A Status Report on the Philippine Financial System · The Philippine financial system, in step with the country’s improving macroeconomic fundamentals, remained sound and stable

Bangko Sentral ng PilipinasManila, Philippines

A Status Report on thePhilippine Financial System

First Semester 2005

STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, FIRST SEMESTER 2005

Source: Office of Supervisory Policy Development, Supervision and Examination Sector

TABLE OF CONTENTS PAGE NO.

GLOSSARY OF TERMS……………………………………………… II

PROLOGUE…………………………………………………………. V

THE PHILIPPINE FINANCIAL SYSTEM: AN ASSESSMENT………… 1

THE PHILIPPINE BANKING SYSTEM…………………......…. 15

UNIVERSAL AND COMMERCIAL BANKS……………… 34 THRIFT BANKS………………………………………… 55 RURAL BANKS…………………………………………. 71 COOPERATIVE BANKS…………………………………. 84

THE NON-BANK FINANCIAL INSTITUTIONS

NON-BANK FINANCIAL INSTITUTION WITH QUASI-BANKING FUNCTIONS (NBQBS)………….. 94 NON-STOCK SAVINGS AND LOAN ASSOCIATIONS…… 100

THE PHILIPPINE OFFSHORE BANKING SYSTEM…………….. 104 TRUST OPERATIONS…………………………………………. 107

TABLES

SCHEDULES SCHEDULE 1 FINANCIAL INSTITUTIONS UNDER BSP SUPERVISION/REGULATION SCHEDULE 2 COMPARATIVE STATEMENT OF CONDITION SCHEDULE 3 SELECTED CONTINGENT ACCOUNTS SCHEDULE 4 TRUST AND FUND MANAGEMENT OPERATIONS SCHEDULE 5 COMPARATIVE STATEMENT OF INCOME AND EXPENSES

APPENDIX 1 CHANGES IN BANK REGULATIONS (JANUARY TO JUNE 2005)



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GLOSSARY OF TERMS

A. SELECTED ACCOUNTS

1. Total assets refer to the sum of all assets, adjusted to net off the accounts “Due from Head Office/Branches/Agencies” and “Due to Head Office/Branches/Agencies” of foreign bank branches.

2. For purposes of computing the average, one period covers 12 months

a. Average assets refer to the sum of total assets for two periods divided by 2. b. Average capital refers to the sum of total capital accounts for two periods

divided by 2. c. Average earning assets refer to the sum of earning assets for two periods

divided by 2. d. Average interest-bearing liabilities refer to the sum of interest-bearing liabilities

for two periods divided by 2.

3. Total capital refers to the sum of paid-in capital of locally incorporated banks, assigned capital and the qualified capital allowable component of the net “Due To/Due From Head Office/Branches/Agencies” accounts of branches of foreign banks plus surplus, surplus reserves, undivided profits and appraisal increment reserves.

4. Earning assets refer to the sum of loans (gross of allowance for probable losses) and investments (gross of allowance for probable losses), exclusive of equity investment (gross of allowance for probable losses).

5. Fee-based income refers to the sum of bank commissions, service charges/fees, and other fees/commissions.

6. Interest-bearing liabilities refer to the sum of deposit liabilities, bills payable and unsecured subordinated debt.

7. Liquid assets refer to the sum of cash and due from banks and investments (net of allowance for probable losses) exclusive of equity investments (net of allowance for probable losses).

8. Net income before tax refers to the sum of net operating income and extraordinary credits/(charges).

9. Net interest income refers to the difference between total interest income and total interest expense.

10. Net operating income refers to the difference between operating income and operating expenses.

11. Non-interest income refers to the sum of fee-based income, trading income, trust department income and other non-interest income.



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12. Non-performing loans (NPL) refer to past due loan accounts whose principal and/or interest is unpaid for thirty (30) days or more after due date (applicable to loans payable in lump sum and loans payable in quarterly, semi-annual or annual installments), including the outstanding balance of loans payable in monthly installments when three (3) or more installments are in arrears, the outstanding balance of loans payable daily, weekly or semi-monthly installments when the total amount of arrearages reaches ten percent (10%) of the total loan receivable balance, restructured loans which do not meet the requirements to be treated as performing loans under existing rules and regulations, and all items in litigation. Effective September 2002, NPLs exclude loans classified as Loss in the latest BSP examination which are fully covered by allowance for probable losses and applicable to a bank with no unbooked valuation reserves and other capital adjustments required by the BSP (Circular No. 351).

13. Non-performing assets (NPA) refer to the sum of non-performing loans (NPL) and real and other properties owned and acquired (ROPOA). Effective March 2003, NPAs exclude performing sales contract receivable, which met certain requirements under Circular No. 380.

14. Distressed assets refer to the sum of NPLs, ROPOA, gross and current restructured loans. Effective end-July 2004, performing restructured loans replaced current restructured loans.

15. Gross assets refer to total assets, net of reserves plus loan loss reserves (LLR) plus provision for ROPOA.

16. Operating expenses refer to the sum of bad debts written off/provisions for probable losses, overhead costs and other expenses.

17. Operating income refers to the sum of net interest income and non-interest income.

18. Overhead costs refer to the sum of non-loan related operating expenses such as compensation/fringe benefits, depreciation and amortization, etc.

19. Trading income refers to the sum of trading gains/(losses), foreign exchange profits/(losses), gold trading gains/(losses) and profit/(loss) on sale of redemption of investments.

B. FINANCIAL AND OTHER RATIOS

1. Capital adequacy ratio (CAR) refers to the ratio of capital to risk weighted assets computed in accordance with the risk-based capital adequacy framework (patterned after the 1988 Basle Capital Accord) that took into account credit risks, effective 1 July 2001 under BSP Circular No. 280 dated 29 March 2001. Under BSP Circular No. 360 dated 3 December 2002, which took effect 1 July 2003, applying only to universal/commercial banks, computation of CAR incorporates market risks in addition to credit risks.

2. Cost-to-income ratio refers to the ratio of operating expenses (exclusive of bad debts written off/provisions for probable losses) to operating income.



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3. Density ratio refers to the ratio of the total number of domestic banking offices to the total number of cities/municipalities in the Philippines.

4. Distressed assets ratio refers to the ratio of distressed assets to total loans (gross of allowance for probable losses), inclusive of interbank loans, plus ROPOA, gross

5. Earning asset yield refers to the ratio of total interest income to average earning assets.

6. Funding cost refers to the ratio of total interest expense to average interest-bearing liabilities.

7. Interest spread refers to the difference between earning asset yield and funding cost.

8. Liquid assets ratio refers to the ratio of liquid assets to total deposits.

9. Net interest margin refers to the ratio of net interest income to average earning assets.

10. NPA coverage ratio refers to the ratio of allowance for probable losses on non-performing assets (NPA) to total NPA.

11. NPA ratio refers to the ratio of NPA to total assets, gross of allowance for probable losses.

12. NPL coverage ratio refers to the ratio of allowance for probable losses on non-performing loans (NPL) to total NPL.

13. NPL ratio refers to the ratio of non-performing loans (NPL) to total loans (gross of allowance for probable losses), inclusive of interbank loans.

14. Population-to-banking offices ratio refers to the ratio of the total population to the total number of domestic banking offices.

15. Return on assets refers to the ratio of net income after tax (NIAT) to average assets.

16. Return on equity refers to the ratio of NIAT to average capital.



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PROLOGUE

The Status Report on the Philippine Financial System is a semestral report prepared by the Office of Supervisory Policy Development (OSPD), Supervision and Examination Sector, Bangko Sentral ng Pilipinas (BSP), and is submitted by the Governor to the President and the Congress in compliance with Section 39 (c), Article V of the New Central Bank Act (R.A. No. 7653).

This report is basically culled from the various periodic reports submitted by BSP supervised/regulated institutions to the Supervisory Data Center (SDC), Supervision and Examination Sector. At end-June 2005, BSP supervised/regulated Financial Institutions consisted of 881 banks with 6,743 branches and other offices, 5,924 non-bank financial institutions (NBFIs) with 5,818 branches and 9 offshore banking units (OBUs) with one other office (Schedule 1).

Effective 3 July 1998, the supervision and regulation of the BSP over non-banking entities were turned over to the Securities and Exchange Commission (SEC) for corporations and partnerships, and to the Department of Trade and Industry (DTI) for single proprietorships, in accordance with Section 30 of R.A. No. 7653, except the following: non-banks with quasi-banking functions and/or with trust or Investment Management Activities (IMA) license, non-banks which are subsidiaries/affiliates of banks and quasi-banks, non-stock savings and loan associations, pawnshops and venture capital corporations. Likewise, the supervision and regulation over building and loan associations were transferred to the Home Guarantee Corporation effective 7 February 2002, in accordance with Section 94 of R.A. No. 8791 (The General Banking Law of 2000).



THE PHILIPPINE FINANCIAL SYSTEM: AN ASSESSMENT

The Philippine financial system, in step with the country’s improving macroeconomic fundamentals, remained sound and stable for the first half of 2005. Key performance indicators suggest another semester of significant progress punctuated by asset expansion, improvements in loan and asset quality, double-digit growths in deposits, profitable operations, adequate liquidity position and sufficient capitalization.

The industry’s firmer resolve to improve its bottom line figures has also been

underpinned by continuing financial reforms of the Bangko Sentral ng Pilipinas (BSP) during the semester in review. This is to promote greater stability in the financial system and proactively respond to various challenges confronting the financial sector. The improvement in overall asset quality has been supported by progress in the disposition of the banking system’s non-performing assets (NPAs) through the Special Purpose Vehicle (SPV) Law (see Box Article 1). As of end-June 2005, a total of P96.7 billion worth of NPAs or equivalent to 18.6 percent of the P520.0 billion stock of unproductive assets of the banking industry as of end-June 2002 was disposed under various SPV-related transactions. Accordingly, this has led to significant improvement in the banking industry’s asset quality with NPA and NPL ratios sliding down to single-digit levels. To further sustain this development, the BSP is also supportive of the proposed two–year extension of the SPV law1 to allow further asset cleanup, which is estimated to dispose another P100 billion at the minimum from the banking system’s inventory of remaining NPAs. This will bring the banking industry’s NPA/NPL ratios closer to the pre-crisis levels.

In the same vein, the BSP has been preparing the banking system for the phase-in

implementation of the modified local capital adequacy framework compliant with the provisions of the Basle accord. Circular No. 475 dated 14 February 2005 was issued to amend some provisions on the adoption of risk-based capital adequacy framework under Circular No. 280 dated 29 March 2001 and the guidelines to incorporate market risk in the said framework under Circular No. 360 dated 3 December 2002. The BSP in its Memorandum to All Banks and Other Financial Intermediaries dated 19 April 2005, has invited all financial institutions under its supervision to comment on the exposure draft of the implementing guidelines of Basel 2 for the Philippines. Final preparations for the adoption of Pillar 3 of Basel 2 (operational risk) by 2007 are also currently underway. Underlying these preparations is the full implementation of the risk-based supervision framework consistent with the Basel committee recommendations on effective banking supervision (see Box Article 2).

1 Currently pending in Congress regarding the SPV extension are House Bill No. 4066 and Senate Bill No. 1830

14 STATUS REPORT ON THE PHILIPPINE FINANCIAL SYSTEM, FIRST SEMESTER 2005


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An Update on the Extension of Special Purpose Vehicle (SPV) Law and Bank Asset Clean-up

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Box 1

A Report on the Implementation of SPV Law Republic Act No. 9182 or the SPV Law was enacted in 2002 to restructure the non-performing assets (NPAs) of the banking system consisting mainly of soured loans (60%) brought about by the 1997 Asian Financial Crisis. Under the law, banks and other financial institutions (FIs) are given tax incentives and other privileges for the sale of NPAs that may qualify for SPV-related transactions. The total NPAs disposed under the SPV law amounted to P96.7 billion. This represents 18.6 percent of the P520 billion worth of bad assets of the banking system as of 30 June 2002.

Type of Transaction

Total Amount

(In Billion Pesos)

No. of FIs

No. of COEs

ROPOA Sale to Individual

0.5 27 154

Dacion en Pago 17.1 25 126 Sale to SPVs 79.1* 25 66 Total 96.7 - 346

*Note: ROPOA accounts for P8.1B (10.2%) and NPLs for P71.0 B (89.8%) Out of the P96.7 billion worth of bad assets sold, P88.1 billion (91%) were non-performing loans while a total of P8.6 billion (9%) were real and other properties owned or acquired (ROPOA).

NPAs

Total NPAs (In Billion

Pesos)

Transferred to SPV

(In Billon Pesos)

% to Total NPL/ROPOA

NPLs 316.531 88.020 27.81 ROPOA 203.455 8.649 4.25 Total 519.986 96.669 18.59

A total of 53 financial institutions availed of the incentives to dispose their NPAs under the SPV Law.

Financial Institutions (FIs)

Number Per Industry

NPAs Sold (In Billion Pesos)

U/KBs 25 92.349 TBs 15 4.001 RBs 8 0.142

NBFIs 5 0.177 Total 53 96.669

Of the total number of SEC-registered SPVs, 15 were established by the following banks:

Name of Bank No. of SPVs 1. Allied Bank 1* 2. Bank of Commerce 1 3. China Banking Corporation 1 4. Equitable PCI Bank 1* 5. Land Bank of the Philippines 3** 6. Philippine Bank of Communications 1* 7. Philippine National Bank 4 8. Prudential Bank 1* 9. Security Bank 1 10. United Coconut Planters Bank 1 Total 15

* sold to investors ** 2 SPVs were sold Likewise, a total of 346 certificates of eligibility (COE) have been issued by the Bangko Sentral ng Pilipinas (BSP).

343 COEs were issued to 48 financial institutions (46 banks and 2 non-banks) 2 COEs were issued to a consortium of financial institutions for the sale of NPLs of National Steel Corporation 1 COE issued to a consortium of financial institutions for the Dacion en Pago of the NPLs of Lima Land, Inc. to 4 U/KBs

A COE, as defined under the Implementing Rules and Regulations of the SPV Law, refers to a certificate issued by the Appropriate Regulatory Authorities (BSP, DOF, SEC) covering the eligibility of the NPL/ROPOA to avail of the tax exemptions and privileges under the SPV Law. Moreover, only the following financial institutions are eligible to avail of the SPV incentives:

1. Banks 2. Financing Companies 3. Investment Houses 4. Government Financial Institutions (PDIC, LBP

and DBP) 5. Government Owned and Controlled Corporations

(NHMFC, HGC, HDMF, SSS, GSIS, TIDCORP, SBGFC, TLRC, LIVECOR, NDC, QUEDANCOR, NHA and RSBS)

6. Quasi-banking Institutions licensed by BSP



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Box 1

The Impact of the Implementation of SPV I: A Review

Three years following its implementation, the disposition of NPAs has steadily improved the banking system’s overall asset quality as indicated by the 17.8 percent decline from the end-June 2002 level of NPAs.

NPAs 30-Jun-02 (In Billion

Pesos)

30-Jun-05 (In Billion

Pesos)

% Increase (Decrease)

U/KBs 456.76 363.51 (20.42) TBs 49.04 47.58 (2.98) RBs 14.20 16.34 15.07 Total 520.00 427.43 (17.80)

The industry’s level of NPLs was also down by more than one-third from the end-June 2002 figures.

NPLs 30-Jun-02 (In Billion

Pesos)

30-Jun-05 (In Billion

Pesos)

% Increase (Decrease)

U/KBs 288.97 174.87 (39.49) TBs 20.50 16.35 (20.24) RBs 7.07 8.01 13.30 Total 316.54 199.23 (37.06)

Accordingly, the NPA ratio of universal and commercial banking industry (total assets of which accounts to almost 90% of the total resources of the banking system) shed 5.52 percentage points to 8.99 percent at end-June 2005 from 14.51 percent at end-June 2002. Likewise, the industry’s NPL ratios have exhibited marked improvements. As of end-June 2005, the NPL ratio of the banking industry was back to a single-digit level at 9.21 percent, down by 8.85 percentage points from the 18.06 percent NPL ratio recorded as of end-June 2002.

18.069.21

13.7715.19

8.9912.2913.3514.5

0

10

20

2002 2003 2004 2005

E nd-JunePerc

ent

NPL Ratio NPA Ratio

SPV II and the Road Ahead

The BSP has been supportive of the pending proposals, lodged at both houses of Congress, to extend the transactions under SPV for another two years. The proposed changes in the SPV law are seen to hasten the pace of disposition of non-performing assets (NPA) of the banking system. Under SPV II, the BSP has estimated the disposition of another P100 billion worth of bad assets to further trim down the banking industry’s NPL and NPA ratios closer to the pre-crisis levels. Both House Bill No. 4066 and Senate Bill No. 1830 propose a series of tax incentives and regulatory relief beneficial to both buyer and seller that may qualify for SPV treatment.

Specifically, proposed changes include:

Extension of SPV transaction deadline for another two (2) years

Grant of additional 18 months to establish an SPV

Extension of the qualifying criteria for eligible non-performing loans (NPLs) from 30 June 2002 to 31 December 2004

Under SPV II, the unloading of NPLs and ROPOAs will continue to enjoy tax exemptions and privileges. The tax incentives, which are similar to SPV I, include the exemption from payment of documentary stamp tax, capital gains tax, creditable withholding tax and value-added tax. The SPV transfers are also entitled to a 50 percent discount on land and mortgage registration, including transfer fees from the Land Registration Authority and filing fees for foreclosure under the rules of court. In order to enjoy these tax incentives and privileges, NPA transfers should always be in the nature of “true sale”. Since the SPV Law prescribes a straightforward transaction, “true sale” means that a financial institution transfers or sells its NPAs without recourse for cash or property to an SPV with the following results:

1. the transferor relinquishes effective control over the transferred NPAs, and

2. the transferred NPAs are legally isolated and put beyond the reach of the transferor and its creditors.

As the banking industry prepares for the adoption of new accounting standards (PAS/PFRS) in end-2005 and Pillar 3 of the Basel II risk-based capital framework in 2007, the BSP is encouraging banks to prioritize NPA cleanup in order to avoid steep capital charges. With or without the SPV extension, bank asset cleanup remains crucial in restoring the credit supply to the economy. 2 of 2



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BSP’s Implementation of Risk-Based Supervision

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The BSP has been initiating reforms to strengthen the supervisory framework through full implementation of risk-based supervision.

The growing complexity of the financial system exposes banks and other financial institutions to a highly risky environment. Under this setup, the appropriateness of risk management systems is crucial to the attainment of financial stability. To keep pace with the demands of an increasingly difficult financial environment, the BSP adopted a risk-based approach to supervision to ensure that financial institutions operate in a safe and sound manner.

The shift from traditional supervision to risk-based supervision necessitates changes in existing procedures and framework. Since the focus of risk-based supervision is on the risk profile of banks or financial institutions, supervisory authorities must take into account how well the banks manage and control the types and levels of risks they assume in the course of their business. Consequently, this requires fine-tuning in the supervisory process.

BSP Initiatives

BSP’s implementation of risk-based supervision formally commenced in 1997. Gradually, the thrust of examination concentrated on the risk exposures of banks rather than on mere balance sheet audit and evaluation of the adequacy of traditional internal controls.

The basic differences between the traditional and the risk-based approach to bank supervision are

shown below.

Traditional Approach Risk-based Approach On-site examination: Heavily based on transaction testing Emphasis on the institution’s processes Assessment of the results themselves Focus on how an institution achieves results Point-in-time assessment of institution’s condition More dynamic and forward-looking Off-site surveillance: Historical financial performance With forward-looking indicators

The BSP introduced the following modifications to implement risk-based examination: • The format of the examination report was revised to highlight risk assessment.

• The CAMEL rating system was modified into CAMELS1 to capture the institution’s sensitivity to market risk and the risk implications in its various activities as they impact on capital, asset quality, profitability and liquidity. Evaluation of the quality of management was expanded to include its risk management capability.

• A Risk Assessment System (RAS)2 was designed to provide a uniform framework for risk assessment in terms of quantity of risk, quality of risk management and aggregate risk.

• The off-site surveillance process that supplements on-site examinations was enhanced with the introduction of the Bank Performance Report and Forecast of Non-Performing Loan Levels, among others.

__________________________________________ 1 CAMELS stands for Capital Adequacy, Asset Quality, Management, Earnings, Liquidity and Sensitivity to Market Risk. 2 The RAS is a quantitative and qualitative tool whereby the various risks are measured and assessed in terms of quantity of risk, quality of risk management and aggregate risk during the examination.

Patterned after the system developed by US supervisory authorities, the RAS highlights both the strengths and the vulnerabilities of the financial institution. The RAS was updated in January 2000.

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Box 2

Furthermore, the BSP has been upgrading prudential standards to achieve seamless supervision over financial institutions. The BSP issued several regulations requiring banks to improve their risk management systems. These include the requirement for the board of directors of banks to adopt and maintain adequate risk management policy and to attend a seminar on corporate governance, the setting up of compliance system and appointment of a compliance officer, and enhanced disclosure requirements. The BSP has also been working toward closer alignment of local capital adequacy standards with international best practice to make the regulatory capital framework more risk-sensitive and more reflective of the risks that banks are exposed to.

Structured Training on Risk-Based Supervision

A key factor in risk-based supervision is the ability of the BSP examiners to perform risk-focused examination. They must have the competence to evaluate management practices, policies and procedures in the context of managing risks. Toward this end, the BSP has launched a structured training program for its examiners and supervisors, with the support of the International Monetary Fund and technical assistance provided by FIRST Initiative. The training program is aimed at enhancing the capacity of the BSP examiners in the conduct of risk-based supervision. Under this program, BSP examiners are trained in the different aspects of risk-focused examination, such as utilizing an in-depth and analytical approach to examination and making qualitative assessments of operational, credit and market risks. References: Guerrero, Ma. Corazon J. (2004): “Operational Issues on the Implementation of Risk-based Supervision Framework,” Bangko Sentral Review, Bangko Sentral ng Pilipinas.

Money and Banking in the Philippines – Perspectives from Bangko Sentral ng Pilipinas (2003), Bangko Sentral ng Pilipinas.

The BSP is also reinforcing its existing frameworks and technology for consolidated and risk-based supervision to ensure that banks operate in a sound and safe manner. Toward this end, it has pursued initiatives and invested heavily on institutional reorganization and reengineering, examiner trainings, enhanced information systems through the data warehousing project, cooperative arrangements through the Financial Sector Forum (FSF), enforcement of critical regulations (i.e., DOSRI, SBL) and the definition of financial agents2.

Prudential regulations promoting good corporate governance and market discipline are continually improved. During the semester in review, the BSP has pursued further reforms in the area of corporate governance relative to the rules on independent directors, adoption of 2 Accountants, appraisers and rating agencies



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new accounting standards and internal mechanisms to further strengthen the annual financial audit and engagement of independent, external auditors. First, initiatives to fortify the rules and regulations governing independent directors have finally been strengthened under the forthcoming Memorandum to All Banks and Non-Bank/Quasi-Bank by September 2005. This memorandum ensures that independent directors of BSP supervised institutions are truly independent from majority control since they are now required to submit a certification under oath attesting that he/she satisfies all the ‘independence’ criteria identified under the BSP rules and regulations.

Second, the BSP has issued the Memorandum to All Banks and other BSP Supervised Financial Institutions dated 11 January 2005 for the adoption of the Philippine Financial Reporting Standards (PFRS) and Philippine Accounting Standards (PAS) based on the International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS) by yearend. (see Box Article 3) Further, the BSP is poised to release the revised manual of accounts and financial reporting package in line with the new accounting standards. Said new accounting standards are seen to promote greater transparency in financial reporting, particularly on risk disclosure, and instill market discipline consistent with international best practices.

Third, the implementing regulations regarding annual financial audit and external auditors were amended under Circular No. 474 dated 3 February 2005. Moreover, an oversight committee on external auditors will be constituted to fully implement the provisions of Circular No. 410 dated 29 October 2003 and further strengthen the transparency and soundness of financial reporting. The responsibilities of the said oversight committee include the accreditation of auditors/audit firms, adoption of standards for the review of audit engagement agreements, development of guidelines to govern the coordination of information sharing, adoption of framework for the imposition of disciplinary action and periodic assessment of the performance of external auditors.

Other prudential regulations issued during the semester in review include rules

governing investment in securities, capital treatment of exposures to structured products, grant of loans and other credit accommodations, outsourcing of non-core functions of banks, imposition of dormancy fees and service charges (see Appendix 1).



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BSP Adopts International Accounting Standards

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Initiatives to raise financial reporting standards in the banking system recently gained added boost with the issuance of the guidelines to adopt prescribed international accounting standards. The Monetary Board approved the guidelines in adopting the Philippine Financial Reporting Standards (PFRS) and the Philippine Accounting Standards (PAS) through Circular No. 494 dated 20 September 2005. The PFRS and the PAS issued by the Accounting Standards Council (ASC) are adopted from the revised International Financial Reporting Standards (IFRS) and International Accounting Standards (IAS) issued by the International Accounting Standards Board (IASB). The new standards will be the basis for financial reporting by banks and other financial institutions (FIs) supervised by the BSP. The adoption of the new accounting standards is in line with international efforts to establish a set of globally accepted standards for financial reporting. Given the increasingly global nature of the financial system, the need to strengthen the various pillars of the financial infrastructure has become crucial to the soundness and stability of the financial system. Financial reporting is deemed a key pillar of the financial system infrastructure primarily because it is the means through which core financial information about an institution or firm is conveyed to all potential users. Accordingly, the promotion of a sound financial system necessitates establishing meaningful and reliable financial reporting standards that will ensure the provision of fair, accurate and transparent information about the financial condition, performance and risk profile of an institution. The implementation of the PFRS and the PAS is expected to improve the quality of financial information to be disclosed to market participants. This should contribute to enhanced risk disclosure and better market discipline in the banking system.

Salient Provisions Banks and other FIs under BSP supervision were initially informed of the new accounting standards through a Memorandum dated 11 January 2005. Effective the annual financial reporting period beginning 1 January 2005, banks and other FIs under BSP supervision must comply with the provisions of the PFRS and the PAS in preparing both their audited financial statements and the financial statements for prudential reporting. However, interim financial reports that will be submitted for the year 2005 need not be in compliance with the provisions of said standards. Prudential reporting. In terms of prudential reporting, FIs must comply with the provisions of the PFRS and the PAS except in the following cases:

(1) In preparing consolidated financial statements, only investments in financial allied subsidiaries, except subsidiary insurance companies, shall be consolidated on a line-by-line basis. Insurance and non-financial allied subsidiaries shall be accounted for using the equity method.

(2) In setting the allowance for probable losses on loans, FIs shall be required to meet the BSP prescribed valuation reserves.

The accounting treatment for prudential reporting aims to ensure that the financial statements

provide a suitable basis for measuring banking risks and banking ratios.

Specific items. The guidelines also determine the accounting treatment for the following specific items to align existing BSP regulations with the provisions of PFRS/PAS:

(1) Derivatives and hedge accounting shall be accounted for in accordance with PAS 39

(Financial Instruments: Recognition and Measurement). This standard requires, among others, that derivatives be reported on balance sheet (instead of off-balance sheet) with any gain or loss from fair value change reported in profit or loss.

Box 3



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(2) Bank premises, furniture, fixture and equipment shall be accounted for using the cost model under PAS 16 (Property, Plant and Equipment) even as PAS 16 allows the use of either the cost model or the revaluation model.

(3) Real and Other Properties Acquired (ROPA) in settlement of loans through foreclosure or dation

in payment shall be booked initially at the carrying amount of the loan (i.e., outstanding loan balance adjusted for any unamortized premium or discount less allowance for probable losses computed based on PAS 39 provisioning requirements) plus booked accrued interest less allowance for probable losses plus transaction costs incurred upon acquisition (such as non-refundable capital gains tax and documentary stamp tax paid in connection with the foreclosure/purchase of the acquired real estate property), provided that where the booked amount of ROPA exceeds the appraised value of the acquired property, an allowance for probable losses equivalent to the excess of the amount booked over the appraised value shall be set up.

The carrying amount of ROPA shall be allocated to land, building, other non-financial assets and financial assets based on their fair values, which allocated carrying amounts shall become their initial costs. Subsequently, ROPA shall be accounted for as follows:

a. Land and buildings shall be accounted for using the cost model under PAS 40 (Investment Property).

b. Other non-financial assets shall be accounted for using the cost model under PAS 16. c. Buildings and other non-financial assets shall be depreciated over a period not

exceeding ten years and three years, respectively. d. Land, buildings and other non-financial assets shall be subject to the impairment

provisions of PAS 36 (Impairment). e. Financial assets shall be initially booked and classified according to intention and

accounted for in accordance with PAS 39. f. ROPAs that comply with the provisions of PFRS 5 (Non-Current Assets Held for Sale)

shall be reclassified and accounted for as such.

(4) Sales Contract Receivable (SCR) shall be booked at the present value of the installments receivables discounted at the imputed rate of interest, with any difference between the present value of the SCR and the consideration given recognized in profit or loss at the date of sale.

(5) Goodwill shall no longer be amortized but shall be subject to impairment test in accordance with the provisions of PFRS 3 (Business Combination) and PAS 36.

(6) Foreign currency monetary items, including borrowings booked under bills payable, the foreign exchange risk of which is shouldered by the National Government and past due accounts shall be revalued at least monthly using the Philippine Dealing System (PDS) Peso/US Dollar and the New York US Dollar/Third currencies closing rates in accordance with the provisions of PAS 21 (Effects of Changes in Foreign Exchange Rates).

(7) Redeemable preferred shares and preferred shares of similar nature shall be accounted for as a liability or equity instrument in accordance with the provisions of PAS 32 (Financial Instruments: Disclosure and Presentation). Mandatorily redeemable preferred shares and preferred shares of similar nature shall not be accounted for as equity instruments but as debt instruments in the books of both the issuer and the investor.

(8) Accrual of interest income on past due loans arising from discount amortization (and not from accrual of contractual interest rates) shall be allowed in accordance with the provisions of PAS 39.



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(9) The use of the fair value option in accordance with the provisions of PAS 39 shall be allowed subject to certain prudential conditions, as follows: (a) FIs shall have in place appropriate risk management systems prior to initial application of the fair value option for a particular activity or purpose and on an ongoing basis; (b) FIs shall apply the fair value option only to instruments for which fair values can be reliably estimated; and (c) FIs shall provide BSP with supplemental information to allow for better assessment of the impact of the utilization of the fair value option.

Another important provision of Circular No. 494 concerns the guidelines clarifying the accounting treatment for investments in debt and equity securities in accordance with the provisions of IAS 39, which were previously issued under Circular No. 476 dated 16 February 2005.

Accordingly, relevant sections of the Manual of Regulations for Banks (MORB) and the Manual

of Regulations for Non-Bank Financial Institutions (MORNBFI) have been amended to reflect the changes in existing BSP regulations in line with the new standards.

Other Initiatives

To align current reportorial requirements with the provisions of PFRS/PAS, the BSP will soon launch a new financial reporting package (FRP) that will replace the Consolidated Statement of Condition (CSOC) and the Consolidated Statement of Income and Expenses (CSIE) and their supporting schedules. A parallel run of the new FRP was implemented for commercial banks (KBs) as of the quarter ending 30 September 2005. All banks will be required to submit the new FRP for the quarter ending 31 December 2005. The revised FRP is also designed for purposes of compliance with the Basel 2 framework and the IMF data requirement for Financial Soundness Indicators. This is aimed at enhancing the off-site supervision of individual banks and the banking industry as a whole.

Beyond banking reform, the BSP is also actively supporting the rapid development of

the capital market to provide an alternative pillar to the financial system. Efforts to accelerate the development of the domestic capital market gained ground this semester with the launching of the Fixed Income Exchange (FIE) (see Box Article 4). As a milestone project, the private-sector led FIE is seen to pave the way for a more active secondary market trading of fixed-income securities and debt papers under an efficient and transparent trading, clearing, settlement and delivery platform.

In support of this initiative, the BSP continued to build on its existing reform

initiatives on capital market development. Circular No. 473 dated 01 February 2005 was issued to promote transparency and market discipline through the recognition of internationally accepted credit rating agencies (CRAs). These CRAs are allowed to undertake local and national ratings for bank supervisory purposes, which also promote capital market development apart from good corporate governance. This issuance led to the eventual accreditation of Fitch Singapore, Pte Ltd., a foreign credit ratings company.



10

Fixed-Income Exchange: The Enabling Platform for Fixed-Income Securities Trading

1 of 2

Over the years, the BSP has been decisively taking concrete steps to accelerate the development of the domestic capital market. The launching of the FIE is a significant development of this continuing initiative. The establishment of the Fixed Income Exchange (FIE) facilitates the paperless selling and buying of government and private securities or corporate debt papers and asset-backed securities, through a virtual trading floor of an exchange, in the Philippines. It is envisioned to centralize market transactions for fixed-income securities and to support the expedient development of the domestic capital market.

Basic Reforms of the FIE

The FIE, as the enabling platform for the transparent and efficient trading, settlement and delivery of fixed income securities and debt instruments, has the following specific reform objectives:

To ensure the proper delivery of securities by brokers/dealers,

To institutionalize the acceptance of third party custody, as an agent for greater investor protection, and

To facilitate the migration to formal trading of debt securities in the market, leading to efficient price setting and transparency.

How will the FIE work?

The implementation of the FIE is to be carried out in two phases. The initial phase of the FIE operations involves inter-bank transactions. The first phase has been marked by the pioneering live transaction between the Bank of the Philippine Islands (BPI) and the Equitable PCI Bank on 28 March 2005. Moreover, the first phase of the FIE operations has paved the way for an online system for inter-dealer negotiation, a screen terminal for fixed income trader workstations (FITW), an information page device for real-time market summaries, the grouping of securities into benchmark tenors and the trading website (similar to that of the Philippine Stock Exchange) for the transparent, timely and efficient transactions of fixed-income securities.

The second phase of FIE operations, envisioned to kick-off by the end of the year, includes corporate transactions (with private firms wanting to course their issuances of corporate debt papers through the FIE) under an inter-dealer and order-driven trading system to facilitate efficiency and market making. Said order-driven platform features an electronic matching system for best bid/offer, enabling a more level playing field to trading participants due to pre-trading anonymity. Below is the schematic trading flow for the second phase of FIE operations:

Seller BuyerPDEx Trading System

Public Investor

Public Investor

Broker/ Dealer Broker/ Dealer

Clearing & Settlement

System Cash Securities

Seller’s Account at Cash Settlement Bank

Buyer’s Securities Account at REGISTRY Or at ACCREDITEDCUSTODIAN

1

2

3

Source: PDEX

1 – The trading system accepts order coursed through a broker/dealer from the investing public. The system matches buy/sell orders.

2 - Transaction details are passed through Clearing and Settlement System, sending transfer instructions to the designated settlement entities on settlement date.

3– Cash moves from Buyer’s bank account to Seller’s bank account.

Securities move from Seller’s designated Securities account to Buyer’s designated securities account.

Box 4



11

2 of 2

Box 4

Who owns the FIE?

The FIE is also managed by the Philippine Dealing System and Holdings Corporation (PDS Holdings) and Philippine Dealings and Exchange Corporation (PDEX). Below is the ownership structure of the FIE:

Bankers Association of the Philippines – 31.82% Philippine Stock Exchange – 12.22% Tata Consultancy – 10.00% Computershare – 10.00% Philamlife – 5.00% San Miguel – 5.00% Development Bank of the Philippines – 3.85% Financial Executives Institute of the Philippines (FINEX) - 3.85% Investment House Association of the Philippines (IHAP) – 2.53% Social Security System (SSS) – 1.92% Citigroup – 1.92%

Note: BAP is still looking for investors that will infuse the remaining P50 million capital to FIE.

FIE and the Third Party Custodians

The role of third party custodians is closely interlinked and institutionalized under the FIE. The linking of the third party custodian and the FIE ensures the delivery of purchased securities in an efficient and transparent manner. Toward this end, the BSP has issued various circulars on the third party custodians. Circular No. 392 was issued on 23 July 2003 to require banks and non-bank financial institutions under BSP supervision to entrust the registration and safekeeping of all securities sold, borrowed, purchased, traded and transacted in the local market to accredited third party custodians. Accordingly, Circular No. 428 was issued on 27 April 2004 to include all transactions of securities as defined by the Securities Regulations Code, whether exempt or required to be registered with the Securities and Exchange Commission (SEC). In championing the interests of investors, the third party custodian (defined as an entity with no subsidiary or affiliate relationship with the issuer of securities) is expected to:

provide the investor a third party validation, allow the investor to efficiently manage

securities holdings,

facilitate the immediate clearing process of

securities for investors (clear change of title from seller to buyer),

encourage investors to deal with his counter party of choice (i.e., management of securities collaterized in a repurchase agreement with a financial institution) and,

open opportunities for the investors to maximize yields on securities holdings.

The full implementation of the third party custody system and the interconnection of the Registry of Scriptless Securities (RoSS) of the Bureau of the Treasury (BTr) to the operations of the FIE will mark the beginning of a seamless fixed-income infrastructure in the Philippines.

Major Milestones

The establishment of the first-ever FIE in the Philippines has been challenging and punctuated by the following significant milestones:

Year

Accomplishment

2001

BAP finalized plans to put up an exchange to centralize market transactions for fixed-income securities.

2002

BSP approved the initiative of the BAP to establish the FIE and issued Circular No. 338 paving the way for banks to invest in the exchange.

2003

The Monetary Board approved (in-principle) the creation of Philippine Depository and Trust Corporation (PDTC) as the depository unit of the FIE. Moreover, the PDTC can also act as a custodian of purchased security.

2004

PDTC was given the permit-to-operate. The BSP further classified it as a non-bank financial institution with authority to perform quasi-banking functions, trust and other fiduciary business, investment management activities and securities custodianship/registry.

2005

The first phase of the FIE was successfully launched with the live inter-bank transaction between BPI and Equitable PCI Bank.



12

Moreover, the implementing rules of the third party securities custody system and the clearly defined role of third party custodians were embodied under Circular No. 392 and several circular letters issued by the BSP during the semester in review. Recent issuances are aimed at proper delivery of purchased securities and vibrant trading of fixed-income instruments through a seamless interconnection of all market participants in a virtual trading platform.

In support of the required depth and liquidity of a fully functional capital market, the

BSP has started reforming the trust business since last year with the issuance of Circular No. 447. During the semester in review, reform initiatives continue to widen the institutional investor base, broaden public access to pooled investments and encourage long-term investments in financial investment products. Under the said trust reform package, common trust funds (CTFs) are replaced by a new and better investment product called Unit Investment Trust Funds (UITFs) (see Box Article 5). With the encouraging acceptance from the market, the BSP is considering further reforms for the trust industry.

Apart from these reform initiatives, the BSP has special interest in anti-money

laundering, SME development and microfinance advocacy (see Appendix 1). To support the global fight against money laundering, foreign exchange dealers, money changers and remittance agents were placed under the effective supervision of the BSP under Circular No. 471 dated 24 January 2005. Efforts to strengthen the country’s anti-money laundering mechanisms supported the healthy inflow of overseas remittances using the formal remittance channels of the banking system during the semester in review. This was boosted by the removal of the Philippines from the FATF3’s list of uncooperative countries and territories and its successful entry to the Egmont Group, which have facilitated in a more efficient and faster international financial flows, particularly fund transfers of overseas Filipino workers.

In order to promote entrepreneurship and boost the lending program to SMEs, the

BSP has issued Circular No. 482 dated 5 May 2005 providing reserve exemptions to the borrowings of accredited financial institutions under the Wholesale Lending Program for SMEs of the Small Business Guarantee and Finance Corporation (SBGFC).

The BSP also remains committed to its advocacy on microfinance as a tool for poverty

alleviation. To date, the number microfinance-oriented institutions grew to 187 from only 57 in 2000 with total resources estimated at P3.3 billion and covering 550,000 individuals, households and micro-businesses around the country.

To sum up, the financial environment becomes increasingly challenging with the

deregulation of financial services. In response to this challenge, the BSP has to remain steadfast and responsive in implementing the necessary reforms for the financial sector. These reforms are crucial in promoting a stable financial system hinged on a healthy banking system and a robust domestic capital market that in turn ensures a lasting growth for the economy.

3 Financial Action Task Force



13

Unit Investment Trust Funds

1 of 2

Box 5

The BSP issued Circular No. 447 dated 3 September 2004 prescribing the rules and regulations for the creation, administration and investment of Unit Investment Trust Funds (UITFs). UITF is an improved version of the existing Common Trust Fund (CTF) offered by trust entities.1 The circular is aimed at aligning the operation of pooled funds under management by trust entities with international best practices and ensuring differentiation from bank deposits and other direct liabilities of the financial institution.

UITF is a type of open-ended pooled trust funds denominated in pesos or any acceptable currency and operated/administered by a trust entity and made available by participation. The term UITF is synonymous to CTF which is a type of collective investment similar to a mutual fund that pools the investments of small investors into a larger fund under professional management. The investors share in the gains and losses after expenses of the fund, proportionate to their respective participations in the pool.

Key Provisions of Circular No. 447 Operating and accounting methodology. Investment in UITF shall be determined under a unitized net asset value (NAV) per unit valuation methodology. Under the scheme, investors may buy as many units as they like. NAV will be strictly market-determined based on the daily mark-to-market of the asset pool divided by the number of units outstanding. Investors can freely join or exit based on the quoted NAV per unit.

Allowable investments and valuation. As a key measure, UITFs may only invest in securities which have an active market with transparent pricing. This is to encourage proper market valuation of the asset pool at all times. Unlike CTFs, UITFs are not allowed to directly extend traditional loans but may instead, invest in tradable loans in the future once a market for these is established. Moreover, UITFs are not allowed to invest in real estate and other illiquid investments.

Minimum disclosure requirements. To properly guide investors, UITF managers must observe appropriate disclosure on the true nature of the investments. They must duly inform their clients of their investment strategy, such as the general investment policy and the applicable risk profile. Potential investors must also be made aware of the fact that their participations do not carry any guaranteed rate of return nor coverage by deposit insurance. All UITF marketing personnel of trust entities must undergo a standardized training program to ensure that they possess the necessary competence and integrity to exercise proper handling of customer and product suitability standards. In addition, trust entities managing UITFs are also required to publish, at least on a weekly basis, material information to guide investors. At the minimum, the information must include: the name of the fund and its general classification; the fund’s NAV per unit; and the moving return on investment (ROI) on a year-to-date and year-on-year basis. Exemptions from reserves, single borrowers limit and DOSRI. As a true investment product, UITF is not subject to regulations normally applicable to deposits and trust funds in general. Unlike CTFs, UITFs are not subject to legal and liquidity reserve requirements and are excluded from single borrowers limit calculations and DOSRI ceilings. However, there is a prescribed limit as to the combined exposure of the UITF to any entity and its related parties, in which case, the limit shall not exceed 15 percent of the market value of the UITF. ________________________________ 1 Any bank, investment house or a stock corporation duly authorized by the Monetary Board to engage in trust, investment management and fiduciary business.



14

2 of 2

Box 5

Audit requirement. In the interest of transparency and accountability, all UITFs shall be audited annually by an independent auditor acceptable to the BSP. The results of the external audit shall be made available to participants or investors. Custody of securities. To establish independent valuation of the asset pool, investments in securities of UITFs shall be held for safekeeping by BSP-accredited third party custodians which shall perform independent marking-to-market of such securities. By providing more investment outlets to retail customers, UITFs complement the menu of banking products available to investors. This initiative of the BSP to expand the menu of banking products available to investors contributes to the deepening of the domestic capital market. In the near term, the BSP intends to improve other trust products to enable both investors and trust entities to reap the full benefits of access to the capital market.

Updates on UITFs

As of end-June 2005, a total of 12 universal/commercial banks reported UITFs amounting to P31.4 billion, representing 12.1 percent of total CTFs/UITFs of P258.8 billion. Below is an inventory of UITF applications as of 11 October 2005, more than a year following the issuance of Circular No. 447 (UITFs are seen to completely replace CTFs by 1 October 2006).

Universal

Banks (UBs)

Commercial Banks (KBs)

Thrift Banks (TBs)

Non-banks with Quasi-banking

Functions (NBQBs) Total

Approved 46 16 8 1 71 Pending 14 2 7 2 25

Volume – P31.37 billion



15

THE PHILIPPINE BANKING SYSTEM

OVERVIEW

The Philippine banking system in the first half of 2005 gained considerable traction towards full recovery in tandem with the economy’s resiliency. The country’s favorable economic growth and the banking industry’s decisive actions in putting its house in order resulted in extensive gains in operating performance and sustained improvements in underlying fundamentals. As banks exerted efforts to widen service delivery at more efficient cost levels, total assets of the banking system expanded by 11.8 percent, reaching P4,332.5 billion, higher than the 9.8 percent growth posted in the same period in 2004. This was buttressed by deposit liabilities that rose by 12.6 percent, faster than the 8.3 percent growth a year ago, realizing gains from aggressive marketing and introduction of new market-responsive deposit products to potential bank clients especially those looking for alternative avenues for medium- to long-term placements. Banks also improved leverage through increased capital base and issuance of unsecured subordinated debt, which qualifies as Tier 2 (supplementary) capital.

