 P 297,030 P 383,784 P 286,315Thinking Ahead To Get You Ahead • Annual Report 2008 49
Page 1 and 2: ATTUNED TO THE TIMES, WE AREALWAYS
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Notes to Financial Statements - BDO

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