The industry stayed adequately liquid, with the ratio of liquid assets to deposits rising to 55.0 percent in the first half of 2005 over the 52.1 percent posted a year ago. This was mainly due to steady rise in investments in debt securities, particularly banks’ purchase of government securities. Gross loans to deposits declined to 74.2 percent from 77.8 percent as the 12.6 percent expansion in deposits outpaced the 7.3 percent growth in lending. (Table 1)

The 7.0 percent year-on-year expansion of loans, gross (exclusive of interbank loans) to P1,847.3 billion was comparably faster than the 4.5 percent growth posted during the same period in 2004. The bulk of banks’ loan portfolio was directed to the manufacturing and services-related sectors, that underpinned first semester economic growth. Moreover, the continued expansion in consumer loans reflected the strong private consumption that was supported in part by the robust remittance inflow of overseas Filipino workers (OFWs).

Banks kept up the momentum of balance sheet clean-up that started in the latter part of 2004 and progressed substantially in the first half of 2005. Total assets transferred to SPVs reached P96.7 billion or 18.6 percent of the P520.0 billion non-performing assets (NPAs) of the banking industry as of end-June 2002. This considerably improved asset quality and raised the level of earning assets. The non-performing loans (NPL) ratio improved to 9.3 percent from 13.6 percent a year ago. Likewise, the non-performing assets (NPA) ratio favorably went down to 9.5 percent from 12.7 percent.



16

Banks’ investments, net maintained double-digit growth of 22.8 percent although slightly lower than the 24.4 percent growth a year ago. Banks still parked their excess funds in government securities, prompted by the absence of a faster and broader-based expansion in the economy. As a proportion to total assets, this increased to 31.7 percent from 28.9 percent in the same period last year.

The significant improvement in banks’ balance sheet was supported by the favorable bottom-line performance of the industry. Net income after tax for the first half of 2005 reached P25.1 billion, an annual growth of 50.2 percent (Table 2), considerably way above the 1.5 percent growth posted over the same period last year. The banking system managed to sustain strong growth in net interest income and non-interest income. The improving efficiency ratios of banks indicate prudence in managing their operating costs, further supported by the implementation of regulations that have expanded certain banking functions that can be outsourced through private service providers.

OPERATING NETWORK

As of end-June 2005, the total number of head offices, branches, and other offices of the banking system grew by 12 to 7,624 from 7,612 at end-year 2004. The net increase of 24 branches and other offices were mainly newly opened offices of private domestic banks. On the other hand, the number of head offices of banking institutions was trimmed down by 12 to 881 from 893 resulting from 3 cases of mergers (1 in the thrift bank industry involving 2 banks and another 2 in the rural bank industry involving 6 banks), 1 conversion of a thrift bank to a rural bank and 7 closures (2 thrift bank and 5 rural banks).

The lower number of operating banks is in line with BSP’s policy stance of encouraging consolidation in the banking system to achieve stability, competitiveness and economies of scale in the industry.

Nationwide, the majority or 34.9 percent of total banking offices were located in the National Capital Region (NCR). This was followed by banking offices situated in CALABARZON (Region IV-A) at 15.3 percent and in Central Luzon (Region III) at 10.6 percent. These 3 regions made up 60.8 percent of the total (nationwide) banking offices. There was no change in the number of overseas branches from last semester’s 49 offices, as banks have introduced innovative modes of remittance transfers and intensified their partnerships and arrangements with foreign financial institutions and collecting agents in facilitating fund transfers of OFWs.

Meanwhile, the banking density ratio nationwide remained at 5 banking offices per city/municipality although at a higher customer ratio of 11,017 persons (from 10,886 persons as of end-June 2004) per banking office. A major portion of the banking network was situated in the NCR with a banking office ratio of 155 banks per city with each office serving 4,222



17

persons. This was followed by CALABARZON with 8 banking offices per city/municipality and providing services to 8,619 persons per office. On the other hand, the Autonomous Region of Muslim Mindanao (ARMM) had the lowest establishment ratio of less than 1 banking office per city/municipality as well as the highest customer ratio of 90,320 persons per bank. (Table 4)

Banks exerted efforts to widen service delivery at more cost efficient levels through the use of non-traditional banking channels. In the first half of 2005, the number of banks with automated teller machines (ATMs) further increased to 57 banks (48 domestic banks and 9 foreign banks) from 49 banks (40 domestic banks and 9 foreign banks) last semester. This expanded the network of ATMs by 6.5 percent to reach 5,826 units (from 5,469 units as of end-year 2004) across the country. All major areas outside the NCR registered significant hike in ATM units, i.e., Luzon – 1,629 units from 1,506, Visayas – 734 units from 695, and Mindanao – 557 units from 500. (Table 5)

In addition, the use of information and communications technology gained ground in broadening market penetration with cost effective means. As of the first half of 2005, 14 domestic banks (from 13 banks at end-June 2004) were using mobile banking services in line with the innovative alternative payment arrangements mainly targeting OFW clients. The use of the internet services also expanded to 26 banks (15 domestic banks and 11 foreign banks) from 24 a year ago. The total number of banks in the system providing electronic banking services rose to 67 (51 domestic banks and 16 foreign banks) compared to year ago’s 57 banks.

20

5

14

15

15

48

8

3

3

9

3

11

0 10 20 30 40 50 60

Mobile/Internet viaBancnet's/Megalink's Switch

Proprietary

(Cellphones/Laptops/Palm)Mobile

(Phone/PC-based) Non-Mobile

Internet

ATM

Domestic Banks Foreign Banks

Philippine Banking SystemNumber of Domestic & Foreign Banks Engaged in Non-Traditional Banking ServicesAs of end-June 2005



18

RESULTS OF OPERATIONS

The on-going restructuring in banks’ balance sheet continued to lift the bottom-line performance of the industry in the first semester of 2005. Net income after tax grew by a 50.2 percent to reach P25.1 billion as the industry successfully managed net interest income and non-interest income in covering operating expenses. This profit performance is significantly above the marginal 1.5 percent growth during the same period in 2004. (Table 6)

Total operating income posted a faster growth of 24.1 percent to settle at P108.4 billion, considerably better than the meager 1.9 percent growth in the same period last year. Due to the stronger loan and investment growth, net interest income tallied to P73.7 billion, matching the 22.5 percent increase over the same period last year. Net interest income continues to comprise the greater part of total operating income with a 67.9 percent share. (Table 7)

Philippine Banking SystemNumber of Banks Engaged in Electronic Banking ServicesAs of June 30, 2005

E-BankingOnly

ATMOnly

E-Bankingand ATM

CombinedTOTAL

Domestic Banks 3 21 27 51 Private Domestic - UBs - 1 11 12 Private Domestic - KBs - 1 7 8 Government Banks - - 2 2 Domestic Thrift Banks 3 14 7 24 Rural Banks - 5 - 5

Foreign Banks 7 2 7 16 Branches of Foreign Banks - UBs - - 2 2

7 2 4 13

Foreign Banks - TBs - - 1 1

Branches and Subsidiaries of Foreign Banks - KBs

Philippine Banking System: Results of Operation

*Annualized

Profitability Performance

-175-125

-75-252575

125175225275

2000 2001 2002 2003 2004 June 2005 *

(In P

Bill

ions

)

-20

0

20

40

60

80

100

(In P

erce

nt)

Net Interest Income Non-interest Income Operating expensesExtraordinary Credits Provisions Income Tax NIAT growth rate



19

The banking sector’s annualized earning asset yield increased further to 8.2 percent

from 7.6 percent in the same period last year as banks were able to increase interest income on account of improved loan quality. Its spread over the bellwether 91-day Treasury bill widened by 160 basis points from 123 basis points as rates remained benign in a highly liquid environment. Meanwhile, the annualized funding cost rose slightly to 3.8 percent from 3.6 percent. The higher funding cost depicts the faster expansion in the deposit base particularly in interest sensitive local currency time deposits. These developments widened the annualized interest spread further to 440 basis points from 397 basis points. Likewise, the annualized net interest margin or the ratio of net interest income to average earning assets also increased to 4.4 percent from 3.9 percent.

The banking industry managed to reverse last year’s decline in non-interest income

with a 27.1 percent growth in the first half of 2005 to reach P34.8 billion. Trading income surged by 85.4 percent to P11.9 billion and contributed a third to total non-interest income. This favorable performance countered last year’s 65.5 percent drop as banks with substantial holdings of government securities held for trading took advantage of the declining domestic interest rates and increased volatility in the foreign exchange rate.

Dealings in government securities contributed the largest portion to total trading

income of banks for the first semester of 2005, significantly rising by 194.2 percent to P7.9 billion. This is a complete reversal over the 74.4 percent decline posted in the same period last year when domestic interest rates were climbing amid the electoral exercise. Also, gains in foreign exchange trading posted substantial growth of 72.4 percent to reach P3.9 billion relative to the reduction of 12.8 percent a year ago.

Philippine Banking System Selected Ratios vs. 91-day Treasury Bill Rate

8.28.07.47.7

14.0 10.910.3 10.2

13.8

7.17.36.0

13.1

5.4

10.2

15.3

9.9 9.9

3.83.83.63.9

6.26.16.48.58.0

-

3.0

6.0

9.0

12.0

15.0

1997 1998 1999 2000 2001 2002 2003 2004 June2005*

Earning Asset Yield T-bills (91-day) Funding Cost

* Average for the 12-month period July 2004 to June 2005



20

Over the years, fee-based revenues have been one of the stable sources of banks’

income. Their share has been steadily hovering around 14.0 percent of total operating income. Fee-based income at P14.6 billion expanded by 13.5 percent, an improvement over the 10.7 percent growth posted in the same period last year. The expansion in lending activities bolstered the growth of service charges, which accounted for the bulk (nearly 80 percent) of total fee-based income. In addition, bank charges include use of ATMs, bills payment and other fee-based products and services.

On the other hand, operating costs increased to only P83.1 billion in the first half of

2005, a faster rate of 15.9 percent compared to only 1.2 percent last year. The higher operating costs can be traced to the continuing expansion of banks’ operational capacities that support higher revenue generation and the adoption of more rigorous risk management procedures as revealed through their provisions for losses.

Overhead expenditures totaled P45.1 billion, a growth of 10.2 percent over the same

period last year. This is higher compared to the 5.0 percent last year on account of higher salaries and wages arising from a larger manpower pool, increase in salaries and wages, and expense-related items in the acquisition of foreclosed properties and disposal of assets. In addition, higher payments of gross receipts and documentary stamp taxes added to banks’ overhead costs. Despite this uptrend, the share of overhead expenses to total operating expenses was lower by 3.0 percentage points to 54.2 percent as banks exercised better control over most expenses. The rise in the general price level, particularly for oil, utilities, rent and services further raised other expenses by 18.9 percent. Provisions for probable losses jumped by 33.9 percent to P12.7 billion to cushion the effect of immediate risks in operations.

Philippine Banking System: Non-Interest Income

* Annualized

Non-interest Income

05

10152025303540

2000 2001 2002 2003 2004 June 2005 *

(In P

Bill

ions

)

-20

-10

0

10

20

30

40

(In P

erce

nt)

Fee-based TradingTrust OtherNon-interest Income growth rate



21

Meanwhile, comparative profitability indicators across the industry are summarized

as follows:

Philippine Banking System: Profitability Component Indicators For End-June 2005

All Banks 8.2 3.8 4.4 4.4 66.8

Domestic Banks 8.3 3.8 4.5 4.3 69.0

Private Domestic UBs 7.4 3.6 3.8 3.6 63.9

Private Domestic KBs 10.0 4.7 5.3 4.8 65.4

Government Banks 7.7 2.7 4.9 5.0 71.8

Thrift Banks 11.5 5.3 6.2 5.7 92.9

Rural Banks 18.4 6.4 12.0 11.0 81.0

Cooperative Banks 16.5 8.8 7.7 7.8 78.6

Foreign Bank Branches/Subsidiaries 8.0 4.1 3.9 4.8 56.1

Foreign Bank Branches 8.0 4.0 3.9 4.9 51.8

Foreign Bank Subsidiaries 8.7 4.6 4.1 4.4 94.6

p/ Preliminary

Earning Asset Yield

Funding Cost

Interest Spread

Net Interest Margin

Cost-to-Income Ratio

p/

p/

p/

p/

p/

Philippine Banking System: Operating Expense Structure

* Annualized

Operating Expense Structure

020406080

100120140160180

2000 2001 2002 2003 2004 June 2005 *

(In P

Bill

ions

)

-15

-10

-5

0

5

10

15

20

(In P

erce

nt)

Provisions/W rite-off OverheadOther expenses Operating Expense growth rate



22

Banks remained prudent in the management of costs as reflected in tempered increases in overhead costs and other expenses that accounted nearly for 85.0 percent of operating expenses. Furthermore, operating efficiency of the banking system improved with the cost-to-income ratio (CTI) moving to 66.8 percent over the same time last year at 70.7 percent. However, this is still considerably above the Asian region’s 50 percent average. Moreover, efficiency ratios across the banking industry remain highly uneven, particularly those at the lower tiered and highly fragmented sector. This highlights the need to further enhance operational efficiencies and incorporation of more comprehensive risk management processes. Foreign banks were the most cost efficient in the industry improving to 51.8 percent from 56.3 percent in the same period last year followed by private domestic universal banks with 63.9 percent and private domestic commercial banks with 65.4 percent.

Given the above developments, the banking industry’s profitability indicators continue to remain favorable in the first half of 2005 compared to 2004. The banking system’s annualized return on assets (ROA) ratio remained unchanged over the same period last year at 1.1 percent. Meanwhile, the annualized return on equity (ROE) of banks was slightly better at 8.6 percent from 8.3 percent.

Philippine Banking System: Cost-to-Income Ratio

0.025.050.075.0

100.0125.0150.0175.0200.0225.0

1996 1997 1998 1999 2000 2001 2002 2003 2004 June2005

0.010.020.030.040.050.060.070.080.090.0100.0

Operating Income

Operating Expense (net of bad debt/prov)

Cost to Income

(In P Billions) (In Percent)

Philippine Banking System: Cost-to-Income Ratios

2002 2003 2004 2004 2005

All Banks 71.4 68.9 69.9 70.7 66.8

Domestic Banks 74.5 71.4 71.2 72.9 69.0

Private Domestic UBs 75.5 68.9 66.8 70.5 63.9

Private Domestic KBs 66.1 69.0 68.6 71.6 65.4

Government Banks 63.6 65.0 71.3 66.4 71.8

Thrift Banks 87.1 93.0 94.2 92.7 92.9

Rural Banks 85.8 82.1 81.9 81.4 81.0

Cooperative Banks 83.4 79.5 78.2 78.7 78.6

Foreign Bank Branches/Subsidiaries 57.7 57.2 62.9 60.1 56.1

Foreign Bank Branches 52.2 53.1 58.5 56.3 51.8

Foreign Bank Subsidiaries 103.7 90.7 100.0 93.4 94.6

r/ Revisedp/ Preliminary

End-JuneEnd-Decemberr/

p/

p/

p/

p/

p/

r/



23

By banking group, cooperative banks continue to remain the most profitable with higher ROA of 2.4 percent (from 2.3 percent) and ROE of 14.5 percent (from 13.7 percent) compared to the same period last year. On the other hand, thrift banks still have the lowest profitability indicators.

Philippine Banking System: Return on Assets (ROA)

Philippine Banking System: Return on Equity (ROE)


(0.50)

0.00

0.50

1.00

1.50

2.00

2.50

3.00

1998 1999 2000 2001 2002 2003 2004 r/ June 2005 p/

ALL BANKS Universal Banks Commercial BanksThrift Banks Rural Banks Cooperative Banks

In Percent

(3.00)

0.00

3.00

6.00

9.00

12.00

15.00

18.00

1998 1999 2000 2001 2002 2003 2004 r/ June 2005p/

ALL BANKS Universal Banks Commercial BanksThrift Banks Rural Banks Cooperative Banks

In Percent



24

MAJOR BALANCE SHEET TRENDS ASSETS. Total resources of the banking system expanded by 11.8 percent to P4,332.5

billion as of end-June 2005. This is higher than the 9.8 percent growth posted during the same period in 2004. (Table 8) The faster asset build-up was supported by the banks’ deposit generation and sustained capital deepening initiatives.

All banking groups posted asset

expansion. Private domestic universal banks were the main growth driver, contributing P217.9 billion or 47.5 percent of the banking system’s total asset growth. Asset growths by other banking groups were as follows: foreign banks (branches and subsidiaries) brought in P105.9 billion or 23.1 percent, government banks contributed P46.5 billion or 10.1 percent, private domestic commercial banks contributed P40.8 billion or 8.9 percent, domestic thrift banks contributed P34.0 billion or 7.4 percent, and rural/cooperative banks contributed P14.0 billion or 3.0 percent.

As a result, distribution of the banking system assets at end-June 2005 was as follows:

a. private domestic universal banks – 55.5 percent (versus 56.5 percent end-June 2004);

b. private domestic commercial banks – 7.6 percent (versus 7.4 percent end-June 2004);

c. government banks – 11.2 percent (versus 11.4 percent end-June 2004);

d. foreign banks (branches and subsidiaries)1 – 15.9 percent (versus 15.0 percent end-June 2004);

e. domestic thrift banks – 7.3 percent (versus 7.2 percent end-June 2004); and

f. rural/cooperative banks – 2.5 percent (versus 2.5 percent end-June 2004).

1 The share of foreign banks (branches and subsidiaries) to the total assets of the banking system was a little over half of the maximum 30 percent limit under Section 3 of R.A. No. 7721 (An Act Liberalizing the Entry and Scope of Operations of Foreign Banks in the Philippines).

Philippine Banking System: Distribution of Assets

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

1997

1998

1999

2000

2001

2002

2003

2004

June 2005

Private Domestic Universal Private Domestic Commercial Government Banks

Foreign Banks Domestic Thrift Rural/Cooperative Banks



25

All asset items in the asset mix posted falling shares in relation to total assets with the

exception of investments, net that increased to 31.7 percent from 28.9 percent in the second half of last year. This has been the trend for the past couple of years as banks continue to invest in government securities given the absence of stronger and more broad-based expansion in the economy.

Total liabilities reached P3,817.5 billion in the first half of the year, a 13.0 percent

growth over year ago. Total liabilities accounted for around 88.1 percent of the total funding source of the banking system. Majority of the banking system’s liabilities or around 74.8 percent came from domestic universal and commercial banks, followed by foreign banks with 15.7 percent.

Philippine Banking System: Asset Mix

Cash and due from banks

8.4%

Other assets 8.8%

Investments (Net) 28.9%

Loans (net, exclusive of IBL) 40.4%

IBL 7.5%

ROPOA (net) 6.0%

Cash and due from banks

7.6%

Other assets 9.2%


Loans (net, exclusive of IBL) 39.1%

IBL 7.3%

ROPOA (net) 5.1%

P4,332.5 BillionP3,874.0 Billion

June 2004 June 2005

Philippine Banking System: Funding Mix

Unsecured Subordinated Debt 1 3%

Deposits 66.9%

Bills Payable 11.9%

Capital Accounts12.8%

Other Liabilities7.1%

Unsecured Subordinated Debt 1.2%

Deposits 67.3%

Bills Payable 10.0%



P3,874.0 Billion P4,332.5 Billion

June 2004 June 2005



26

Philippine Banking System: Balance Sheet StructureAs of end-periods indicated

2002 2003 2004 2004 2005

100.0 % 100.0 % 100.0 % 100.0 % 100.0 %Cash and Due from Banks 9.6 % 7.8 % 8.0 % 8.4 % 7.6 %Interbank Loans Receivable (IBL) 6.2 % 7.6 % 6.5 % 7.5 % 7.3 %Loans, net (exclusive of IBL) 42.8 % 42.1 % 40.0 % 40.4 % 39.1 %Investments, net 25.3 % 27.1 % 31.0 % 28.9 % 31.7 %ROPOA, net 5.9 % 6.1 % 5.9 % 6.0 % 5.1 %Other Assets 10.2 % 9.3 % 8.6 % 8.8 % 9.2 %

Deposits 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %Deposits 67.7 % 67.4 % 68.8 % 66.9 % 67.3 %Bills Payable 10.3 % 10.4 % 9.6 % 11.9 % 10.0 %Special Financing 0.0 % 0.0 % 0.0 % 0.0 % 0.0 %Other Liabilities 8.6 % 8.1 % 7.7 % 7.1 % 9.6 %Unsecured Subordinated Debt 0.0 % 1.0 % 1.3 % 1.3 % 1.2 %Capital Accounts 13.4 % 13.1 % 12.6 % 12.8 % 11.9 %

r/ Revisedp/ Preliminary data

Major AccountsEnd-December End-June

Total Assets

Total Liabilities and Capital

p/r/r/

LOANS. The improvement in

asset quality was achieved in concert with the faster expansion of credit. The total loan portfolio (TLP) of the banking system as of end-June 2005 amounted to P2,165.5 billion or a growth of 7.3 percent from P2,017.3 billion in the same period in 2004. Excluding interbank loans (IBL), credit extended by banks increased by 7.0 percent to P1,847.3 billion and comparatively higher than the 4.5 percent growth registered last year.

Foreign Currency Deposit Unit (FCDU) loans increased by 6.5 percent to reach US$ 9.7

billion for the first half of the year. Private domestic commercial banks continue to hold the bulk of FCDU loans with a 74.2 percent share (up from 70.6 percent in the same period last year).

Exclusive of interbank loans and financial intermediation, the bulk (with a combined

share of 33.9 percent) of banks’ loan portfolio was directed to the Manufacturing sector and the Real Estate, Construction, Renting and Business Activity sector. The Manufacturing sector reported average capacity utilization of 79.9 percent in the first half of 2005, higher than the 78.9 percent posted over the same period last year. Loans to this sector rose by 7.1 percent to P445.7 billion and retained its year ago’s 20.6 percent share of total loans.



27

Credit accommodations to the Real Estate, Construction, Renting and Business Activity sector were down by 1.8 percent to P288.5 billion from P293.7 billion a year ago. The sector’s share to total loans was reduced to 13.3 percent compared to year ago’s 14.6 percent.

Aside from the Manufacturing sector, substantial increase in lendings were reported in

the following industry sectors: Agriculture, Fishery, Hunting and Forestry (P130.2 billion or an 8.3 percent growth); Utilities (P77.5 billion or a 6.4 percent growth); and Private Households with Employed Persons (P64.7 billion or an 80.5 percent growth).

The continued expansion in consumer finance reflected the strong private consumption supported by the robust inflow of overseas remittances. Consumer loans (auto loans, credit card receivables and residential real estate loans) continued to climb to P178.5 billion, a growth of 18.0 percent, higher than the 9.1 percent growth in the same period last year. This market was largely the niche of thrift banks as it cornered 45.1 percent of the consumer loans. Foreign banks (branches/subsidiaries) serviced 23.9 percent and Private domestic universal banks lent 21.9 percent. The quality of these loans improved with past due ratio of 8.4 percent lower than year ago’s 10.2 percent.

The combined real estate loans (RELs) for residential purposes of universal,

commercial and thrift banks went up by 14.4 percent growth to P68.0 billion. This year-on-year expansion was due to the competitive financing schemes offered by banks and the strong buying interest among OFWs. Domestic thrift banks lent the majority of residential RELs or 54.0 percent and private universal banks financed 20.3 percent. These two subgroups comprised 77.3 percent share of total residential RELs.

The growth of credit card receivables (CCRs) remained strong at 19.9 percent to reach P52.4 billion. This growth rate was higher than the 15.5 percent posted over the same period last year. Loan quality of CCRs improved with the favorable drop of CCR past due ratio to 15.3 percent from year ago’s 18.3 percent. Foreign banks (branches and subsidiaries) continue

Philippine Banking System: Loan Portfolio Structure By Industry SectorAmount in P BillionAs of end-June 2005

7.2%

20.6%13.3%

14.7%

11.4%

7.4%11.9%

3.6%

3.9%6.0%

Agriculture, Fishery, Hunting & Forestry

Transportation, Storage & Communication

Other Community, Social & Personal Service Activities

Electricity, Gas & Water

Others

Manufacturing

Real Estate, Construction, Renting & Business Activities

Wholesale, Retail Trade & Repair of Motor Vehicles

Interbank Loans

Financial Intermediation

P160.1

P130.2

83.5

P 77.5

P156.8

P445.7

P288.5

318.2

P247.87

P257.2

7.4%

6.0%

3.9%

3.6%

7.2%

20.6%

13.3%

14.7%

11.4%

11.9%

P2,165.5 100.0%



28

to account for the bulk of CCRs at 69.9 percent, followed by private domestic universal banks at 24.4 percent.

Auto loans (ALs) reached P58.1 billion, a growth of 20.8 percent from year ago’s P48.1 billion. The expansion was wider over the 7.8 percent same period last year. The ratio of past due improved to 5.1 percent from year ago’s 6.3 percent. Domestic thrift banks (with 67.9 percent of total Als) were the lead lenders, followed by private domestic universal banks with 21.6 percent share.

Based on preliminary data as of end-June 2005, banks were compliant with mandatory credit allocations to small and medium enterprises under R.A. No. 6977, as amended. The banking system apportioned a total of P246.5 billion or 21.95 percent of loanable funds, above the minimum 8 percent requirement. A total of P132.1 billion or 11.8 percent (versus the required P67.4 billion or 6 percent) was directed to small enterprises while P114.4 billion or 10.2 percent (versus the required P22.5 billion or 2 percent) was allotted to medium enterprises.

On the other hand, the banking system’s loan allocation under the agri-agra credit as of 30 June 2005 remained compliant with the minimum 25 percent as mandated under P.D. 717. The industry conformed to the minimum credit for agrarian reform beneficiaries with P122.1 billion or 10.1 percent (versus the required P121.4 billion or 10 percent) as well as with agricultural credit in general with P314.3 billion or 25.9 percent (versus the P303.6 billion or 25 percent).

Banks decisively moved to

further clean up their balance sheet through the unloading of bad assets. This was complemented by the higher amount of loans and the overall growth of assets. The disposal of NPAs was hastened in the first half of 2005 largely due to the winding up of the time-bound provision of the SPV Law. The total transfer of bad assets to SPVs reached P96.7 billion and roughly 18.6 percent of the total P520.0 billion NPAs

of the banking system as of end-June 2002.

The NPL ratio favorably

dropped to a single-digit level at 9.3 percent from 13.6 percent level in the same period of 2004. As banks unloaded a significant amount of idle assets, total NPLs settled to P199.2 billion or a decline of 26.6 percent from year ago’s P271.4 billion. Domestic

NPLs and NPL Coverage Ratio

0

50

100

150

200

250

300

350

1998 1999 2000 2001 2002 2003 2004 June 20050

10

20

30

40

50

60

70

NPLs Loan Loss Reserves

NPL Ratio NPL Coverage Ratio

In PercentIn P Billion

NPAs and NPA Coverage Ratio

0

100

200

300

400

500

600

1998 1999 2000 2001 2002 2003 2004 June 20050

10

20

30

40

50

NPAs NPAReserves

NPA Ratio NPA Coverage Ratio




29

commercial and universal banks provided the biggest impetus in the improvement of the NPLs, accounting for 92.5 percent of the total, followed by foreign banks with 4.5 percent and domestic thrift banks with 4.3 percent. These more than offset the trivial rise in the NPLs of both rural and cooperative banks.

Likewise, total non-performing assets (NPAs) to gross assets ratio improved to 9.5 percent from year ago’s 12.7 percent. The NPA stock also settled at P427.4 billion or lower by 16.6 percent from year ago. Furthermore, the distressed assets ratio at 21.3 percent was better than year ago’s 27.0 percent.

The faster pace of disposal of bad assets strengthened coverage ratios for NPLs and NPAs to 68.4 percent (from 51.9 percent a year ago) and 36.6 percent (from 30.6 percent a year ago), respectively. The improvement in asset quality provides more maneuvering room for banks to increase their lending and investment activities, particularly to those areas that can significantly contribute and sustain the current gains in the economy.

INVESTMENTS. The growth spurt of the banking system’s investments continued for the first half of 2005. Total investments, net amounting to P1,373.5 billion expanded by 22.8 percent or P254.9 billion, clearly outpacing the 8.5 percent growth of loans, net that amounted to P132.4 billion. As a result, the share of investments, net to the industry’s total assets was higher at 31.7 percent from 28.9 percent a year ago. Investments in debt instruments took hold of 92.5 percent (up from 91.6 percent a year ago) of the total, while the share of investments in equity holdings was at 7.5 percent (down from 8.4 percent). An estimated 51.8 percent (up from 48.5 percent) of the total investments in debt instruments were in government securities that swelled by 30.3 percent to P650.4 billion from year ago’s P499.3 billion. Investments in foreign currency denominated debt securities followed with 46.1 percent share (down from 49.3 percent) amounting to P578.1 billion, a 14.0 percent uptick from year ago’s P507.2 billion. The apparent shift of relative percentage shares to the total indicate the industry’s preference for debt instruments in peso denominated government securities over foreign currency denominated securities. Peso denominated debt instruments were mostly direct and indirect exposures to the Republic of the Philippines (ROP) through repurchase transactions. Notwithstanding the increase of 20.0 percent to P26.7 billion from year ago, investments in private securities came to only 2.1 percent share of the total investments in debt instruments (marginally lower from last year’s 2.2 percent).

A major issuance in the period was BSP Circular No. 476, covering revised rules and regulations governing the accounting for investments in debt and equity securities. This was in keeping with the BSP policy of promoting full transparency of financial statements in order

Distressed Assets Level/Ratio

0

100

200

300

400

500

600

1998 1999 2000 2001 2002 2003 2004 June2005

0

10

20

30

40

50

NPAs Restructured Loans (current)

Distressed Assets




30

to strengthen market discipline, encourage sound risk management and stimulate the domestic capital market. It was in this vein that the BSP aligned local financial accounting standards with the International Accounting Standards (IAS). The impact of the circular could be gleaned in comparative period’s corollary shift of investments from investments in bonds and other debt instruments (IBODI) to available for sale securities (ASS) and trading accounts securities (TAS), i.e., IBODI was down by 28.6 percent to P552.1 billion from P773.3 billion, while ASS shot up by 210.6 percent to P554.0 billion from P178.4 billion and TAS likewise jumped by 103.8 percent to P173.3 billion from P85.0 billion.

DEPOSITS. In the first six months of 2005, deposit liabilities reached P2,917.4 billion,

expanding at a faster pace by 12.6 percent from an 8.3 percent growth in the same period in 2004. Banks were realizing gains from their effort in aggressive marketing strategies and introduction of new market-responsive deposit products to potential bank clients, especially those looking for alternative avenues for medium- to long-term placements.

Majority of fresh deposits was pulled in by domestic universal at P220.5 billion or 67.7

percent of overall deposit growth of the banking system. Foreign banks (branches and subsidiaries) supplied P58.6 billion or 18.0 percent. Domestic thrift banks generated P37.9 billion more or 11.6 percent, and rural/cooperative banks pitched in the remaining P8.5 billion or 2.6 percent of overall deposit growth.

Philippine Banking System: Distribution of Deposits

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

1997

1998

1999

2000

2001

2002

2003

2004

June 2005

Private Domestic Universal Private Domestic Commercial Government Banks

Foreign Banks Domestic Thrift BanksRural/Cooperative Banks

Private domestic universal banks cornered the bulk of the banking system’s deposit

base at 59.0 percent, albeit slightly lower than the 60.5 percent a year ago. Foreign banks’ market share inched up to 12.9 percent from year ago’s 12.2 percent. Government banks’ market share was unchanged at 9.6 percent. Domestic thrift banks’ share was 8.2 percent, marginally up from year ago’s 7.8 percent. Private domestic commercial banks’ 9.7 percent



31

was a bit up from year ago’s 7.3 percent and rural/cooperative banks kept their share at 2.6 percent.

Majority of the deposit liabilities was in local currency at 69.3 percent (up from 67.9

percent), while the remaining share of 30.7 percent (down from 32.1 percent) was in foreign currency accounts.

Local currency deposits increased to P2,021.9 billion, 14.8 percent accelerated growth from year ago’s 5.4 percent, on the back of growth of time deposits that jumped by 103.3 percent to reach P487.8 billion from P240.0 billion. Banks’ time deposits have been upbeat for the past couple of years from 6.8 percent share in local currency deposits at end-year 2000 and now reached 16.7 percent in the first half of 2005. The expansion of time deposits mitigates the decline in local currency savings deposits that were slightly reduced by 3.2 percent to P1,166.2 billion from P1,204.7 billion a year ago. Nonetheless, local currency deposits still hold the bulk of the industry’s deposit base at 40.0 percent, albeit down from 46.5 percent.

Foreign currency deposits growth of 7.8 percent or P64.5 billion decelerated from the

15.2 percent or P109.6 billion in the previous year, as foreign currency time deposits growth of 5.6 percent or P31.7 billion eased from year ago’s 14.4 percent or P71.2 billion. Notwithstanding the slowdown, foreign currency time deposits still make up a good 20.5 percent share (versus 21.8 percent a year ago) in total deposits of the banking system.

CAPITALIZATION. The combined capital accounts of the banking system amounted

to P515.0 billion, a 4.0 percent increase from last year’s P495.4 billion. The capital structure of the banking industry consisted primarily of paid-up capital at 44.9 percent, slightly down from 45.3 percent last year. Surplus, surplus reserves and other profits made up 40.8 percent, an increase from 39.5 percent. The remaining balance of 14.3 percent represented the combined assigned capital and net due to head offices of foreign bank branches.

The banking industry remains adequately capitalized with solvency ratios higher than

the minimum regulatory standard set by the BSP (10 percent benchmark) as well as above international benchmark (8 percent) as of end-March 2005. On a solo basis, total qualifying capital (Tier 1 and Tier 2 less deductions) amounted to P2,410.0 billion translating to a 17.1

Philippine Banking System: Deposit Mix

13.6%

86.4%

24.1%

75.9%

June 2005June 2004

PESO DEPOSITS

P2,021.9 BillionP1,760.9 Billion

68.0%

32.0% 33.3%

66.7%

Time Deposits Demand/NOW & Savings Deposits

FOREIGN CURRENCY DEPOSITS

June 2005June 2004

P895.6 BillionP831.1 Billion



32

percent of risk-adjusted assets. Likewise on a consolidated basis, CAR was, at 18.1 percent, slightly lower than the 18.4 percent posted as of end-December 2004. The increase in qualifying capital was a result of higher Tier 1 capital, as stockholders continue to put in fresh funds and plow back profits from operations.

The status of banks’ compliance with prescribed minimum amount of capital was

slightly lower at 77.6 percent compared to 78.3 percent last year. The lowest compliance rate was seen in the thrift bank industry that averaged 60.2 percent.

Philippine Banking System: Capital Adequacy Ratio (CAR)

2003 2004 2003 2004

(In P Billion)

353.9 395.1 408.9 349.1 390.1 402.9

69.0 78.1 74.1 69.8 79.0 75.0

74.3 70.5 71.8 12.8 14.8 13.8

348.6 402.6 411.2 406.1 454.3 464.1

2,179.2 2,310.5 2,410.0 2,328.1 2,467.6 2,563.7

(In Percent)

Capital Adequacy Ratio 16.0 17.4 17.1 17.4 18.4 18.1

End-March 2005

Consolidated

1/ 31 December 2003, based on the latest regular examination reports of 770 rural and cooperative banks as of 30 June 2003.

Qualifying Capital

Risk Weighted Assets (RWA) - net

Tier 1

Tier 2Deductions

End-March 2005

End-December

Solo

End-December

1/ 1/

Status of Banks' Compliance with Prescribed Minimum Amount of Capital

2002 2003 2004 2004 2005

912 899 893 896 881

Universal and Commercial Banks 42 42 42 42 42Thrift Banks 94 92 87 89 83Rural/Cooperative Banks 776 765 764 765 756

708 700 706 702 684

Universal and Commercial Banks 35 34 33 35 33Thrift Banks 57 58 56 55 50Rural/Cooperative Banks 616 608 617 612 601

End-December End-June

B.xxBanks with Capital Equal to or in Excess of B.xxthe Minimum Amount Required

A. Number of Operating Banks



33

SELECTED CONTINGENT ACCOUNTS

TRADE-RELATED CONTINGENT ACCOUNTS. The banking system’s total trade-

related contingent accounts declined by 14.6 percent during the first half of 2005 to P41.7 billion from P48.8 billion, a reversal of the 25.0 percent growth during the same period in 2004. This reflected the general slowdown in global foreign activity, with utmost impact on the weakening of foreign demand for electronics, which accounted for around 60.0 percent of the country’s exports.

BANK GUARANTEES. The banking system’s total bank guarantees as of end-June 2005 fell to P96.7 billion from P104.6 billion, a contraction of 7.6 percent from year ago, as government spending continue to fall, reflecting efforts to adhere to fiscal targets.

With the exception of domestic thrift banks that increased by 40.8 percent to P609.9 million, all banking sub-groups led by domestic commercial and universal banks declined relative to the same period last year. Both stand-by letters of credit and outstanding guarantees fell by 12.7 percent (to P32.6 billion) and 3.5 percent (to P53.5 billion), respectively. Meanwhile, the increase in thrift banks’ stand-by letters of credit can be attributed to the beautification projects of local government units in the NCR as contractors use these as their performance bonds.

DERIVATIVES. The growth posted by banking groups across industry raised the notional value of the banking system’s derivatives instruments to P1,236.2 billion from year ago’s P1,055.9 billion, an increase of 17.1 percent. This developed as financial market players and corporations became more familiarized with these hedging tools available for better management of financial risks. Currency forwards amounting to P974.6 billion accounted for 78.8 percent of total derivatives contracts, up from 75.7 percent a year ago. The underlying foreign exchange risks for the period were largely a result of volatilities in international crude oil prices, widening interest spreads between the country’s and the US rates, and domestic uncertainties brought about by political and peace and order issues. Interest rate swaps, the second largest derivative activity, contributed P21.0 billion or 11.7 percent of the total increase in derivatives contracts to total P224.4 billion, up by 10.3 percent from year ago’s P203.3 billion. Financial options amounted to P37.2 billion, a 53.3 percent hike from year ago’s P24.3 billion.


Source: Office of Supervisory Policy Development, Supervision and Examination Sector 34

UNIVERSAL AND COMMERCIAL BANKS

OVERVIEW

The first half of 2005 saw the significant improvement in the loan and asset quality of

the universal and commercial banking industry. Some P92.4 billion (P84.6 billion in non-performing loans or NPLs and P7.8 billion in foreclosed assets) worth of bad assets were sold under the Special Purpose Vehicle (SPV) Act of 2002. This, together with the other credit and asset enhancement measures, favorably brought back the NPL and non-performing assets (NPA) ratios of the industry to single-digits at 9.2 percent and 9.0 percent, respectively. The NPL ratio peaked at 18.8 percent at end-October 2001 while the NPA ratio posted its highest at 15.1 percent at end-May 2002.

Meantime, the loss provisioning of the industry strengthened to an all-time high as

both the NPL and NPA coverage ratios reached 72.2 percent and 39.7 percent, respectively. Asset clean-up remains a priority as the industry prepares for the coming

implementation of Basle II in 2007, which incorporates aside from operational risk, higher capital charge on bad assets. The BSP is supportive of the bill filed in Congress extending the SPV Law to two more years.

For the semester ended 30 June 2005, the industry’s net income after tax (NIAT) nearly

expanded by half to P23.5 billion compared to the P15.7 billion same period last year. The industry reported favorable profitability figures. Net interest income rose

substantially in the first half of 2005 by 23.3 percent to P63.1 billion from P51.1 billion same period last year as a result of improvement in loan and asset quality. Whereas non-interest income recovered with a growth of 29.0 percent, following successive decline of 28.5 percent during the first half of 2004 and 16.0 percent for the year 2004. Trading income accounted for the shift in non-interest income movement as banks mark-to-market their trading stock of government securities. The bellwether 91-day Treasury bill (T-bill) rate trended down during the first half of 2005, a reversal of the uptrend in rates in 2003 and 2004.

Meantime, operating expenses for the first half of 2005 at P69.5 billion expanded by

15.7 percent over the same period last year. This was mainly on account of rising bad debts written off/loss provisions (up by 33.3 percent), wages (up by 9.1 percent) and taxes and licenses (up by 16.7 percent).

With total operating income expanding faster than operating expenses, the annualized

cost-to-income (CTI) ratio favorably went down to 74.8 percent from 79.9 percent same period last year. Exclusive of write-offs/loss provisions, the CTI ratio also improved to 63.4 percent from 67.8 percent.



Extraordinary income also rose by 20.4 percent to P5.2 billion over the P4.3 billion posted same period last year. This was mainly due to dividends received by private domestic UBs from subsidiaries and affiliates which surged by 1,069.1 percent. This further raised net income before tax to P29.8 billion, up by 53.2 percent over the same period last year. Meanwhile, with increased revenues, provisions for income tax expanded to P6.3 billion, up by 67.9 percent from P3.7 billion.

For the first time since 1997, the

industry posted double-digit growth at 11.7 percent in total assets to P3,898.9 billion from P3,489.4 billion as of end-June 2004. This developed as funds generated from deposit liabilities led by time deposits expanded by 12.0 percent to P2,592.7 billion with aggressive marketing for term placements. Private domestic universal banks consistently held the bulk of industry’s total assets, accounting for 61.7 percent (down from end-June 2004’s 62.7 percent). The subgroup also chalked up the highest

level growth from end-June 2004 at P217.9 billion or 10.0 percent to P2,405.8 billion. Foreign banks (branches and subsidiaries) raised their share of the industry’s total asset base at 17.4 percent from 16.4 percent. The subgroup likewise grew significantly by 18.2 percent or P104.3 billion to P677.8 billion. The remaining shares went to government banks and private domestic commercial banks at 12.5 percent and 8.4 percent, respectively. Similarly, both subgroups contributed to the expansion of total assets. (Table 9)

The industry continued to be risk-averse, channeling more funds to investments than

to lending. Investments, net with a 23.3 percent year-on-year expansion further increased their share to 33.6 percent (from 30.4 percent) of total assets and were closing in on the 37.5 percent share (down from 39.0 percent) of loans, net (exclusive of interbank loans).

Liquidity remained adequate with liquid assets to deposits ratio at 57.7 percent (up

from end-June 2004’s 54.0 percent). Liquid assets rose by 19.7 percent to P1,495.9 billion from P1,249.8 billion. The increase was brought on by the 24.8 percent expansion in investments in debt instruments (mainly in government securities) to P1,209.6 billion, which accounted for 80.9 percent (up from 77.6 percent) of liquid assets.

The industry remained solvent with capital adequacy ratios (solo at 17.1 percent and

consolidated at 18.3 percent), as of end-March 2005, well above the 10 percent minimum. Metrobank was still the top industry player in terms of assets, loans (gross) and

deposit liabilities based on published statement of condition as of 27 June 2005. The same 5 banks a year ago still composed the top banks in terms of assets, loans (gross) and deposit liabilities. Meanwhile, in terms of capital, BPI wrested the lead from Metrobank, whereas

Universal and Commercial Banking System Market Structure of Assets

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

1997

1998

1999

2000

2001

2002

2003

2004

Jun 2005

Private Domestic - UBs

Private Domestic - KBs

Government Banks

Foreign Banks (Branches & Subsidiaries)



Landbank dislodged China Bank from the roster, even surpassing PNB’s capital accounts during the period.

The top 5 universal and commercial banks held sizeable blocs of the industry’s

aggregate assets, deposit liabilities and capital accounts, albeit lower than a year ago, at 45.8 percent (from 46.2 percent), 48.9 percent (from 51.0 percent) and 42.1 percent (from 43.4 percent), respectively. Meantime, a bigger share was posted by the top 5 in terms of loans (gross) at 43.7 percent, up from year ago’s 39.7 percent.

OPERATING NETWORK

The total number of head offices, branches and other offices of the universal and commercial banking industry was down by 13 to 4,316 from 4,329 as of end-December 2004. The reduction may be attributed to voluntary closure of redundant/unprofitable branches/other offices of merged/consolidated banks, particularly in Luzon. The total operating universal and commercial banks consisted of 42 head offices and 4,274 branches and other offices. (Table 11)

Top Five Universal and Commercial Banks Based on Published Statements as of 27 June 2005(Amounts in P Billion)

Name of Bank Amount Rank Name of Bank Amount

1 Metrobank 474.5 1 Metrobank 249.9

2 BPI 396.0 2 BPI 167.8

3 Equitable PCI Bank 310.4 3 Equitable PCI Bank 143.0

4 Landbank 307.1 4 Landbank 141.5

5 Citibank 296.2 5 Citibank 133.6

Total 1,784.2 Total 835.8

% Share 45.8 % Share 43.7

1 Metrobank 357.3 1 BPI 55.5

2 BPI 309.3 2 Metrobank 49.4

3 Landbank 237.9 3 Equitable PCI Bank 42.0

4 Equitable PCI Bank 200.8 4 Landbank 23.0

5 PNB 162.3 5 PNB 22.0

Total 1,267.6 Total 191.9


Assets Loans

Deposit Liabilities Capital Accounts

Rank Name of Bank Amount

Rank

Rank Name of Bank Amount



Of the 42 head offices, 18 were universal and 24 were commercial banks. The 18 universal banks consisted of 12 private domestic banks, 3 government banks and 3 branches of foreign bank. On the other hand, 9 private domestic banks, 4 subsidiaries of foreign banks and 11 branches of foreign banks comprised the 24 commercial banks in the country. (Schedule 1) During the first half of 2005, there were 28 branches that closed as against 15 branches that opened, resulting to the reduction of 13 branches. Meanwhile, there was one additional overseas branch in the Asia-Pacific region, bringing to 49 the total number of overseas network from 48 as of end-December 2004. The industry’s domestic branch network was still clustered in the National Capital Region (NCR) at 47.1 percent of the total number of domestic branches/other offices, albeit slightly down from end-December 2004’s 47.2 percent. The branches/other offices in CALABARZON ranked second at 10.6 percent. The remaining branches were distributed around the Visayas and Mindanao regions, each comprising less than 10.0 percent of the total number of domestic branches/other offices of the industry. The network of Automated Teller Machines (ATMs) all over the country expanded anew, reaching 5,330 units, an increment of 230 units from end-December 2004’s 5,100 units. Despite net reduction of branches and other offices, ATMs installed within bank premises still grew by 138 units to 3,822 units from 3,684 units at end-2004. This represented 71.7 percent of the total ATMs of the industry, a decline from 72.2 percent as of end-December 2004. Similarly, units installed off-site reached 1,508 units or 28.3 percent of the total ATMs, up from previous semester’s 1,416 units or 27.8 percent. In terms of geographical distribution, ATMs remained largely concentrated in the NCR at 49.3 percent. The ATM networks in CALABARZON, Central Luzon and Central Visayas trailed behind with respective shares of 13.4 percent, 7.1 percent and 7.0 percent. (Table 12) As of end-June 2005, the number of universal and commercial banks engaged in electronic banking services remained at 33, with some additions in the type of e-banking operations offered by few banks. Available services included fund transfer, loan and credit application, bills payment and check order. Some 25 banks (from 26 last semester) operated their own telephone- and computer-based infrastructures. Whereas, the same 17 banks in the last semester still offered internet/mobile banking operations in tie-ups with BancNet’s Multi-Channel Payment Gateway (MCPG) or MegaLink’s ATM Switch networks. The number of banks with cash card operations inched up to 4, from 3 a semester ago. Finally, 8 banks retained their participation in the Bureau of Internal Revenue’s Electronic Filing and Payment System (EFPS), providing convenience for corporate and big time taxpayers in the facilitation of electronic filing and paying of taxes. (Table 13)




The positive macroeconomic development buoyed by consumer spending and fiscal restraint during the first half of the year augured well for the universal and commercial banking industry. The resultant 6.1 percent growth in lending, exclusive of IBL, (second highest since 1997) and the 23.3 percent expansion in investments, net drove core interest income to a double-digit growth. For the first half of 2005, net interest income went up by 23.3 percent or P12.0 billion to P63.1 billion over the same period last year. Supplemented by substantial expansion in non-interest income by 29.0 percent or P7.0 billion, the industry posted a hefty 25.1 percent or P18.9 billion increment in total operating income to P94.1 billion. The expansion in total operating income was more than enough to cover a 15.7 percent or P9.4 billion rise in operating expenses to P69.5 billion. This resulted to bigger growth in net operating income by 62.7 percent or P9.5 billion to P24.6 billion during the period. With no significant movement in extraordinary credits and provisions for income tax, NIAT for the first semester of 2005 rose by 49.7 percent or P7.8 billion to P23.5 billion over the same period last year. (Table 14)

The sustained uptrend in lendings and investments plus improved loan quality boosted interest income in the first half of 2005 by 21.0 percent (or P20.6 billion) to P118.4 billion over the same period last year. Whereas, higher deposit liabilities propelled interest expenses by as much as 18.6 percent (or P8.7 billion) to P55.3 billion. As expansion in interest income outweighed that of interest expenses, the industry’s net interest income grew by 23.3 percent to P63.1 billion during the semester. On account of declining market interest rates in the first half of 2005, trading income (particularly from the substantial inventory of government securities held for trading) surfaced with hefty growth of 89.1 percent to P11.6 billion following its slump since 2003. Also contributing some 30.3 percent in trading income growth was the 74.9 percent or P1.7 billion increment in foreign exchange transactions and revaluation of certain foreign currency accounts. This rebound in trading income, together with continued fee-based income-generating activities and steady growth in other incomes, was partially reduced by the 11.7 percent or P0.3 billion decline in trust department income. Consequently, non-interest income expanded by 29.0 percent to P31.0 billion, reversing the double-digit decline during the first half and the whole year of 2004. The average bellwether 91-day T-bill rate trended downward by 0.2 percentage point to 7.1 percent from 2004’s 7.3 percent. Its difference against the industry’s average earning asset yield declined to 6 basis points from 17 basis points in 2004 as active lendings, improved loan quality and expanded investments in government securities continued. Meantime, the annualized funding cost for the period ended 30 June 2005 at 3.6 percent was higher by 20 basis points over the 3.4 percent posted same period last year. Nonetheless, this ratio was the same as the 3.6 percent ratio for the year ended 31 December



2004. The closing of the gap between the 91-day T-bill rate and the funding cost by 346 basis points from 376 basis points augured well for depositors.

The preceding bode well to the average interest spread, trekking upwards to 4.1 percent against the 3.9 percent for the whole year 2004 and the 3.7 percent over similar period ended 30 June 2004.

The industry operated with improved efficiency as annualized cost-to-income (CTI) ratio slid to 63.4 percent from 67.8 percent over the same period last year. This transpired on the back of a higher growth in annualized total operating income (exclusive of write-off and loss provisions) of 20.5 percent as against the 12.7 percent expansion in annualized operating expenses (net of bad debts and loss provisions). Since 2001, the industry’s CTI ratio continues to improve from its peak at 79.0 percent at

end-year 2000. Inclusive of write-offs and loss provisions, the annualized CTI likewise favorably went down to 74.8 percent from 79.9 percent.

Universal and Commercial Banking System Cost-to-Income Ratio

25.0

50.0

75.0

100.0

125.0

150.0

175.0

1997 1998 1999 2000 2001 2002 2003 2004 Jun2005

20.0

40.0

60.0

80.0

100.0

Operating Income


Cost to Income


Universal and Commercial Banking SystemSelected Ratios vs. 91-day Treasury Bill Rate

7.06.9 7.29.7

9.910.513.5

13.3

7.5

3.63.53.7

6.05.96.1

8.17.6

3.6

6.05.4

9.9

9.910.2

15.3

13.1

7.3 7.1

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

1997 1998 1999 2000 2001 2002 2003 2004 Jun 2005*

Earning Asset Yield Funding Cost Treasury Bill Rate (91-day)

(In Percent)




Except for government banks, all industry subgroups chalked up better CTI ratios. Foreign banks (branches and subsidiaries) were the most efficient with the lowest CTI ratio at 54.9 percent. Moreover, the subgroup posted the highest drop in CTI ratio by 6.8 percentage points from year 2004’s 61.7 percent, and was the lone subgroup with below industry CTI average. Private domestic commercial banks (KBs) and private domestic universal banks (UBs) likewise recorded improving CTI ratios of 65.4 percent and 63.9 percent, respectively, 3.3 percentage points and 2.9 percentage points less than the previous semester’s ratios. On the other hand, government banks’ CTI ratio rose by 0.6 percentage point to 71.8 percent during the semester, its highest

recorded CTI ratio since 1997. The industry’s profitability in terms of annualized ROA was slightly better at 1.1 percent, from 2004’s 1.0 percent but lower over the same period last year at 1.2 percent. As shown in the comparative ROA graph, only private domestic universal banks were below the industry average at 1.0 percent. With ROA ratio of 2.0 percent, foreign banks (branches and subsidiaries) remained at the top since year 2000, surpassing year 2003’s 1.7 percent. Meanwhile, the

annualized ROA at 1.3 percent by private domestic commercial banks eventually outmatched the 1.2 percent ratio of government banks.

As against equity, the industry’s

annualized ROE showed a favorable uptrend to 9.2 percent from year 2004’s 7.6 percent as well as from same period last year at 9.0 percent. The industry has yet to attain or surpass its 1997 ROA and ROE ratios at 1.8 percent and 13.4 percent, respectively. Moreover, a wide gap still existed between the industry’s ROE and ROA, measured at 8.1 percentage points, for the one-year period ended-June 2005.

Universal and Commercial Banking SystemComparative Cost-to-Income Ratio

40.0

60.0

80.0

100.0

1997 1998 1999 2000 2001 2002 2003 2004 Jun2005

Universal and Commercial BanksPrivate Domestic - UBsPrivate Domestic - KBsGovernment BanksForeign Bank Branches & Subs

(In Percent)

Universal and Commercial Banking SystemComparative Return on Assets (ROA)

-0.5

0.0

0.5

1.0

1.5

2.0

1997 1998 1999 2000 2001 2002 2003 2004 Jun 2005Universal and Commercial BanksPrivate Domestic - UBsPrivate Domestic - KBsGovernment BanksForeign Bank Branches & Subs

(In Percent)

Universal and Commercial Banking SystemReturn on Assets (ROA) and Return on Equity (ROE)

(1.0)

1.0

3.0

5.0

7.0

9.0

11.0

13.0

15.0

1997 1998 1999 2000 2001 2002 2003 2004 Jun2005

Return on Assets (ROA) Return on Equity (ROE)

(In Percent)



Foreign banks (branches and subsidiaries) led the subgroups with the highest increment in ROE by 6.6 percentage points to 14.7 percent from year 2004’s 8.1 percent. The

subgroup almost surpassed the record ROE of private domestic universal banks for 1997 at 15.4 percent. Ironically, private domestic universal banks chalked up the lowest ROE ratio among the 4 subgroups, even posting below industry average at 8.0 percent (in spite of a 1.1 percentage point rise from 2004’s 6.9 percent). Meantime, government banks and private domestic commercial banks help buoyed the industry with respective annualized ROEs at 13.3 percent and 10.1 percent, both up by 2.2 percentage points from 2004’s 11.1 percent and 7.9 percent.

MAJOR BALANCE SHEET TRENDS

ASSETS. The industry’s aggregate assets posted its first ever double-digit growth in the period following the 1997 Asian financial crisis. Assets expanded by 11.7 percent year-on-year to P3,898.9 billion from end-June 2004’s P3,489.4 billion.

Universal and Commercial Banking System: Asset Growth

3,618

3,1412,9432,936

2,5012,5092,680

3,899

3,297

32.9 % (0.3 %) 6.8 %

0.2 %

9.6 %7.1 % 5.0 %

9.7 %11.7 %

1,000.0

1,500.0

2,000.0

2,500.0

3,000.0

3,500.0

4,000.0

4,500.0

1997 1998 1999 2000 2001 2002 2003 2004 Jun 2005

In P Billion

(0.5%)

4.5%

9.5%

14.5%

19.5%

24.5%

29.5%

34.5%

In Percent

Levels Growth

Universal and Commercial Banking SystemComparative Return on Equity (ROE)

(2.0)

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

1997 1998 1999 2000 2001 2002 2003 2004 Jun 2005Universal and Commercial BanksPrivate Domestic - UBsPrivate Domestic - KBsGovernment BanksForeign Bank Branches and Subsidiaries

(In Percent)



For the third consecutive semester, investments, net remained the main driver of growth, albeit moving almost sideways by 23.3 percent from year ago’s 23.5 percent. This was followed by other assets which rose by 14.7 percent after dropping by 5.8 percent during the same period last year. Meanwhile, loans, net (inclusive of interbank loans) grew by 7.6

percent. There was a rather weak 2.0 percent expansion in cash and due from banks considering the 8.9 percent expansion during the same period last year. Only the real and other properties owned or acquired (ROPOA), net declined by 7.1 percent as the industry started to dispose of these assets thru bulk sale to SPVs.

Loans, net (exclusive of interbank

loans) retained the biggest slice of the asset pie at 37.5 percent share (down from year ago’s 39.0 percent). Investments, net which had the highest growth during the first half,

followed at 33.6 percent (up from 30.4 percent) share. The rest of the pie was held by other assets at 9.1 percent (from 8.8 percent), interbank loans at 7.9 percent (from 8.2 percent), and cash and due from banks at 7.3 percent (from 8.1 percent). ROPOA, net still held the lowest proportion of the industry’s asset mix at 4.6 percent (from 5.5 percent).

There was not much variation in the

industry’s funding mix during the semester. Main source of funding came from deposit liabilities, comprising 66.5 percent (slightly up from year ago’s 66.3 percent) of the industry’s total liabilities and capital accounts. This was tracked by capital accounts and bills payable

Universal and Commercial Banking System Funding Mix

June 2004

June 2005

P3,489.4 Billion

Deposits66.5%

Bills Payable 10.5%



Unsecured Subordinated Debt1.3%

P3,898.9 Billion

Deposits66.3%

Bills Payable 12.3%



Unsecured Subordinated Debt1.4%

Universal and Commercial Banking System

Asset Mix

June 2004

June 2005

P3,489.4 Billion

P3,898.9 Billion

Cash & Due from Banks

8.1%

Other Assets 8.8%


Loans (net, exclusive of IBL)

39.0%

IBL 8.2%

ROPOA (net) 5.5%

Cash and Due from Banks

7.3%

Other Assets 9.1%



37.5%

IBL 7.9%

ROPOA(net) 4.6%



which secured 11.7 percent and 10.5 percent shares, respectively. Both posted marginal declines from end-June 2004’s 12.6 percent (capital accounts) and 12.3 percent (bills payable). On the other hand, other liabilities chalked up 2.6 percentage points increment to 10.0 percent from 7.4 percent. Unsecured subordinated debts, all issued by universal banks for Tier 2 (supplementary) capital, inched down to 1.3 percent from 1.4 percent last semester on account of exchange revaluation on foreign currency denominated issues and discount amortization.

LOANS. The industry’s total loan portfolio, gross (inclusive of interbank loans) rose by 6.3 percent at end-June 2005 to P1,911.4 billion from end-June 2004’s P1,797.8 billion. Exclusive of interbank loans (which rose by 7.6 percent), loans, gross grew by 6.1 percent to P1,603.4 billion from year ago’s P1,511.6 billion. Since the regional crisis in 1997, this was the second highest growth rate after the 6.9 percent posted in 2000. Meanwhile, FCDU loans (inclusive of interbank loans) expanded by 6.3 percent to US$9.7 billion from end-

June 2004’s US$9.1 billion.

Private domestic UBs were still the major growth drivers of the industry’s loan portfolio growth (exclusive of interbank loans) during the semester. The subgroup lent out an additional P41.8 billion, an expansion of 4.3 percent from year ago. Foreign banks (branches

Universal and Commercial Banking System: Balance Sheet Structure

2002 2003 2004 2004 2005

Total Assets 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %Cash and Due from Banks 9.4 % 7.4 % 7.6 % 8.1 % 7.3 %Interbank Loans Receivable (IBL) 6.7 % 8.3 % 7.0 % 8.2 % 7.9 %Loans, net 41.5 % 40.7 % 38.5 % 39.0 % 37.5 %Investments, net 26.7 % 28.6 % 32.8 % 30.4 % 33.6 %ROPOA, net 5.5 % 5.7 % 5.4 % 5.5 % 4.6 %Other Assets 10.2 % 9.3 % 8.7 % 8.8 % 9.1 %

Total Liabilities and Capital 100.0% 100.0% 100.0% 100.0% 100.0%Deposits 67.7 % 67.0 % 68.3 % 66.3 % 66.5 %Bills Payable 10.4 % 10.6 % 9.7 % 12.3 % 10.5 %Special Financing 0.0 % 0.0 % 0.0 % 0.0 % 0.0 %Unsecured Subordinated Debt 0.0 % 1.1 % 1.4 % 1.4 % 1.3 %

Other Liabilities 8.9 % 8.4 % 8.1 % 7.4 % 10.0 %

Capital Accounts 13.0 % 12.9 % 12.5 % 12.6 % 11.7 %

End-December End-JuneMajor Accounts

Universal and Commercial Banking System Total Loans Outstanding (exclusive of IBL) Annual Growth

-12.0-10.0-8.0-6.0-4.0-2.00.02.04.06.08.0

10.012.014.016.0

3.3%In P

erce

nt

0.1%0.3% 1.6%

1998

6.9%

(1.9%)

20001999 20022001 20031997

(5.4)

2004

3.2%

June2005

6.1%



and subsidiaries) also posted substantial lending activity, rising by P40.6 billion or 18.3 percent. Tailing behind were private domestic commercial banks and government banks which released additional loans of P6.8 billion and P2.6 billion, respectively, slightly up by 5.7 percent and 1.3 percent from year ago.

Main recipients of the universal and commercial banking industry’s lendings were still the Manufacturing sector, the Real Estate, Construction, Renting and Business Activities sector and the Wholesale, Retail Trade and Repair sector, capturing 22.5 percent, 11.7 percent and 11.0 percent, respectively.

The year-on-year lendings to

financial intermediaries surged by 37.5 percent to P247.7 billion. Inclusive of interbank loans, which expanded by 7.6 percent only, the growth of financial intermediation was tempered to 19.1 percent. As a result, the ratio of financial intermediation and interbank loans to TLP, gross rose further to 29.1 percent from end-June 2004’s 25.9 percent.

Industry sectors with year-on-

year loan growth were the following: a) Financial Intermediation (inclusive

of IBL) – P89.3 billion or 19.1 percent;

b) Manufacturing - P32.5 billion or 8.2 percent;

c) Agriculture, Fishery, Hunting & Forestry – P6.3 billion or 7.3 percent;

d) Electricity, Gas and Water – P4.6 billion or 6.4 percent;

e) Transportation, Storage, & Communication – P1.3 billion or 1.7 percent; and

f) Others, specifically: - Private Households with

Employed Persons – P20.6

June 20056.1%

22.5%

16.1%

13.0% 11.7%

11.0%

6.8%

4.0%4.0%

4.8%

June 20045.5%

22.1%

15.9%

10.0% 13.1%

12.4%

8.0%

4.0%4.2%

4.8%

P1,911.4 Billion

P1,797.8 Billion

Universal and Commercial Banking System Loan Portfolio StructureBy Industry Sector


Other Community, Social & Personal Activities



Others

Manufacturing

Interbank Loans (IBL)

Real Estate, Construction, Renting & Business Activities

Wholesale, Retail Trade & Repair


4.0%

4.8%

6.1%

11.7%

13.0%

2005

22.5%16.1%

6.8%

4.0% 4.2%

4.0%

4.8%

5.5%

13.1%

12.4%

10.0%

2004

15.9%

8.0%

22.1%

11.0%

June



billion or 152.6 percent in tandem with active consumer lending (as supported by higher residential real estate and auto loans and credit card receivables);

- Health and Social Work – P1.4 billion or 21.7 percent; and - Education – P0.5 billion or 5.0 percent.

Industry sectors with year-on-year contractions were as follows: a) Other Community, Social and Personal Activities – P12.9 billion or 9.0 percent; b) Wholesale, Retail Trade, & Repair – P12.8 billion or 5.7 percent; and c) Real Estate, Construction, Renting and Business Activities – P12.0 billion or 5.1 percent;

Despite bullish prospects in the

property sector during the first half, real estate loans (RELs) marginally shrank by 0.6 percent to P178.4 billion from year ago’s P179.4 billion. This transpired due to disposal of certain RELs thru SPVs as well as repayments by borrowers. Hence, the proportion of real estate loans to total loans (exclusive of interbank loans) dropped to 11.1 percent from end-June 2004’s 11.9 percent.

A big chunk of the real estate sector lending went to NCR (Metro Manila) with an 83.4

percent share amounting to P148.7 billion. This was followed by Region VII (Central Visayas) with 4.9 percent or P8.7 billion and Region IV-A (CALABARZON) with 3.5 percent or P6.2 billion.

By purpose, real estate loans for commercial purposes held the majority at 83.9 percent

of total real estate loans. However, such loans weighed down on the industry’s total real estate loans with a 2.7 percent reduction to P149.6 billion from P153.7 billion during the same period last year. Whereas, the previous semester’s uptrend in real estate loans for residential purposes persisted, rising by 12.1 percent to P28.8 billion from end-June 2004’s P25.7 billion. This accounted for 16.1 percent of the industry’s total real estate loans during the period, up from 14.3 percent at end-December 2004 and end-June 2004.

Furthermore, real estate loans were mainly granted by domestic commercial banks

which took up 94.6 percent or P168.8 billion of the industry’s total real estate loans (slightly up from 94.5 percent or P169.4 billion same period a year ago). Whereas, foreign banks (branches and subsidiaries) covered the remaining 5.4 percent or P 9.6 billion (slightly down from 5.5 percent or P9.9 billion).

Meanwhile, past due real estate loans rose by 0.2 percent to P36.7 billion from year

ago. Consequently, past due ratio slightly rose to 20.6 percent from end-June 2004’s 20.4 percent.

Universal and Commercial Banking System Real Estate Loans

177.2 178.4182.9184.6183.2 175.7 170.7

3.8%(9.6%) (2.8%)

(4.8%)0.8%

0.0

50.0

100.0

150.0

200.0

250.0

1999 2000 2001 2002 2003 2004 Jun '05(10.0%)

(8.0%)

(6.0%)

(4.0%)

(2.0%)

0.0%

2.0%

4.0%

Levels Growth

3.2%


(0.6%)



On the other hand, the perceived favorable business outlook and aggressive credit card marketing gimmicks during the first half of 2005 set off growth in credit card receivables by 20.2 percent to P49.8 billion from end-June 2004’s P41.4 billion. The uptrend in CCRs was maintained, albeit slower than the peak posted at 41.4 percent in year 2002. This transpired amidst the implementation of Circular No. 398 issued in 2003, as amended by Circular No. 454 issued in the third quarter of 2004, which tightened the rules and regulations governing credit card operations of banks and their subsidiary/affiliate credit card companies. The share of CCRs to total loans (exclusive of interbank loans) rose to 3.1 percent from end-June 2004’s 2.7 percent. Foreign banks (branches and subsidiaries) led the industry with a 73.0 percent share (or P36.4 billion) of total outstanding CCRs. Whereas, domestic banks (government banks, domestic UBs and KBs) comprised the remaining 27.0 percent or P13.4 billion. Finally, the industry posted improvement in quality as past due CCRs dipped to 15.7 percent from 18.1 percent at end-June 2004.

Likewise, consumers availed of an additional 35.8 percent or P4.9 billion in auto loans.

This brought the industry’s total auto loans to P18.6 billion from end-June 2004’s P13.7 billion, the bulk of which was consistently held by private domestic universal banks at 67.3 percent or P12.5 billion. Consequently, auto loans to total loans (exclusive of interbank loans) rose to 1.2 percent from end-June 2004’s 0.9 percent. Loan quality was good as past due ratio improved to 5.0 percent from end-June 2004’s 6.6 percent.

All told, total consumer loans

(auto loans, credit card receivables and residential real estate loans) grew by 20.1 percent to P97.2 billion from P80.9 billion as of end-June 2004. Moreover, the ratio of total consumer loans to total loan portfolio (exclusive of interbank loans) rose to 6.1 percent from 5.4 percent.

The industry complied with the

mandatory credit allocation requirements for small-and-medium enterprises as

prescribed under R.A. No. 6977, as amended, based on the preliminary data as of end-June 2005. Compliance ratio was at 19.0 percent, way above the minimum 8 percent. The industry released P85.5 billion or 9.1 percent of loanable funds for small enterprises against the required 6 percent or P56.6 billion. Whereas exposure to medium enterprises amounted to P93.7 billion or 9.9 percent versus the required P18.9 billion or 2 percent minimum.

Preliminary data as of end-June 2005 showed that the industry barely complied with

the 25 percent agricultural loans in general under P.D. No. 717, as amended, at 25.1 percent. On the other hand, compliance ratio for agrarian reform was still short of the minimum 10 percent at 9.0 percent or P90.8 billion (vs. the required P100.8 billion).

Universal and Commercial Banking System Consumer Loans and Components

-

10.0

20.0

30.0

40.0

50.0

1999 2000 2001 2002 2003 2004 Jun '05

In P Billion

(35.0)

(25.0)

(15.0)

(5.0)

5.0

15.0

25.0

35.0

45.0In Percent

Auto Loans Level Credit Card Receivables Level

Residential Loans Level Consumer Loans Growth



The first half of 2005 saw the meaningful fruition of the SPV Law. Loan quality improvement intensified as the NPL ratio significantly went down to its first ever, single-digit scale at 9.2 percent after the Asian crisis in 1997. This transpired as the industry’s NPL level plummeted by 28.6 percent to P174.9 billion from end-June 2004’s P244.9 billion. The reduction in bad loans was also in part due to a confluence of factors other than the work and progress of banks in NPL disposal thru SPV, i.e., better credit risk management and collection measures. (Table 15)

Meantime, the year-on-year reduction in loan loss reserves by 3.6 percent to P126.2

billion from P130.9 billion was favorably outmatched by the 28.6 percent decline in NPLs. This further fortified the NPL coverage ratio to 72.2 percent, the highest so far for the industry.

Government banks outperformed the other subgroups in terms of the magnitude of year-on-year improvement in NPL ratio, settling to 7.3 percent from 12.8 percent as of end-June 2004. Whereas, foreign banks (branches and subsidiaries) maintained the best quality of loan portfolio as they continued to post the lowest NPL ratio at 3.1 percent. On the other hand, private domestic UBs and KBs registered above industry average ratio despite posting large cuts in their respective NPL ratios to 10.7 percent and 14.2 percent.

Restructured loans, gross were down by as much as 16.9 percent to P115.2 billion from end-June 2004’s P138.5 billion. Consequently, the ratio of restructured loans to TLP, gross dipped to 6.0 percent from year ago’s 7.7 percent. The industry made a headway in disposing foreclosed properties as ROPOA, gross went down by 5.0 percent to P197.2 billion from P207.5 billion a year ago, largely on sales to SPVs. Some P7.8 billion of ROPOA disposal availed of the incentives under the SPV Act of 2002. The ratio of ROPOA, gross over gross assets favorably declined to 4.9 percent from 5.7 percent at end-June 2004. Meantime, the industry’s non-performing assets (NPA) substantially dropped by 18.6 percent to P363.5 billion from year ago’s P446.8 billion. This was complemented by the rise in

Universal and Commercial Banking SystemNPLs and NPL Coverage Ratio

-50.0

100.0150.0

200.0250.0

300.0

1997 1998 1999 2000 2001 2002 2003 2004 Jun'05

In P Billion

0.010.020.030.040.050.060.070.080.0

In Percent

NPLs Loan Loss ReservesNPL Ratio NPL Coverage Ratio

Universal and Commercial Banking SystemComparative NPL RatioBy Industry Sub-group

0.0

5.0

10.0

15.0

20.0

25.0

1997 1998 1999 2000 2001 2002 2003 2004 Jun2005

Universal and Commercial Banks Private Domestic- UBsPrivate Domestic- KBsGovernment BanksForeign Banks (Branches & Subsidiaries)

In P

erce

nt



gross assets by 11.2 percent to P4,043.2 billion, resulting to a notable asset quality improvement. The NPA ratio reached a single-digit mark at 9.0 percent after peaking at 14.3 percent at end-year 2001.

With better asset quality, the industry slightly eased down on NPA reserves by 0.8 percent to P144.3 billion from P145.5 billion as of end-June 2004. However, this decline was surpassed by the 18.6 percent reduction in NPAs, thereby enhancing NPA coverage ratio to a new high of 39.7 percent from 35.6 percent.

The downtrend in NPA ratio swept

across all subgroups. Foreign banks (branches and subsidiaries) posted the best asset quality with an NPA ratio of 1.7 percent, better than end-June 2004’s 2.7 percent. This was followed by government banks, with below industry average of 7.6 percent (vs. 10.9 percent). On the other hand, both private domestic KBs and UBs weighed down on the industry’s asset quality as they recorded above average NPA ratios of 11.3 percent (vs. 16.4 percent) and 11.0 percent (vs. 14.5 percent), respectively.

Likewise, the distressed assets ratio

(a broader measure of asset quality) significantly improved to 21.0 percent from end-June 2004’s 26.9 percent. This was set off by the general downtrend in NPLs, ROPOA, gross and performing restructured loans which reduced distressed assets by 17.7 percent to P439.1 billion from P533.5 billion. All subgroups emerged better, led by foreign banks (branches and subsidiaries) which consistently posted the lowest distressed assets ratio at 4.1 percent (vs. 6.2 percent). This was followed by government banks with 18.3 percent (vs. 26.9 percent), private domestic UBs with 24.5 percent (vs. 30.6 percent) and private domestic KBs with

Universal and Commercial Banking SystemNPAs and NPA Coverage Ratio

-50.0

100.0150.0200.0250.0300.0350.0400.0450.0500.0

1997 1998 1999 2000 2001 2002 2003 2004 Jun'05

In P Billion

0.0

10.0

20.0

30.0

40.0

50.0

60.0In Percent

NPAs NPA ReservesNPA Ratio NPA Coverage Ratio

Universal and Commercial Banking SystemComparative NPA Ratio By Industry Sub-group

0.0

5.0

10.0

15.0

20.0

1997 1998 1999 2000 2001 2002 2003 2004 Jun2005

Universal and Commercial Banks Private Domestic- UBsPrivate Domestic- KBsGovernment BanksForeign Banks (Branches & Subsidiaries)

Universal and Commercial Banking System Distressed Assets Ratio

0.0

100.0

200.0

300.0

400.0

500.0

1997 1998 1999 2000 2001 2002 2003 Jun'04

2004 Jun'05

In P Billion

5.0

10.0

15.0

20.0

25.0

30.0

35.0

In Percent

NPAsRestructured Loans (Performing)Distressed Assets Ratio



30.7 percent (vs. 36.4 percent). INVESTMENTS. The industry’s funds were mostly channeled to investments, net

which grew by 23.3 percent to P1,308.5 billion from end-June 2004’s P1,060.9 billion. This brought a higher share of investments, net to the industry’s total assets to 33.6 percent from 30.4 percent same period last year. Investments in debt instruments comprised 92.2 percent (up from 91.2 percent a year ago) of the total as against the share of investments in equity holdings of 7.8 percent (down from 8.8 percent). Approximately 51.6 percent (up from 47.9 percent) of the total investments in debt instruments was in government securities which grew by a hefty 31.7 percent to P617.1 billion from year ago. Investments in foreign currency denominated debt securities trailed with 46.3 percent share (down from 49.9 percent) or P554.7 billion, a 13.8 percent increment from year ago. The one-year period saw a shift of the industry’s preference for debt instruments from foreign currency denominated to peso denominated government securities, the former composed largely of direct and indirect exposure to the Republic of the Philippines (ROP) through repurchase transactions. On the other hand, despite increasing by 17.3 percent to P25.2 billion from last year, investments in private securities accounted for only 2.1 percent share of the total investments in debt instruments (down from last year’s 2.2 percent).

DEPOSIT LIABILITIES. The

universal and commercial banking industry’s total deposit liabilities reached P2,592.7 billion, a 12.0 percent expansion from end-June 2004’s P2,315.1 billion. Highest growth was again posted by foreign banks (branches and subsidiaries) at 18.4 percent, closely followed by private domestic commercial banks at 18.0 percent. Similarly, government banks and private domestic universal banks rose by 13.4 percent and 8.9 percent, respectively.

Except for peso savings which

declined by 1.7 percent to P1,012.0 billion, all types of deposit liabilities posted expansion led by time deposits which ballooned by 100.1 percent to P376.6 billion. Meanwhile, the industry’s peso demand/NOW and foreign currency deposits increased by 16.2 percent to P345.8 billion and 7.3 percent to P858.3 billion, respectively. The wide expansion particularly in peso time deposits may be attributed to clients’ investment shift from savings to time deposits.

The private domestic universal banks consistently held the biggest part of the

industry’s deposit base at 66.4 percent or P1,720.4 billion, slightly down from end-June 2004’s share of 67.7 percent. The rest of the pie were held by foreign banks (branches and subsidiaries), government banks and private domestic commercial banks at 14.2 percent or P367.6 billion, 10.8 percent or P281.0 billion, and 8.6 percent or P223.7 billion, respectively.

Universal and Commercial Banking SystemComparative Deposits Growth Rate

(20.0)

0.0

20.0

40.0

60.0

80.0

1997 1998 1999 2000 2001 2002 2003 2004 Jun2005

Universal and Commercial BanksPrivate Domestic - UBsPrivate Domestic - KBsGovernment BanksForeign Bank Branches and Subsidiaries

(In Percent)



Foreign banks (branches and subsidiaries) were consistently more efficient than local banks in terms of average volume of deposits per banking office. Deposits per banking office ratio of foreign banks increased by 26.5 percent to P2.3 billion whereas, similar ratio for local universal and commercial banks rose by 11.3 percent to P0.5 billion only. Among the local banks, government banks had a better ratio at P0.7 billion per banking office compared to the same P0.5 billion for both private domestic universal banks and private domestic commercial banks.

Boosted by the upsurge in peso

time deposits, peso deposit accounts (which posted its first ever double-digit growth since 1997 at 14.5 percent) accounted for 66.9 percent of the industry’s total deposit liabilities (vs. 65.4 percent last year). Foreign currency deposits expanded at a slower rate of 7.3 percent, consequently reducing their share to 33.1 percent (from 34.6 percent).

All told, the share of peso time deposits to total peso deposits significantly grew to

21.7 percent from year ago’s 12.4 percent. In contrast, demand/NOW and savings accounts

Universal and Commercial Banking System Deposit Mix

78.3%

21.7%

87.6%

12.4%

P1,734.4. Billion P1,514.9 Billion

PESO DEPOSITS



Demand/NOW & Savings Deposits

Time Deposits

66.3%

33.7%

67.9%

32.1%

June 2005June 2004

June 2005June 2004

Universal and Commercial Banking System Distribution of Deposits

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

1997

1998

1999

2000

2001

2002

2003

2004

Jun 2005

Private Domestic - UBsPrivate Domestic - KBs

Government BanksForeign Banks (Branches & Subsidiaries)



still held the majority 78.3 percent, although lower from last year’s 87.6 percent. On the other hand, the bulk or 66.3 percent (down from 67.9 percent a year ago) of foreign currency deposits was in interest-sensitive time accounts. Core demand/NOW and savings accounts held the balance at 33.7 percent (up from 32.1 percent).

The private sector accounted for 88.7 percent or P1,538.5 billion (slightly down from

88.9 percent or P1,347.3 billion a year ago) of the industry’s total peso deposit liabilities during the period. Whereas, the remaining 11.3 percent or P195.9 billion (from 11.1 percent or P167.6 billion) came from government deposits. Government banks held the lion’s share of government deposits at 75.5 percent or P147.9 billion. While private banks authorized by the Monetary Board to accept government deposits held a 24.5 percent (or P48.0 billion) share.

Deposit liabilities continued to be the industry’s primary source of funding,

comprising 66.5 percent (slightly up from 66.3 percent a year ago) of the funding mix.

CAPITALIZATION. Total capital

accounts of the universal and commercial banking industry rose anew, reaching P455.3 billion, 3.5 percent higher than end-June 2004’s P439.9 billion (Table 10). Of the industry’s total capital accounts, 43.3 percent or P197.2 billion comprised of surplus, surplus reserves and current income (up from 42.1 percent or P185.2 billion a year ago), 40.6 percent or P184.6 billion of paid-in capital (from 40.9 percent or P179.7 billion), 12.6 percent or P57.4 billion of foreign bank branches’ net due to head office (from 13.5 percent or P59.2 billion), and 3.5 percent or P16.1 billion of foreign bank branches’ assigned capital (unchanged at 3.5 percent or P15.8 billion).

Only the local branches of foreign banks’ net due to head office account declined from year ago by 3.0 percent to P57.4 billion. Gainers, on the other hand, included surplus, surplus reserves and undivided profits (by 6.5 percent to P197.2 billion), paid-in capital (by 2.7 percent to P184.6 billion) and foreign bank branches’ assigned capital (by 2.1 percent to P16.1 billion).

Even as the private domestic universal banks consistently held the largest part of the

industry’s paid-in capital and surplus, surplus reserves and undivided profits at 63.8 percent (from 64.5 percent) and 83.6 percent (from 87.6 percent), respectively, government and private domestic commercial banks are slowly eating up this dominance. Paid-in capital and surplus, surplus reserves and undivided profits of government banks rose by 2.9 percent and 26.3 percent, respectively. Whereas, those of private domestic commercial banks expanded by 7.5 percent and 22.5 percent, respectively.

Universal and Commercial Banking System Breakdown of Total Capital Accounts

Total P455.3 BillionSurplus, Surplus Reserves & Current Income

43.3% Paid-in Capital40.6%

Net Due to H.O.12.6%

Assigned Capital3.5%



As growth in total assets of 11.7 percent outpaced the industry’s expansion in capital of 3.5 percent, the ratio of total capital accounts to total assets further declined to 11.7 percent from 12.6 percent same period last year.

Moreover, compliance ratio of the universal and commercial banking industry slid to

78.6 percent from end-June 2004’s 83.3 percent. This consisted of 33 (from year ago’s 35) banks, out of the 42 operating universal and commercial banks, which have capitalization equal to or in excess of the minimum amount required. Separately, compliance ratio of universal banks rose to 83.3 percent (15 out of 18 UBs) from 77.8 percent (14 out of 18 UBs) at end-June 2004. Whereas, compliance ratio of commercial banks was down at 75.0 percent (18 out of 24 KBs) from 87.5 percent last year (21 out of 24 KBs).

Meanwhile, the latest available CAR as of end-March 2005 dipped by 0.5 percentage

point to 17.1 percent from end-December 2004’s 17.6 percent. This transpired as the risk-based capital adequacy framework per Circular No. 360 effective 1 July 2003 included market risk in the computation of risk weighted assets (RWA). RWA consequently increased by 4.4

Universal and Commercial Banking SystemStatus of Banks' Compliance with the Minimum Amount of Capital

2002 2003 2004 2004 2005

42 42 42 42 42

Universal 18 18 18 18 18Commercial 24 24 24 24 24

35 34 33 35 33

Universal (K > P4.95 billion) 16 14 15 14 15Commercial (K > P2.40 billion) 19 20 18 21 18

B.xx UBs and KBs with Capital Equal to or in Excess B.xx of the Minimum Amount Required

A. Number of Operating Universal and A.x Commercial Banks

End-December End-June

Universal and Commercial Banking System: Comparative Capital Adequacy Ratio (CAR)

2003 2004 2003 2004

(In P Billion)

313.2 354.9 366.5 308.5 350.0 360.5

64.1 72.6 68.8 64.9 73.6 69.7

74.2 69.5 71.7 12.8 13.8 13.7

303.1 358.1 363.6 360.6 409.8 416.5

1,929.9 2,037.1 2,126.8 2,078.8 2,194.1 2,280.5

(In Percent)

15.7 17.6 17.1 17.3 18.7 18.3

Tier 1

Tier 2

Deductions

Capital Adequacy Ratio (CAR)

Qualifying Capital


End-December End-DecemberEnd-March 2005

End-March 2005

Solo Consolidated



percent to P2,126.8 billion as of end-March 2005 from end-December 2004’s P2,037.1 billion. However, qualifying capital only grew by 1.5 percent to P363.6 billion from P358.1 billion, weighed by the 5.3 percent reduction in Tier 2 unsecured subordinated debts during the first quarter of 2005 due to exchange revaluation on foreign currency denominated issues and discount amortization. Similarly, consolidated CAR slightly declined by 0.4 percentage point to 18.3 percent from end-December 2004’s 18.7 percent. Nonetheless, both solo and consolidated CARs were well above the minimum required ratio of 10 percent.


TRADE-RELATED CONTINGENT ACCOUNTS. The universal and commercial banking industry’s total trade-related contingent accounts contracted by 14.6 percent during the first half of the year to P41.7 billion from P48.8 billion same period last year. The slowdown in world demand for electronic and semi-conductor products weighed down on trade-related transactions. Private domestic universal banks and commercial banks and foreign banks (branches and subsidiaries) posted year-on-year reductions of 17.7 percent, 31.0 percent and 5.1 percent, respectively. Nonetheless, private domestic universal banks held on as the main industry player, accounting for 72.0 percent or P30.0 billion of the total trade-related accounts, down from 74.7 percent or P36.5 billion last year.

The other subgroups lagged behind, led by government banks at 11.7 percent or P4.9

billion, up from the previous year’s 8.0 percent or P3.9 billion. Foreign banks (branches and subsidiaries), despite posting lower trade volume, increased their share of the industry’s total trade-related contingent accounts to 8.7 percent or P3.6 billion from last year’s 7.9 percent or P3.8 billion. The balance of 7.6 percent or P3.2 billion was held by private domestic commercial banks, down from year ago’s 9.4 percent or P4.6 billion.

Unused import-related commercial letters of credit constantly held the biggest share of

the total trade-related contingent accounts at 90.9 percent or P37.9 billion, marginally higher than year ago’s share of 89.0 percent despite a 12.8 percent reduction. Export-related contingent accounts took 9.1 percent or P3.8 billion share (from 11.0 percent or P5.4 billion), a sizeable decline of 29.6 percent.

BANK GUARANTEES. Outstanding bank guarantees declined by 7.8 percent to

P96.1 billion, after increasing by only 0.9 percent to P104.2 billion same period last year. The decline was mainly due to less government infrastructure projects during the first half of 2005. All subgroups slowed down led by foreign banks (branches and subsidiaries) which declined by 17.4 percent to P10.0 billion. Private domestic universal banks consistently took the lead with a 43.5 percent share or P41.8 billion, from 43.7 percent or P45.5 billion as of end-June 2004. Government banks accounted for 41.9 percent share or P40.3 billion from end-June 2004’s 40.6 percent or P42.3 billion. While smaller portions were held by foreign banks (branches and subsidiaries) and private domestic commercial banks with respective shares of 10.4 percent or P10.0 billion (from 11.6 percent of P12.1 billion) and 4.2 percent or P4.0 billion (from 4.1 percent or P4.3 billion).



Both stand-by letters of credit and outstanding guarantees issued contracted from last

year by 13.2 percent and 3.5 percent, respectively. The significant double-digit decline in stand-by letters of credit (on account of curtailed infrastructure projects) brought guarantees on foreign loans as the majority component of the industry’s total bank guarantees at 40.5 percent or P38.9 billion (up from 40.1 percent). Stand-by letters of credit followed at 41.4 percent or P39.8 billion (down from 44.0 percent), trailed by guarantees on shipside bonds/airway bills and other guarantees at 14.8 percent or P14.2 billion (up from 12.6 percent) and 3.4 percent or P3.2 billion (up from 3.3 percent), respectively.

DERIVATIVES. Buoyed by growth in all subgroups, the notional value of the

industry’s derivatives instruments rose anew by 17.1 percent to P1,236.2 billion from a year ago’s P1,055.9 billion. Top gainers were the foreign banks (branches and subsidiaries) which posted additional derivatives contracts worth P97.1 billion or 12.9 percent to P848.7 billion from last year’s P751.6 billion. Private domestic universal banks, commercial banks and government banks likewise posted increments of P66.9 billion or 25.2 percent, P9.6 billion or 29.0 percent and P6.7 billion or 127.3 percent, respectively.

Foreign banks (branches and subsidiaries) dominated once again in terms of subgroup

concentration with 68.7 percent share, down year ago’s 71.2 percent. Private domestic universal banks trailed behind with a 26.9 percent share or P332.9 billion (slightly up from 25.2 percent or P266.0 billion). Private domestic commercial banks and government banks had 3.4 percent or P42.5 billion (up from 3.1 percent or P32.9 billion) and 1.0 percent or P12.1 billion (up from 0.5 percent or P5.4 billion), respectively.

In terms of composition, currency forwards accounted for 78.8 percent of the total

derivatives contracts, up from 75.7 percent a year ago, after posting an increment of 21.9 percent to P974.6 billion. Companies continue to rely on currency forwards to secure their foreign currency needs. Interest rate swaps were the second largest derivatives activity, comprising 18.1 percent or P224.4 billion of the total derivatives contracts. Financial options held the remaining 3.0 percent or P37.2 billion, an expansion of 53.3 percent from year ago’s P24.3 billion. The industry had no interest rate forwards and financial futures trading during the first half of 2005.



THRIFT BANKS

OVERVIEW

The thrift banking industry’s performance during the first half of the year was highlighted by solid asset and loan growth, better asset quality, increased capitalization and higher earnings. The on-going bank mergers and consolidation and tighter supervision contributed to the generally improved operations.

Reflecting the BSP’s initiative to strengthen the financial industry through merger and consolidation, the number of operating thrift banks was further reduced to 83 from 89 a year ago. Despite fewer industry participants, assets still grew to P324.5 billion or by 12.3 percent from year ago’s P288.9 billion. The growth in resources was traced to the expansion in lending by 15.1 percent to P186.0 billion and higher investments, gross by 13.3 percent to P58.8 billion.

Profits reached record level for the first half of 2005 with Net Income After Tax (NIAT) hitting P501 million, higher by 769.2 percent than the P58 million NIAT generated over the same period last year. This is the second highest recorded net income and marked the third time that the industry posted a positive NIAT since year 2000. The rise in NIAT, in turn, favorably raised the annualized return on assets (ROA) and annualized return on equity (ROE) to 0.2 percent and 1.2 percent, respectively, from the negative ratios of 0.1 percent and 0.5 percent.

Confidence in the industry remained strong as evidenced by three years of steady double-digit growth in deposit liabilities which went up by 18.9 percent to P248.0 billion from P208.6 billion a year ago. The peso savings account represented the largest portion of the deposit base at 41.0 percent or P101.7 billion while the peso time deposit account recorded the strongest growth at 170.0 percent to P88.6 billion.

The industry maintained adequate liquidity with liquid assets to deposits ratio at 33.5

percent. This ratio was lower than year ago’s 36.1 percent as deposits grew at a faster pace (i.e., 18.9 percent) than the combined growth at 10.2 percent of liquid assets. Meanwhile, the loans to deposits ratio fell to 75.0 percent from 77.5 percent as preference partially shifted to investments in government securities.

The thrift bank industry remained a niche player catering to small and medium

businesses, agriculture, housing and consumers. Total loan portfolio, gross (excusive of IBL) continued to expand to P175.8 billion or by 12.5 percent from P156.2 billion a year ago.

This encouraging trend was supported by improving asset quality as the non-

performing loans (NPL) and non-performing assets (NPA) ratios were at record low. The NPL ratio favorably slid to 8.9 percent from 12.1 percent a year ago. Likewise, the NPA ratio declined to 14.3 percent from 17.0 percent. The substantial improvement was mainly influenced by the closure of weak banks during the past months and the bulk sale of problem loans and real and other properties owned or acquired (ROPOA) by some thrift banks to Special Purpose Vehicles (SPV) under the SPV Act of 2002.



Capital base stood at P43.1 billion, up by 6.6 percent from year ago’s level, fueled by higher retained earnings and fresh capital infusion. Meanwhile, the industry’s Capital Adequacy Ratio (CAR) remained well above the 10 percent minimum at 16.8 percent (both solo and consolidated) as of end-March 2005. (Table 17)

Of the total 83 operating thrift

banks as of end-June 2005, 17 thrift banks were linked to domestic banks, foreign banks or a non-bank financial institution. Linked thrift banks represented 20.5 percent of the total number of thrift banks but accounted for a sizeable 65.9 percent or P213.8 billion of the industry’s total assets. On the other hand, non-linked thrift banks, which comprised the majority or 79.5 percent of the industry, accounted for 34.1 percent or P110.7 billion. By subgroup, domestic bank-linked thrift banks took the lion’s share of total assets at 62.5 percent or P202.8 billion.

Thrift Banking SystemMarket Structure of Assets

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

1997

1998

1999

2000

2001

2002

2003

2004

June 2005

Domestic Bank-LinkedForeign Bank- Linked

Non-Bank LinkedNon-Linked

Top Five Thrift BanksBased on Published Statements as of 30 June 2005Amounts in P Billion

Assets Loans


BPI Family Savings Bank 65.2 1 BPI Family Savings Bank 44.1

Philippine Savings Bank 52.6 2 Philippine Savings Bank 27.9

Planters Development Bank 34.9 3 RCBC Savings Bank 19.6

RCBC Savings Bank 31.8 4 Planters Development Bank 16.9

Asiatrust Development Bank 13.5 5 Equitable Savings Bank 7.1

Total 198.0 Total 115.6




BPI Family Savings Bank 56.0 1 BPI Family Savings Bank 6.6

Philippine Savings Bank 46.6 2 Philippine Savings Bank 4.8

RCBC Savings Bank 26.9 3 The Manila Banking Corp. 3.5

Planters Development Bank 22.5 4 Planters Development Bank 3.1

Asiatrust Development Bank 10.2 5 RCBC Savings Bank 3.0



Rank

4

5

1

2

3

3

4

Rank

5

1

2



Linked thrift banks manifested strong presence in the list of top five thrift banks. BPI Family, a subsidiary of the Bank of the Philippine Islands, remained the country’s biggest thrift bank in terms of assets, loans, deposit liabilities and capitalization. The top 5 thrift banks held 61.0 percent of total assets, 62.2 percent of total loans, 65.4 percent of total deposit liabilities and 48.7 percent of total capital accounts.

OPERATING NETWORK

As of end-June 2005, the total number of head offices was further reduced to 83 from 87 at end-year 2004. This developed as one thrift bank (Secured SLA) converted to a rural bank effective 14 January 2005 whereas another thrift bank (Mindanao Development Bank) merged with Equitable Savings Bank (surviving thrift bank) effective 10 February 2005. Moreover, two banks, i.e., Filhomes SLB and Hermosa SLB, were closed effective 21 January 2005 and 03 February 2005, respectively. Meantime, the number of branches and other offices, managed to increase by 4 to 1,197 from 1,193 last semester. The concentration of thrift banking offices remained in the National Capital Region (NCR) with 544 offices or 42.5 percent of the total 1,280 banking offices (head offices and branches). The second highest concentration of offices was in Region IV-A (CALABARZON) with 261 offices or 20.4 percent. On the other hand, the Autonomous Region of Muslim Mindanao has yet to have a thrift banking office. (Table 18) There was further enhancement in banking service delivery as the Automated Teller Machines (ATMs) network of 23 thrift banks reached 468 units, higher by 99 units from the 369 units at end-year 2004. The majority or 397 units (up from 312 units at end-year 2004) was installed within bank premises while the remaining 71 units (up from 57 units at end-year 2004) were placed at other convenient locations outside bank premises. (Table 19) The NCR registered the highest number of ATMs at 275 units or 58.8 percent of the total, followed by CALABARZON at 68 units or 14.5 percent. By main group, non-linked thrift banks held significant number of ATMs at 307 units or 65.6 percent whereas linked thrift banks held the balance of 161 units or 34.4 percent. Meanwhile, the delivery of banking services was augmented by the increased utilization of innovative products and services. As of end-June 2005, there were 5 banks engaged in electronic banking services via mobile/non-mobile phones and/or internet and 6 banks authorized to offer Internet and Mobile Banking Services via BancNet/MegaLink Switch. (Table 20)

RESULTS OF OPERATIONS The industry registered a net income after tax (NIAT) of P501 million in the first semester of 2005, up by 769.2 percent or P443 million from year ago’s P58 million. Linked thrift banks recorded a positive NIAT of P1.1 billion which offset the P0.6 billion net loss posted by non-linked thrift banks.



Higher net interest income (up by 21.1 percent or P1.2 billion) and non-interest income (up by 8.1 percent or P0.2 billion) propelled the industry towards more profitable operations as these two factors outweighed the effect of the 17.3 percent or P1.4 billion hike in operating expenses. (Table 21) For the semester-ended 2005, total operating income stood at P8.9 billion, higher by 17.8 percent from P7.6 billion same period last year. This favorable development stemmed from the simultaneous expansion in net interest income and non-interest income. Thrift banks, however, continued to rely heavily on traditional lending and investment transactions as net interest income still accounted for the bulk at 77.0 percent or P6.9 billion of total operating income. Meanwhile, the share of non-interest income to operating income stood only at 23.0 percent or P2.1 billion. Improved loan quality and increased investments in securities fueled higher net interest income. Interest income climbed by 20.2 percent or P2.3 billion, outpacing the 19.2 or P1.1 billion hike in interest expenses. This, in turn, resulted in a favorably wider annualized net interest margin at 5.8 percent as against 5.6 percent same period last year. Interest on loans, including IBL, made up the majority of the total P13.7 billion interest income at 80.5 percent or P11.1 billion, followed by interest on investments in debt instruments at 9.6 percent or P1.3 billion. Meanwhile, interest paid to depositors took the biggest slice of the total P6.8 billion interest expenses at 88.2 percent or P6.0 billion. Meantime, service charges/fees/commissions accounted for 67.7 percent or P1.4 billion of the P2.1 billion total non-interest income.

The annualized earning asset yield rose to 11.5 percent from 11.1 percent over the same period last year, amidst the relatively higher interest rate environment and improvement in the loan quality of the industry. Funding cost, however, followed the uptrend as it increased to 5.2 percent from 5.1 percent. The net result was a wider annualized interest spread of 6.3 percent as against 6.0 percent.

Thrift Banking System: Selected Ratios vs. 91-day Treasury Bill Rate

11.510.6 11.3

13.813.114.318.318.3

11.2

5.24.85.07.87.68.9

12.411.9

5.1

7.16.0

5.4

9.99.910.215.313.1

7.3

0.02.04.06.08.0

10.012.014.016.018.020.0

1997 1998 1999 2000 2001 2002 2003 2004 June2005*


(In Percent)




The funding cost consistently remained lower than the 91-day T-bill rate. The highest differential rate was posted in 1998 at 286 basis points and the lowest in 2002 at 43 basis points. Year-on-year, the differential rate slightly narrowed down to 182 basis points from 183 basis points. The smaller gap is an indication that more funds generated during the period came from interest rate sensitive sources of funding such as time deposits. Meanwhile, the gap between the earning asset yield and the T-bill rate was wider at 443 basis points as against 421 basis points as more funds were used to expand lending operations. The industry was not able to contain costs as total operating expenses increased by 17.3 percent to P9.2 billion from P7.8 billion same period last year. This transpired as overhead costs and other expenses simultaneously rose by 12.8 percent or P0.6 billion and 19.5 percent or P0.5 billion, respectively. Further breakdown of overhead costs showed that litigation/acquired expenses and taxes and licenses displayed the highest growth at 55.4 percent or P0.1 billion and 37.4 percent or P0.2 billion, respectively.

Annualized cost-to-income ratio inched up to 94.3 percent from 93.5 percent same period last year. The 14.4 percent growth in operating expenses, exclusive of write-offs and loss provisions, outmatched the 13.4 percent upswing in total operating income. Linked thrift banks registered a favorably lower annualized cost-to-income ratio at 76.4 percent (up from 74.1 percent a year ago) as against non-linked thrift banks’ 142.8 percent (up from 121.3 percent).

Generally, linked thrift banks had better profitability ratios compared to non-linked thrift banks as indicated by a higher earning asset yield, interest spread and net interest margin at 13.0 percent, 7.1 percent and 6.9 percent, respectively, as against the latter’s 8.6 percent, 4.4 percent and 3.6 percent.

Thrift Banking System Cost-to-Income Ratio

0.020.040.060.080.0

100.0120.0140.0160.0180.0

1997 1998 1999 2000 2001 2002 2003 2004 June2005

TB system Linked TBs Non-Linked TBs

In P

erce

nt

Thrift Banking System: Comparative Profitability Indicators As of End-June 2005

By Analytical Group

11.5 5.2 6.3 5.8 94.3

FI-Linked Thrift Banks 13.0 5.8 7.1 6.9 76.4

Non-Linked Thrift Banks 8.6 4.2 4.4 3.6 142.8

Cost-to- Income Ratio

Earning Asset Yield

Funding Cost

Interest Spread

Net Interest Margin

TOTAL THRIFT BANKS



The annualized ROA rose to positive 0.2 percent from negative 0.1 percent same period last year. The highest ROA ratio recorded was at positive 0.3 percent in year 2002 after hitting its lowest at negative 0.5 percent in year 2000. This period’s ROA, therefore comes as the second best ratio after year 2002. By subgroup, domestic bank-linked thrift banks had the highest ROA at 1.4 percent, followed by non-bank linked thrift bank at 0.9 percent. In contrast, foreign bank linked and non-linked thrift banks reported negative ROA ratios of 3.5 percent and 1.4 percent, respectively.

Similarly, the annualized ROE improved to positive 1.2 percent from negative 0.5 percent same period last year. This period’s ROE was the second highest since end-year 2000. The highest ratio was recorded in 2002 at 1.5 percent. By subgroup, the domestic bank-linked thrift banks and non-bank linked thrift banks exceeded the industry average at 13.1 percent and 2.1 percent, respectively. However, the ROE of foreign bank-linked and non-linked thrift banks pulled down industry average as they posted negative

ratios of 24.7 percent and 7.7 percent, respectively.


ASSETS. Total assets of the industry reached P324.5 billion, up by 6.2 percent from last semester’s P305.4 billion and by 12.3 percent from year ago’s P288.9 billion. By main group, linked thrift banks’ assets expanded by 35.8 percent to P213.8 billion from P157.5 billion a year ago. In contrast, non-linked thrift banks’ assets were reduced by 15.8 percent to P110.7 billion from P131.5 billion. The substantial year-on-year movements stemmed from the reclassification of 2 non-linked thrift banks, namely Planters DB and Micro Enterprise Bank to linked thrift banks effective October 2004 following the increase in Planters DB’s holdings in Micro Enterprise Bank to 80.0 percent.

Loans, net continued to represent the biggest block of the industry’s assets at 51.6 percent or P167.3 billion share (up from 51.1 percent or P147.6 billion a year ago). Investments, net was a distant second at 18.1 percent or P58.8 billion (up from 17.8 percent or P51.5 billion).

Thrift Banking System Comparative Return on Assets (ROA)

-3.0

0.0

3.0

6.0

1997 1998 1999 2000 2001 2002 2003 2004 June2005

Thrift Banking Industry Linked TBs Non-Linked TBs

In P

erce

nt

Thrift Banking System Comparative Return on Equity (ROE)

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

1997 1998 1999 2000 2001 2002 2003 2004 June2005

Thrift Banking Industry Linked TBs Non-Linked TBs

In P

erce

nt



The other components of assets had the following shares: ROPOA, net at 10.1 percent or

P32.7 billion (down from 11.4 percent or P33.0 billion); other assets at 9.5 percent or P30.9 billion (same share as in the previous year or P27.4 billion); cash and due from banks at 7.6 percent or P24.6 billion (down from 8.3 percent or P24.1 billion); and interbank loans at 3.1 percent or P10.2 billion (up from 1.9 percent or P5.4 billion).

Thrift Banking System: Balance Sheet Structure

2002 2003 2004 2004 2005

Total Assets 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %Cash and Due from Banks 8.3 % 8.7 % 8.9 % 8.3 % 7.6 %Interbank Loans Receivable (IBL) 3.0 % 2.2 % 2.0 % 1.9 % 3.1 %Loans, net 53.6 % 52.9 % 51.2 % 51.1 % 51.6 %Investments, net 14.1 % 15.7 % 18.0 % 17.8 % 18.1 %ROPOA, net 10.3 % 10.2 % 10.8 % 11.4 % 10.1 %Other Assets 10.7 % 10.3 % 9.1 % 9.5 % 9.5 %

Total Liabilities and Capital 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %Deposits 68.2 % 71.9 % 73.2 % 72.2 % 76.4 %Bills Payable 8.9 % 8.1 % 8.5 % 9.2 % 5.5 %Special Financing 0.1 % 0.1 % 0.1 % 0.1 % 0.0 %Other Liabilities 6.0 % 4.9 % 5.2 % 4.5 % 4.8 %Capital Accounts 16.8 % 15.0 % 13.0 % 14.0 % 13.3 %

r/ Revised

End-JuneEnd-DecemberMajor Accounts r/

Thrift Banking System: Asset Mix

June 2004 June 2005

Cash & due from banks

8.3%

Other assets 9.5%



51.1%

IBL 1.9%

ROPOA (net) 11.4%

Cash and due from banks 7.6%

Other assets 9.5%



51.6%

IBL 3.1%

ROPOA(net) 10.1%

P288.9 Billion P324.5 Billion



On the other hand, deposit liabilities were still the industry’s main source of funding at 76.4 percent of total liabilities and capital or P248.0 billion (up from 72.2 percent or P208.6 billion a year ago). Capital accounts contributed the second largest share at 13.3 percent or P43.1 billion (down from 14.0 percent or P40.5 billion). The other sources of funding had the following shares: bills payable at 5.5 percent or P17.7 billion (down from 9.2 percent or P26.7 billion); other liabilities at 4.8 percent or P15.6 billion (up from 4.5 percent or P13.0 billion). Meanwhile, the share of special financing was negligible (down from 0.1 percent or P0.3 billion).

LOANS. Bank lending remained buoyant as total loan portfolio, gross expanded by 15.1 percent or P24.4 billion to P186.0 billion from P161.6 billion a year ago. Interbank loans (IBL) surged by 89.4 percent to P10.2 billion from P5.4 billion a year ago. Excluding IBL, the industry would have posted a lower loan growth of 12.5 percent or P19.6 billion to P175.8 billion. Nonetheless, the growth in loans during the period was the highest recorded since 1998.

Thrift Banking System: Funding Mix

June 2004 June 2005

Special Financing

0.1%

Deposits72.2%

Bills Payable 9.2%



Deposits76.4%

Bills Payable 5.5%Capital Accounts

13.3%Other Liabilities

4.8%


Thrift Banking SystemTotal Loans Outstanding (exclusive of IBL)Annual Growth

-12.0 -10.0 -8.0 -6.0 -4.0 -2.0 0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0

1997

June2005

In Percent

(0.6)%

13.8%

6.4%5.4%

1998

6.9%7.0%2000

1999

20022003

(5.3)%

2004

2001

7.2% 12.5%



By main group, linked thrift banks accounted for the largest portion of total loans (exclusive of IBL) at 73.1 percent or P128.5 billion whereas non-linked thrift banks held the balance of 26.9 percent or P47.3 billion.

Meanwhile, FCDU loans (inclusive of

IBL) also grew by 94.6 percent or US$17 million to US$35 million from US$18 million a year ago. Linked thrift banks held the majority of the industry’s FCDU loans at 85.6 percent or US$30 million, of which 83.5 percent or $25 million was accounted for by domestic linked thrift banks.

As in previous years, lendings to the

Real Estate, Construction, Renting and Business Activities held the biggest share of the loan pie at 30.6 percent or P57.0 billion (down from 31.7 percent or P51.2 billion a year ago). The Private Households with Employed Persons sector was a far second at 15.0 percent or P28.0 billion (up from 12.8 percent or P20.8 billion) while the Wholesale, Retail Trade and Repair sector captured the third spot at 12.5 percent or P23.2 billion (up from 12.4 percent or P20.1 billion). These top three (3) industry sectors accounted for 58.1 percent of the total loan portfolio of the industry.

The following industry sectors posted

substantial year-on-year growth in lendings: a) Private Households with Employed Persons

– P7.2 billion or 34.7 percent; b) Real Estate, Construction, Renting &

Business Activities – P5.7 billion or 11.2 percent;

c) Financial Intermediation – P4.9 billion or 132.0 percent;

d) Interbank Loans- P4.8 billion or 89.4 percent; e) Wholesale & Retail Trade, Repair of Motor

Vehicles - P3.1 billion or 15.2 percent

On the other hand, lendings to the Manufacturing sector contracted by P3.4 billion or 18.9 percent.

Real estate loans (RELs) reached P53.8

billion, higher by 12.5 percent or P5.9 billion

Thrift Banking SystemLoan Portfolio Structure By Industry Sector

June 2005

4.6%

12.4%

12.5%

30.6%

15.0%

4.8%

2.6%4.3%

5.5%

7.7%

P186.0 Billion

June 2004

11.0%

13.9%

12.4%12.8%

31.7%2.3%

5.1%3.3%

4.3% 3.2%

P161.6 Billion

Real Estate, Renting, Bus. Act. and Construction

Manufacturing

Priv. Households withEmployed Persons

2004 2005

31.7%

12.4%

12.8%

13.9%

11.0%

5.1%

3.3%

2.3%

3.2%

4.3%

30.6%

12.5%

15.0%

12.4%

7.7%

4.8%

5.5%

4.6%

2.6% 4.3%


Others


Wholesale, Retail, Trade & Repair

Other Comm., Social & Personal Serv.Act.

Interbank Loans (IBL)

Transportation, Storage and Communication

June



from year ago’s P47.9 billion. Nonetheless, the ratio of RELs to TOL (exclusive of IBL) inched down to 30.6 percent from 30.7 percent as TOL (exclusive of IBL) also expanded by 12.5 percent. Linked thrift banks accounted for the majority or 80.8 percent of the industry’s RELs whereas non-linked thrift banks held the remaining 19.2 percent.

The ratio of past due RELs to total RELs stood at 12.7 percent, favorably lower than year

ago’s 14.8 percent. The improvement took place as the 3.9 percent cut in past due RELs accompanied the growth in RELs. Likewise, the ratio of past due RELs to TOL (exclusive of IBL) improved to 3.9 percent from year ago’s 4.6 percent ratio.

The bulk of RELs at 72.9 percent or P39.2 billion was extended for the acquisition of

residential property. The remaining 27.1 percent or P14.6 billion was granted for the construction and development of real estate properties for commercial purposes. The past due ratio of residential RELs at 4.1 percent (vs. 4.7 percent a year ago) was nearly 9 times better than commercial RELs’ ratio at 35.7 percent (vs. 39.0 percent a year ago).

Automobile loans (ALs) reached P39.4 billion, up by 14.8 percent or P5.1 billion from

P34.3 billion a year ago. Similarly, the ratio of total ALs to TOL (exclusive of IBL) stood higher at 22.4 percent as against year ago’s 22.0 percent.

Thrift banks continued to hold the biggest slice of the P58.1 billion total ALs of the

banking system at 67.9 percent, of which 59.6 percent came from linked thrift banks and 8.3 percent came from non-linked thrift banks.

The past due ALs to total ALs ratio dropped to 5.1 percent from 6.1 percent same period

last year. This favorable development took place as the 4.3 percent reduction in past due ALs came with the expansion in ALs. Likewise, the past due AL ratio improved to 1.2 percent from year ago’s ratio of 1.4 percent.

Meanwhile, the credit card receivables (CCRs) expanded to P2.6 billion or by 15.0 percent from P2.3 billion a year ago. However, the ratio of total CCRs to TOL (exclusive of IBL) was the same as year ago’s 1.5 percent. Non-linked thrift banks accounted for 88.7 percent of the industry’s total credit card exposure whereas linked thrift banks represented the balance of 11.3 percent.

The ratio of past due CCRs to total CCRs favorably declined to 7.2 percent from 22.4

percent a year ago. The substantial improvement was due to the 72.2 percent drop in the past due CCRs of a key CCR player as it relaxed its internal policy, classifying CCRs as past due after the third monthly installments to conform with BSP Circular No. 398. The said bank’s previous practice was to book CCRs as past due on day one after the payment due date.

The microfinance loans of microfinance thrift banks expanded by 25.5 percent to P153

million from P122 million a year ago. Moreover, their NPL ratio improved to 4.4 percent from year ago’s ratio of 16.4 percent. Their NPL coverage also widened to 104.6 percent from 86.8 percent.



Preliminary data on the compliance with small and medium enterprises (SME) credit as of end-June 2005 showed that the total amount of funds set aside for SME amounted to P44.2 billion. The industry exceeded the statutory floors of 6 percent (for small enterprises) and 2 percent (for medium enterprises) at 20.4 percent or P28.6 billion and 11.1 percent or P15.6 billion, respectively.

Meanwhile, preliminary data on the compliance with the agri-agra requirement as of

end-June 2005 indicated that the industry surpassed the minimum 10 percent mandatory allocation for agrarian reform credit at 14.2 percent but undercomplied with the 15 percent agri/other credit requirement at 8.1 percent. This resulted in an overall compliance ratio of 22.3 percent, short by 2.7 percentage points than the 25 percent minimum requirement.

The NPL ratio of the industry

significantly improved to 8.9 percent from 12.1 percent a year ago as the 16.0 percent drop in NPLs was accompanied by a 15.1 percent expansion in total loan portfolio. (Table 22) Likewise, the NPA ratio favorably declined to 14.3 percent from 17.1 percent as the 6.2 percent reduction in NPAs was complemented by a 12.1 percent expansion in gross assets. The significant decline in NPLs was mainly influenced by

the closure/conversion of a number of thrift banks and the bulk sales of problem assets of some thrift banks to Special Purpose Vehicles (SPVs) under the SPV Act of 2002.

There were 15 thrift banks which availed of the SPV incentives. This involved the sale of

foreclosed properties amounting to P0.8 billion and the settlement of NPLs amounting to P3.2 billion.

Still, large holdings of foreclosed properties and higher restructured loans continue to

undermine the asset quality of the industry. ROPOA, gross expanded by 1.5 percent to P34.7 billion whereas restructured loans grew by 8.3 percent to P4.3 billion from year ago’s level.

After peaking at 16.4 percent at end-year 1998, the NPL ratio favorably dropped to 14.4

percent at end-year 1999. The NPL ratio then hovered around the 11-12 percent range from end-year 2000 to end-year 2004 before settling to a low single-digit 8.9 percent at end-June 2005. The NPL coverage ratio, on the other hand, continued to narrow down from 52.8 percent at end-year 2000 to 37.0 percent at end-year 2004 but settled to a more favorable ratio of 42.9 percent at end-June 2005.

Thrift Banking System NPLs and NPL Coverage Ratio

-

10.0

20.0

30.0

1997 1998 1999 2000 2001 2002 2003 2004 June2005

In P Billion

0.0

10.0

20.0

30.0

40.0

50.0

60.0In Percent




The NPA ratio continued to improve from 17.0 percent at end-year 2002 to 15.9 percent at end-year 2004 and further to 14.3 percent at end-June 2005. In contrast, the NPA coverage ratio followed a declining trend from a high of 24.5 percent at end-year 2000 to 17.2 percent at end-year 2004. This trend, however, was halted as the industry reported a favorably higher NPA coverage ratio of 18.9 percent at end-June 2005.

Likewise, the increasing trend of the distressed assets ratio (a broader measure of asset quality) was broken as the industry registered a favorably lower distressed assets ratio at 24.7 percent as against the 27.6 percent ratio at end-year 2004. This improvement mainly stemmed

from the substantial reduction in NPLs.

Linked thrift banks continued to post a better performance compared to non-linked thrift banks with lower NPL and NPA ratios at 5.6 percent and 10.2 percent, respectively, as against the latter’s 16.7 percent and 22.2 percent. Similarly, linked thrift banks registered favorably higher NPL and NPA coverage ratios of 57.1 percent and 25.1 percent, respectively, as against non-linked thrift banks’ 31.3 percent and 13.4 percent. Non-linked thrift banks

sustained their influence on the quality of the industry’s loan portfolio as they held the majority or 55.1 percent of total NPLs and 53.2 percent of total NPAs. Thus, although the NPL ratio of linked thrift banks remained relatively low, the high NPL ratio of non-linked thrift banks brought up the industry average NPL ratio.

Thrift Banking System NPAs and NPA Coverage Ratio

-

10.0

20.0

30.0

40.0

50.0

60.0

1997 1998 1999 2000 2001 2002 2003 2004 June2005

In P Billion

0.0

10.0

20.0

30.0

40.0In Percent


Thrift Banking System Distressed Assets Ratio

0.0

10.0

20.0

30.0

40.0

50.0

60.0

1997 1998 1999 2000 2001 2002 2003 2004 June2005

In P Billion

10.0

15.0

20.0

25.0

30.0

35.0In Percent

NPAsRestructured Loans (Performing)Distressed Ratio

Thrift Banking SystemComparative NPL, NPA and Coverage Ratios As of End-June 2005

NPL NPL NPA NPABy Analytical Group Ratio Coverage Ratio Coverage

Ratio Ratio

8.9 42.9 14.3 18.9

Linked Thrift Banks 5.6 57.1 10.2 25.1

Non-Linked Thrift Banks 16.7 31.3 22.2 13.4

TOTAL THRIFT BANKS



INVESTMENTS. Gross investments rose to P58.8 billion, up by 13.3 percent or P6.8 billion from year ago’s P52.0 billion. Linked thrift banks accounted for the bulk of investments at 72.1 percent or P42.4 billion whereas non-linked thrift banks held the balance of 27.9 percent or P16.4 billion.

The industry’s investments were mostly in the form of investments in bonds and other

debt instruments (IBODI) at 53.0 percent or P31.2 billion (down from 94.6 percent or P49.2 billion a year ago). Trading account securities (TAS), available for sale securities (ASS) and equity investments in allied undertakings held the balance of 47.0 percent or P27.6 billion (up from 5.4 percent or P2.8 billion a year ago). The large year-on-year account movements were mainly due to the reclassification of debt and equity securities in compliance with the new accounting guidelines for investments (Circular No. 976 dated 16 February 2005).

The majority or 57.3 percent of these investments in debt instruments was in

government securities, followed by foreign debt instruments at 40.2 percent and by private local issuers at 2.5 percent.

Significant growth from year ago level was noted in investments in foreign debt issues

by 18.3 percent or P3.6 billion to P23.4 billion and in investments in government debt issues by 8.0 percent or P2.5 billion to P33.3 billion.

DEPOSITS. Public confidence in

thrift banks remained strong as deposit liabilities, the industry’s primary source of funding, exhibited a double digit growth of 18.9 percent to P248.0 billion from P208.6 billion a year ago.

Linked thrift banks held 69.5

percent or P172.5 billion of total deposits, of which 95.0 percent was contributed by domestic bank-linked thrift banks. Non-linked thrift banks held the balance of 30.5 percent or P75.5 billion.

Preference shifted to time deposits, which accounted for the largest portion of total deposit liabilities (both peso and foreign). Time deposits took a hefty share of 46.9 percent (vs. 26.4 percent a year ago) surging by 111.2 percent to P116.4 billion. The substantial growth can be attributed to aggressive marketing and introduction of new market-responsive deposit products as clients sought alternative avenues to place their money. Moreover, the industry benefited from the continued growth in the remittances of overseas Filipino workers. Meanwhile, savings accounts captured the second spot at 44.8 percent, declining by 18.3 percent to P111.1 billion. On the other hand, demand and NOW deposit accounts, which lagged behind with an 8.3 percent share rose by 17.5 percent to P20.5 billion.

Thrift Banking SystemShare of Deposits, by Category

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

1997

1998

1999

2000

2001

2002

2003

2004

June 2005





Currency mix consisted of 85.0 percent or P210.7 billion peso deposits and 15.0 percent or P37.3 billion foreign currency deposits. Both peso and foreign currency deposits registered expansion by 18.6 percent or P33.0 billion and by 21.0 percent or P6.5 billion, respectively.

Non-interest rate sensitive demand, NOW and savings deposit accounts took the bigger

slice of peso deposits at 57.9 percent (down from 81.5 percent a year ago). Time deposits, on the other hand, accounted for the majority of foreign currency deposits at 74.5 percent (up from 72.3 percent).

CAPITALIZATION. Total capital accounts amounted to P43.1 billion, an expansion by

6.6 percent from year ago’s P40.5 billion. The ratio of capital accounts to total assets, on the contrary, dropped to 13.3 percent from 14.0 percent. This ratio has been going down from a high 19.5 percent at end-year 1999.

The year-on-year increase in capitalization was mainly brought about by the growth in

surplus, surplus reserves and undivided profits by 26.3 percent or P1.9 billion as well as infusion of new capital by 2.5 percent or P0.8 billion.

By main group, linked thrift banks

held a bigger portion of capital at 55.6 percent or P24.0 billion as against the linked thrift banks’ 44.4 percent or P19.1 billion. The market structure of capital shows that non-linked thrift banks consistently held the majority of the capital base in the past. However, the reclassification of a big non-linked thrift bank, Planters DB and its subsidiary Micro Enterprise Bank to linked thrift banks substantially increased the capital share of linked thrift banks beginning

Thrift Banking System: Deposit Mix

18.5%

81.5%

57.9%

42.1%

June 2005June 2004

PESO DEPOSITS


72.3%

27.7%25.5%

74.5%

Time Deposits Demand/NOW & Savings Deposits


June 2005June 2004


Thrift Banking SystemDistribution of Capital, by Analytical Category

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

1997

1998

1999

2000

2001

2002

2003

2004

June 2005





October 2004. The industry remained solvent as CARs on both solo and consolidated bases were way

above the prescribed minimum ratio of 10 percent at 16.8 percent as of end-March 2005. This period’s ratio stood higher than the 16.2 percent ratio recorded at end-year 2004.

On solo basis, qualifying capital rose by 8.3 percent to P33.8 billion. This supported the

4.1 percent increase in risk-weighed assets to P200.9 billion. By main group, linked thrift banks’ CAR (solo) stood higher at 17.4 percent compared to non-linked thrift banks’ 15.9 percent. However, there is still an apparent need to build-up capital for the 14 thrift banks, which failed to comply with the 10 percent benchmark. These non-compliant banks have been directed to undertake remedial measures to comply with the minimum CAR requirement.

Moreover, only 61.4 percent (vs. 61.8 percent a year ago) of the total operating thrift

banks complied with the required minimum amount of capital.

Thrift Banking System: Status of Banks' Compliance with the Minimum Amount of Capital

2002 2003 2004 2004 2005

94 92 87 89 83

Based Within Metro Manila 43 42 41 42 40Based Outside Metro Manila 51 50 46 47 43

57 58 56 55 51

Based Within Metro Manila (K> P325M) 31 32 29 29 24Based Outside Metro Manila (K> P52M) 26 26 27 26 27

End-June

B. TBs with Capital Equal to or in Excess of the XXXMinimum Required

A. Number of Operating Thrift Banks (TBs)

T hrift Banking System: Comparative CAR Under Circular No. 280

2003 2004 2003 2004

(In P Billion)29.8 27.9 29.8 29.8 27.9 29.8

3.9 4.3 4.1 3.9 4.3 4.1

. . . 1.0 0.1 . . . 1.0 0.1

33.7 31.2 33.8 33.7 31.3 33.9

177.8 193.0 200.9 117.8 193.0 200.9

(In Percent)

18.9 16.2 16.8 18.9 16.2 16.8

Tier 1

End- December

Tier 2

Deductions


Qualifying Capital


. . . Less than P50 million

End- March 2005

End- December

Consolidated

End- March 2005

Solo




In contrast with the declining trend of the overall banking system, the industry’s bank guarantees, through the issuance of domestic stand-by letters of credit, stood higher at P610 million or by 40.8 percent from year ago’s P433 million. Several major beautification programs of city/ municipal governments particularly in the Metro Manila area contributed to the issuance of more performance bonds to contractors. The NCR Region took the biggest slice of these bank guarantees at P572 million or 93.8 percent while Western Visayas accounted for the balance of P38 million or 6.2 percent. By main group, non-linked thrift banks held the bigger block of these bank guarantees with a share of 53.0 percent or P323 million whereas linked thrift banks, specifically domestic linked thrift banks held the remaining 47.0 percent or P287 million.



RURAL BANKING INDUSTRY

OVERVIEW

The rural banking industry showed greater resilience as key financial indicators

remained strong. With profitability consistently improving and delinquency ratio continuing to trend downward, assets and capital were sustained at high levels, providing sufficient buffer for unexpected shocks. The sound financial position of the industry, together with BSP’s advocacy for microfinancing activities, provided the main impetus for strong expansion in microcredit lending.

The rural banks continued their run of strong results in the first half of 2005. The net

income after tax (NIAT) registered at P1.0 billion, a gain of P0.1 billion from P0.9 billion over the same period last year. However, the robust growth in asset and capital led to lower returns on asset and equity (ROA and ROE) at 1.7 percent and 11.3 percent from 1.9 percent and 12.1 percent, respectively.

The boost in bank lending improved the industry’s loan quality, as reflected by the

drop in the ratio of non-performing loans (NPLs) to 11.9 percent from year ago’s ratio of 12.4 percent. Likewise, the vigorous expansion in resources resulted to asset quality improvement as the non-performing assets (NPA) ratio declined to 14.7 percent from 15.5 percent.

The industry still maintained comfortable liquidity position even if the ratio of liquid

assets to deposit liabilities declined to 34.2 percent from year ago’s 37.8 percent. Liquid assets increased by 1.6 percent to P26.0 billion from P25.6 billion. This, however, was outpaced by the 12.5 percent expansion in deposit liabilities. As more funds were channeled to lendings, the ratio of loans, gross to deposits rose to 86.7 percent from 82.8 percent.

The sound performance of the

industry has been underpinned by robust balance sheet growth. Total assets as of end-June 2005 at P102.2 billion was at highest level. This was 13.9 percent higher than the P89.7 billion posted at end-June 2004. The biggest share of the industry’s total assets was consistently held by rural banks located in Luzon, at P72.2 billion or 70.7 percent. This was followed by the rural banks in Mindanao at P17.5 billion or 17.1 percent while the rural banks situated in Visayas with P12.5 billion assets had only a 12.2 percent

Rural Banking SystemMarket Structure of Assets

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

1997

1998

1999

2000

2001

2002

2003

2004

June 2005

Luzon Visayas Mindanao



share. The industry remained well–capitalized, with total capital accounts expanding to

P15.4 billion, an increment of P1.4 billion from year ago’s P14.0 billion. Likewise, this has been the highest capital recorded. On a regional basis, rural banks situated in CALABARZON (Region IV-A) continued to lead in terms of the highest assets, loan portfolio, deposit liabilities and capital accounts.

Top Five Regions of Rural BanksBased on Consolidated Statement of Condition as of End- June 2005 p/

(Amounts in P Billion)

Region Amount Rank Region Amount

1 CALABARZON (Region IV-A) 23.9 1 CALABARZON (Region IV-A) 12.7 2 Central Luzon (Region III) 15.0 2 Central Luzon (Region III) 8.6 3 National Capital Region 12.8 3 National Capital Region 7.9 4 Ilocos (Region I) 7.3 4 Ilocos (Region I) 5.0 5 Central Visayas (Region VII) 6.4 5 Bicol (Region V) 3.7




1 CALABARZON (Region IV-A) 18.8 1 CALABARZON (Region IV-A) 3.4 2 Central Luzon (Region III) 10.4 2 Central Luzon (Region III) 2.4 3 National Capital Region 9.4 3 Northern Mindanao (Region X) 1.5 4 Ilocos (Region I) 5.5 4 National Capital Region 1.2 5 Central Visayas (Region VII) 5.1 5 Ilocos (Region I) 1.1


% Share 67.8 % Share 62.1 p/ Preliminary

Rank

Rank

Assets Loans


OPERATING NETWORK Chartering activities weakened due to the implementation of a general moratorium on

the establishment of new banks/ branches since the last quarter of 1999. However, this moratorium was partially lifted on 27 February 2001 under BSP Circular No. 273 to allow the entry of microfinance-oriented banks, on a very selective basis preferably in places not fully served by existing rural banks or in areas not fully serviced by microfinance-oriented banks. Moreover, Circular No. 340 dated 30 July 2001 also allowed the

Rural Banking OfficesAs of End-June 2005

1,921 712 1,209Of which :

Microfinance Rural Banks 13 4 9

TotalBranches/

Other Offices

Rural Banks

Head Offices



establishment of microfinance oriented branches. CARD RB availed of this privilege when it opened a microfinance-oriented branch on 01 April 2005. This brings the total number of microfinance-oriented rural banking offices to 13 (4 head offices and 9 branches) from 12 offices (4 head offices and 8 branches) as of end-June 2004.

Despite the present moratorium, the number of rural bank offices as of end-June 2005

still rose to 1,921 offices from 1,897 offices as of end-December 2004. This consisted of 712 head offices (down from 720) and 1,209 branches/other offices (up from 1,177). Of the total, there were 4 microfinance-oriented rural banks with more than 50 percent of their operations dedicated to microfinance activities while an additional 170 rural banks were engaged in some level of microfinance operations.

Effective 14 January 2004, Secured Savings and Loan Association converted to Secured

Bank, Inc., A Rural Bank. The conversion also added 5 more branches to the rural bank industry.

Two mergers were completed in the first half of 2005. RB of Albuera (Leyte), RB of Catbalogan (Samar), RB of Himamaylan (Negros Occidental) and Philippine Farmers’ Bank, (A Rural Bank) Inc. was merged on 28 February 2005 with the latter as the surviving bank. RB of Rosales (Pangasinan) was absorbed by Producers Rural Banking Corp. effective 17 July 2005.

Meantime, 5 rural banks were closed during the first semester of 2005, namely: RB of

Vinzons, Inc. (Camarines Norte), Banco Rural Legaspi, Banco Sorsogon, Inc., Municipal RB of Del Gallego (Camarines Sur) and RB of Rizal (Mindoro Occidental).

Rural banks were mostly concentrated in the National Capital Region (NCR) and the

neighboring regions of CALABARZON (Region IV-A) and Central Luzon (Region III) with 812 offices or 42.3 percent. Northern Luzon (Region I + Region II + CAR) followed with 351 offices or 18.3 percent while the Visayas Region accounted for 299 offices or 15.6 percent. The remaining 459 offices or 23.9 percent were spread around the areas of Bicol, MIMAROPA and Mindanao. (Table 25) The industry started to enhance its banking services delivery with the establishment of Automated Teller Machines (ATMs). Five rural banks have a total of 28 ATMs, of which 26 ATMs were located within the premises of the bank while the remaining 2 units were installed in convenient places outside the bank premises. (Table 26) Across the three main geographical regions, Mindanao had the most number of ATMs with 17 units or 60.7 percent of the total, followed by Luzon with 11 units or 39.3 percent. So far, no rural bank in the Visayas region has an ATM facility.

RESULTS OF OPERATIONS The rural banking industry recorded a NIAT of P1.0 billion for the six month-period ending June 2005, 12.8 percent higher than the P0.9 billion posted over the same period last



year. Although the growth was lower than the 38.4 percent posted over the same period last year, the P1.0 billion profit was already 100.0 percent, 71.0 percent and 66.7 percent of the NIAT posted for the 12 month-period ended December 2002, December 2003 and December 2004, respectively. The P0.1 billion increment in NIAT was attained on account of the 17.8 percent increase in total operating income which more than covered for the 16.4 percent growth in operating expenses. Total operating income amounted to P5.1 billion, up by P0.8 billion from the P4.3 billion operating income during the same period last year. The increment was driven by the 16.7 percent growth in net interest income which reached P3.5 billion from P3.0 billion. The boost in interest income was brought on by strong expansion in the industry’s lending, coupled with improvement in loan and asset quality as exhibited by the higher annualized net interest margin of 11.0 percent compared to year ago’s 10.8 percent.

Non-interest income increased by 20.4 percent, contributing P0.2 billion or 34.4 percent to the total increment in gross profits. This was largely provided for by fee-based income which stood at P1.1 billion, up by 23.2 percent from P0.9 billion as the industry lending expanded during the semester by 17.7 percent (vs. 9.2 percent over the same period last year). Fee-based income were mostly in the form of income derived from service charges/fees (P1.1 billion) and bank commissions (P35 million).

Meanwhile, operating expenses stood at P4.2 billion, up by 16.4 percent from P3.6

billion posted in the first half of 2004. Majority or 91.2 percent of the additional operating expenses were directed to costs other than bad debts written off and provision for probable losses, which increased by P0.6 billion.

Top five regions where rural banks chalked up the highest NIAT were: Central Luzon

(Region III) with P160 million, followed by NCR with P138 million, Southern Mindanao (Region XI) with P106 million, CALABARZON (Region IV-A) with P99 million and CARAGA with P75 million. Meanwhile, Eastern Visayas (Region VIII) was able to recover during this period with a NIAT of P6 million against a net loss of P7 million in the first semester of 2004. All regions posted positive profits for the first half of 2005.

Since 1999, the average funding cost tracked closely the benchmark 91-day T-bill rate.

This even surpassed the T-bill rate in 2002 and 2003 by 180 basis points and 10 basis points, respectively, before settling down this period to 6.4 percent vs. the 7.1 percent T-bill rate. The industry’s pricing of funds, in effect, remains competitive and bodes well for depositors.

Meanwhile, earning asset yield rose to 18.4 percent or by 40 basis points from 18.0

percent in 2004 and by 240 basis points from its highest at 20.3 percent in 1998. Meanwhile, the spread between the earning asset yield and the 91-day T-bill rate remained high, reaching 1,280 basis points in year 2002 to 1,070 basis points in 2004 before settling to 1,134 basis points in the first semester of 2005. This indicates the high cost of borrowed funds from rural banks particularly in the countryside.



Notwithstanding the competitive interest rates they give to depositors compared to

universal, commercial and thrift banks, rural banks still attained substantial mark-ups. Interest spread (earning asset yield over funding cost) further widened, reaching 12.0 percent in the first half of 2005 from a low of 9.3 percent in 1998, increasing to 10.3 percent in 2000, 10.9 percent in 2001, 11.0 percent in 2002, 11.5 percent in 2003, 11.8 percent in 2004. The relatively higher interest spread indicates the lack of fee-based revenues with limited banking services coupled with high operating cost associated with retail and microlending.

The cost efficiency of the

industry consistently improved as cost-to-income ratio settled at 81.0 percent in end-June 2005 from 85.8 percent in 2002, 82.1 percent in 2003, and 81.9 percent in 2004. Inclusive of write-offs/loss provisions, the CTI ratio also favorably declined to 84.6 percent from 85.3 percent in 2004. Meantime, the CTI ratios of rural banks in 9 out of 17 regions were below the industry average, of which the three most efficient were ARMM with CTI ratio of 51.9 percent, followed by Southern Mindanao (Region XI) at 64.5 percent and Northern Mindanao (Region X) at 70.6 percent. On the other hand, rural banks situated in Eastern Visayas (Region VIII) with CTI ratio at 96.1 percent were the least efficient, followed by those in CALABARZON (Region IV-A) at 90.0 percent and Bicol (Region V) at 87.9 percent. Notably, the industry’s cost-efficiency ratio was negatively affected by the less efficient regions, which happened to have the bigger market shares. (Table 27)

Rural Banking System: Cost-to-Income Ratio

0.0

2.0

4.0

6.0

8.0

10.0

1997 1998 1999 2000 2001 2002 2003 2004 June2005

40.0

60.0

80.0

100.0

Operating Income


Cost to Income


Rural Banking System: Selected Ratios vs. 91-day Treasury Bill Rate

18.418.019.2 20.3 19.5 19.0 19.3 18.2 17.6

6.46.2

9.8 11.0 10.0 8.7 8.47.2 6.1 7.17.3

13.1 15.3 10.2 9.9 9.9

5.4 6.0

0.0

5.0

10.0

15.0

20.0

25.0

1997 1998 1999 2000 2001 2002 2003 2004 June2005*


(In Percent)




The industry’s substantial increase in assets and capital pulled down both the annualized ROA and annualized ROE ratios to 1.7 percent and 11.3 percent over the last year’s same period, at 1.9 percent and 12.1 percent, respectively.

On a regional basis, rural banks in ARMM posted the highest ROA at 11.7 percent; followed by those in Southern Mindanao (Region XI) at 4.6 percent; CARAGA at 3.6 percent; Northern Mindanao (Region X) at 3.0 percent; and

Cordillera Autonomous Region at 2.9 percent. On the other hand, the rural banks in Eastern Visayas (Region VIII) still had the lowest ROA at 0.3 percent. Across the three major geographical regions, rural banks in Mindanao consistently recorded the highest ROA, which for the first semester of 2005 stood at 3.5 percent. On the other hand, rural banks in Luzon, which held the bulk of total assets of the industry posted 1.4 percent, closer to the industry ROA.

Likewise, rural banks in ARMM had

the highest ROE at 33.4 percent. This was followed by rural banks in Southern Mindanao (Region XI) at 30.1 percent, CARAGA at 21.9 percent, NCR at 17.4 percent and CAR at 15.5 percent. Geographically, the rural banks in Mindanao still posted the highest ROE at 16.5 percent while those located in Luzon had an ROE at 10.2 percent, which was nearer to the industry ratio of 11.3 percent. MAJOR BALANCE SHEET TRENDS

ASSETS. Total assets of the industry reached P102.2 billion at end-June 2005, an increment of 13.9 percent from P89.7 billion at end-June 2004. Rural banks manifested overall asset expansion in all the regions by P12.5 billion except in MIMAROPA (Region IV-B) where asset declined by 12.0 percent. NCR posted the highest growth of P4.9 billion or 62.2 percent, followed by Central Visayas (Region VII) with P1.3 billion or 26.4 percent and Southern Mindanao (Region XI) and CALABARZON (Region IV-A) both with P1.1 billion or 25.5 percent and 4.6 percent, respectively.

Rural Banking SystemComparative Return on Assets (ROA)

0.00.51.01.52.02.53.03.54.04.55.0

1998 1999 2000 2001 2002 2003 2004 June2005

Industry Luzon Visayas Mindanao

(In Percent)

Rural Banking SystemComparative Return on Equity (ROE)

0.02.04.06.08.0

10.012.014.016.018.020.0

1998 1999 2000 2001 2002 2003 2004 June2005


(In Percent)



The industry continued to prioritize lending activities. The share of loans, net to total

assets rose to 58.6 percent or P59.8 billion from 56.7 percent at end-June 2004. Meantime, cash and due from banks, at 18.5 percent or P18.9 billion, and investments, net, at 5.9 percent or P6.0 billion, were both on the downtrend from 20.7 percent and 6.7 percent, respectively. Other assets had a 9.4 percent share or P9.6 billion (up from 7.6 percent or P6.8 billion). ROPOA, net comprised the remaining share at 7.6 percent or P7.7 billion (down from 8.3 percent or P7.5 billion).

Deposit liabilities were still the primary source of funding, accounting for 71.2 percent

(or P72.7 billion) share of the industry’s total resources while capital accounts also provided additional funds at 15.1 percent or P15.4 billion. Meanwhile, other liabilities and bills payable provided P7.0 billion and P6.9 billion, respectively, both holding 6.8 percent, while special financing was kept at a low level of P0.1 billion or 0.1 percent of total fund sources.

Rural Banking System: Asset Mix


20.7%

Other Assets 7.6%Investments (Net)

6.7%

Loans (net) 56.7%

ROPOA (net) 8.3%


18.5%

Other Assets 9.4%


Loans (net)58.6%

ROPOA(net) 7.6%


June 2004 June 2005

Rural Banking System: Funding Mix

June 2004 June 2005

Special Financing0.1%

Deposits71.2%

Bills Payable 6.8%



Deposits72.1%

Bills Payable 6.8%




Special Financing0.1%



LOANS. The lending activities of the industry remained robust. Total loan portfolio, gross increased by 17.7 percent to P63.0 billion from P53.5 billion last year. Loan expansion cut across all regions, except in MIMAROPA (Region IV-B) where total lendings declined by 10.0 percent. There were 2 regions where the loan increment exceeded P1 billion each, namely: NCR with P3.0 billion or 62.4 percent growth and Southern Mindanao at P1.0 billion or 40.9 percent. Likewise, rural banks in the following regions were able to extend additional loans of more than P500 million: Central Visayas (Region VII) with P965 million or P37.6 percent; CALABARZON (Region IV-A) with P943 million or 8.0 percent; and Northern Mindanao (Region X) with P836 million or 31.6 percent. Meanwhile, the remaining eleven regions contributed an aggregate of P2.8 billion of additional loans.

As microfinance activities intensified, the exposure of 170 rural banks to about 460,000

microfinance borrowers also progressed, which as of end-June 2005 amounted to P2.8 billion. Moreover, the 4 microfinance-oriented rural banks had total loans amounting to P317 million, up by 5.1 percent from year ago’s P301 million.

The industry continued to channel a significant portion of their lending to the

agricultural sector totaling to P24.6 billion (up from P23.9 billion last year) equivalent to 42.6 percent (down from 44.8 percent) of total loans. The rural banking industry played a vital role in raising agricultural output, which for the first half of 2005 exhibited a 1.3 percent increment of the same period last year.

Rural Banking Industry: Balance Sheet Structure

2002 2003 2004 2004 2005

100.0 % 100.0 % 100.0 % 100.0 % 100.0 %Cash and Due from Banks 18.9 % 20.2 % 18.5 % 20.7 % 18.5 %Loans, net 58.7 % 58.7 % 59.4 % 56.7 % 58.6 %Investments, net 5.1 % 5.2 % 6.0 % 6.7 % 5.9 %ROPOA, net 9.4 % 8.3 % 8.2 % 8.3 % 7.6 %Other Assets 7.9 % 7.6 % 7.9 % 7.6 % 9.4 %

100.0 % 100.0 % 100.0 % 100.0 % 100.0 %

Deposits 68.6 % 70.1 % 70.9 % 72.1 % 71.2 %

Bills Payable 9.4 % 8.2 % 7.8 % 6.8 % 6.8 %Special Financing 0.2 % 0.2 % 0.2 % 0.1 % 0.1 %Other Liabilities 5.5 % 5.5 % 5.4 % 5.4 % 6.8 %Capital Accounts 16.3 % 16.0 % 15.7 % 15.6 % 15.1 %


End-June


Total Assets

Major AccountsEnd-December

p/r/r/



Notably, loans granted to all sector exhibited growths with sizable increments going to the following industry sectors: (a) Wholesale & Retail Trade, Repair of Motor Vehicles – P1.8 billion or 15.0 percent; (b) Other Community, Social and Personal Services Activities – P1.1 billion or 21.1 percent; (c) Private households with Employed Persons – P950 million or 39.3 percent; (d) Real Estate Renting & Business Activities – P793 million or 13.7 percent; (e) Education – P439 million or 19.5 percent; (f) Transportation, Storage & Communication – P378 million or 19.8 percent; (g) Manufacturing – P350 million or 20.5 percent; (h) Fishery – P309 million or 13.7 percent; (i) Construction – P243 million or 11.7 percent; and (j) Financial Intermediation – P232 million or 25.1 percent.

The industry’s compliance with the

small and medium enterprises (SME) credit, as of end-June 2005, was high at 44.8 percent or P16.4 billion for small enterprises and at 12.4 percent or P4.5 billion for medium enterprises. This exceeded prescribed minimum of 6 percent (for small enterprises) and 2 percent (for medium enterprises) per R.A. No. 8289, as amended.

Rural banks also exceeded the

prescribed minimum requirement for agrarian reform credit (10 percent) and agricultural credit (25 percent). As of end-June 2005, the industry registered 16.5 percent compliance with agrarian reform credit and 29.0 percent compliance with agricultural credit in general. This aggregated to P10.2 billion agrarian reform loans and P18.0 billion agricultural loans.

June 2004

3.5%

41.2%

19.4%

12.8%

7.9%

3.7%3.4%

2.9%2.5% 2.7%

3.4%

2.7%

2.5%

2.9%

3.5%

3.6%

3.8%

2.7%

3.0%3.9%

Manufacturing

Education

Private Households w/ Employed Persons

Transportation, Storage & CommunicationOthers

2004 2005

Agriculture, Hunting & ForestryWholesale, Retail Trade & Repair

Other Community, Social and Personal Activities

Real Estate, Construction, Renting & Bus.Activities

Fishery

41.2%

19.4%

12.8%

7.9%

3.7%

39.0%

19.4%

12.5%

8.5%

3.6%

June 20053.9%

39.0%

19.4%

12.5%

8.5%

3.6%3.6%

3.0% 2.7%

Rural Banking SystemLoan Portfolio Structure By Industry Sector

P63.0 Billion

P53.5 Billion

End-June

3.8%



There were only 8 rural banks which disposed their bad assets under the SPV Law of 2002, of which 6 sold NPLs amounting to P126 million to an asset management company while 1 bank dacioned its NPLs worth P14 million and another bank sold its ROPOA to an individual buyer.

Due to the very minimal disposal

of soured assets under the SPV law, the NPLs and NPAs continued to trend

upward, as several previously performing assets become delinquent. In the last 5 years, the NPLs hovered around a steady level ranging from a high of P6.7

billion in 2000 to a low of P6.2 billion in 2003, then back to P6.7 billion in 2004. The level further went up to P7.4 billion at end-June 2005. The NPA level, on the other hand, showed an uptrend from P12.0 billion in 2000 and reaching P15.4 billion at the end of the first half of 2005.

Nonetheless, the continued

yearly growth in both lending and gross assets, which either surpassed or complemented the increase or decrease in NPLs and NPAs, resulted to better NPL and NPA ratios. From the 17.4 percent ratio in 2000, the NPL ratio gradually eased down to 11.9 percent as of end-June 2005. Similarly, the NPA ratio steadily improved from 19.3 percent in 2000 to a low of 14.7 percent at end-June 2005.

On a regional basis, rural banks in ARMM posted a significant increase in NPL ratio to

20.9 percent from 5.0 percent a year ago, brought on by the additional P18 million NPLs posted by one of its largest banks. Said bank held a 74.3 percent share of ARMM’s total TLP. This placed ARMM as the top region with the highest NPL ratio. Meanwhile, the NPL ratios of banks in the following regions exceeded the industry average ratio: Western Visayas (Region VI) at 16.0 percent; Cagayan (Region II) at 15.5 percent; CALABARZON (Region IV-A) at 15.2 percent; Ilocos (Region I) at 14.3 percent; Central Luzon (Region III) at 13.2 percent; Central Visayas (Region VII) at 13.1 percent; Central Mindanao (Region XII) at 12.6 percent; MIMAROPA (Region IV-B) at 12.3 percent; and Bicol (Region V) at 12.1 percent. In contrast, rural banks situated in Southern Mindanao (Region XI) posted the lowest NPL ratio at 4.4 percent.

Rural Banking System NPLs and NPL Coverage Ratio

-

5.0

10.0

15.0

1997 1998 1999 2000 2001 2002 2003 2004 June2005

In P Billion

0.0

10.0

20.0

30.0

40.0

50.0In Percent


Rural Banking System NPAs and NPA Coverage Ratio

-

5.0

10.0

15.0

1997 1998 1999 2000 2001 2002 2003 2004 June2005

In P Billion

0.0

5.0

10.0

15.0

20.0

25.0

30.0In Percent




The industry still exerted efforts to reduce delinquent loans through foreclosure proceedings and restructuring. ROPOA, gross increased by 3.9 percent to P8.0 billion from year ago’s P7.7 billion while restructured loans posted a 2.1 percent growth from P0.7 billion.

Meantime, progress in loss provisioning is slowly being made. The NPL coverage ratio

rose to 37.2 percent from 34.5 percent a year ago but was still short of end-year 2004’s 37.3 percent. The NPA coverage ratio, on the other hand, at 19.6 percent, is so far the highest posted by the industry.

The distressed assets ratio, a

broader definition of asset quality, also improved to 22.5 percent from 24.3 percent a year ago and was significantly lower from its peak of 29.7 percent at end-year 2000. Rural banks in Southern Mindanao (Region XI) continuously registered the least distressed assets ratio at 8.5 percent, while those in CALABARZON (Region IV-A) reported the highest ratio at 32.3 percent. (Table 29)

DEPOSIT LIABILITIES. Additional resources were funded mostly by deposit liabilities which expanded by 12.5 percent to P72.7 billion from P64.6 billion as of end-June 2004. Deposit liabilities were the major funding source at 71.2 percent (down from 72.1 percent a year ago) of total resources. Core deposits (Demands, NOW and Savings) still made up the bulk of deposit liabilities at 71.9 percent (down from 73.8 percent a year ago) share while time deposits held the remaining 28.1 percent (up from 26.2 percent) share.

As in the previous semester,

rural banks in CALABARZON (Region IV-A) accounted for the highest level of deposits at P18.8 billion or 25.9 percent of total deposits, followed by those located in Central Luzon (Region III) at P10.4 billion or 14.4 percent, the National Capital Region at P9.4 billion or 13.0 percent, Ilocos (Region I) at P5.5 billion or 7.6 percent and Central Visayas (Region VII) at P5.1 billion or 7.0 percent. These 5 regions comprised 67.9 percent of the total deposit liabilities of rural banks. On the other hand, the rural banks in ARMM had the least share at 0.1 percent.

Rural Banking System Distressed Assets Ratio

0.0

5.0

10.0

15.0

20.0

1997 1998 1999 2000 2001 2002 2003 2004 June2005

In P Billion

10.0

15.0

20.0

25.0

30.0

35.0In Percent

NPAsRestructured Loans (Performing)Distressed Ratio

Rural Banking System: Deposit Mix

71.9%

28.1%

73.8%

26.2%


PESO DEPOSITS


Time Deposits

June 2005June 2004



CAPITALIZATION. Capital accounts rose by 10.0 percent to P15.4 billion from year ago’s P14.0 billion. Capital stock, which increased by P846 million or 7.9 percent, largely contributed to the P1.4 billion rise in total capital while the 17.0 percent increment surplus, surplus reserves and undivided profits provided the rest.

The 13.9 percent expansion in total assets outmatched the rise in total capital accounts,

pushing the ratio of total capital accounts to total assets slightly down to 15.1 percent from 15.6 percent at end-June 2004. The ratio exhibited a downtrend from its peak at 17.0 percent at end-year 2000 to 16.0 percent at end-year 2003 and reaching 15.7 percent at end-2004. This trend ensued as the increment in total assets surpassed the increase in total capital accounts.

Rural banks situated in CALABARZON still held the biggest share of P3.4 billion or

21.9 percent of total capital, followed by those in Central Luzon (Region III) at P2.4 billion or 15.7 percent, Northern Mindanao (Region X) at P1.5 billion or 9.5 percent, NCR at P1.2 billion or 8.0 percent and Ilocos (Region I) at P1.1 billion or 7.0 percent. The remaining P5.8 billion or 37.9 percent was held by the other rural banks in 12 regions, of which those in ARMM had the lowest capital at P58 million or 0.4 percent of total capital accounts.

The industry remained well-capitalized, with capital adequacy ratio (CAR) sustained

above the minimum 10 percent requirement. As of end-March 2005, CAR rose to 16.9 percent from 16.2 percent as of end-June 2004. However, there were still 127 banks which posted CAR below the 10 percent minimum.

Rural Banking System: Comparative CAR Under Circular No. 280

2003 2004

(In P Billion)

10.8 11.7 12.0

1.0 1.0 1.0

. . . . . . . . .

11.8 12.6 13.0

71.5 75.3 76.9

(In Percent)

16.5 16.7 16.9

End-December End-March 2005


Solo


Tier 1

Tier 2

Deductions


Qualifying Capital



Rural Banking SystemStatus of Banks' Compliance with the Minimum Amount of CapitalAs of End-June 2005

A. Number of Operating Banks 712

Rural Banks - Within Metro Manila 9

- With Nationwide Branching 10

- Within the cities of Davao & Cebu 3

- 1st to 3rd cities and 1st class municipalities 286

- 4th to 6th class cities and 2nd to 4th class municipalities 353

- 5th to 6th class municipalities 51

B. Banks with Capital (K) Equal to or in Excess of the Minimum Required

Rural Banks - Within Metro Manila (K ³ P26.0M) 7 - With Nationwide Branching (K ³ P20.0M) 8 - Within the cities of Davao & Cebu (K ³ P13.0M) 3 - 1st to 3rd cities and 1st class municipalities (K ³ P6.5M) 239 - 4th to 6th class cities and 2nd to 4th class municipalities (K ³ P3.9M) 266 - 5th to 6th class municipalities (K ³ P2.6M) 41

564

Of the 712 operating rural banks, 564 banks or 79.2 percent complied with the

minimum amount of capital requirement as of end-June 2005. Non-compliant banks are deemed to consider the option to consolidate or merge with stronger banks or increase capitalization.



COOPERATIVE BANKING INDUSTRY

OVERVIEW

The cooperative banking system remains in good shape, with recent developments generally favorable from a financial stability perspective. Though little progress was achieved in improving non-performing accounts, the increasing trend in profits, underpinned by the sustainable growth in assets, loans and capital gained strength for the industry.

Cooperative banks still recorded strong profitability as net income after tax (NIAT) for the first half of 2005 reached P94 million, up by 19.6 percent from P79 million over the same period a year ago. Consequently, both annualized return on assets (ROA) and annualized return on equity (ROE) improved to 2.4 percent and 14.5 percent over end-June 2004’s 2.3 percent and 13.7 percent, respectively

Total assets of the system

grew by 14.1 percent to P6.9 billion from P6.0 billion a year ago. Based on the three major geographical regions, cooperative banks situated in Luzon captured the biggest share of assets at 62.4 percent, while the rest of the market was almost equally shared by cooperative banks in Mindanao at 19.3 percent and Visayas at 18.3 percent. Noticeably, this scenario was different compared during the years 1997 and 1998 when the cooperative banks located in

Mindanao held most of the industry’s assets. Came 1999, the biggest share shifted to cooperative banks located in Luzon.

Despite the growth in delinquent loans, the industry was able to stem the growth in its

NPL ratio as lending activities expanded. Meantime, the NPA ratio increased to 12.8 percent from 12.2 percent a year ago as foreclosure proceedings were intensified to preserve the industry’s loan quality.

Year-on-year, deposit liabilities expanded by 11.3 percent to reach P4.0 billion with

intensified campaign for deposits. However, as the industry preferred to lend than hold on to more liquid assets, the liquidity ratio dropped to 28.7 percent from 32.3 percent same period last year.

Cooperative Banking SystemMarket Structure of Assets

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

1997

1998

1999

2000

2001

2002

2003

2004

June 2005

Luzon Visayas Mindanao



Meantime, solvency was enhanced as total capital accounts reached P1.1 billion, 11.4 percent higher than year ago’s P1.0 billion.

Regionally, Central Luzon (Region III) was consistently on top in terms of having the

biggest share in assets, loan portfolio, deposit liabilities and capital accounts.

Top Five Regions of Cooperative BanksBased on Consolidated Statement of Condition: As of End-June 2005 p/(Amounts in P Billion)

1 Central Luzon (Region III) 2.0 1 Central Luzon (Region III) 1.5 2 Northern Mindanao (Region X) 0.8 2 Western Visayas (Region VI) 0.6 3 Western Visayas (Region VI) 0.7 3 Northern Mindanao (Region X) 0.6 4 Cagayan Valley (Region II) 0.6 4 Cagayan Valley (Region II) 0.4 5 Central Visayas (Region VII) 0.5 5 Central Visayas (Region VII) 0.3

Total 4.5 Total 3.4


1 Central Luzon (Region III) 1.0 1 Central Luzon (Region III) 0.2 2 Western Visayas (Region VI) 0.6 2 Cagayan Valley (Region II) 0.1 3 CALABARZON 0.3 3 National Capital Region 0.1 4 Central Visayas (Region VII) 0.3 4 Central Visayas (Region VII) 0.1 5 Ilocos (Region I) 0.3 5 Northern Mindanao (Region X) 0.1

Total 2.5 Total 0.7

% Share 63.3 % Share 58.6 p/ Preliminary

Assets Loans

Deposits Liabilities Capital Accounts

Amount Rank Region Amount

Rank

Rank


Region

OPERATING NETWORK

The cooperative banks were the least players in the banking industry having a total of 107 offices (composed of 44 head offices and 63 branches). Likewise, there was very little effort from the industry to improve its accessibility, with only 3 new offices added from year ago’s 104 (composed of 44 head offices and 60 branches). In fact, throughout the year, no cooperative bank opened, closed or got involved in any merger, consolidation or conversion to other bank category.

Most of the cooperative banks were concentrated in Central Luzon (Region III) with 24

banking offices (7 head offices and 17 branches), while Northern Mindanao (Region X) had 15 banking offices (4 head offices and 11 other offices). Both CALABARZON (Region IV-A) and Cagayan (Region II) each had 10 banking offices (3 head offices and 7 other offices). The remaining regions had less than 10 banking offices each.




In the first half of 2005, profitability of cooperative banks remained strong as bottomline figures grew by 19.6 percent or P15 million. NIAT rose to P94 million from P79 million posted in the same period last year due to the P44 million (or 13.0 percent) rise in total operating income which outpaced the P37 million (or 14.0 percent) increase in operating expenses.

Non-interest income, which grew by 14.8 percent to P191 million from P166 million

same period last year, contributed 56.4 percent or P25 million to the P44 million rise in total operating income,. This was mostly in the form of fee-based income, specifically service charges, and other income. Meanwhile, net interest income provided the remaining 43.6 percent or P19 million.

The marginal growth in net interest income was brought on by relatively higher rate of

increment in interest expenses by 15.3 percent (or P30 million) compared to the rise in interest income by 13.3 percent or P49 million. This manifested the strong competition in the loan market, coupled with higher funding costs of the cooperative banks. Nonetheless, the industry managed to increase its net interest margin to 7.8 percent from 7.6 percent same period last year.

Total operating expenses amounted to P304 million, up by 14.0 percent from P267

million posted in the first half of 2004. No bad debts were written-off nor provision for probable losses booked during the period.

The average funding cost fluctuated from years 1997 to 2001. Funding cost was lower

than the 91-day T-bill rate in 1997, 1998 and 2001. On the other hand, funding cost got the upper hand in 1999, 2000 and 2002 up to end-June 2005. The premium over the 91-day T-bill

Cooperative Banking System: Selected Ratios vs. 91-day Treasury Bill Rate

16.516.517.2

16.916.4

14.9

15.317.1 16.3

8.88.710.2

11.5

11.9 10.9

8.89.4

8.4

7.17.3

13.115.3

10.2 9.9

9.9

5.4 6.0

0.02.04.06.08.0

10.012.014.016.018.020.0

1997 1998 1999 2000 2001 2002 2003 2004 June2005*


(In Percent)




rate came to as high as 393 basis points in 2002 to as low as 99 basis points in 2000. The annualized premium settled at 174 basis points by end-June 2005.

The earning asset yield consistently posted substantial interest rate differential against

the 91-day T-bill rate from a low of 165 basis points in 1998 to as high as 1,165 basis points in 2002 before settling to 946 basis points by end-June 2005. The high level of the earning asset yield manifests the industry’s preference to lend than invest in government securities given its capacity to generate much needed funds.

Meanwhile, the industry maintained wide interest spread since 2002 as the gap

between the earning asset yield and the funding cost broadened. From a low of 4.0 percent in 2000, the interest spread steadily increased to 6.5 percent in 2001, 7.7 percent in 2002 and 7.9 percent in 2003, an indication of improvement in both loan and asset quality since 2001. In 2004, the interest spread slightly declined to 7.8 percent before settling to 7.7 percent by end-June 2005.

The industry’s cost

efficiency slightly improved as the annualized cost-to-income ratio inched down to 78.6 percent from 78.7 percent over the same period last year. Though higher than 2004’s 78.2 percent, this was still 16.9 percentage points lower than the peak ratio of 95.5 percent in 2000.

With better performance of the industry, both annualized ROA and annualized ROE

favorably rose to 2.4 percent and 14.5 percent, respectively, over the 2.3 percent and 13.7 percent posted versus the same period last year.

Cooperative Banking System: Cost-to-Income Ratio

0.0

0.2

0.4

0.6

0.8

1.0

1997 1998 1999 2000 2001 2002 2003 2004 June2005

0.0

20.0

40.0

60.0

80.0

100.0

Operating Income


Cost to Income


Cooperative Banking System: Comparative Return on Assets (ROA)

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

1998 1999 2000 2001 2002 2003 2004 June 2005


(In Percent)



Geographically, cooperative banks located in Mindanao exhibited the highest annualized ROA at 3.4 percent while cooperative banks situated in Luzon and Visayas both posted 2.2 percent. Likewise, Mindanao based cooperative banks posted the highest ROE at 18.1 percent, followed by Luzon based cooperative banks at 13.5 percent whereas cooperative banks in the Visayas had only 13.4 percent.


ASSETS. As of end-June 2005, the industry posted asset growth of 14.1 percent to P6.9 billion from year ago’s P6.0 billion. Geographically, cooperative banks in the Luzon area posted the highest increment of P463 million or 12.1 percent. Those in the Visayas and Mindanao followed at P246 million or 24.2 percent and P143 million or 12.1 percent, respectively.

Cooperative Banking System: Comparative Return on Equity (ROE)

(40.0)

(30.0)

(20.0)

(10.0)

0.0

10.0

20.0

30.0

1998 1999 2000 2001 2002 2003 2004 June2005


(In Percent)

Cooperative Banking System: Asset Mix

June 2004 June 2005


15.7%

Other Assets 7.2%


Loans (net)69.2%

ROPOA (net) 4.0%


13.5%

Other Assets 8.6%


Loans (net) 69.9%

ROPOA(net) 4.6%




The major asset component was loans, net with a share of 69.9 percent, up from last year’s 69.2 percent. Loans, net, which at end-June 2005 stood at P4.8 billion, was 15.3 percent higher than year ago’s P4.2 billion. Cash and due from banks accounted for 13.5 percent of total assets, down from previous year’s 15.7 percent. This totaled P0.9 billion, a 1.8 percent decline. The rest of the asset mix were: other assets at 8.6 percent or P0.6 billion (up from 7.2 percent); real and other properties owned or acquired (ROPOA), net at 4.6 percent or P0.3 billion (up from 4.0 percent); and investments, net at 3.4 percent or P0.2 billion (down from 3.9 percent).

On the funding side, the most stable source was deposit liabilities accounting for a

majority or 58.4 percent (or P4.0 million) share of the total resources. The rest of the mix were shared by: bills payable at 17.8 percent (up from 17.5 percent), capital accounts at 16.6 percent (down from 17.0 percent) and special financing/other liabilities at 7.2 percent (up from 5.6 percent). Cooperative Banking Industry: Balance Sheet Structure

2002 2003 2004 2004 2005


100.0 % 100.0 % 100.0 % 100.0 % 100.0 %Deposits 55.0 % 57.9 % 58.1 % 59.9 % 58.4 %Bills Payable 22.4 % 19.1 % 19.5 % 17.5 % 17.8 %Special Financing 0.9 % 0.7 % 0.6 % 0.7 % 0.6 %Other Liabilities 5.9 % 5.4 % 4.7 % 4.9 % 6.6 %Capital Accounts 15.8 % 16.9 % 17.1 % 17.0 % 16.6 %


Total Assets


End-JuneEnd-DecemberMajor Accounts p/r/r/

Cooperative Banking System: Funding Mix

June 2004 June 2005

Deposits58.4%

Bills Payable 17.8%

Capital Accounts16.6%Other Liabilities

6.6%

Deposits59.9%

Bills Payable 17.5%

Capital Accounts17.0%Other Liabilities

4.9%


Special Financing

0.7%

Special Financing

0.6%



LOANS. As the industry prioritized its lending activities, there was a 16.1 percent or P0.7 billion expansion in loan portfolio, gross to P5.1 billion from P4.4 billion a year ago. This has been, so far, the most significant growth, compared to 9.9 percent in 2002, 5.1 percent in 2003, and 14.9 in 2004. Cooperative banks in the Luzon area granted additional loans of P396 million or 26.1 percent. Likewise, those in the Visayas and Mindanao regions extended additional loans amounting to P205 million or 26.1 percent and P109 million or 11.7 percent, respectively.

The Agricultural, Hunting &

Forestry sector was still the main recipient of the industry’s loans amounting to P1.7 billion, equivalent to 34.1 percent (down from 37.4 percent last year) of total loans. Significant shares were also held by the Wholesale & Retail Trade, Repair of motor Vehicles at P1.4 billion or P26.4 percent and Private Households with Employed Persons at P1.0 billion or 19.5 percent.

Except for the Education sector

whose loan availment declined by 8.2 percent to P62 million, all other industry sectors raised their borrowings: Other Community, Social and Personal Services Activities – P247 million or 33.0 percent; Wholesale, Retail, Trade and Repair – P133 million or 10.9 percent; Agriculture, Fishery, Hunting and Forestry – P95 million or 5.8 percent; Real Estate, Renting and Business Activities – P88 million or 31.3 percent; Private Households with Employed Persons – P50 million or 47.2 percent; Transportation, Storage and Communication – P29 million or 114.8 percent; Fishery – P17 million or 10.0 percent and Manufacturing – P15 million

or 24.5 percent. Compliance with the small and medium enterprises (SME) credit as of end-June 2005

1.5%

2.4%

1.4%

0.6% 1.9%

3.0%

1.5%

1.2% 1.1% 2.3%

Manufacturing

Education

Private Households w/ Employed Persons

Transportation, Storage & CommunicationOthers

2004 2005Agriculture, Hunting & ForestryWholesale, Retail Trade & RepairOther Community, Social and Personal ActivitiesReal Estate, Construction, Renting & Bus.ActivitiesFishery

37.4%

27.6%

6.3%

17.0%

3.9%

34.1%

26.4%

19.5%

7.2%

3.7%

June 20052.3%

34.1%

26.4%

19.5%

7.2%

3.7%3.0%

1.1%1.2%1.5%

June 2004

1.4%1.5%0.6%

2.4%3.9%

6.3%

17.0%

27.6%

37.4%

1.9%

Cooperative Banking SystemLoan Portfolio Structure By Industry Sector

P5.1 Billion

P4.4 Billion

June



showed that the cooperative banking industry continued to exceed the minimum 6 percent (for small enterprises) and 2 percent (for medium enterprises) at 47.6 percent or P1.6 billion and at 18.1 percent or P611 million, respectively.

Likewise, as of end-June 2005, the industry more than complied with the minimum 10

percent agrarian reform and 25 percent agricultural credit allocation at 23.1 percent and 47.7 percent, respectively, aggregating to P1.1 billion for agrarian reform beneficiaries and P2.3 billion for agricultural loans in general.

Since 2001, the NPLs of the industry hovered around a steady level. From P0.6 billion

in 2001 and 2002, NPLs declined to P0.5 billion in 2003 and 2004 and again moved up to P0.6 billion at end-June 2005. Similarly, the NPAs were on a steady level from P0.8 billion in 2001 and 2002, declining to P0.7 billion in 2003, increasing to P0.8 billion in 2004, reaching P0.9 billion at end-June 2005.

Nevertheless, the consistent

expansion in lending surpassed or complemented the increase or decrease in NPLs, resulting to improvement in the NPL ratio, from its peak at 25.4 percent in 1999, declining to 24.7 percent in 2000, 16.3 percent in 2001, 14.9 percent in 2002, 12.0 percent in 2003 and finally down to the least ratio of 11.3 percent in 2004. As of end-June 2005, the NPL ratio settled at 11.6 percent.

Geographically, cooperative banks in Mindanao continued to report the highest NPL

ratio at 17.9 percent as several cooperative banks posted extremely high NPL ratios. This was way above the ratios posted by cooperative banks in Luzon and the Visayas at 8.3 percent and 15.5 percent, respectively.

As the industry struggled against deterioration of its loan quality, restructuring and

foreclosure proceedings intensified. Both restructured loans, gross and ROPOA, gross increased by 2.7 percent and 29.6 percent to P0.1 billion and P0.3 billion, respectively.

The higher level of ROPOA accompanying the increase in NPLs raised the NPA ratio

slightly to 12.8 percent from 12.2 percent a year ago. Nonetheless, this ratio was still better than the ratios posted in years 1999 to 2002 with the highest ratio recorded in 1999 at 23.6 percent.

On a geographical basis, cooperative banks in Mindanao had the highest NPA ratio at

17.9 percent, followed by cooperative banks located in Visayas at 17.0 percent and in Luzon at 9.7 percent.

Cooperative Banking System NPLs and NPL Coverage Ratio

-

0.5

1.0

1.5

1997 1998 1999 2000 2001 2002 2003 2004 June2005

In P Billion

0.0

10.0

20.0

30.0

40.0

50.0In Percent




The industry managed to cover for the increments in NPLs and NPAs with more capital charge for loss provisions. The NPL coverage ratio strengthened to 42.0 percent from 35.7 percent a year ago. This ratio was the highest since 1997. Similarly, the NPA coverage ratio stood at 27.9 percent, favorably higher than year ago’s 24.6 percent but an inch lower than end-year 2004’s 28.0 percent.

From its highest ratio at 31.2 percent in 2000, the distressed asset

ratio, the broader definition of asset quality, gradually improved to 18.4 percent at end-year 2004 and settled to 19.0 percent.

DEPOSIT LIABILTIES. Cooperative banks were able to generate more deposits, increasing by 11.3 to P4.0 billion from year ago’s P3.6 billion. The P407 million increment in total deposits can be traced to the P238 million or 14.7 percent growth in saving deposits. Time deposits likewise contributed P169 million.

Savings/demand/NOW deposits

still held the bulk of total deposits at 53.3 percent (down from 54.7 percent in end-June 2004), while the remaining 46.7 percent (up from 45.3 percent) was in interest rate sensitive time deposits.

The deposit liabilities were mostly

generated by cooperative banks in Luzon area having P2.5 billion or 62.8 percent, while those in the Visayas and Mindanao had P923 million or 23.0 percent and P573 million or 14.0 percent, respectively.

CAPITALIZATION. Total capital accounts of the industry rose by 11.4 percent to

P1.1 billion from year ago’s P1.0 billion. Both paid-in-capital and surplus, surplus reserves and undivided profits contributed to the P117 million increment, rising by P68 million or 9.9 percent and P49 million or 14.5 percent, respectively.

However, the 11.4 percent hike in capital accounts was inadequate buffer to the 14.1

percent rise in total assets. This brought the ratio of total capital accounts to total assets down to 16.6 percent from 17.0 percent at end-June 2004.

Cooperative Banking System NPAs and NPA Coverage Ratio

-

1.0

2.0

1997 1998 1999 2000 2001 2002 2003 2004 June2005

In P Billion

0.0

5.0

10.0

15.0

20.0

25.0

30.0In Percent


Cooperative Banking System: Deposit Mix

46.7%

53.3%

45.3%

54.7%


PESO DEPOSITS


Time Deposits

June 2005June 2004



By geographical locations, cooperative banks in Luzon recorded the highest capital of P690 million or 60.3 percent of industry’s total. Trailing behind were cooperative banks in Mindanao at P210 million or 18.4 percent and those in the Visayas at P244 million or 21.3 percent.

As of end-March 2005 capital

adequacy ratio (CAR) was at 13.6 percent. Although lower than the 14.0 percent at end-December 2004, the industry still complied with the 10 percent minimum requirement under BSP Circular No. 280. To note, the shift to risk-based supervision encourages cooperative banks, in step with the entire banking system, to prudently manage their risk.

Meanwhile, compliance of the

cooperative banking industry to the minimum amount of capital was

satisfactory at 84.1 percent (37 out of 44 banks). There were also 7 banks (or 15.9 percent of the total cooperative banks) which failed to meet the prescribed 10 percent capital adequacy ratio. Consistent with BSP policy on merger and consolidation, these smaller and weaker banks are encouraged to merge/consolidate to stay viable.

Cooperative Banking SystemStatus of Banks' Compliance with the Minimum Amount of CapitalAs of End-June 2005

A. Number of Operating Banks 44

Cooperative Banks - National Cooperative Bank -

- Within Metro Manila 2

- Cities of Davao and Cebu -

- Other Cities - 1st Cooperative bank in province located in a city 42

- Others -

B. Banks with Capital (K) Equal to or in Excess of the Minimum Required

Cooperative Banks - National Cooperative Bank (K ³ P200.0M) -

- Within Metro Manila (K ³ P20.0M) 2 - Cities of Davao and Cebu (K ³ P10.0M) -

- Other Cities - 1st Cooperative bank in province located in a city(K ³ P1.25M 35

- Others -

37

Cooperative Banking SystemComparative CAR Under Circular No. 280

2003 2004

(In P Billion)

0.5 0.6 0.6

0.1 0.1 0.1

. . . . . . . . .

0.7 0.7 0.7

4.6 5.2 5.4

(In Percent)

14.6 14.0 13.6

Solo


Tier 1

Tier 2

Deductions

Qualifying Capital

End-December End-March 2005

. . . Less than P50 milliona / Data as of end-June 2003


a/



NON-BANKS WITH QUASI-BANKING FUNCTIONS (NBQBS)

OVERVIEW

The performance of the NBQBs was marked with improved profitability, liquidity and

asset quality during the first half of 2005. Fueled by a 175.3 percent rise in borrowed funds through bills payable, the industry was able to buildup on liquid assets, loans and investments that contributed to a robust expansion in total assets by 60.1 percent to P43.3 billion. This was a turnaround after trending downward by 16.6 percent a year ago (Table 36). Majority of the industry’s total assets was held by investment houses (IHs) with QB licenses at 84.6 percent or P36.6 billion. Whereas, financing companies (FCs) with QB licenses accounted for the remaining 15.4 percent or P6.7 billion.

During the first semester of 2005, the industry reported a two-fold increment in net

income after tax (NIAT) of 229.7 percent to P1.2 billion, a reversal over the 74.0 percent contraction posted over the same period last year. Both interest and non-interest based income expanded by 55.9 percent and 71.1 percent, respectively. At the same time, a 0.5 percent marginal reduction in operating expenses ensued. This favorably reduced the annualized cost-to-income ratio to 36.5 percent, the lowest posted by the industry so far. Other profitability ratios such as the 5.9 percent annualized return on assets (ROA) and the 13.0 percent annualized return on equity (ROE) reflected healthy earnings picture. Except for two IHs and one FC, all NBQBs reported positive bottom line figures.

The industry beefed up its liquid assets particularly in government securities, raising

the liquid assets to bills payable ratio to 71.9 percent from year ago’s 57.9 percent. The NBQBs continued to improve on loan and asset quality, reducing non-performing

loans (NPLs) and non-performing assets (NPAs) by 22.7 percent and 5.5 percent, respectively. Consequently, the NPL and NPA ratios at 3.9 percent and 5.0 percent, respectively, were manageable than similar ratios on all major banking categories. Two (2) NBQBs disposed P17 million (P2 million NPLs and P15 million ROPOA) worth of bad assets under the SPV Act of 2002.

During the period, the main source of funds dramatically shifted to borrowings from

stockholders’ equity. Total liabilities accounted for 63.4 percent (up from 41.9 percent a year ago) of the total funding mix and had overtaken the 36.6 percent (down from 58.1 percent) share of total capital accounts. (Tables 36 and 37)

An IH dominated the industry as it held 56.6 percent (or P24.5 billion) of total assets.



OPERATING NETWORK

There were 12 operating NBQBs – 6 IHs, 5 FCs plus another NBFI with QB function. Together with their 19 branches/other offices, the total number of NBQB offices as of mid-2005 stood at 31. (Schedule 1)


Profitability of the NBQB industry improved greatly on account of trading gains, particularly from private equities and securities, and net interest income.

Meanwhile, expansions in lending and investments, as well as simultaneous

improvements in loan and asset quality, boosted net interest income (inclusive of leasing income) by 55.9 percent to P0.8 billion over the same period last year. Although interest expenses soared by 117.1 percent following higher borrowings, this was surpassed by the larger growth of 120.2 percent in interest income.

Non-interest income was up by 71.1 percent to P0.8 billion for the first half of 2005

following a 46.3 percent contraction posted over the same period last year. This transpired as the industry’s trading income expanded by 30.4 percent to P0.5 billion, spurred by the three-fold 312.5 percent increase in gains from trading private equities, commercial papers and securities. Fee-based income likewise further rose by 17.8 percent to P0.4 billion. Moreover, losses from what would have been other sources of income tapered off by 83.7 percent, lessening the pressure on non-interest income. (Table 38)

The gains from sale of acquired assets significantly rose to P414.9 million for the six-

month period ended 30 June 2005 against the P4.4 million posted over the same period last year. This boosted extraordinary credits by 111.0 percent to P0.5 billion from P0.2 billion. Thereafter, net income after tax (NIAT) surged by 147.6 percent to P1.4 billion from P0.6 billion. Net of a P0.2 billion income tax provision, the industry’s bottom line figure tripled to P1.2 billion from P0.4 billion.

The improved profitability reflected higher annualized ROA and ROE of 5.9 percent

and 13.0 percent, respectively. The industry surpassed its highest recorded ROA at 4.5 percent in year 2003 and ROE at 9.5 percent in year 2001.

The IHs were the main income earners with 83.4 percent (or P1.3 billion) share of the

NBQBs’ total operating income. FCs contributed the remaining 16.6 percent (or P0.3 billion). Most of the revenues of IHs came from non-interest income, particularly from trading securities. Trading gains substantially made up 57.0 percent of non-interest income.

Expenses were also curbed. The double-digit decline in provisions for probable losses

by 83.2 percent more than compensated for the 35.5 percent increment in other operating



expenses particularly in overhead costs. This slightly cut operating expenses by 0.5 percent to P0.6 billion.

The closure of a certain IH in 2000 brought about a negative effect on the NBQB industry as shown by the higher interest spread between the funding cost and 91-day T-bill rate at about 226 basis points. The pressure extended to years 2002 and 2003 when the premia on the borrowing activities of NBQBs over the T-bill rate averaged at 144 basis points and 16 basis points, respectively. Investors’ confidence returned in 2004 when funding cost was 134 basis points lower than the 91-day T-bills, only to dwindle to merely 5 basis points in the first semester of 2005.

Non-Banks with Quasi-Banking Functions (NBQBs) Selected Ratios vs. 91-day Treasury Bill Rate

10.4 9.18.5

10.7

18.1

28.4

14.7

7.0

6.06.2

6.99.8

12.1

7.1

7.17.3

6.05.4

9.9

9.9

10.2

0.0

5.0

10.0

15.0

20.0

25.0

30.0

1999 2000 2001 2002 2003 2004 June 2005*


(In Percent)


On the other hand, earning asset yield ratio was consistently above the 91-day T-bill

rate. Interest rate differential rose to 381 basis points for the first half of 2005 from 172 basis points in 2004. However, this was still below the 1,855 basis points differential chalked up in end-2000. The annualized earning asset yield for the period ended 30 June 2005 at 10.4 percent was better than the 9.7 percent posted over the same period last year as loan and asset

quality improved. All told, the annualized interest

spread widened to 3.4 percent over the same period last year at 0.7 percent and year 2004’s 3.1 percent.

Effective cost-reduction measures

brought down the annualized cost-to-income (CTI) ratio to 36.5 percent from 60.5 percent same period last year. This transpired as operating income expanded

Non-Banks with Quasi-Banking Functions (NBQBs) Cost-to-Income Ratio

0.0

1.0

2.0

3.0

4.0

5.0

1999 2000 2001 2002 2003 2004 June2005

0.0

20.0

40.0

60.0

80.0

Operating Income


Cost to Income




by 75.5 percent, outpacing the 5.9 percent growth in operating expenses (exclusive of bad debts and loss provisions). Inclusive of bad debts and loss provision, the annualized CTI ratio still reflected improvement to 38.0 percent from 62.5 percent. FCs with QB with CTI ratio of 30.6 percent (from 34.0 percent last year) remained more efficient than IHs with QB. On the other hand, IHs with QB showed significant improvement as the sub-group’s CTI ratio was down to 37.8 percent (from 71.3 percent).


ASSETS. The industry’s total assets picked up anew, this time by a sizeable 60.1 percent or P16.2 billion to P43.3 billion from year ago’s P27.1 billion. The rebound, which started in 2004, ensued following downtrends since end-year 2002. The upswing was traced partly to the two-fold expansion in cash and due from banks at 201.5 percent to P2.9 billion from P1.0 billion. Other asset components which posted year-on-year growths were investments, net by 110.5 percent or P10.1 billion, loans (exclusive of interbank receivables), net by 46.6 percent or P4.8 billion, and ROPOA, net by 6.2 percent or P0.1 billion. On the other hand, declines in interbank lendings and other assets by 33.1 percent or P0.3 billion and 8.6 percent or P0.4 billion, respectively, failed to drive down total assets.

Non-Banks with Quasi-Banking Functions (NBQBs): Balance Sheet Structure

2002 2003 2004 2004 2005

100.0 % 100.0 % 100.0 % 100.0 % 100.0 %

Cash and Due from Banks 3.3 % 6.6 % 4.5 % 3.6 % 6.8 %Interbank Loans Receivable (IBL) 5.3 % 5.4 % 3.1 % 2.9 % 1.2 %Loans, net 25.3 % 40.9 % 34.9 % 37.8 % 34.7 %Investments, net 32.4 % 26.4 % 40.3 % 33.8 % 44.4 %ROPOA, net 6.0 % 4.6 % 4.1 % 4.7 % 3.1 %Other Assets 27.7 % 16.2 % 13.1 % 17.2 % 9.8 %

100.0% 100.0% 100.0% 100.0% 100.0%Liabilities 45.8 % 42.3 % 51.6 % 41.9 % 63.4 % Bills Payable 28.5 % 36.1 % 45.0 % 32.8 % 57.1 % Deposit Substitutes 13.3% 11.4 % 33.3% 14.6 % 48.7 % Others 15.2% 24.8 % 11.7% 18.2 % 8.4 %

Other Liabilities 17.3 % 6.2 % 6.6 % 8.7 % 6.3 %

Total Capital Accounts 54.2 % 57.7 % 48.4 % 58.1 % 36.6 % Capital Stock 18.2 % 30.0 % 26.7 % 32.0 % 21.4 % Surplus, Surplus Reserves & Undivided Profits 36.0 % 27.7 % 21.7 % 26.1 % 15.2 %

End-JuneEnd-DecemberMajor Accounts

Total Assets


With the industry’s significant 110.5 percent expansion in investments, net, the share

of investments to total assets jumped to 44.4 percent from year ago’s 33.8 percent. Investments, net now hold the top asset component replacing loans, net which slid to 34.7 percent from 37.8 percent. Meantime, the redoubling of cash and due from banks jacked up its share to total assets to 6.8 percent from 3.6 percent. The remaining asset mix were: other



assets at 9.8 percent (from 17.2 percent), ROPOA, net at 3.1 percent (from 4.7 percent), and interbank loans at 1.2 percent (from 2.9 percent).

Propelled by substantial increment in cash and due from banks (201.5 percent) and

government securities (286.3 percent), liquid assets of the NBQB industry soared by 241.8 percent or P12.6 billion to P17.8 billion from year ago. Even as bills payable posted strong growth of 175.3 percent or P15.7 billion during the year, liquid assets to bills payable ratio managed to improve to 71.9 percent from end-June 2004’s 57.9 percent. Likewise, the rise in cash and due from banks to bills payable ratio to 11.9 percent from last year’s 10.9 percent supported the rallying liquidity position of the industry.

LOANS. The industry’s gross

loan exposure rose by 34.8 percent or P4.2 billion to P16.3 billion from year ago’s P12.1 billion (Table 39). Together with the 22.7 percent cut in NPLs to P0.6 billion, this set off an improvement in loan quality. Apart from the decline in NPL ratio to 3.9 percent from 6.8 percent a year ago, NBQBs held the best loan quality compared with all the banking industries.

With lower NPLs, the industry

was able to reduce loan loss reserves (LLRs) during the period. As of the end of the first half of 2005, total LLRs dropped by 30.6 percent to P0.7 billion from year ago’s P1.0 billion. Nonetheless, NPL coverage ratio was more than adequately maintained at a triple-digit of 112.9 percent from 125.7 percent.

The NBQBs’ effort to improve asset quality was also evident in the 16.6 percent rise in

gross restructured loans to P0.3 billion, and the 31.8 percent decrease in past due loans to P0.4 billion.

The double-digit decline in NPLs

provided cushion to the level of bad assets even as ROPOA, gross inched up by 3.6 percent to P1.6 billion from end-June 2004’s P1.5 billion. Hence, the industry managed to post NPAs at P2.2 billion, 5.5 percent lower from year ago’s P2.4 billion. This yielded the best asset quality picture of the industry as NPA ratio dropped to 5.0 percent, eclipsing even the 6.1 percent posted at end-December 2004.

Non-Banks with Quasi-Banking Functions (NBQBs) NPLs and NPL Coverage Ratio

-

1.0

2.0

1999 2000 2001 2002 2003 2004 June 2005

In P Billion

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

In Percent


Non-Banks with Quasi-Banking Functions (NBQBs) NPAs and NPA Coverage Ratio

-

2.0

4.0

6.0

1999 2000 2001 2002 2003 2004 June 2005

In P Billion

0.0

20.0

40.0

60.0In Percent




The decline in both loan loss reserves and allowance for ROPOA set off lower allowance on NPAs by 26.2 percent to P1.0 billion from year ago’s P1.3 billion. Consequently, the NPA coverage ratio went down to 42.6 percent from 54.5 percent.

LIABILITIES. Additional funding largely came from bills payable, which swelled by

175.3 percent to P24.7 billion from P9.0 billion a year ago. As of end-June 2005, its share to the industry’s funding source rose to 57.1 percent from 32.8 percent.

Deposit substitutes consistently captured the lion’s share of total liabilities at 76.9

percent, followed by other bills payable at 13.2 percent. The remaining 9.9 percent (or P2.7 billion) came from other liabilities such as advances from stockholders.

CAPITAL ACCOUNTS. Capital infusion was the primary source of capital funds,

providing a marginal growth in total capital accounts by 0.8 percent to P15.9 billion from year ago’s P15.7 billion. Stockholders infused additional capital worth P0.6 billion (or 6.5 percent) to P9.3 billion, amidst the P0.4 billion (or 6.5 percent) drop in surplus, surplus reserves and undivided profits to P6.6 billion.

The said growth in capital accounts was however extremely outpaced by the 60.1

percent rise in assets. This brought the total capital accounts to total assets ratio down to 36.6 percent from year ago’s 58.1 percent and may still be considered adequate.



NON STOCK SAVINGS AND LOAN ASSOCIATIONS (NSSLAS)

OVERVIEW

The non-stock savings and loan associations (NSSLAs) remained resilient amidst

continuing challenges in the economic and political front in the latter part of the semester. The industry managed to chalk up expansions in major balance sheet accounts such as loans, liquid assets, deposits and capital accounts, albeit at slower growth rates. Moreover, sound solvency and liquidity positions compensated for the persistent waning of loan and asset quality of the industry.

Total assets rose by 6.0 percent to P67.1 billion from end-June 2004’s P63.3 billion.

While still on an uptrend, there was a noticeable deceleration in growth compared with the double-digit expansions at 13.6 percent and 12.8 percent in years 2002 and 2003, respectively. Likewise, the build-up on capital softened to 5.1 percent from year ago in contrast with the growth rate at 15.8 percent in 2002 and 14.2 percent in 2003 (Table 40). As of the end of the first semester of 2005, NSSLAs’ total capital stood at P59.1 billion.

The industry remained highly solvent even if the industry’s capital to assets ratio slid

by 0.7 percentage point to 88.0 percent from 88.7 percent a year ago. Loan and asset quality remained the Achilles’ heel of the NSSLAs industry. The NPL

ratio rose anew to 17.1 percent from 16.8 percent as of end-June 2004. Likewise, the NPA ratio went up to 14.3 percent from year ago’s 14.1 percent.

The primary liquidity position grew stronger, with the ratio of cash and due from

banks to deposits at 133.4 percent from 104.5 percent at mid-2004. On the other hand, the liquid assets to deposits ratio settled to 151.7 percent from 202.3 percent as investments were pared by 4.0 percent. Nonetheless, the industry has more than enough liquidity to settle the withdrawal of all deposits.

Members’ contributions, especially paid-in capital, continued to be the major source of

funding comprising 88.0 percent of total funding source, while loans still comprised the bulk of fund usage at 79.2 percent of total assets.

OPERATING NETWORK

One (1) NSSLA was closed during the first half of 2005, bringing down the number of

NSSLAs to 119 offices (82 head offices and 37 branches) from end-December 2004’s 120 (83 head offices and 37 branches). (Schedule 1)




ASSETS. Driven by the P2.9 billion influx of fresh funds from members and the P0.9

billion rise in borrowed funds, the industry’s total resources expanded by 6.0 percent to P67.1 billion from end-June 2004’s P63.3 billion. The fresh funds, together with the disposal of other assets and investments, net worth P1.0 billion, were channeled to cash and due from banks (P2.0 billion) and loans (P2.8 billion).

Cash and due from banks registered the highest increment, posting a 44.5 percent

increase to reach P6.6 billion from P4.6 billion from year ago. This account held on as the second biggest bloc (at 9.8 percent from year ago’s 7.2 percent) of total assets.

While loans, net remained the biggest component of total assets at 79.2 percent (from

end-June 2004’s 79.5 percent), the stock of foreclosed assets consistently held the lowest share of ROPOA, net at 0.5 percent. Meanwhile, investments, net and other assets shrank to 6.2 percent (from 6.8 percent) and 4.3 percent (from 6.0 percent), respectively, of total assets.

Spurred by growths of 13.2 percent and 12.2 percent in deposits and other liabilities,

respectively, total liabilities posted a 12.4 percent increase to P8.1 billion from year ago’s P7.2 billion. Despite said double-digit increase, total liabilities still remain a minor source of the industry’s total funds at 12.0 percent (from last year’s 11.3 percent).

Non-Stock Savings and Loan Associations (NSSLAs): Balance Sheet Structure

2002 2003 2004 2004 2005


100.0% 100.0% 100.0% 100.0% 100.0%Liabilities 12.1 % 11.0 % 11.8 % 11.3 % 12.0 %

Deposits 6.8 % 6.4 % 7.2 % 6.9 % 7.3 %Bills Payable 0.7 % 0.6 % 0.6 % 0.6 % 0.6 %Other Liabilities 4.7 % 4.0 % 4.0 % 3.8 % 4.1 %

Capital Accounts 87.9 % 89.0 % 88.2 % 88.7 % 88.0 %Paid-In Capital 78.6 % 80.7 % 80.5 % 83.0 % 81.7 %Surplus and Reserves 9.3 % 8.3 % 7.6 % 5.7 % 6.3 %

Major AccountsEnd-JuneEnd-December

Total Assets




Capital accounts remained the main provider of funds at 88.0 percent (from 88.7 percent), of which members’ capital contribution comprised the biggest slice at 81.7 percent (from 83.0 percent). Surplus and reserves held the remaining 6.3 percent share (from 5.7 percent).

LOANS. Consistent with the

industry’s asset trend, total loans showed a gradual decelerated growth rates to 6.8 percent as of end-June 2005 from 16.8 percent in 2002. Total loan portfolio rose to P59.7 billion as of mid-2005 from P55.9 billion at end-June 2004. Meanwhile, NPLs grew by 8.6 percent to P10.2 billion, and unfavorably raised the NPL ratio to 17.1 percent from 16.8 percent at end-June 2004 and 15.3 percent at end-year 2004. Notwithstanding, the growth in

problem loans was still a lot lower than year ago’s 170.4 percent growth rate. (Table 41) To minimize vulnerability, the industry provided an additional 17.6 percent allowance

for probable losses on loans, raising total loan loss reserves to P6.6 billion from P5.6 billion a year ago. As a result, the NPL coverage ratio strengthened to 64.2 percent from 59.3 percent.

Corresponding the rise in

problem loans was the 10.5 percent expansion in foreclosed assets. Together with the 8.6 percent increment in NPLs, the NPA level grew by 8.7 percent to P10.5 billion from P9.7 billion a year ago. This further brought the NPA ratio slightly up at 14.3 percent from year ago’s 14.1 percent.

Nevertheless, the industry

enhanced its NPA coverage ratio to 62.3 percent from end-June 2004’s 57.5 percent

DEPOSIT LIABILITIES. Deposit liabilities (i.e., savings and time deposit accounts)

rose by 13.2 percent to P4.9 billion from year ago’s P4.4 billion. This propped up its share in the total funding sources to 7.3 percent from end-June 2004’s 6.9 percent.

Savings deposits accounted for the bulk of the industry’s deposit liabilities at 93.3

percent (slightly up from year ago’s 91.2 percent). The rest came from time deposits at 6.7 percent (down from 8.8 percent).

Non-Stock Savings and Loan Associations (NSSLAs) NPLs and NPL Coverage Ratio

-

2.0

4.0

6.0

8.0

10.0

1999 2000 2001 2002 2003 2004 June 2005

In P Billion

0.0

25.0

50.0

75.0

100.0In Percent


Non-Stock Savings and Loan Associations (NSSLAs)

NPAs and NPA Coverage Ratio

-

2.0

4.0

6.0

8.0

10.0

1999 2000 2001 2002 2003 2004 June 2005

In P Billion

0.0

25.0

50.0

75.0

100.0In Percent




CAPITALIZATION. The industry managed to sustain capital uptrend, posting a 5.1

percent year-on-year expansion. Total members’ equity grew to P59.1 billion from P56.2 billion. Consistently, total capital accounts was the largest source of funding settling at 88.0 percent from a high of 89.0 percent at end-year 2003.

Further breakdown disclosed that paid-in contributions of members comprised the

bulk (at 92.8 percent) of total capital accounts and the balance (at 7.2 percent) made up of undistributed profits.



OFFSHORE BANKING SYSTEM

OVERVIEW

The offshore banking system’s total resources registered a phenomenal growth of 113.9 percent at end-June 2005, a sharp reversal of the 4.7 decline at end-June 2004. At US$1,258 million, total resources were higher by US$670 million from US$588 million, same period last year. Likewise, net income after tax (NIAT) for the six-month period ended-June 2005, at US$3 million, was higher by 50.0 percent. (Tables 42 and 43) The number of offshore banking units (OBUs) operating in the country remained at nine (9), consisting of 5 originating from Europe, 3 from America and 1 from Asia.


For the six-month period ended 30 June 2005, operating income increased by 37.5

percent or US$3 million to US$11 million, breaking a downward trend which started in 2001. Non-interest income contributed 63.6 percent (US$7 million) to total operating income while interest income contributed only 36.4 percent (US$4 million). Other income, which rose by 300 percent or US$3 million, accounted for the increase in operating income. Meanwhile, overhead expenses were maintained at US$2 million. However, a US$2 million rise in

operating expenses scaled down operating income. Overhead expenses were maintained at US$2 million, but other expenses increased by US$1 million. Another US$1 million were provided for probable losses. As a consequence, cost-to-income ratio, was almost unchanged at 63.3 percent (vs. 63.2 a year ago). The hefty 113.9 percent expansion in the systems’ total assets, along with improved results of operations, slightly pushed up return on assets (ROA) ratio to 0.7 percent from 0.3 percent a year ago. (Table 43)


OBUs boosted their presence in the country as shown by the expansion of their total resources to US$1,258 million from US$588 million same period last year. With limited authority to accept deposits, due to head office/other branches, the main source of funding

Offshore Banking System: Cost-to-Income Ratio

0.0

10.0

20.0

30.0

40.0

50.0

1997 1998 1999 2000 2001 2002 2003 2004 June2005

20.0

35.0

50.0

65.0

80.0

95.0

Operating Income


Cost to Income




soared by 98.1 percent to US$713 million from US$360 million. This accounted for 56.7 percent of the systems total liabilities. Meanwhile, other liabilities, the second largest source of funding ballooned to US$339 million from US$21 million. The expansion was traced to notes issued to foreign entities. Likewise, interbank borrowings rose by 1.1 percent to US$187 million. On the other hand, deposits of non-residents other than banks continued to drop by 13.6 percent to US$19 million from US$22 million.

Of the US$1,291 million gross assets of OBUs, 35.9 percent or US$463 million were

channeled to residents. Funds lent to resident-borrowers amounted to US$296 million (up by 39.0 percent from year ago). Meanwhile, bonds and other securities issued by residents amounted to US$39 million (up by 289.6 percent). On the other hand, local banks, including the Bangko Sentral ng Pilipinas borrowed US$121 million (down by 13.2 percent) from OBUs. All other assets amounted to US$7 million (down by 53.8 percent).

The greater bulk of OBU funds was in non-resident assets at 64.1 percent or US$828

million, as follows: investments in bonds and other securities – US$444 million (up by 85.4 percent), loans – US$367 million (up by 1,464.4 percent), all other assets US$16 million (up by 100 percent) and due from banks – US1 million (down by 98.0 percent). Of the total loans (gross), 55.3 percent or US$367 million were granted to non-residents.

Noticeably, the rise in the investment in bonds and other securities and the decline in

the due from banks were almost compensatory. Proceeds of matured placements in banks were channeled to investment in bonds and other securities.

Offshore Banking System: Selected Asset Accounts

Securities

In US$ Million

121

296

39

1

367

444

050

100150200250300350400450500

Due from Banks Loans Inv't in Bonds/Securities

In US$ Million

140

1023

240

0

50

100

150

200

250

300

Due from Banks Loans Inv't in Bonds/ Securities

In US$ Million

245

Outside the Phils. (Non-Resident) In the Phils. (Resident)

June 2004 June 2005

213



Non-resident borrowers were now the main beneficiaries of lending activities of OBUs. Of the total S$664 million loans, gross, 55.3 percent or US$367 million (vs. 9.7 percent or US$23 a year ago) were lent to non-resident borrowers. The remaining 44.7 percent or US$296 million (vs. 90.3 or US$213 million) were channeled to resident borrowers.

All major industry sectors

reduced their share in the total loans to residents except the Manufacturing sector which captured the bulk of the loans with a share of 55.4 percent or US$164 million (from year ago’s 34.7 percent or US$74 million. The Transportation, Storage and Communications sector followed with 12.2 percent or US$36 million (from 18.3 percent or US$39 million). The Electricity, Gas and Water sector came in third with 11.5 percent or US$34 million (from 14.1 percent or US$30 million).

The rest of the industry sectors

and their share in the loan portfolio were: Financial Intermediation sector – 2.4 percent or US$7 million, (from 3.3 percent or US$7 million), Agriculture, Fishery and Forestry sector – 1.0 percent or US$3 million (from 2.3 percent or US$5 million, and Mining and Quarrying sector – 0.7 percent or US$2 million (from 3.3 percent or US$7 million).

There was a shift in the maturity profile of OBU loans to residents. The bulk of OBU

lendings to residents were short-term at 65.9 percent or US$195 million (from 33.8 or US$72 million). Loans with long-term maturity were 18.5 percent or US$55 million (from 39.9 percent of US$85 million). The remaining 15.6 percent or US$46 million (from 26,3 percent or US$56 million) were medium-term.

June 200555.4%

12.2%

11.5% 2.4%1.0%

16.8%

June 2004

34.7%

18.3%14.1%

3.3%

3.3%

24.0%

2.3%

$ 296 Million

$ 213 Million

Offshore Banking SystemLoan Portfolio StructureBy Industry Sector

16.8%

11.5%

2.4%

55.4%

12.2%

1.0%

0.7%

24.0%

14.1%

3.3%

3.3%

18.3%

2.3%

34.7%

0.7%


Agriculture, Hunting & Forestry

Others

Manufacturing

Mining and Quarrying



20052004

June



TRUST OPERATIONS

OVERVIEW

The trust services industry remained resilient amidst the political and economic challenges that confronted the economy during the latter half of 2004 and the first half of 2005. Marked by an 11.7 percent growth in net operating income and a 15.7 percent rise in liquid assets, trust entities showed better profitability and liquidity. As of end-June 2005, total trust assets and accountabilities stood at P828.4 billion, posting a 13.6 percent growth (almost entirely from universal and commercial banks’ increased operations) from P729.5 billion a year ago. Increasingly competing with deposit products, banks’ and non-banks’ accountabilities from trust services were equivalent to 28.3 percent of deposit liabilities, slightly higher than last year’s 28.1 percent. Meanwhile, a closer look at banks with trust licenses revealed that their peso-denominated trust accountabilities were equivalent to 36.1 percent of their local currency deposit liabilities.

Universal and commercial banks continued to dominate the market, and at an increasing rate. After expanding by 14.1 percent to P798.5 billion, universal and commercial banks now held 96.4 percent of industry total, up from 95.9 percent a year ago. Thrift banks reduced their share to 2.7 percent or P22.4 billion (from 3.2 percent or P22.9 billion), while investment houses comprised the remaining 0.9 percent. (Schedule 4) The industry improved profitability as shown by higher returns on managed funds and better cost-efficiency. For the 12-month-period ended 30 June 2005, the average return on trust accountabilities was the same as year ago’s 0.5 percent while cost-to-income ratio improved to 27.4 percent (from 33.0 percent). During the first half of 2005, total income

Trust System: Market Structure of Assets

NBFIs 0.9%

Universal and Conmercial Banks95.9%

Thrift Banks3.2%

June 2004P729.5 Billion


NBFIs 0.9%

Universal and Conmercial Banks96.4%

Thrift Banks2.7%



(mostly from fees and commissions) was recorded at P2.7 billion while trust department expenses aggregated to P0.7 billion. The industry’s liquidity position also improved despite the slight decline in the share of cash and due from banks to total accountabilities to 11.3 percent from 11.4 percent. The increase in other liquid assets brought the liquid assets to total accountabilities ratio to 80.8 percent from 79.3 percent a year ago. Investments in government securities alone climbed by P57.7 billion to P444.0 billion, contributing to the 15.7 percent rise in liquid assets to P669.6 billion (from P578.6 billion last year). (Tables 44 and 45) Trust and other fiduciary accounts (TOFA) funded majority or 51.9 percent of total trust assets, while common trust funds (CTF)/unit investment trust funds (UITF) contributed 31.2 percent. The remaining 16.8 percent came from investment management accounts (IMA). (Schedule 4a)

OPERATING NETWORK

As of end-June 2005, a total of 59 financial institutions (33 universal and commercial banks, 17 thrift banks and 9 investment houses) were authorized to engage in trust operations. Of the 59, however, only 51 (32 universal and commercial banks, 11 thrift banks and 8 investment houses) had outstanding trust assets/accountabilities.


The trust business remained profitable despite the slow growth in operating income.

From a 42.5 percent growth posted in 2002, net earnings from trust operations grew at a slower pace of 29.4 percent and 15.7 percent in years 2003 and 2004, respectively. During the first half of 2005, total trust department operating income grew only by 11.7 percent to reach P2.0 billion (from P1.8 billion same period last year), ensuing to a 0.5 percent return on total trust accountabilities.

The continued expansion in operations and improvements in cost efficiency augured

well for the trust industry. Total trust income grew by 14.4 percent to P2.7 billion from P2.4 billion. Whereas, cost-to-income ratio posted a favorable downtrend to 27.4 percent for the one year period ended 30 June 2005 from 34.1 percent in 2003.

As in year 2004, trust operations of universal and commercial banks were the most

profitable. After trailing thrift banks in 2002 and 2003, the universal and commercial banks had the highest return on trust accountabilities ratio at 0.5 percent in 2004 and for the one year period ending June 2005. Similar ratio for thrift banks and investment houses stood at 0.3 percent and 0.2 percent, respectively. Their cost-to-income ratio was also significantly lower at 26.7 percent vis-à-vis the 45.9 percent of thrift banks and 58.3 percent of investment houses.



Notwithstanding the decline in their trust funds, thrift banks still posted the highest

growth in total income at 17.0 percent (vs. universal and commercial banks’ 14.8 percent and investment houses’ negative 27.3 percent). On the other hand, the trust operations of investment houses reported a 27.3 percent decline in total trust income despite the 11.8 percent increase in their trust accountabilities.


ASSETS. Fueled by the 23.4 percent and 28.1 percent rise in TOFA and IMA accounts, the trust industry’s total assets expanded, albeit at a decelerated rate. From 27.0 percent in 2002, 18.5 percent in 2003 and 15.0 percent in 2004, total trust assets rose by 13.6 percent to P828.4 billion from year ago’s P729.5 billion.

Investments in government securities continued to form bulk of the industry’s total assets, increasing by 14.9 percent to reach P444.0 billion. With the falling interest rate environment during the first half of the year, government securities remained the most preferred investment option for trust entities, followed by private instruments and stocks. Both accounts grew to 53.6 percent (from 52.9 percent) and 16.0 percent (from 15.0 percent) of total assets, respectively.

All three major fund categories followed the same investment pattern of favoring government securities as the best venue to place most of their assets. While TOFA and IMA fund managers preferred private debt and equity instruments as the second most ideal, CTF/UITF managers opted for cash and bank placements, making it the most liquid of the three, with a cash and due from banks to total accountabilities ratio of 16.8 percent and a liquid assets to total accountabilities ratio of 93.2 percent.

Trust System: Asset Mix

Cash & due from banks 11.3%

Loans and Discounts 7.3%

Investments in CTFs 4.3%

Others 5.8%

Investments in Real Estate 1.6%

ROPOA 0.1%

June 2005

P828.4 BillionJune 2004

P729.5 Billion

Cash & due from banks

11.4%

Investments in Private Instruments & Stocks

15.0%

Investments in Gov't Securities

52.9%Loans and Discounts

9.5%

Investments in CTFs 5.3%

Others 4.1%

Investments in Real Estate 1.7%

ROPOA 0.1%

Investments in Gov't Securities

53.6%

Investments in Private Instruments & Stocks

16.0%



Trust entities remained highly liquid with 11.3 percent of assets in cash or due from banks. Together with the 53.6 percent investments in government securities, 4.3 percent in CTFs/UITFs and 11.6 percent in other liquid assets, the industry’s liquid assets to total accountabilities ratio rose to 80.8 percent.

Apart from their strong liquidity positions, trust entities had relatively manageable non-performing loans (NPL) and non-performing assets (NPA) ratios, backed by strong provisions for probable losses. As of mid-2005, the industry’s NPL ratio was reported at 7.0 percent up from 5.0 percent a year ago. Accompanying the 2.0 percentage points climb in NPL ratio, the industry’s NPL coverage ratio strengthened by 10.9 percentage points to 84.7 percent. Real and other properties owned or acquired (ROPOA), net, on the other hand, favorably fell by 14.3 percent to P0.9 billion. With the rise in NPLs overshadowing the improvement in ROPOA, the NPA ratio remained the same as year ago’s 0.7 percent. Meantime, the NPA coverage ratio at 99.3 percent came to a 0.7 percentage point shy from full loss coverage.

ACCOUNTABILITIES. Total funds entrusted to the industry grew by P98.9 billion to P828.4 billion. The 13.6 percent expansion in the industry came mainly from the 28.1 percent and 23.4 percent growths in IMA and TOFA, respectively, that overtook the 5.4 percent reduction in CTFs/UITFs.

Meanwhile, banks’ peso-denominated domestic deposit liabilities expanded by 63.9 percent from year ago. For the first time after 2001, this growth was higher than the 17.8 percent rise in peso-denominated trust accountabilities. As such, the ratio of peso-denominated trust accountabilities to domestic deposits fell to 36.1 percent from 50.3 percent a year ago. This bucked previous rising trend from a low 26.4 percent in 2001. (Table 45)

The trust services industry continued to source most of its funds from TOFA which amounted to P430.1 billion or 51.9 percent of total accountabilities, followed by CTF/UITF

-

100.0

200.0

300.0

400.0

500.0

600.0

700.0

800.0

900.0

2001 2002 2003 2004 Jun 05

IMA

CTF

TOFA

In P Billion

Trust System: IMA, CTF and TOFA Distribution



with P258.8 billion or 31.1 percent and IMA with P139.6 billion or 16.5 percent. Majority of the TOFA accountabilities in turn, were from Personal Trust, Employees’ Benefits Plans under Trust and Pre-need Plans, contributing 15.7 percent, 10.9 percent and 9.4 percent, respectively.

Trust System: Funding Mix

Others Institutional

Trust2.7%Personal

Trust14.7%

CTFs/UITFs37.3%

Administratorship3.7%

Other Accountabilities

1.4%

Escrow 2.2%

Pre-need Plans9.3%

IMA 14.7%

Emp. Benefit Plans 10.6%

June 2004

P729.5 Billion


CTFs/UITFs31.1%

Administratorship3.5%

Other Accountabilities

1.7%

Escrow 2.1%

Pre-need Plans9.4%

IMA16.5%

Emp. Benefit Plans 10.9%

Others Trust & Fiduciary Accounts

6.0%

Others Institutional

Trust3.1%

Personal Trust15.7%

Others Trust & Fiduciary Accounts

3.4%

Personal Trusts, specifically Living Trust Funds, were still on an upward trend which began in 2003. From only P57.3 billion in June 2003, this account more than doubled in two years to P130.0 billion. Since year-end 2004, it has been the primary source of TOFA accountabilities, from being second only to Employees Benefit Plans under Trust as of end-2002.

Following the issuance of the regulations governing the creation, administration and investment/s of UITFs (to completely replace CTFs over time) in September 2004, total CTFs/UITFs fell by 5.1 percent or P14.0 billion to P258.8, for the first time since year 2000. As of end-June 2005, 12 universal and commercial banks reported UITFs amounting to P31.4 billion (12.1 percent of total CTFs/UTIFs). This represented migrations from the CTF to the newly created UITFs account under Circular No. 447 dated 3 September 2004. The remaining CTFs amounted to P227.4 billion (87.9 percent). This was lower by P45.4 or 16.6 percent than last semester’s P272.8 billion. Some P13.0 billion CTFs either winded up or shifted to other suitable trust products. Evidently, some trust products exhibited significant increases, among which were: TOFA – others – 99.8 percent, other institutional trust – 29.4 percent and personal trust – 21.0 percent. (Schedule 4a and Table 45)



LIST OF TABLES

THE PHILIPPINE BANKING SYSTEM TABLE 1 FINANCIAL HIGHLIGHTS TABLE 2 SELECTED PERFORMANCE INDICATORS TABLE 3 REGIONAL PROFILE TABLE 4 DENSITY RATIO TABLE 5 AUTOMATED TELLER MACHINES (ATMS) TABLE 6 PROFITABILITY INDICATORS TABLE 7 COMPOSITION OF OPERATING INCOME, BY BANK TYPE TABLE 8 ASSET QUALITY INDICATORS UNIVERSAL AND COMMERCIAL BANKING INDUSTRY TABLE 9 FINANCIAL HIGHLIGHTS TABLE 10 SELECTED PERFORMANCE INDICATORS TABLE 11 REGIONAL PROFILE TABLE 12 AUTOMATED TELLER MACHINES (ATMS) TABLE 13 BANKS AUTHORIZED TO ENGAGE IN E-BANKING OPERATIONS TABLE 14 PROFITABILITY INDICATORS TABLE 15 ASSET QUALITY INDICATORS

THRIFT BANKING INDUSTRY TABLE 16 FINANCIAL HIGHLIGHTS TABLE 17 SELECTED PERFORMANCE INDICATORS TABLE 18 REGIONAL PROFILE TABLE 19 AUTOMATED TELLER MACHINES (ATMS) TABLE 20 BANKS AUTHORIZED TO ENGAGE IN E-BANKING OPERATIONS TABLE 21 PROFITABILITY INDICATORS TABLE 22 ASSET QUALITY INDICATORS

RURAL BANKING INDUSTRY TABLE 23 FINANCIAL HIGHLIGHTS TABLE 24 SELECTED PERFORMANCE INDICATORS TABLE 25 REGIONAL PROFILE TABLE 26 AUTOMATED TELLER MACHINES (ATMS) TABLE 27 PROFITABILITY INDICATORS TABLE 28 PROFITABILITY INDICATORS, BY REGION TABLE 29 ASSET QUALITY INDICATORS



COOPERATIVE BANKING INDUSTRY TABLE 30 FINANCIAL HIGHLIGHTS TABLE 31 SELECTED PERFORMANCE INDICATORS TABLE 32 REGIONAL PROFILE TABLE 33 PROFITABILITY INDICATORS TABLE 34 PROFITABILITY INDICATORS, BY REGION TABLE 35 ASSET QUALITY INDICATORS NON-BANKS WITH QUASI-BANKING FUNCTIONS (NBQBS) TABLE 36 FINANCIAL HIGHLIGHTS TABLE 37 SELECTED PERFORMANCE INDICATORS TABLE 38 PROFITABILITY INDICATORS TABLE 39 ASSET QUALITY INDICATORS NON-STOCKS SAVINGS AND LOAN ASSOCIATIONS (NSSLAS) TABLE 40 SELECTED PERFORMANCE INDICATORS TABLE 41 ASSET QUALITY INDICATORS OFFSHORE BANKING UNITS (OBUS) TABLE 42 FINANCIAL HIGHLIGHTS TABLE 43 SELECTED PERFORMANCE INDICATORS TRUST OPERATIONS TABLE 44 FINANCIAL HIGHLIGHTS TABLE 45 SELECTED PERFORMANCE INDICATORS TABLE 46 BALANCE SHEET STRUCTURE


Source: Supervisory Data Center (SDC), Supervision and Examination Sector

Table 1. Philippine Banking System: Financial Highlights

2002 2003 2004 2004 2005

Income StatementTotal Operating Income 164.2 174.2 189.4 87.4 108.4

Net Interest Income 96.7 102.9 128.2 60.0 73.7

Non-interest Income 67.4 71.3 61.2 27.4 34.8

Operating Expenses 142.8 143.7 152.0 71.7 83.1

Bad Debts/Provisions for Probable Losses 25.6 23.7 19.7 9.5 12.7

Other Operating Expenses 117.3 120.1 132.3 62.2 70.4

Net Operating Income 21.3 30.4 37.4 15.7 25.3

Extraordinary Credits/(Charges) 6.1 19.1 8.0 5.1 6.1

Net Income Before Tax (NIBT) 27.5 49.6 45.3 20.8 31.4

Provisions for income tax 1.3 9.7 10.3 4.1 6.4

Net Income After Tax (NIAT) 26.2 39.9 35.0 16.7 25.1

Balance SheetTotal Assets 3,475.7 3,661.1 4,024.4 3,874.0 4,332.5

Cash and Due from Banks 332.0 285.1 320.3 324.2 330.8

Interbank Loans Receivable (IBL) 216.7 280.0 260.9 291.6 318.2

Loans, gross (exclusive of IBL) 1,641.1 1,702.3 1,770.4 1,725.7 1,847.3

Allowance for Probable Losses 152.4 160.8 160.9 161.6 151.5

Loans, net (exclusive of IBL) 1,488.1 1,540.9 1,609.5 1,563.5 1,695.8

Investment, net 880.0 990.5 1,249.0 1,118.6 1,373.5

ROPOA, net 206.3 223.5 235.9 233.6 219.9

Other Assets 352.7 341.2 348.7 342.5 394.3

Total Liabilities 3,011.3 3,181.8 3,518.2 3,378.7 3,817.5

Deposits 2,353.5 2,469.2 2,767.1 2,591.9 2,917.4

Bills Payable 357.3 381.0 386.8 461.7 433.8

Special Financing 1.6 1.0 0.7 0.9 0.2

Other Liabilities 299.0 295.4 312.3 275.8 415.2

Unsecured Subordinated Debt - 35.1 51.4 48.5 50.7

Total Capital Accounts 464.5 479.4 506.2 495.4 515.0

1/ Adjusted to net off the account "Due from Head Office" with "Due to Head Office" of branches of foreign banks 2/ Inclusive of the portion of the "Net Due To Head Office" which qualified as capitalr/ Revisedp/ Preliminary data

End-June

Levels (P Billion) p/

1/

2/

r/ r/



Table 2. Philippine Banking System: Selected Performance Indicators

2002 2003 2004 2004 2005

Income StatementTotal Operating Income 15.4 % 6.1 % 8.7 % 1.9 % 24.1 %

Net Interest Income 5.6 % 6.4 % 24.6 % 22.5 % 22.7 %Non-interest Income 33.1 % 5.7 % (14.2 %) (25.6 %) 27.1 %

Operating Expenses 3.7 % 0.6 % 5.7 % 1.2 % 15.9 %Bad Debts/Provisions for Probable Losses 11.2 % (7.5 %) (16.6 %) (25.9 %) 33.6 %Other Operating Expenses 2.2 % 2.4 % 10.2 % 7.2 % 13.2 %

Net Operating Income 374.6 % 42.7 % 22.7 % 5.0 % 61.6 %Extraordinary Credits/(Charges) (46.1 %) 212.3 % (58.3 %) 31.4 % 18.6 %Net Income Before Tax (NIBT) 73.1 % 80.5 % (8.5 %) 10.5 % 51.0 %Provisions for income tax (24.7 %) 667.6 % 7.0 % 71.2 % 54.1 %Net Income After Tax (NIAT) 84.7 % 52.3 % (12.3 %) 1.5 % 50.2 %

Balance SheetTotal Assets 6.6 % 5.3 % 9.9 % 9.8 % 11.8 %

Cash and Due from Banks 10.8 % (14.1 %) 12.3 % 9.2 % 2.0 %Interbank Loans Receivable (IBL) 5.1 % 29.2 % (6.8 %) 8.7 % 9.1 %Loans, gross (exclusive of IBL) 2.2 % 3.7 % 4.0 % 4.5 % 7.0 %

Allowance for Probable Losses 10.0 % 5.5 % 0.0 % 1.5 % (6.3 %)Loans, net (exclusive of IBL) 1.4 % 3.5 % 4.5 % 4.8 % 8.5 %Investment, net 15.8 % 12.6 % 26.1 % 24.4 % 22.8 %ROPOA, net 12.7 % 8.4 % 5.6 % 10.6 % (5.9 %)Other Assets 2.6 % (3.3 %) 2.2 % (5.6 %) 15.1 %

Total Liabilities 7.0 % 5.7 % 10.6 % 10.6 % 13.0 %Deposits 7.0 % 4.9 % 12.1 % 8.3 % 12.6 %Bills Payable 4.0 % 6.7 % 1.5 % 39.6 % (6.0 %)Special Financing (23.9 %) (38.8 %) (33.1 %) (29.4 %) (72.8 %)Other Liabilities 10.7 % (1.2 %) 5.7 % (16.4 %) 50.6 %

Unsecured Subordinated Debt - - 46.2 % 200.0 % 4.7 %Total Capital Accounts 4.6 % 3.2 % 5.6 % 4.1 % 4.0 %

ProfitabilityCost-to-Income Ratio 71.4 % 68.9 % 69.8 % 70.7 % 66.8 %Return on Assets (ROA) 0.8 % 1.1 % 0.9 % 1.1 % 1.1 %Return on Equity (ROE) 5.8 % 8.5 % 7.1 % 8.3 % 8.6 %

Liquidity Cash and Due from Banks to Deposits 14.1 % 11.5 % 11.6 % 12.5 % 11.3 %Liquid Asset to Deposits Ratio 47.6 % 47.9 % 53.2 % 52.1 % 55.0 %Loans (gross) to Deposits 78.9 % 80.3 % 73.4 % 77.8 % 74.2 %

Asset qualityNon-performing Loans (NPL) Ratio 14.6 % 13.8 % 12.5 % 13.6 % 9.3 %Non-performing Loans (NPL) Ratio (exclusive of IBL) 16.6 % 16.1 % 14.4 % 15.9 % 10.9 %NPL Coverage Ratio 50.2 % 51.5 % 58.0 % 51.9 % 68.4 %Non-performing Assets (NPA) to Gross Assets 13.4 % 13.2 % 11.8 % 12.7 % 9.5 %NPA Coverage Ratio 30.1 % 30.9 % 33.2 % 30.6 % 36.6 %Distressed Asset Ratio 27.7 % 27.0 % 25.3 % 27.0 % 21.4 %

Capital AdequaryTotal Capital Accounts to Total Assets 13.4 % 13.1 % 12.6 % 12.8 % 11.9 %Capital Adequacy Ratio (solo basis) 15.5 % 16.0 % 17.4 % 17.0 % 17.1 %

1/ Adjusted to net off the account "Due from Head Office" with "Due to Head Office" of branches of foreign banks 2/ Inclusive of the portion of the "Net Due To Head Office" which qualified as capital3/ End-June ratio annualized based on second half of previous year plus first half of the year4/ Liquid Assets refers to Cash and Due from Banks plus Investment, net (less equity investments, net)5/

r/ Revisedp/ Preliminary dataa/ Data as of end-March 2005

Based on the new framework provided for under Circular No. 280 dated 29 March 2001, formally adopted 1 July 2001; Under Circular No. 360 dated 3 December 2002, adopted 1 July 2003, Universal/Commercial Banks are to incorporate market risks in addition to credit risks

End-June

Growth Rates p/

1/

2/

Selected Ratios

4/

5/

r/

3/

a/

r/



Table 3. Philippine Banking Offices: Regional Profile

7,612 7,624 881 6,743

7,564 7,575 881 6,694

2,642 2,642 105 2,537

3,014 2,958 470 2,488

Region I - Ilocos 380 376 68 308

Region II - Cagayan 214 214 36 178

Region III - Central Luzon 815 805 116 689

Region IV-A - CALABARZON 1,156 1,157 159 998

Region IV-B - MIMAROPA 118 83 22 61

Region V - Bicol 221 213 48 165

110 110 21 89

1,012 1,057 175 882

Region VI - Western Visayas 390 429 84 345

Region VII - Central Visayas 494 499 65 434

Region VIII - Eastern Visayas 128 129 26 103

Mindanao 896 918 131 787

Region IX - Western Mindanao 112 115 17 98

Region X - Northern Mindanao 245 248 48 200

Region XI - Southern Mindanao 238 245 22 223

Region XII - Central Mindanao 168 171 21 150

26 26 4 22

107 113 19 94

48 49 0 49

24 25 25

Europe 14 14 14

7 7 7

Africa 3 3 3

Overseas

Autonomous Region of Muslim Mindanao (ARMM)

North America

Asia-Pacific

Head OfficesTotal

National Capital Region (NCR)

TOTAL

End-December

2004

End-June 2005

Branches/Other Offices

Luzon

CARAGA

Nationwide

Cordillera Autonomous Region (CAR)

Visayas



Table 4. Philippine Banking System: Density Ratio

5 10,886 5 11,017

155 4,162 155 4,222

4 8,088 4 11,921

Region I - Ilocos 3 11,639 3 11,854

Region II - Cagayan 2 14,380 2 14,300

Region III - Central Luzon 6 10,397 6 10,654

Region IV-A - CALABARZON 8 8,432 8 8,619

Region IV-B - MIMAROPA 2 20,925 1 30,487

Region V - Bicol 2 23,222 2 24,040

1 14,015 1 14,047

2 16,559 3 16,041

Region VI - Western Visayas 3 17,191 3 15,931

Region VII - Central Visayas 4 12,125 4 12,071

Region VIII - Eastern Visayas 1 31,651 1 31,766

2 22,267 2 21,874

Region IX - Western Mindanao 2 30,763 2 30,342

Region X - Northern Mindanao 3 12,227 3 12,270

Region XI - Southern Mindanao 5 24,591 5 23,831

Region XII - Central Mindanao 3 17,556 3 17,202

0 88,939 0 90,320

1 22,332 2 21,412

1/ Philippine population based on National Statistics Office (NSO) data

End-June 2005End-June 2004

Banking Offices per

City/Municipality

Luzon

Banking Offices per

City/Municipality

No. of persons1/

served by each Banking Office

No. of persons1/

served by each Banking Office

Nationwide


CARAGA



Visayas

Mindanao



Table 5. Philippine Banking System: Automated Teller Machines (ATMs)

As of end-periods indicated

3,996 4,245 1,473 1,581 5,469 5,826

1,912 2,005 856 901 2,768 2,906

1,138 1,227 368 402 1,506 1,629

Region I - Ilocos 119 131 13 18 132 149 Region II - Cagayan 53 58 3 3 56 61 Region III - Central Luzon 279 312 93 99 372 411 Region IV-A - CALABARZON 518 538 230 247 748 785 Region IV-B - MIMAROPA 24 25 5 5 29 30 Region V - Bicol 86 95 7 8 93 103

59 68 17 22 76 90

Visayas 524 549 171 185 695 734

Region VI - Western Visayas 203 217 51 48 254 265 Region VII - Central Visayas 262 271 118 128 380 399 Region VIII - Eastern Visayas 59 61 2 9 61 70

422 464 78 93 500 557

Region IX - Western Mindanao 66 69 10 11 76 80 Region X - Northern Mindanao 104 114 25 27 129 141 Region XI - Southern Mindanao 123 137 32 37 155 174 Region XII - Central Mindanao 83 91 9 15 92 106

12 14 0 1 12 1534 39 2 2 36 41

Dec '04

On-site Off-site Total

Jun '05Jun '05


Luzon

Dec '04 Dec '04Jun '05

NATIONWIDE


Autonomous Region of Muslim Mindanao (ARMM) CARAGA

Mindanao



Table 6. Philippine Banking System: Profitability Indicators

2002 2003 2004 2004 2005

Total Operating Income 164.2 174.2 189.4 87.4 108.4Net Interest Income 96.7 102.9 128.2 60.0 73.7

Interest Income 198.4 204.6 242.9 114.7 138.5Interest Expenses 101.6 101.8 114.7 54.7 64.9

Non-interest Income 67.4 71.3 61.2 27.4 34.8Fee-based income 21.9 24.3 27.3 12.9 14.6Trading Income 33.8 32.9 15.7 6.4 11.9Trust department income 3.4 4.4 4.7 2.3 2.0Other income 8.5 9.7 13.5 5.9 6.3

Operating Expenses 142.8 143.7 152.0 71.7 83.1Bad Debts/Provisions for Probable Losses 25.6 23.7 19.7 9.5 12.7Other Operating Expenses 117.3 120.1 132.3 62.2 70.4

Net Operating Income 21.3 30.4 37.4 15.7 25.3Extraordinary Credits/(Charges) 6.1 19.1 8.0 5.1 6.1Net Income Before Tax (NIBT) 27.5 49.6 45.3 20.8 31.4Provisions for income tax 1.3 9.7 10.3 4.1 6.4Net Income After Tax (NIAT) 26.2 39.9 35.0 16.7 25.1

Total Operating Income 15.4 % 6.1 % 8.7 % 1.9 % 24.1 %Net Interest Income 5.6 % 6.4 % 24.6 % 22.5 % 22.7 %

Interest Income (20.2 %) 3.2 % 18.7 % 15.1 % 20.8 %Interest Expenses (35.2 %) 0.1 % 12.7 % 8.0 % 18.7 %

Non-interest Income 33.1 % 5.7 % (14.2 %) (25.6 %) 27.1 %Fee-based income 5.1 % 11.2 % 12.5 % 10.7 % 13.5 %Trading Income 80.3 % (2.5 %) (52.4 %) (65.5 %) 85.4 %Trust department income 29.6 % 30.7 % 6.4 % 9.8 % (11.3 %)Other income (1.2 %) 14.3 % 39.3 % 28.8 % 7.5 %

Operating Expenses 3.7 % 0.6 % 5.7 % 1.2 % 15.9 %Bad Debts/Provisions for Probable Losses 11.2 % (7.5 %) (16.6 %) (25.9 %) 33.6 %Other Operating Expenses 2.2 % 2.4 % 10.2 % 7.2 % 13.2 %

Net Operating Income 374.6 % 42.7 % 22.7 % 5.0 % 61.6 %Extraordinary Credits/(Charges) (46.1 %) 212.3 % (58.3 %) 31.4 % 18.6 %Net Income Before Tax (NIBT) 73.1 % 80.5 % (8.5 %) 10.5 % 51.0 %Provisions for income tax (24.7 %) 667.6 % 7.0 % 71.2 % 54.1 %Net Income After Tax (NIAT) 84.7 % 52.3 % (12.3 %) 1.5 % 50.2 %

Earning Asset Yield 7.7 % 7.4 % 8.0 % 7.6 % 8.2 %Funding Cost 3.9 % 3.6 % 3.8 % 3.6 % 3.8 %Interest Spread 3.9 % 3.8 % 4.2 % 4.0 % 4.4 %Net Interest Margin 3.8 % 3.7 % 4.2 % 3.9 % 4.4 %Non-interest Income to Total Operating Income 41.1 % 40.9 % 32.3 % 35.2 % 32.6 %Cost-to-Income Ratio 71.4 % 68.9 % 69.8 % 70.7 % 66.8 %Return on Assets (ROA) 0.8 % 1.1 % 0.9 % 1.1 % 1.1 %Return on Equity (ROE) 5.8 % 8.5 % 7.1 % 8.3 % 8.6 %

1/ Annualized; first semester ratio based on second half of previous year plus first half of the year.2/ Earning Asset Yield refers to the ratio of interest income to average earning assets3/ Funding Cost refers to the ratio of interest expenses to average interest-bearing liabilities4/ Interest Spread refers to the difference between earning asset yield and funding cost5/ Net Interest Margin refers to the ratio of net interest income to average earning assets6/ Cost-to-Income Ratio refers to operating expenses, exclusive of bad debts and provisions to total operating income7/ ROA and ROE refers to the ratio of annualized NIAT to average assets and capital, respectively. r/ Revisedp/ Preliminary Data

First Semester

Selected Ratios

Growth Rates

2/3/

4/5/

6/

Levels (P Billion) r/ p/

7/

7/

1/

r/



Table 7. Philippine Banking System: Composition of Operating Income, By Banking Type

2002 2003 2004 2004 2005

TOTAL OPERATING INCOME 100.0% 100.0% 100.0% 100.0% 100.0%

NET INTEREST INCOME

All Banks 58.9% 59.1% 67.7% 64.8% 67.4%

Domestic Banks 58.7% 58.8% 66.1% 63.7% 66.9%

Private Domestic UBs 49.1% 50.0% 60.1% 56.4% 61.7%

Private Domestic KBs 59.4% 60.8% 71.0% 69.2% 70.9%

Government Banks 78.8% 78.4% 78.9% 79.3% 77.8%

Thrift Banks 75.2% 73.7% 76.6% 74.7% 77.7%

Rural Banks 66.5% 69.6% 70.6% 70.5% 70.2%

Cooperative Banks 51.7% 53.0% 51.4% 52.1% 50.9%

Foreign Bank Branches/Subsidiaries 59.8% 60.4% 76.3% 70.0% 70.0%

Foreign Bank Branches 59.4% 59.6% 76.2% 69.9% 69.6%

Foreign Bank Subsidiaries 63.9% 66.8% 76.6% 71.0% 73.5%

NON-INTEREST INCOME

All Banks 41.1% 40.9% 32.3% 35.2% 32.6%

Domestic Banks 41.3% 41.2% 33.9% 36.3% 33.1%

Private Domestic UBs 50.9% 50.0% 39.9% 43.6% 38.3%

Private Domestic KBs 40.6% 39.2% 29.0% 30.8% 29.1%

Government Banks 21.2% 21.6% 21.1% 20.7% 22.2%

Thrift Banks 24.9% 26.3% 23.4% 25.3% 22.3%

Rural Banks 33.5% 30.4% 29.4% 29.5% 29.8%

Cooperative Banks 48.3% 47.0% 48.6% 48.0% 49.1%

Foreign Bank Branches/Subsidiaries 40.2% 39.6% 23.7% 30.0% 30.0%

Foreign Bank Branches 40.6% 40.4% 23.8% 30.1% 30.4%

Foreign Bank Subsidiaries 36.1% 33.2% 23.4% 29.0% 26.5%

p/ Preliminaryr/ Revised

First Semester

r/ p/r/



Table 8. Philippine Banking System: Asset Quality Indicators

2002 2003 2004 2004 2005

Total Assets 3,475.7 3,661.1 4,024.4 3,874.0 4,332.5Gross Assets 3,622.5 3,816.3 4,189.0 4,030.8 4,489.0Total Loan Portfolio (TLP) 1,840.8 1,961.4 2,017.2 1,996.5 2,150.2Interbank Loans Receivable (IBL) 216.7 280.0 260.9 291.6 318.2Total Loan Portfolio (TLP), (exclusive of IBL) 1,624.2 1,681.4 1,756.3 1,704.8 1,832.0Total Loan Portfolio (TLP), net (exclusive of IBL) 1,488.1 1,540.9 1,609.5 1,563.5 1,695.8Non-performing Loans (NPL) 269.6 271.4 252.9 271.4 199.2Loan Loss Reserves (LLR) 135.4 139.9 146.7 140.8 136.2ROPOA, gross 217.6 238.8 253.8 249.6 240.2Allowance for ROPOA 11.3 15.3 17.9 16.0 20.4Restructured Loans (RL), gross 132.4 139.0 128.5 143.3 120.3Restructured Loans (RL), performing 83.7 83.5 68.5 84.6 70.8Distressed Assets 570.9 593.7 575.2 605.6 510.2Non-performing Assets (NPAs) 487.2 502.1 495.7 512.6 427.4Allowance for Probable Losses on NPAs 146.8 155.2 164.6 156.8 156.6

Total Assets 6.6 % 5.3 % 9.9 % 9.8 % 11.8 %Gross Assets 6.3 % 5.4 % 9.8 % 9.4 % 11.4 %TLP 1.6 % 6.5 % 2.8 % 5.0 % 7.7 %IBL 5.1 % 29.2 % (6.8 %) 8.7 % 9.1 %TLP (exclusive of IBL) 1.1 % 3.5 % 4.5 % 4.4 % 7.5 %TLP, net (exclusive of IBL) 1.4 % 3.5 % 4.5 % 4.8 % 8.5 %NPL (11.8 %) 0.7 % (6.8 %) (4.7 %) (26.6 %)LLR (2.3 %) 3.3 % 4.9 % 0.2 % (3.2 %)ROPOA, gross 13.7 % 9.7 % 6.3 % 10.6 % (3.8 %)Allowance for ROPOA 34.6 % 34.8 % 16.8 % 10.8 % 27.2 %RL, gross 12.4 % 4.9 % (7.5 %) 2.0 % (16.0 %)RL, performing 15.1 % (0.2 %) (18.0 %) (2.0 %) (16.3 %)Distressed Assets 0.2 % 4.0 % (3.1 %) 1.5 % (15.8 %)NPAs (2.0 %) 3.1 % (1.3 %) 1.6 % (16.6 %)Allowance for Probable Losses on NPAs (0.2 %) 5.7 % 6.1 % 1.2 % (0.1 %)

RL to TLP 7.1 % 7.0 % 6.3 % 7.2 % 5.6 %LLR to TLP 7.4 % 7.1 % 7.3 % 7.1 % 6.3 %NPL Ratio (inclusive of IBL) 14.6 % 13.8 % 12.5 % 13.6 % 9.3 %NPL Ratio (exclusive of IBL) 16.6 % 16.1 % 14.4 % 15.9 % 10.9 %NPL Coverage 50.2 % 51.5 % 58.0 % 51.9 % 68.4 %NPA to Gross Assets 13.4 % 13.2 % 11.8 % 12.7 % 9.5 %NPA Coverage 30.1 % 30.9 % 33.2 % 30.6 % 36.6 %Distressed Assets Ratio 27.7 % 27.0 % 25.3 % 27.0 % 21.3 %

1/ Asset Quality Indicators defined per BSP Circular No. 202 dated 27 May 1999 amended by BSP Circular No. 351 dated 19 September 20022/ Gross Assets refers to Total Assets, net of reserves plus Loan Loss Reserves (LLR) plus provision for ROPOA3/ ROPOA refers to Real and Other Properties Owned or Acquired4/5/

6/ NPA refers to NPLs plus ROPOA, gross7/ NPL Coverage refers to the ratio of LLR to NPL8/ NPA Coverage refers to the ratio of LLR (for Loans and ROPOA) to NPAs9/ Distressed Assets Ratio refers to the ratio of Distressed Assets to TLP plus ROPOA r/ Revisedp/ Preliminary data

Distressed Assets refers to NPLs plus ROPOA, gross and Current RLs from end-2002 to end-2003. Performing RLs replaced current RLs from end-2004 and subsequent years.

End-June

Data as of end-2002to end-2003 are based on current RLs. Figures for end-2004 and subsequent years are based on performing RLs.

Selected Ratios

p/

2/

3/

5/

6/

6/

7/

8/

9/

1/

Levels (P Billion)

Growth Rates

2/

3/

5/

r/

4/

4/

r/



Table 9. Universal and Commercial Banking System: Financial Highlights

2002 2003 2004 2004 2005


Net Interest Income 80.8 86.4 109.4 51.1 63.1 Non-interest Income 61.2 64.8 54.4 24.0 31.0

Operating Expenses 122.1 121.4 127.2 60.1 69.5 Bad Debts/Provisions for Probable Losses 24.1 21.9 17.9 8.6 11.5 Other Operating Expenses 98.0 99.6 109.2 51.5 58.0

Net Operating Income 20.0 29.8 36.6 15.1 24.6 Extraordinary Credits/(Charges) 5.3 18.0 6.1 4.3 5.2 Net Income Before Tax 25.3 47.7 42.7 19.4 29.8 Provisions for Income Tax 0.8 9.1 9.5 3.7 6.3 Net Income After Tax (NIAT) 24.4 38.7 33.3 15.7 23.5

Balance SheetTotal Assets 3,141.4 3,297.2 3,617.6 3,489.4 3,898.9 Cash and Due from Banks 295.9 243.6 274.5 280.6 286.3 Interbank Loans Receivable (IBL) 209.1 274.0 254.8 286.2 307.9 Loans, gross (exclusive of IBL) 1,446.1 1,492.8 1,541.7 1,511.6 1,603.4

Allowance for Probable Losses 141.2 149.7 149.4 150.1 139.6 Loans, net (exclusive of IBL) 1,304.3 1,342.5 1,392.3 1,360.9 1,463.8 Investments, net 840.4 942.9 1,188.1 1,060.9 1,308.5 ROPOA, net 172.9 188.3 194.9 192.9 179.1 Other Assets 319.0 305.8 313.0 307.9 353.2 Total Liabilities 2,732.6 2,873.4 3,167.1 3,049.5 3,443.6 Deposits 2,125.9 2,209.8 2,472.3 2,315.1 2,592.7 Bills Payable 326.4 350.8 352.2 427.8 408.0 Special Financing 1.1 0.5 0.2 0.4 0.1 Other Liabilities 279.3 277.1 291.0 257.7 392.1 Unsecured Subordinated Debt - 35.1 51.4 48.5 50.7 Total Capital Accounts 408.8 423.8 450.5 439.9 455.3

1/ Adjusted to net off the account "Due from Head Office" with "Due to Head Office" of branches of foreign banks 2/ Inclusive of the portion of the "Net Due to Head Office" which qualified as capital

End-June

Levels (P Billion)

1/

2/



Table 10. Universal and Commercial Banking System: Selected Performance Indicators

2002 2003 2004 2004 2005


Net Interest Income 3.6 % 6.9 % 26.6 % 24.1 % 23.3 %Non-interest Income 35.7 % 5.9 % (16.0 %) (28.5 %) 29.0 %

Operating Expenses 4.2 % (0.5 %) 4.7 % (0.6 %) 15.7 %Bad Debts/Provisions for Probable Losses 9.1 % (9.0 %) (18.0 %) (29.4 %) 33.3 %Other Operating Expenses 3.1 % 1.6 % 9.7 % 6.6 % 12.7 %

Net Operating Income 235.5 % 49.3 % 23.0 % 5.2 % 62.7 %Extraordinary Credits (36.9 %) 237.4 % (65.9 %) 23.9 % 20.4 %Net Income Before Tax 75.7 % 88.9 % (10.4 %) 8.9 % 53.2 %Provisions for Income Tax (25.3 %) 972.3 % 4.5 % 74.6 % 67.9 %Net Income After Tax (NIAT) 84.4 % 58.3 % (13.9 %) (0.1 %) 49.7 %

Balance SheetTotal Assets 6.8 % 5.0 % 9.7 % 9.5 % 11.7 % Cash and Due from Banks 11.3 % (17.7 %) 12.7 % 8.9 % 2.0 % Interbank Loans Receivable (IBL) 3.9 % 31.1 % (7.0 %) 8.8 % 7.6 % Loans, gross (exclusive of IBL) 1.6 % 3.2 % 3.3 % 4.1 % 6.1 %

Allowance for Probable Losses 10.8 % 6.0 % (0.2 %) 1.2 % (7.0 %) Loans, net (exclusive of IBL) 0.7 % 2.9 % 3.7 % 4.4 % 7.6 % Investments, net 16.2 % 12.2 % 26.0 % 23.5 % 23.3 % ROPOA, net 14.4 % 8.9 % 3.5 % 8.6 % (7.1 %) Other Assets 4.3 % (4.1 %) 2.3 % (5.8 %) 14.7 %Total Liabilities 7.0 % 5.2 % 10.2 % 10.2 % 12.9 % Deposits 6.7 % 3.9 % 11.9 % 7.6 % 12.0 % Bills Payable 5.1 % 7.5 % 0.4 % 40.0 % (4.6 %) Special Financing (31.3 %) (51.9 %) (65.9 %) (45.7 %) (85.9 %) Other Liabilities 11.7 % (0.8 %) 5.0 % (16.6 %) 52.2 % Unsecured Subordinated Debt 0.0 % 0.0 % 46.2 % 0.0 % 4.7 %Total Capital Accounts 5.1 % 3.7 % 6.3 % 4.5 % 3.5 %

Profitability Cost-to-Income 69.0 % 65.8 % 66.7 % 67.8 % 63.4 %Return on Assets (ROA) 0.8 % 1.2 % 1.0 % 1.2 % 1.1 %Return on Equity (ROE) 6.1 % 9.3 % 7.6 % 9.0 % 9.2 %

Liquidity Cash and Due from Banks to Deposits 13.9 % 11.0 % 11.1 % 12.1 % 11.0 %Liquid Assets to Deposits 49.2 % 49.5 % 55.2 % 54.0 % 57.7 %Loans, gross to Deposits 77.9 % 80.0 % 72.7 % 77.7 % 73.7 %

Asset quality Non-performing Loans (NPL) 15.0 % 14.1 % 12.7 % 13.8 % 9.2 %Non-performing Loans (NPL, exclusive of IBL) 17.1 % 16.7 % 14.8 % 16.4 % 11.0 %NPL Coverage 51.2 % 53.0 % 60.4 % 53.5 % 72.2 %Non-performing Assets (NPA) to Gross Assets 13.1 % 12.9 % 11.4 % 12.3 % 9.0 %NPA Coverage 31.7 % 32.6 % 35.6 % 32.6 % 39.7 %Distressed Assets 27.9 % 27.1 % 25.2 % 26.9 % 21.0 %

Capital AdequacyTotal Capital Accounts to Total Assets 13.0 % 12.9 % 12.5 % 12.6 % 11.7 %Capital Adequacy Ratio (Solo) 15.0 % 15.7 % 17.6 % 16.9 % 17.1 %

1/ Adjusted to net off the account "Due from Head Office" with "Due to Head Office" of branches of foreign banks 2/ Inclusive of the portion of the "Net Due to Head Office" which qualified as capital3/ Annualized; first semester ratios based on second half of previous year plus first half of the current year.4/ Liquid Assets refers to Cash and Due from Banks plus Investments,net (less equity investments, net)5/

a/ Data as of end-March 2005

Based on Circular No. 280 dated 29 March 2001, formally adopted 1 July 2001; Under Circular No. 360 dated 3 December 2002, adopted 1 July 2003, Universal/Commercial banks are to incorporate market risks in addition to credit risks

End-June

Growth Rates

Selected Ratios

1/

2/

5/

4/

a/

3/



Table 11. Universal and Commercial Banking System: Regional Profile

4,329 4,316 42 4,274

4,281 4,267 42 4,225

2,041 2,029 41 1,988

1,196 1,177 0 1,177

Region I - Ilocos 151 147 147

Region II - Cagayan 72 70 70

Region III - Central Luzon 332 332 332

Region IV-A - CALABARZON 447 448 448

Region IV-B - MIMAROPA 39 26 26

Region V - Bicol 98 97 97

57 57 57

559 575 0 575

Region VI - Western Visayas 224 240 240

Region VII - Central Visayas 263 263 263

Region VIII - Eastern Visayas 72 72 72

485 486 1 485


Region X - Northern Mindanao 119 119 119

Region XI - Southern Mindanao 136 137 137

Region XII - Central Mindanao 96 96 96

21 21 21

38 38 38

48 49 0 49

24 25 25

Europe 14 14 14

7 7 7

Africa 3 3 3

End-December2004

End-June 2005

Overseas


Luzon



Head Offices

Mindanao

Total

TOTAL

Nationwide


CARAGA

Asia-Pacific

North America

Visayas



Table 12. Universal and Commercial Banking System: Automated Teller Machines (ATMs)As of Periods Indicated

Dec '04 Jun '05 Dec '04 Jun '05 Dec '04 Jun '05

3,684 3,822 1,416 1,508 5,100 5,330

1,726 1,769 817 859 2,543 2,628

1,058 1,111 359 385 1,417 1,496 Region I - Ilocos 111 119 13 15 124 134 Region II - Cagayan 52 56 3 3 55 59 Region III - Central Luzon 263 283 90 95 353 378 Region IV-A - CALABARZON 467 477 224 238 691 715 Region IV-B - MIMAROPA 24 25 5 5 29 30 Region V - Bicol 84 89 7 8 91 97

57 62 17 21 74 83

496 514 163 174 659 688 Region VI - Western Visayas 195 206 48 48 243 254 Region VII - Central Visayas 243 249 113 123 356 372 Region VIII - Eastern Visayas 58 59 2 3 60 62

404 428 77 90 481 518 Region IX - Western Mindanao 64 66 10 11 74 77 Region X - Northern Mindanao 99 107 25 27 124 134 Region XI - Southern Mindanao 116 118 31 35 147 153 Region XII - Central Mindanao 79 87 9 14 88 101

12 14 - 1 12 15 34 36 2 2 36 38

Autonomous Region of Muslim Mindanao CARAGA

Mindanao

Off-Site Total

Luzon

Visayas

On-Site

NATIONWIDE





Table 13. Universal and Commercial Banks Authorized to Engage in E-Banking OperationsAs of End-June 2005

1 Allied Banking Corporation

2 Asia United Bank Corporation

3 Banco de Oro Universal Bank

4 Bank of Commerce

5 Bank of the Philippines Islands

6 China Bank

7 Development Bank of the Philippines

8 East West Banking Corporation

9 Equitable PCI Bank

10 Export and Industry Bank

11 International Exchange Bank

12 Land Bank of the Philippines

13 Metropolitan Bank and Trust Company

14 Philippine Bank of Communications

15 Philippine National Bank

16 Philippine Trust Company

17 Rizal Commercial Banking Corporation

18 Security Bank Corporation

19 Union Bank of the Philippines

20 United Coconut Planters Bank

21 ABN AMRO Bank22 Maybank

23 Chinatrust Bank

24 ANZ Banking Group, Ltd.

25 Bank of America, N.A.

26 Citibank, N.A. (Phils.)

27 Deutsche Bank AG

28 JP Morgan Chase Bank

29 Korea Exchange Bank

30 Mizuho Bank (formerly Fuji Bank, Ltd.)

31 Standard Chartered Bank

32 The Bank of Tokyo-Mitsubishi, Ltd. 33 The Hongkong & Shanghai Banking Corp. Ltd.

Internet operation has efinancing for small and medium enterprises.1/

Name of BankCash Card

MobileNon-

MobileInternet Proprietary

Mobile/ Internet thru Bancnet's &

Megalink's Switch

Domestic Banks

Subsidiary of a Foreign Bank

Branches of Foreign Banks

1/



Table 14. Universal and Commercial Banking System: Profitability Indicators

2002 2003 2004 2004 2005



Non-interest Income 61.2 64.8 54.4 24.0 31.0Fee-based Income 18.1 20.2 22.7 10.6 11.9Trading Income 32.7 32.0 15.3 6.2 11.6Trust Department Income 3.3 4.3 4.6 2.2 1.9Other Income 7.1 8.2 11.9 5.0 5.5


Net Operating Income 19.9 29.8 36.6 15.1 24.6Extraordinary Credits 5.3 18.0 6.1 4.3 5.2Net Income Before Tax 25.3 47.7 42.7 19.4 29.8Provisions for Income Tax 0.8 9.1 9.5 3.7 6.3Net Income After Tax (NIAT) 24.4 38.7 33.3 15.7 23.5


Interest Income (22.1 %) 3.1 % 19.2 % 15.0 % 21.0 %Interest Expenses (36.6 %) (0.4 %) 11.9 % 6.5 % 18.6 %

Non-interest Income 35.7 % 5.9 % (16.0 %) (28.5 %) 29.0 %Fee-based Income 5.2 % 11.6 % 12.3 % 10.2 % 12.0 %Trading Income 78.1 % (2.1 %) (52.4 %) (65.9 %) 89.1 %Trust Department Income 29.2 % 30.9 % 7.0 % 9.5 % (11.7 %)Other Income 1.3 % 16.8 % 44.0 % 29.5 % 9.2 %

Operating Expenses 4.2 % (0.5 %) 4.7 % (0.6 %) 15.7 %Bad Debts/Provisions for Probable Losses 9.1 % (9.0 %) (18.0 %) (29.4 %) 33.3 %Other Operating Expenses 3.1 % 1.6 % 9.7 % 6.6 % 12.7 %

Net Operating Income 235.5 % 49.3 % 23.0 % 5.2 % 62.7 %Extraordinary Credits (36.9 %) 237.4 % (65.9 %) 23.9 % 20.4 %Net Income Before Tax 75.7 % 88.9 % (10.4 %) 8.9 % 53.2 %Provisions for Income Tax (25.3 %) 972.3 % 4.5 % 74.6 % 67.9 %Net Income After Tax (NIAT) 84.4 % 58.3 % (13.9 %) (0.1 %) 49.7 %

Earning Asset Yield 7.2 % 6.9 % 7.5 % 7.1 % 7.7 %Funding Cost 3.7 % 3.5 % 3.6 % 3.4 % 3.6 %Interest Spread 3.5 % 3.4 % 3.9 % 3.7 % 4.1 %Net Interest Margin 3.5 % 3.4 % 4.0 % 3.7 % 4.1 %Non-interest Income to Total Operating Income 43.1 % 42.9 % 33.2 % 36.5 % 33.6 %Cost-to-Income 69.0 % 65.8 % 66.7 % 67.8 % 63.4 %Return on Assets (ROA) 0.8 % 1.2 % 1.0 % 1.2 % 1.1 %Return on Equity (ROE) 6.1 % 9.3 % 7.6 % 9.0 % 9.2 %

1/ Annualized; first semester ratio based on second half of previous year plus first half of the year.2/ Earning Asset Yield refers to the ratio of interest income to average earning assets3/ Funding Cost refers to the ratio of interest expenses to average interest-bearing liabilities4/ Interest Spread refers to the difference between earning asset yield and funding cost5/ Net Interest Margin refers to the ratio of net interest income to average earning assets6/ Cost-to-Income Ratio refers to the ratio of operating expenses (exclusive of bad debts and provisions) to total operating income7/ ROA and ROE refers to the ratio of annualized NIAT to average assets and capital, respectively.

First Semester

Levels (P Billion)

Growth Rates

2/

3/4/

5/

6/7/

7/

Selected Ratios 1/



Table 15. Universal and Commercial Banking System: Asset Quality Indicators

2002 2003 2004 2004 2005

Total Assets 3,141.4 3,297.2 3,617.6 3,489.4 3,898.9Gross Assets 3,277.0 3,441.2 3,770.6 3,634.9 4,043.2Total Loan Portfolio (TLP) 1,639.4 1,747.2 1,784.2 1,778.7 1,898.0Interbank Loans Receivable (IBL) 209.1 274.0 254.8 286.2 307.9Total Loan Portfolio (TLP), (exclusive of IBL) 1,430.3 1,473.1 1,529.4 1,492.4 1,590.0Total Loan Portfolio (TLP), net (exclusive of IBL) 1,304.2 1,342.5 1,392.3 1,360.9 1,463.8Non-performing Loans (NPL) 245.1 245.5 227.0 244.9 174.9Loan Loss Reserves (LLR) 125.5 130.0 137.1 130.9 126.2ROPOA, gross 183.0 202.3 210.8 207.5 197.2Allowance for ROPOA 10.1 14.0 15.9 14.6 18.1Restructured Loans (RL), gross 128.0 134.3 123.5 138.5 115.2Restructured Loans (RL), performing 80.6 79.8 64.9 81.1 67.0Distressed Assets 508.7 527.7 502.8 533.5 439.1Non-performing Assets (NPAs) 428.1 442.3 430.4 446.8 363.5Allowance for Probable Losses on NPAs 135.6 144.0 153.0 145.5 144.3

Total Assets 6.8 % 5.0 % 9.7 % 9.5 % 11.7 %Gross Assets 6.5 % 5.0 % 9.6 % 9.1 % 11.2 %TLP 0.9 % 6.6 % 2.1 % 4.8 % 6.7 %IBL 3.9 % 31.1 % (7.0 %) 8.8 % 7.6 %TLP (exclusive of IBL) 0.5 % 3.0 % 3.8 % 4.0 % 6.5 %TLP, net (exclusive of IBL) 0.7 % 2.9 % 3.7 % 4.4 % 7.6 %NPL (13.1 %) 0.2 % (7.5 %) (5.2 %) (28.6 %)LLR (1.5 %) 3.6 % 5.5 % 0.2 % (3.6 %)ROPOA, gross 15.4 % 10.5 % 4.2 % 8.7 % (5.0 %)Allowance for ROPOA 36.1 % 38.0 % 13.7 % 10.5 % 24.0 %RL, gross 13.3 % 4.9 % (8.0 %) 1.9 % (16.9 %)RL, performing 16.4 % (0.9 %) (18.7 %) (2.2 %) (17.4 %)Distressed Assets (0.2 %) 3.7 % (4.7 %) 0.3 % (17.7 %)NPAs (2.8 %) 3.3 % (2.7 %) 0.3 % (18.6 %)Allowance for Probable Losses on NPAs 0.5 % 6.2 % 6.3 % 1.2 % (0.8 %)

RL to TLP 7.7 % 7.6 % 6.9 % 7.7 % 6.0 %LLR to TLP 7.7 % 7.4 % 7.7 % 7.4 % 6.6 %NPL (inclusive of IBL) 15.0 % 14.1 % 12.7 % 13.8 % 9.2 %NPL (exclusive of IBL) 17.1 % 16.7 % 14.8 % 16.4 % 11.0 %NPL Coverage 51.2 % 53.0 % 60.4 % 53.5 % 72.2 %NPA to Gross Assets 13.1 % 12.9 % 11.4 % 12.3 % 9.0 %NPA Coverage 31.7 % 32.6 % 35.6 % 32.6 % 39.7 %Distressed Assets 27.9 % 27.1 % 25.2 % 26.9 % 21.0 %

1/ Asset Quality Indicators defined per BSP Circular No. 351 dated 19 September 20022/ Gross Assets refers to Total Assets, net of reserves plus Loan Loss Reserves (LLR) plus provision for ROPOA3/ ROPOA refers to Real and Other Properties Owned or Acquired4/5/

6/ NPA refers to NPLs plus ROPOA, gross excluding performing sales contracts receivable per BSP Circular No. 380 dated 28 March 20037/ NPL Coverage refers to the ratio of LLR to NPL8/ NPA Coverage refers to the ratio of valuation reserves (for Loans and ROPOA) to NPAs9/ Distressed Assets Ratio refers to the ratio of Distressed Assets to TLP plus ROPOA, gross

Data as of end-2002 and end-2003 are based on current RLs. Figures for end-2004 and subsequent years are based on performing RLs. Distressed Assets refers to NPLs plus ROPOA, gross and Current RLs from end-2002 and end-2003. Performing RLs replaced current RLs from end-2004 and subsequent years.

End-June

Levels (P Billion)

Growth Rates

Selected Ratios

2/

3/

5/

6/

2/

3/

5/

6/

7/

8/

9/

1/

4/

4/



Table 16. Thrift Banking System: Financial Highlights

2002 2003 2004 2004 2005




Net Operating Income (Loss) 0.5 (0.7) (0.7) (0.2) (0.2) Extraordinary Credits/(Charges) 0.4 0.8 1.4 0.6 0.6 Net Income Before Tax 0.9 0.1 0.6 0.3 0.4 Provisions for Income Taxes 0.2 0.3 0.6 0.3 (0.1) Net Income After Tax (NIAT) 0.7 (0.2) . . . 0.1 0.5

Balance SheetTotal Assets 253.4 274.3 305.4 288.9 324.5 Cash and Due from Banks 21.1 23.7 27.2 24.1 24.6 Interbank Loans Receivable (IBL) 7.6 5.9 6.1 5.4 10.2 Loans, gross (exclusive of IBL) 144.3 153.5 164.6 156.2 175.8

Allowance for Probable Losses 8.5 8.4 8.3 8.6 8.4 Loans, net (exclusive of IBL) 135.7 145.1 156.3 147.6 167.3 Investments, net 35.6 43.0 55.0 51.5 58.8 ROPOA, net 26.1 28.0 33.0 33.0 32.7 Other Assets 27.3 28.5 27.8 27.4 30.9 Total Liabilities 210.9 233.1 265.8 248.5 281.4 Deposits 172.8 197.2 223.7 208.6 248.0 Bills Payable 22.6 22.2 25.9 26.7 17.7 Special Financing 0.3 0.3 0.3 0.3 . . Other Liabilities 15.3 13.4 15.8 13.0 15.6 Total Capital Accounts 42.5 41.2 39.7 40.5 43.1

r/ Revised

. . Less than P0.05 billion. . . Nil value due to rounding off: Net income after tax of P43.479 million.

End-June

r/Levels (P Billion)



Table 17. Thrift Banking System: Selected Performance Indicators

2002 2003 2004 2004 2005

Income StatementTotal Operating Income 17.8 % (0.7 %) 8.7 % 8.6 % 17.8 %

Net Interest Income 18.6 % (2.6 %) 12.7 % 11.5 % 21.1 %Non-interest Income 15.7 % 5.0 % (2.6 %) 0.8 % 8.1 %

Operating Expenses (4.4 %) 7.5 % 8.9 % 10.5 % 17.3 %Bad Debts/Provisions for Probable Losses 64.4 % 16.0 % (7.4 %) 43.0 % 36.8 %Other Operating Expenses (8.4 %) 6.5 % 10.8 % 7.9 % 15.2 %

Net Operating Income (Loss) 120.8 % (234.4 %) (13.7 %) (170.0 %) 2.4 %Extraordinary Credits/(Charges) (85.2 %) 97.9 % 79.1 % 99.3 % 11.6 %Net Income Before Tax 254.5 % (88.4 %) 503.2 % 70.2 % 20.7 %Provisions for Income Taxes (41.4 %) 63.5 % 62.1 % 65.7 % (132.9 %)Net Income After Tax (NIAT) (648.0 %) (137.9 %) 117.5 % 95.7 % 769.2 %

Balance SheetTotal Assets 3.3 % 8.2 % 11.4 % 12.4 % 12.3 % Cash and Due from Banks (0.7 %) 12.7 % 14.8 % 3.6 % 1.8 % Interbank Loans Receivable (IBL) 56.8 % (22.0 %) 2.2 % 3.4 % 89.4 % Loans, gross (exclusive of IBL) 5.4 % 6.4 % 7.2 % 7.3 % 12.5 %

Allowance for Probable Losses (1.8 %) (2.0 %) (0.9 %) 4.1 % (2.2 %) Loans, net (exclusive of IBL) 5.9 % 6.9 % 7.7 % 7.5 % 13.4 % Investments, net 6.9 % 20.6 % 28.0 % 43.3 % 14.1 % ROPOA, net 2.9 % 7.4 % 17.9 % 26.6 % (0.8 %) Other Assets (15.4 %) 4.5 % (2.6 %) (6.5 %) 12.9 %Total Liabilities 4.6 % 10.5 % 14.0 % 15.3 % 13.2 % Deposits 7.7 % 14.1 % 13.5 % 14.7 % 18.9 % Bills Payable (10.2 %) (1.5 %) 16.7 % 54.7 % (33.5 %) Special Financing (2.2 %) (2.5 %) (0.4 %) (1.4 %) - Other Liabilities (3.3 %) (12.6 %) 18.5 % (19.7 %) 20.4 %Total Capital Accounts (2.3 %) (3.0 %) (3.8 %) (2.5 %) 6.6 %

Profitability Cost-to-Income 87.4 % 93.8 % 95.6 % 93.5 % 94.3 %Return on Assets (ROA) 0.3 % (0.1 %) 0.0 % (0.1 %) 0.2 %Return on Equity (ROE) 1.5 % (0.6 %) 0.1 % (0.5 %) 1.2 %

Liquidity Cash and Due from Banks to Deposits 12.2 % 12.0 % 12.2 % 11.6 % 9.9 %Liquid Assets to Deposits 32.6 % 33.7 % 36.7 % 36.1 % 33.5 %Loans, gross to Deposits 87.9 % 80.9 % 76.3 % 77.5 % 75.0 %

Asset quality Non-performing Loans (NPL) 11.6 % 12.1 % 11.0 % 12.1 % 8.9 %Non-performing Loans (NPL, exclusive of IBL) 12.2 % 12.6 % 11.4 % 12.6 % 9.4 %NPL Coverage 43.1 % 38.8 % 37.0 % 38.0 % 42.9 %Non-performing Assets (NPA) to Gross Assets 17.0 % 16.2 % 15.9 % 17.0 % 14.3 %NPA Coverage 19.2 % 18.7 % 17.2 % 16.9 % 18.9 %Distressed Assets 26.3 % 27.4 % 27.6 % 29.1 % 24.7 %

Capital AdequacyTotal Capital Accounts to Total Assets 16.8 % 15.0 % 13.0 % 14.0 % 13.3 %Capital Adequacy Ratio (CAR) 20.6 % 18.9 % 16.2 % 17.9 % 16.8 %

1/ Annualized; first semester ratios based on second half of previous year plus first half of the current year2/ Liquid Assets refers to Cash and Due from Banks plus Investments,net (less equity investments, net)3/ Based on Circular No. 280 dated 29 March 2001, formally adopted 1 July 2001r/ Revised a/ Data as of end-March 2005

End-June

Growth Rates

Selected Ratios

2/

3/ a/

r/

1/



Table 18. Thrift Banking Offices: Regional Profile

1,280 1,280 83 1,197

534 544 36 508

524 503 34 469




Region IV-A - CALABARZON 257 261 14 247

Region IV-B - MIMAROPA 23 12 12

Region V - Bicol 32 32 2 30

11 11 2 9

147 161 12 149



Region VIII - Eastern Visayas 7 7 7

75 72 1 71

Region IX - Western Mindanao 6 7 7

Region X - Northern Mindanao 29 24 24


Region XII - Central Mindanao 8 8 8

- -

6 6 6

Branches/ Other Offices


Head OfficesTotal

Luzon


Visayas

Mindanao

CARAGA

Nationwide


End-December

2004

End-June 2005



Table 19. Thrift Banking System: Automated Teller Machines (ATMs)As of periods indicated

Dec '04 Jun '05 Dec '04 Jun '05 Dec '04 Jun '05

312 397 57 71 369 468

186 233 39 42 225 275

80 108 9 17 89 125

Region I - Ilocos 8 12 3 8 15


Region III - Central Luzon 16 23 3 4 19 27

Region IV-A - CALABARZON 51 59 6 9 57 68

Region IV-B - MIMAROPA - -

Region V - Bicol 2 6 - 2 6

2 6 - 1 2 7

28 35 8 11 36 46

Region VI - Western Visayas 8 11 3 11 11

Region VII - Central Visayas 19 22 5 5 24 27

Region VIII - Eastern Visayas 1 2 - 6 1 8

18 21 1 1 19 22

Region IX - Western Mindanao 2 2 - 2 2


Region XI - Southern Mindanao 7 9 1 1 8 10


- - -

CARAGA -

Off-site Total

Mindanao



Luzon

Visayas

Nationwide

On-site




Table 20. Thrift Banks Authorized to Enage in E-Banking Operations As of 30 June 2005

Financial Institution-Linked Thrift Banks

BPI Direct

BPI-Family Bank

HSBC Savings Bank

RCBC Savings Bank

Non-Linked Thrift Banks

Citystate Savings Bank

Premiere Development Bank

7. Robinsons Savings Bank

8. The Manila Bank

9. Asiatrust Development Bank

10. Insular Savings Bank

11. Keppel Bank

Non-Mobile

Mobile/ Internet via Bancnet or Megalink

Switch

Proprietary

1.

Internet

6.

3.

2.

MobileName of Bank

5.

4.



Table 21. Thrift Banking System: Profitability Indicators

2002 2003 2004 2004 2005

Total Operating Income 14.5 14.4 15.6 7.6 8.9

Net Interest Income 10.9 10.6 12.0 5.7 6.9

Interest Income 20.3 20.6 24.0 11.4 13.7

Interest Expenses 9.4 10.0 12.0 5.7 6.8

Non-interest Income 3.6 3.7 3.6 1.9 2.1

Fee-based Income 1.8 2.0 2.4 1.2 1.4

Trading Income 1.0 0.8 0.4 0.2 0.3

Trust Department Income 0.1 0.1 0.1 . . 0.1

Other Income 0.7 0.8 0.8 0.4 0.4

Operating Expenses 14.0 15.0 16.3 7.8 9.2

Bad Debts/Provisions for Probable Losses 1.3 1.6 1.4 0.7 1.0

Other Operating Expenses 12.6 13.5 14.9 7.1 8.1

Net Operating Income (Loss) 0.5 (0.7) (0.7) (0.2) (0.2)

Extraordinary Credits/(Charges) 0.4 0.8 1.4 0.6 0.6

Net Income Before Tax 0.9 0.1 0.6 0.3 0.4

Provisions for Income Tax 0.2 0.3 0.6 0.3 (0.1)

Net Income After Tax (NIAT) 0.7 (0.2) . . . 0.1 0.5

Total Operating Income 17.8 % (0.7 %) 8.7 % 8.6 % 17.8 %Net Interest Income 18.6 % (2.6 %) 12.7 % 11.5 % 21.1 %

Interest Income (11.8 %) 1.6 % 16.1 % 15.9 % 20.2 %Interest Expenses (31.9 %) 6.5 % 19.7 % 20.5 % 19.2 %

Non-interest Income 15.7 % 5.0 % (2.6 %) 0.8 % 8.1 %Fee-based Income (1.7 %) 12.7 % 18.5 % 20.1 % 20.3 %Trading Income 224.3 % (15.4 %) (54.5 %) (54.4 %) 1.5 %Trust Department Income 45.3 % 23.8 % (13.1 %) 28.5 % 7.8 %Other Income (22.5 %) 11.9 % 0.0 % 30.7 % (19.7 %)

Operating Expenses (4.4 %) 7.5 % 8.9 % 10.5 % 17.3 %Bad Debts/Provisions for Probable Losses 64.4 % 16.0 % (7.4 %) 43.0 % 36.8 %Other Operating Expenses (8.4 %) 6.5 % 10.8 % 7.9 % 15.2 %

Net Operating Income (Loss) 120.8 % (234.4 %) (13.7 %) (170.0 %) 2.4 %Extraordinary Credits/(Charges) (85.2 %) 97.9 % 79.1 % 99.3 % 11.6 %Net Income Before Tax 254.5 % (88.4 %) 503.2 % 70.2 % 20.7 %Provisions for Income Tax (41.4 %) 63.5 % 62.1 % 65.7 % (132.9 %)Net Income After Tax (NIAT) 648.0 % (137.9 %) 117.5 % 95.7 % 769.2 %

Earning Asset Yield 11.3 % 10.6 % 11.2 % 11.1 % 11.5 %Funding Cost 5.0 % 4.8 % 5.1 % 5.1 % 5.2 %Interest Spread 6.4 % 5.8 % 6.1 % 6.0 % 6.3 %Net Interest Margin 6.1 % 5.4 % 5.6 % 5.6 % 5.8 %Non-interest Income to Total Operating Income 24.7 % 26.1 % 23.4 % 25.2 % 22.4 %Cost-to-Income Ratio 87.4 % 93.8 % 95.6 % 93.5 % 94.3 %Return on Assets (ROA) 0.3 % (0.1 %) 0.0 % (0.1 %) 0.2 %Return on Equity (ROE) 1.5 % (0.6 %) 0.1 % (0.5 %) 1.2 %

1/ Annualized; first semester ratio based on second half of previous year plus first half of the year.2/ Earning Asset Yield refers to the ratio of interest income to average earning assets3/ Funding Cost refers to the ratio of interest expenses to average interest-bearing liabilities4/ Interest Spread refers to the difference between earning asset yield and funding cost5/ Net Interest Margin refers to the ratio of net interest income to average earning assets6/ Cost-to-Income Ratio refers to the ratio of operating expenses (exclusive of bad debts and provisions) to total operating income7/ ROA and ROE refers to the ratio of annualized NIAT to average assets and capital, respectively. r/ Revised

. . Less than P0.05 billion. . . Nil value due to rounding off: Net income after tax of P43.479 million.

First Semester

Levels (P Billion)

Growth Rates

r/

2/

3/4/

5/

6/

7/

7/

Selected Ratios 1/



Table 22. Thrift Banking System: Asset Quality Indicators

2002 2003 2004 2004 2005

Total Assets 253.4 274.3 305.4 288.9 324.5Gross Assets 262.0 282.8 314.0 297.5 333.5Total Loan Portfolio (TLP) 150.9 158.5 169.3 160.4 184.6Interbank Loans Receivable (IBL) 7.6 5.9 6.1 5.4 10.2Total Loan Portfolio (TLP), (exclusive of IBL) 143.2 152.6 163.2 155.0 174.3Total Loan Portfolio (TLP), net (exclusive of IBL) 135.7 145.1 156.3 147.6 167.3Non-performing Loans (NPL) 17.5 19.2 18.6 19.5 16.3Loan Loss Reserves (LLR) 7.5 7.4 6.9 7.4 7.0ROPOA, gross 27.1 29.1 34.7 34.2 34.7Allowance for ROPOA 1.0 1.1 1.7 1.2 2.0Restructured Loans (RL), gross 3.2 3.9 4.3 4.0 4.3Restructured Loans (RL), performing 2.2 3.1 3.0 2.9 3.2Distressed Assets 46.7 51.3 56.3 56.5 54.2Non-performing Assets (NPAs) 44.5 45.7 49.8 50.7 47.6Allowance for Probable Losses on NPAs 8.6 8.5 8.6 8.6 9.0

Total Assets 3.3 % 8.2 % 11.4 % 12.4 % 12.3 %Gross Assets 2.8 % 8.0 % 11.0 % 12.1 % 12.1 %TLP 6.4 % 5.1 % 6.8 % 7.0 % 15.1 %IBL 56.8 % (22.0 %) 2.2 % 3.4 % 89.4 %TLP (exclusive of IBL) 4.6 % 6.5 % 7.0 % 7.2 % 12.5 %TLP, net (exclusive of IBL) 5.9 % 6.9 % 7.7 % 7.5 % 13.4 %NPL 2.6 % 9.7 % (3.1 %) 0.9 % (16.0 %)LLR (13.4 %) (1.2 %) (7.6 %) 0.6 % (5.3 %)ROPOA, gross 3.5 % 7.4 % 19.2 % 26.0 % 1.5 %Allowance for ROPOA 22.8 % 8.1 % 52.5 % 11.9 % 67.5 %RL, gross (14.2 %) 23.2 % 9.7 % 14.3 % 8.3 %RL, performing (8.1 %) 42.5 % (1.8 %) 16.0 % 10.5 %Distressed Assets 2.6 % 9.9 % 9.6 % 15.6 % (4.0 %)NPAs 3.1 % 2.6 % 9.0 % 14.9 % (6.2 %)Allowance for Probable Losses on NPAs (10.2 %) (0.1 %) 0.2 % 2.0 % 4.7 %

RL to TLP 2.1 % 2.5 % 2.5 % 2.5 % 2.3 %LLR to TLP 5.0 % 4.7 % 4.1 % 4.6 % 3.8 %NPL Ratio (inclusive of IBL) 11.6 % 12.1 % 11.0 % 12.1 % 8.9 %NPL Ratio (exclusive of IBL) 12.2 % 12.6 % 11.4 % 12.6 % 9.4 %NPL Coverage 43.1 % 38.8 % 37.0 % 38.0 % 42.9 %NPA to Gross Assets 17.0 % 16.2 % 15.9 % 17.1 % 14.3 %NPA Coverage 19.2 % 18.7 % 17.2 % 16.9 % 18.9 %Distressed Assets Ratio 26.3 % 27.4 % 27.6 % 29.1 % 24.7 %

1/ Asset Quality Indicators defined per BSP Circular No. 202 dated 27 May 1999 amended by BSP Circular No. 351 dated 19 September 20022/ Gross Assets refers to Total Assets, net of reserves plus Loan Loss Reserves (LLR) plus provision for ROPOA3/ ROPOA refers to Real and Other Properties Owned or Acquired4/5/

6/ NPA refers to NPLs plus ROPOA, gross excluding performing sales contracts receivable per BSP Circular No. 380 dated 28 March 20037/ NPL Coverage refers to the ratio of LLR to NPL8/ NPA Coverage refers to the ratio of valuation reserves (for Loans and ROPOA) to NPAs9/ Distressed Assets Ratio refers to the ratio of Distressed Assets to TLP plus ROPOA, grossr/ Revised

End-June

Data as of end-2002 to end-2003 are based on current RLs. Figures for end-2004 and subsequent years are based on performing RLs. Distressed Assets refers to NPLs plus ROPOA, gross and Current RLs from end-2002 to end-2003. Performing RLs replaced current RLs from end-2004 and subsequent years.

Levels (P Billion)

Growth Rates

Selected Ratios

1/

2/

3/

5/

6/

2/

3/

5/

6/

7/

8/

9/

r/

4/

4/



Table 23. Rural Banking System: Financial Highlights

2002 2003 2004 2004 2005




Net Operating Income 0.8 1.2 1.4 0.7 0.9 Extraordinary Credits/(Charges) 0.4 0.4 0.5 0.2 0.2 Net Income Before Tax 1.2 1.6 1.8 1.0 1.1 Provisions for Income Tax 0.2 0.2 0.3 0.1 0.2 Net Income After Tax (NIAT) 1.0 1.4 1.5 0.9 1.0

Balance SheetTotal Assets 75.6 84.0 94.9 89.7 102.2

Cash and Due from Banks 14.3 16.9 17.5 18.5 18.9 Loans, gross 46.8 51.8 59.3 53.5 63.0

Allowance for Probable Losses 2.4 2.5 2.9 2.7 3.2 Loans, net 44.4 49.3 56.4 50.8 59.8 Investments, net 3.9 4.4 5.7 6.0 6.0 ROPOA, net 7.1 7.0 7.7 7.5 7.7 Other Assets 5.9 6.4 7.5 6.8 9.6

Total Liabilities 63.2 70.6 80.0 75.7 86.8 Deposits 51.9 58.9 67.3 64.6 72.7 Bills Payable 7.1 6.9 7.4 6.1 6.9 Special Financing 0.2 0.1 0.2 0.1 0.1 Other Liabilities 4.1 4.7 5.2 4.8 7.0

Total Capital Accounts 12.3 13.4 14.9 14.0 15.4 r/ Revisedp/ Preliminary

End-June

Levels (P Billion) r/ p/r/



Table 24. Rural Banking System: Selected Performance Indicators

2002 2003 2004 2004 2005


Net Interest Income 13.7 % 17.9 % 17.5 % 20.0 % 16.7 %Non-interest Income 6.9 % 2.2 % 12.0 % 8.9 % 20.4 %

Operating Expenses 13.0 % 7.8 % 16.5 % 15.3 % 16.4 %Bad Debts/Provisions for Probable Losses 56.7 % 5.3 % 43.7 % 43.6 % 40.0 %Other Operating Expenses 12.0 % 7.8 % 15.6 % 14.4 % 15.5 %

Net Operating Income (0.7 %) 50.7 % 12.5 % 22.6 % 24.9 %Extraordinary Credits 18.7 % (2.3 %) 21.7 % 84.5 % 0.5 %Net Income Before Tax 5.1 % 32.9 % 14.8 % 34.2 % 18.6 %Provisions for Income Tax 13.6 % 22.3 % 21.8 % 9.4 % 62.7 %Net Income After Tax (NIAT) 3.6 % 35.0 % 13.5 % 38.4 % 12.8 %


Cash and Due from Banks 16.6 % 18.4 % 3.6 % 22.6 % 2.2 %Loans, gross 12.2 % 10.7 % 14.5 % 9.2 % 17.7 %Allowance for Probable Losses 5.7 % 4.3 % 16.0 % 8.8 % 17.5 %Loans, net 12.5 % 11.1 % 14.4 % 9.3 % 17.7 %Investments, net 19.6 % 14.0 % 30.2 % 42.2 % 0.5 %ROPOA, net 11.7 % (1.5 %) 11.1 % 3.7 % 3.4 %Other Assets 11.4 % 7.8 % 17.1 % 9.9 % 40.9 %

Total Liabilities 13.7 % 11.6 % 13.3 % 13.4 % 14.7 %Deposits 16.0 % 13.5 % 14.2 % 16.1 % 12.5 %Bills Payable 6.3 % (3.7 %) 8.1 % (7.6 %) 13.1 %Special Financing 8.0 % (20.6 %) 21.5 % (0.8 %) 1.6 %Other Liabilities 0.8 % 15.3 % 9.2 % 10.5 % 45.7 %

Total Capital Accounts 12.4 % 8.8 % 11.2 % 11.6 % 10.0 %

ProfitabilityCost to Income 85.8% 82.1% 81.9% 81.4% 81.0%Return on Assets (ROA) 1.4% 1.7% 1.7% 1.9% 1.7%Return on Equity (ROE) 8.7% 10.6% 10.9% 12.1% 11.3%

Liquidity Cash and Due from Banks to Deposits 27.6% 28.8% 26.1% 28.7% 26.0%Liquid Assets to Deposits 34.8% 36.0% 34.5% 37.8% 34.2%Loans, gross to Deposits 90.2% 88.0% 88.2% 82.8% 86.7%

Asset qualityNon-performing Loans (NPL exclusive of IBL) 13.9% 12.1% 11.4% 12.4% 11.9%NPL Coverage 34.9% 36.1% 37.3% 34.5% 37.1%Non-performing Assets (NPA) to Gross Assets 17.6% 15.5% 15.1% 15.5% 14.7%NPA Coverage 17.8% 18.3% 18.8% 17.5% 19.6%Distressed Assets 27.0% 23.7% 22.7% 24.3% 22.5%

Capital AdequacyCapital Adequacy Ratio (CAR) 16.6% 16.5% 16.7% 16.2% 16.9%Total Capital Accounts to Total Assets 16.3% 16.0% 15.7% 15.6% 15.1%

1/ Annualized; first semester ratios based on second half of previous year plus first half of the current year2/3/r/ Revisedp/ Preliminarya/

End-June

Liquid assets refers to Cash and Due from Banks plus Investments, net (less equity investments, net)

As of end-March 2005

Based on Circular No. 280 dated 29 March 2001, formally adapted 1 July 2001

Growth Rates

Selected Ratios

2/

3/ a/

1/

r/ p/r/



Table 25. Rural Banking Offices: Regional Profile

1,897 1,921 712 1,209

66 68 27 41

1,230 1,218 414 804




Region IV-A - CALABARZON 442 438 142 296

Region IV-B - MIMAROPA 51 44 21 23

Region V - Bicol 86 79 43 36

40 40 17 23

289 299 153 146



Region VIII - Eastern Visayas 47 48 24 24

312 336 118 218





5 5 4 1

60 66 16 50


Luzon

Visayas

Mindanao


End-June 2005


CARAGA

Nationwide

Head Offices


End- December

2004 Total



Table 26. Rural Banking System: Automated Teller Machines (ATMs)As of periods indicated

Mar '05 Jun '05 Mar '05 Jun '05 Mar '05 Jun '05

15 26 - 2 15 28

3 3 - - 3 3

7 8 - - 7 8

Region I - Ilocos - -

Region II - Cagayan - -

Region III - Central Luzon 5 6 - - 5 6

Region IV-A - CALABARZON 2 2 - - 2 2

Region IV-B - MIMAROPA - -

Region V - Bicol - -

- -

- - - - - -

Region VI - Western Visayas - -

Region VII - Central Visayas - -

Region VIII - Eastern Visayas - -

5 15 - 2 5 17

Region IX - Western Mindanao 1 - 1

Region X - Northern Mindanao - -

Region XI - Southern Mindanao 5 10 1 5 11

Region XII - Central Mindanao 1 1 - 2

- -

CARAGA 3 3

Nationwide

On-site


Mindanao



Luzon

Visayas

Off-site Total



Table 27. Rural Banking System: Profitability Indicators

2002 2003 2004 2004 2005



Non-interest Income 2.4 2.4 2.7 1.3 1.5Fee-based Income 1.7 1.8 2.0 0.9 1.1Other Income 0.6 0.6 0.7 0.3 0.4


Net Operating Income 0.8 1.2 1.4 0.7 0.9Extraordinary Credits/(Charges) 0.4 0.4 0.5 0.2 0.2Net Income Before Tax 1.2 1.6 1.8 1.0 1.1Provision for Income Tax 0.2 0.2 0.3 0.1 0.2Net Income After Tax (NIAT) 1.0 1.4 1.5 0.9 1.0


Interest Income 5.2 % 7.9 % 16.2 % 16.2 % 18.0 %Interest Expenses (3.3 %) (4.0 %) 14.3 % 11.2 % 19.9 %

Non-interest Income 6.9 % 2.2 % 12.0 % 8.9 % 20.4 %Fee-based Income 10.5 % 6.4 % 8.3 % 6.1 % 23.2 %Other income (0.6 %) (8.4 %) 25.3 % 16.4 % 15.1 %

Operating Expenses 13.0 % 7.8 % 16.5 % 15.3 % 16.4 %Bad Debts/Provisions for Probable Losses 56.7 % 5.3 % 43.7 % 43.6 % 40.0 %Other Operating Expenses 12.0 % 7.8 % 15.6 % 14.4 % 15.5 %

Net Operating Income (0.7 %) 50.7 % 12.5 % 22.6 % 24.9 %Extraordinary Credits/(Charges) 18.7 % (2.3 %) 21.7 % 84.5 % 0.5 %Net Income Before Tax 5.1 % 32.9 % 14.8 % 34.2 % 18.6 %Provision for Income Tax 13.6 % 22.3 % 21.8 % 9.4 % 62.7 %Net Income After Tax (NIAT) 3.6 % 35.0 % 13.5 % 38.4 % 12.8 %


1/ Annualized; first semester ratio based on second half of previous year plus first half of the year.2/ Earning Asset Yield refers to the ratio of interest income to average earning assets3/ Funding Cost refers to the ratio of interest expenses to average interest-bearing liabilities4/ Interest Spread refers to the difference between earning asset yield and funding cost5/ Net Interest Margin refers to the ratio of net interest income to average earning assets6/ Cost -to-Income Ratio refers to the ratio of operating expenses (exclusive of bad debts and provisions) to total operating income7/ ROA and ROE refers to the ratio of annualized NIAT to average assets and capital, respectively. r/ Revisedp/ Preliminary

First Semester

Levels (P Billion)

Selected Ratios

Growth Rates

r/

2/

3/4/

5/

6/

p/

7/

7/

1/

r/



Table 28. Rural Banking System: Regional Profitability Indicators 1/

RegionEarning

Asset YieldFunding

CostInterest Spread

Net Interest Margin

Cost to Income

Return on Asset (ROA)

Return on Equity (ROE)

Industry 18.4 % 6.4 % 12.0 % 11.0 % 81.0 % 1.7 % 11.3 %

NCR 22.8 % 8.8 % 14.0 % 12.6 % 76.3 % 1.8 % 17.4 %

Region 1 14.9 % 5.4 % 9.6 % 8.7 % 83.8 % 1.8 % 13.5 %

Region 2 18.7 % 7.3 % 11.3 % 10.4 % 82.3 % 1.8 % 12.4 %

Region 3 16.0 % 5.4 % 10.6 % 9.4 % 84.9 % 1.7 % 10.2 %

CALABARZON 16.6 % 5.6 % 10.9 % 9.0 % 90.0 % 0.9 % 6.5 %

MIMAROPA 18.1 % 6.0 % 12.2 % 11.1 % 74.7 % 2.7 % 13.1 %

Region 5 16.4 % 9.2 % 7.2 % 6.7 % 87.9 % 0.7 % 5.3 %

Region 6 16.4 % 5.3 % 11.2 % 10.7 % 87.7 % 0.5 % 3.9 %

Region 7 25.2 % 8.6 % 16.7 % 13.9 % 80.4 % 1.4 % 10.9 %

Region 8 17.9 % 7.1 % 10.7 % 10.5 % 96.1 % 0.3 % 1.6 %

Region 9 18.8 % 5.3 % 13.4 % 14.0 % 75.9 % 2.5 % 10.8 %

Region 10 19.1 % 5.8 % 13.3 % 14.3 % 70.6 % 3.0 % 9.3 %

Region 11 19.5 % 3.8 % 15.6 % 15.3 % 64.5 % 4.6 % 30.1 %

Region 12 20.3 % 5.9 % 14.4 % 13.9 % 82.0 % 1.8 % 10.8 %

CAR 15.4 % 3.8 % 11.6 % 11.6 % 72.3 % 2.9 % 15.5 %

ARMM 27.0 % 6.7 % 20.3 % 21.6 % 51.9 % 11.7 % 33.4 %

CARAGA 25.3 % 8.3 % 17.0 % 16.9 % 79.4 % 3.6 % 21.9 %

1 / Annualized; first semester ratio based on second half of previous year plus first half of the year.p/ Preliminary

End- June 2005p/



Table 29. Rural Banking System: Asset Quality Indicators

2002 2003 2004 2004 2005

Total Assets 75.6 84.0 94.9 89.7 102.2Gross Assets 78.0 86.5 97.7 92.2 105.2Total Loan Portfolio (TLP) 46.6 51.6 58.9 53.1 62.6Non-performing Loans (NPL) 6.5 6.2 6.7 6.6 7.4Loan Loss Reserves (LLR) 2.3 2.3 2.5 2.3 2.8ROPOA, gross 7.3 7.2 8.0 7.7 8.0Allowance for ROPOA 0.2 0.2 0.3 0.2 0.3Restructured Loans (RL), gross 1.1 0.7 0.6 0.7 0.7Restructured Loans (RL), performing 0.8 0.5 0.4 0.5 0.5Distressed Assets 14.5 13.9 15.2 14.8 15.9Non-performing Assets (NPAs) 13.7 13.4 14.7 14.3 15.4Allowance for Probable Losses on NPAs 2.4 2.5 2.8 2.5 3.0

Total Assets 13.5 % 11.2 % 13.0 % 13.1 % 13.9 %Gross Assets 13.0 % 10.8 % 13.0 % 12.7 % 14.1 %TLP 11.8 % 10.5 % 14.3 % 8.7 % 17.9 %NPL 3.1 % (3.6 %) 7.9 % (0.9 %) 12.8 %LLR (1.1 %) (0.2 %) 11.6 % (3.4 %) 21.5 %ROPOA, gross 12.0 % (1.3 %) 11.8 % 4.1 % 3.9 %Allowance for ROPOA 23.5 % 6.4 % 33.6 % 22.9 % 18.8 %RL, gross 1.5 % (40.3 %) (2.3 %) (31.2 %) 2.1 %RL, performing (14.9 %) (39.3 %) (10.3 %) (37.1 %) (2.0 %)Distressed Assets 6.1 % (4.4 %) 9.3 % (0.3 %) 7.7 %NPAs 7.6 % (2.4 %) 10.0 % 1.8 % 8.0 %Allowance for Probable Losses on NPAs 0.4 % 0.3 % 13.3 % (1.4 %) 21.2 %

RL to TLP 2.3 % 1.3 % 1.1 % 1.3 % 1.1 %LLR to TLP 4.8 % 4.4 % 4.3 % 4.3 % 4.4 %NPL Ratio 13.9 % 12.1 % 11.4 % 12.4 % 11.9 %NPL Coverage 34.9 % 36.1 % 37.3 % 34.5 % 37.2 %NPA to Gross Assets 17.6 % 15.5 % 15.1 % 15.5 % 14.7 %NPA Coverage 17.8 % 18.3 % 18.8 % 17.5 % 19.6 %Distressed Assets Ratio 27.0 % 23.7 % 22.7 % 24.3 % 22.5 %

1/2/3/4/

5/

6/

7/8/9/ Distressed Assets Ratio refers to the ratio of Distressed Assets to TLP plus ROPOA, grossr/p/

NPA refers to NPLs plus ROPOA, gross excluding performing sales contracts receivable per BSP Circular No. 380 dated 28 March 2003.

Gross Assets refers to Total Assets, net of reserves plus Loan Loss Reserves (LLR) plus provision for ROPOAROPOA refers to Real and Other Properties Owned or Acquired

PreliminaryRevised

Data as of end-2002 to end-2003 are based on current and past due restructured loans. Figures for end-2004 and subsequent years are based on performing and non-performing RLs.

NPL Coverage refers to the ratio of LLR to NPL.NPA Coverage refers to the ratio of valuation reserves (for Loans and ROPOA) to NPAs.

End-June

Asset Quality Indicators defined per BSP Circular No.202 dated 27 May 1999 amended by BSP Circular No. 351 dated 19 September 2002

Distressed Assets refers to NPLs plus ROPOA, gross and Current RLs from end-2002 to end-2003. Performing RLs replaced current RLs from end-2004 and subsequent years.

Levels (P Billion)

Growth Rates

Selected Ratios

1/

r/

2/

3/

4/

2/

3/

4/

7/

8/

5/

5/

9/

p/

6/

6/

r/



Table 30. Cooperative Banking System: Financial Highlights

2002 2003 2004 2004 2005



Operating Expenses 0.5 0.5 0.6 0.3 0.3 Bad Debts/Provisions for Probable Losses . . . . . . . . . . . . . . .Other Operating Expenses 0.5 0.5 0.6 0.3 0.3

Net Operating Income 0.1 0.1 0.1 0.1 0.1 Extraordinary Credits/(Charges) . . . . . . . . . . . . . . .Net Income Before Tax 0.1 0.1 0.1 0.1 0.1 Provisions for Income Tax . . . . . . . . . . . . . . .Net Income After Tax (NIAT) 0.1 0.1 0.1 0.1 0.1


Cash and Due from Banks 0.8 0.8 0.9 0.9 0.9 Loans, gross 4.0 4.2 4.8 4.4 5.1

Allowance for Probable Losses 0.2 0.2 0.3 0.2 0.3 Loans, net 3.8 4.0 4.5 4.2 4.8 Investments, net 0.2 0.2 0.2 0.2 0.2 ROPOA, net 0.2 0.2 0.3 0.2 0.3 Other Assets 0.4 0.4 0.4 0.4 0.6

Total Liabilities 4.5 4.7 5.3 5.0 5.7 Deposits 2.9 3.3 3.7 3.6 4.0 Bills Payable 1.2 1.1 1.3 1.1 1.2 Special Financing . . . . . . . . . . . . . . .Other Liabilities 0.3 0.3 0.3 0.3 0.5



. . . Less than P0.05 billion

End-June

Levels (P Billion) r/ p/r/



Table 31. Cooperative Banking System: Selected Performance Indicators

2002 2003 2004 2004 2005


Net Interest Income 18.4 % 7.0 % 9.8 % 2.6 % 11.1 %Non-interest Income 17.2 % 1.5 % 17.2 % 10.4 % 14.8 %

Operating Expenses 17.3 % 0.4 % 14.0 % 6.6 % 14.0 %Bad Debts/Provisions for Probable Losses (8.0 %) 42.9 % 94.9 % 76.0 % (6.0 %)Other Operating Expenses 18.0 % (0.5 %) 11.4 % 4.6 % 15.0 %

Net Operating Income 20.9 % 27.0 % 9.8 % 5.0 % 9.2 %Extraordinary Credits/(Charges) 71.9 % 20.2 % 8.6 % (2.2 %) 118.7 %Net Income Before Tax 25.6 % 26.1 % 9.7 % 4.2 % 19.7 %Provisions for Income Tax 14.5 % 473.6 % (42.7 %) 79.7 % 127.6 %Net Income After Tax (NIAT) 25.6 % 25.7 % 9.9 % 4.2 % 19.6 %


Cash and Due from Banks 34.7 % 8.3 % 11.7 % 27.0 % (1.8 %)Loans, gross 9.9 % 5.1 % 14.9 % 6.2 % 16.1 %Allowance for Probable Losses 9.3 % 0.3 % 21.8 % 1.7 % 31.0 %Loans, net 9.9 % 5.4 % 14.5 % 6.5 % 15.3 %Investments, net 39.3 % 17.2 % 8.7 % 8.4 % (0.3 %)ROPOA, net 19.6 % 6.7 % 13.7 % 2.0 % 29.6 %Other Assets 12.1 % 4.1 % 5.2 % (1.2 %) 37.2 %

Total Liabilities 15.5 % 4.7 % 13.0 % 7.5 % 14.7 %Deposits 25.2 % 11.8 % 13.5 % 14.3 % 11.3 %Bills Payable 1.6 % (9.6 %) 15.7 % (5.8 %) 16.1 %Special Financing (8.7 %) (14.7 %) (0.3 %) (13.7 %) 6.0 %Other Liabilities (0.8 %) (3.9 %) 0.0 % (9.7 %) 51.7 %


ProfitabilityCost to Income 83.4% 79.5% 78.2% 78.7% 78.6%Return on Assets (ROA) 2.1% 2.4% 2.4% 2.3% 2.4%Return on Equity (ROE) 12.7% 14.4% 13.9% 13.7% 14.5%

Liquidity Cash and Due from Banks to Deposits 26.3% 25.5% 25.1% 26.2% 23.1%Liquid Assets to Deposits 31.9% 31.4% 30.9% 32.3% 28.7%Loans, gross to Deposits 135.6% 127.5% 129.1% 122.0% 127.4%

Asset qualityNon-performing Loans (NPL exclusive of IBL) 14.9% 12.0% 11.3% 11.6% 11.6%NPL Coverage 34.2% 39.8% 41.5% 35.7% 42.0%Non-performing Assets (NPA) to Gross Assets 14.8% 12.7% 12.3% 12.2% 12.8%NPA Coverage 25.2% 27.3% 28.0% 24.6% 27.9%Distressed Assets 22.3% 19.5% 18.4% 18.8% 19.0%

Capital AdequacyCapital Adequacy Ratio (CAR) 15.4% 14.6% 14.0% 14.6% 13.6%Total Capital Accounts to Total Assets 15.8% 16.9% 17.1% 17.0% 16.6%

1/2/3/r/ Revisedp/ Preliminarya/

Based on Circular No. 280 dated 29 March 2001, formally adapted 1 July 2001

As of end-March 2005

End-June

Liquid assets refers to Cash and Due from Banks plus Investments, net (less equity investments, net)Annualized; first semester ratios based on second half of previous year plus first half of the current year

Growth Rates

Selected Ratios

r/

2/

3/

1/

a/

p/r/



Table 32. Cooperative Banking Offices: Regional Profile

106 107 44 63

1 1 1

64 60 22 38

Region I - Ilocos 8 8 3 5 Region II - Cagayan 10 10 3 7 Region III - Central Luzon 24 24 7 17 Region IV-A - CALABARZON 10 10 3 7 Region IV-B - MIMAROPA 5 1 1 Region V - Bicol 5 5 3 2

2 2 2

17 22 10 12

Region VI - Western Visayas 7 11 4 7 Region VII - Central Visayas 8 9 4 5 Region VIII - Eastern Visayas 2 2 2

24 24 11 13

Region IX - Western Mindanao 2 2 2 Region X - Northern Mindanao 15 15 4 11 Region XI - Southern Mindanao 1 1 1 Region XII - Central Mindanao 3 3 1 2

- - 3 3 3

End-June 2005


CARAGA

Nationwide

Head Offices


End- December

2004 Total

Mindanao



Luzon

Visayas



Table 33. Cooperative Banking System: Profitability Indicators

2002 2003 2004 2004 2005



Non-interest Income 0.3 0.3 0.4 0.2 0.2Fee-based Income 0.2 0.2 0.3 0.1 0.1Other Income 0.1 0.1 0.1 . . . 0.1

Operating Expenses 0.5 0.5 0.6 0.3 0.3Bad Debts/Provisions for Probable Losses . . . . . . . . . . . . . . .Other Operating Expenses 0.5 0.5 0.6 0.3 0.3

Net Operating Income 0.1 0.1 0.1 0.1 0.1Extraordinary Credits/(Charges) . . . . . . . . . . . . . . .Net Income Before Tax 0.1 0.1 0.1 0.1 0.1 Provision for Income Tax . . . . . . . . . . . . . . .Net Income After Tax (NIAT) 0.1 0.1 0.1 0.1 0.1


Interest Income 14.1 % 2.9 % 12.1 % 6.1 % 13.3 %Interest Expenses 10.5 % (0.7 %) 14.3 % 9.3 % 15.3 %

Non-interest Income 17.2 % 1.5 % 17.2 % 10.4 % 14.8 %Fee-based Income 15.4 % 3.9 % 11.0 % 5.1 % 11.4 %Other income 23.1 % (5.8 %) 37.7 % 31.8 % 25.1 %

Operating Expenses 17.3 % 0.4 % 14.0 % 6.6 % 14.0 %Bad Debts/Provisions for Probable Losses (8.0 %) 42.9 % 94.9 % 76.0 % (6.0 %)Other Operating Expenses 18.0 % (0.5 %) 11.4 % 4.6 % 15.0 %

Net Operating Income 20.9 % 27.0 % 9.8 % 5.0 % 9.2 %Extraordinary Credits/(Charges) 71.9 % 20.2 % 8.6 % (2.2 %) 118.7 %Net Income Before Tax 25.6 % 26.1 % 9.7 % 4.2 % 19.7 %Provision for Income Tax 14.5 % 473.6 % (42.7 %) 79.7 % 127.6 %Net Income After Tax (NIAT) 25.6 % 25.7 % 9.9 % 4.2 % 19.6 %

Earning Asset Yield 17.1 % 16.3 % 16.5 % 15.9 % 16.5 %Funding Cost 9.4 % 8.4 % 8.7 % 8.3 % 8.8 %Interest Spread 7.7 % 7.9 % 7.8 % 7.5 % 7.7 %Net Interest Margin 8.0 % 7.9 % 7.9 % 7.6 % 7.8 %Non-interest Income to Total Operating Inco 48.3 % 47.0 % 48.6 % 48.0 % 49.1 %Cost-to-Income 83.4 % 79.5 % 78.2 % 78.7 % 78.6 %Return on Assets (ROA) 2.1 % 2.4 % 2.4 % 2.3 % 2.4 %Return on Equity (ROE) 12.7 % 14.4 % 13.9 % 13.7 % 14.5 %

1/ Annualized; first semester ratio based on second half of previous year plus first half of the year.

2/ Earning Asset Yield refers to the ratio of interest income to average earning assets

3/ Funding Cost refers to the ratio of interest expenses to average interest-bearing liabilities4/ Interest Spread refers to the difference between earning asset yield and funding cost

5/ Net Interest Margin refers to the ratio of net interest income to average earning assets

6/ Cost -to-Income Ratio refers to the ratio of operating expenses (exclusive of bad debts and provisions) to total operating income

7/ ROA and ROE refers to the ratio of annualized NIAT to average assets and capital, respectively. r/ Revisedp/ Preliminary


First Semester

Levels (P Billion)

Selected Ratios

Growth Rates

r/

2/

3/

4/

5/

6/

p/

7/

7/

1/

r/



Table 34. Cooperative Banking System: Regional Profitability Indicators 1/

RegionEarning

Asset YieldFunding

CostInterest Spread

Net Interest Margin

Cost to Income

Return on Asset (ROA)

Return on Equity (ROE)

Industry 16.5% 8.8% 7.7% 7.8% 78.6% 2.4% 14.5%

NCR 15.4% 7.8% 7.6% 8.0% 58.9% 2.1% 7.3%

Region 1 17.0% 8.0% 9.0% 8.8% 71.1% 3.3% 31.8%

Region 2 23.0% 7.4% 15.7% 15.4% 70.5% 4.3% 18.7%

Region 3 14.2% 9.7% 4.5% 4.0% 93.7% 1.0% 9.6%

CALABARZON 17.3% 5.1% 12.3% 11.6% 81.6% 2.7% 15.6%

MIMAROPA 21.7% 8.4% 13.3% 15.7% 75.9% 1.6% 4.6%

Region 5 17.2% 10.1% 7.1% 9.9% 85.3% 2.2% 8.8%

Region 6 14.2% 12.6% 1.6% 1.5% 81.8% 1.5% 13.5%

Region 7 17.0% 8.4% 8.6% 9.3% 70.4% 3.3% 13.8%

Region 8 18.0% 8.9% 9.1% 9.6% 84.4% 1.9% 10.4%

Region 9 13.9% 8.9% 4.9% 5.9% 83.1% 1.4% 6.5%

Region 10 17.7% 8.5% 9.2% 9.6% 84.8% 2.8% 18.2%

Region 11 13.1% 7.7% 5.3% 8.3% 93.4% 0.8% 6.1%

Region 12 20.9% 7.5% 13.4% 14.7% 59.5% 8.2% 33.4%

CAR 17.3% 6.5% 10.9% 9.9% 58.2% 4.3% 19.2%

ARMM 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

CARAGA 17.5% 5.6% 11.9% 12.9% 79.2% 2.5% 8.5%

1 / Annualized; first semester ratio based on second half of previous year plus first half of the year.p/ Preliminary

End- June 2005 p/



Table 35. Cooperative Banking System: Asset Quality Indicators

2002 2003 2004 2004 2005

Total Assets 5.3 5.7 6.4 6.0 6.9Gross Assets 5.5 5.9 6.6 6.2 7.1Total Loan Portfolio (TLP) 4.0 4.2 4.8 4.4 5.1Non-performing Loans (NPL) 0.6 0.5 0.5 0.5 0.6Loan Loss Reserves (LLR) 0.2 0.2 0.2 0.2 0.2ROPOA, gross 0.2 0.2 0.3 0.2 0.3Allowance for ROPOA . . . . . . . . . . . . . . .Restructured Loans (RL), gross 0.1 0.1 0.1 0.1 0.1Restructured Loans (RL), performing 0.1 0.1 0.1 0.1 0.1Distressed Assets 0.9 0.9 0.9 0.9 1.0Non-performing Assets (NPAs) 0.8 0.7 0.8 0.8 0.9Allowance for Probable Losses on NPAs 0.2 0.2 0.2 0.2 0.3

Total Assets 14.3 % 6.2 % 13.2 % 8.5 % 14.1 %Gross Assets 13.7 % 5.9 % 13.2 % 7.7 % 14.8 %TLP 9.3 % 5.0 % 14.4 % 5.4 % 16.1 %NPL (0.0 %) (15.4 %) 7.8 % (21.2 %) 16.2 %LLR (1.2 %) (1.6 %) 12.3 % (13.8 %) 36.7 %ROPOA, gross 19.2 % 6.4 % 13.6 % 2.3 % 29.6 %Allowance for ROPOA 2.1 % (7.9 %) 9.1 % 19.3 % 30.3 %RL, gross 5.9 % (2.6 %) 2.9 % (3.3 %) 2.7 %RL, performing 9.0 % (1.0 %) (2.6 %) (7.8 %) 0.4 %Distressed Assets 5.2 % (8.3 %) 8.1 % (14.0 %) 18.1 %NPAs 4.7 % (9.3 %) 9.7 % (14.8 %) 20.6 %Allowance for Probable Losses on NPAs (1.1 %) (1.7 %) 12.2 % (13.2 %) 36.6 %

RL to TLP 3.2 % 3.0 % 2.7 % 2.9 % 2.5 %LLR to TLP 5.1 % 4.8 % 4.7 % 4.2 % 4.9 %NPL Ratio 14.9 % 12.0 % 11.3 % 11.6 % 11.6 %NPL Coverage 34.2 % 39.8 % 41.5 % 35.7 % 42.0 %NPA to Gross Assets 14.8 % 12.7 % 12.3 % 12.2 % 12.8 %NPA Coverage 25.2 % 27.3 % 28.0 % 24.6 % 27.9 %Distressed Assets Ratio 22.3 % 19.4 % 18.4 % 18.8 % 19.0 %

1/2/3/4/

5/

6/7/8/9/ Distressed Assets Ratio refers to the ratio of Distressed Assets to TLP plus ROPOA.r/ Revisedp/ Preliminary

… Less than P0.05 billion

NPA Coverage refers to the ratio of valuation reserves (for Loans and ROPOA) to NPAs.

End-June

NPL Coverage refers to the ratio of LLR to NPL.

Asset Quality Indicators defined per BSP Circular No.202 dated 27 May 1999 amended by BSP Circular No. 351 dated 19 September 2002

Distressed Assets refers to NPLs plus ROPOA, gross and Current RLs from end-2000 to end-2003. Performing RLs replaced current RLs from end-2004 and subsequent years.NPA refers to NPLs plus ROPOA, gross excluding performing sales contracts receivable per BSP Circular No. 380 dated 28 March 2003

Gross Assets refers to Total Assets, net of reserves plus Loan Loss Reserves (LLR) plus provision for ROPOAROPOA refers to Real and Other Properties Owned or AcquiredData as of end-2000 to end-2003 are based on current and past due restructured loans. Figures for end-2004 and subsequent years are based on performing and non-performing RLs.

Levels (P Billion)

Growth Rates

Selected Ratios

r/

2/

2/

3/

3/

5/

5/

6/

6/

7/

8/

9/

p/

1/

4/

4/

r/



Table 36. Non-Banks with Quasi-Banking Functions (NBQBs): Financial Highlights

2002 2003 2004 2004 2005


Net Interest Income 1.1 0.8 1.0 0.5 0.8Non-interest Income 1.3 1.2 1.3 0.5 0.8

Operating Expenses 1.2 1.1 1.0 0.6 0.6Bad Debts/Provisions for Probable Losses 0.1 . . . 0.1 0.2 . . . Other Operating Expenses 1.1 1.1 0.9 0.4 0.6

Net Operating Income 1.3 0.9 1.3 0.4 1.0Extraordinary Credits/(Charges) 0.2 0.6 0.4 0.2 0.5Net Income Before Tax 1.5 1.4 1.7 0.6 1.4Provisions for Income Tax 0.3 0.1 0.5 0.2 0.2Net Income After Tax (NIAT) 1.2 1.3 1.2 0.4 1.2


Cash and Due from Banks 1.0 1.9 1.5 1.0 2.9Interbank Loans Receivable (IBL) 1.5 1.6 1.1 0.8 0.5Loans, gross (exclusive of IBL) 8.3 12.7 12.4 11.3 15.7

Allowance for Probable Losses 0.9 1.0 0.7 1.0 0.7Loans, net (exclusive of IBL) 7.4 11.7 11.7 10.2 15.0Investments, net 9.5 7.6 13.5 9.1 19.2ROPOA, net 1.8 1.3 1.4 1.3 1.4Other Assets 8.1 4.6 4.4 4.6 4.2

Total Liabilities 13.4 12.2 17.3 11.3 27.4Bills Payable 8.4 10.4 15.1 9.0 24.7Other Liabilities 5.1 1.8 2.2 2.4 2.7



End-June

Levels (P Billion)



Table 37. Non-Banks with Quasi-Banking Functions (NBQBs) Selected Performance Indicators

2002 2003 2004 2004 2005

Income StatementTotal Operating Income (21.4 %) (19.3 %) 17.9 % (23.7 %) 63.4 %

Net Interest Income (28.5 %) (29.0 %) 24.4 % 28.5 % 55.9 %Non-interest Income (14.1 %) (10.9 %) 13.3 % (46.3 %) 71.1 %

Operating Expenses (25.9 %) (5.2 %) (9.2 %) (1.8 %) (0.5 %)Bad Debts/Provisions for Probable Losses (52.4 %) (63.8 %) 199.8 % 33.6 % (83.2 %)Other Operating Expenses (23.4 %) (1.8 %) (13.7 %) (12.0 %) 35.5 %

Net Operating Income (16.9 %) (31.9 %) 51.4 % (44.4 %) 169.7 %Extraordinary Credits/(Charges) (55.8 %) 226.0 % (34.2 %) (73.5 %) 111.0 %Net Income Before Tax (24.6 %) (1.8 %) 18.3 % (60.7 %) 147.6 %Provisions for Income Tax (29.9 %) (52.2 %) 233.5 % 151.1 % 12.3 %Net Income After Tax (NIAT) (23.1 %) 11.5 % (6.0 %) (74.0 %) 229.7 %

Balance SheetTotal Assets (23.5 %) (2.0 %) 16.5 % (16.6 %) 60.1 %

Cash and due from Banks (30.5 %) 96.1 % (20.6 %) (66.6 %) 201.5 %Interbank Loans Receivable (IBL) (32.8 %) 0.1 % (32.2 %) (73.5 %) (33.1 %)Loans, gross (exclusive of IBL) (42.2 %) 52.6 % (2.6 %) 13.0 % 39.6 %

Allowance for Probable Losses (25.8 %) 7.2 % (30.0 %) 23.8 % (30.6 %)Loans, net (exclusive of IBL) (43.7 %) 58.0 % (0.3 %) 12.0 % 46.6 %Investments, net 6.5 % (20.2 %) 77.7 % (20.0 %) 110.5 %ROPOA, net (39.0 %) (24.5 %) 2.6 % (9.1 %) 6.2 %Other Assets (16.0 %) (42.8 %) (5.3 %) 1.3 % (8.6 %)

Total Liabilities (40.2 %) (9.5 %) 42.0 % (23.8 %) 142.2 %Bills Payable (44.4 %) 24.1 % 45.0 % 40.0 % 175.3 %Other Liabilities (31.5 %) (64.9 %) 24.6 % (72.2 %) 15.9 %

Total Capital Accounts (0.0 %) 4.3 % (2.2 %) (10.6 %) 0.8 %

ProfitabilityCost-to-Income 44.6 % 54.2 % 39.7 % 60.5 % 36.5 %Return on Assets (ROA) 3.5 % 4.5 % 3.9 % 0.9 % 5.9 %Return on Equity (ROE) 7.3 % 8.0 % 7.5 % 1.6 % 13.0 %

Liquidity Cash and Due from Banks to Bills Payable 11.5 % 18.1 % 9.9 % 10.9 % 11.9 %Liquid Assets to Bills Payable 70.6 % 52.1 % 71.4 % 57.9 % 71.9 %Loans, gross to Bills Payable 117.9 % 137.2 % 89.1 % 134.3 % 65.8 %

Asset QualityNon-performing Loans (NPL) 10.5 % 5.8 % 4.0 % 6.8 % 3.9 %NPL Coverage 85.7 % 114.6 % 124.8 % 125.7 % 112.9 %Non-performing Assets (NPA) to Gross Assets 10.9 % 7.6 % 6.1 % 8.3 % 5.0 %NPA Coverage 43.1 % 53.6 % 41.4 % 54.5 % 42.6 %

Capital AdequacyTotal Capital Accounts to Total Assets 54.2 % 57.7 % 48.4 % 58.1 % 36.6 %Paid-in Capital to Total Capital Accounts 33.6 % 52.0 % 55.1 % 55.1 % 58.4 %

Business MixTotal Investments (gross) to Total Assets 33.2 % 27.5 % 40.5 % 35.0 % 44.5 %Total Loans (gross) to Total Assets 33.7 % 49.6 % 40.1 % 44.6 % 37.5 %

1/ Annualized; first semester ratios based on second half of previous year plus first half of the current year2/ Cost-to-Income Ratio refers to operating expenses, exclusive of bad debts and provisions to total operating income3/ Liquid Assets refers to Cash and Due from Banks plus Investments,net (less equity investments,net)r/ Revised

End-June

Growth Rates

Selected Ratios

3/

2/

r/

1/

r/



Table 38. Non-Banks with Quasi-Banking Functions (NBQBs): Profitability Indicators

2002 2003 2004 2004 2005



Non-interest Income 1.3 1.2 1.3 0.5 0.8Fee-based Income 0.7 0.5 0.7 0.3 0.4Trading Income 0.2 0.4 0.6 0.3 0.5Other Income 0.5 0.2 0.1 (0.2) (0.0)

Operating Expenses 1.2 1.1 1.0 0.6 0.6Bad Debts/Provisions for Probable Losses 0.1 . . . 0.1 0.2 . . .Other Operating Expenses 1.1 1.1 0.9 0.4 0.6

Net Operating Income 1.3 0.9 1.3 0.4 1.0Extraordinary Credits/(Charges) 0.2 0.6 0.4 0.2 0.5Net Income Before Tax 1.5 1.4 1.7 0.6 1.4Provisions for Income Tax 0.3 0.1 0.5 0.2 0.2Net Income After Tax (NIAT) 1.2 1.3 1.2 0.4 1.2

Total Operating Income (21.4 %) (19.3 %) 17.9 % (23.7 %) 63.4 %Net Interest Income (28.5 %) (29.0 %) 24.4 % 28.5 % 55.9 %

Interest Income 1.7 % (17.3 %) 31.8 % 39.7 % 120.2 %Interest Expenses (42.8 %) (27.9 %) 31.5 % 44.9 % 117.1 %

Non-interest Income (14.1 %) (10.9 %) 13.3 % (46.3 %) 71.1 %Fee-based Income (9.7 %) (17.3 %) 24.9 % 26.3 % 17.8 %Trading Income 43.7 % 177.7 % 36.5 % (39.4 %) 30.4 %Other Income (27.1 %) (58.0 %) (60.1 %) (550.7 %) 83.7 %

Operating Expenses (25.9 %) (5.2 %) (9.2 %) (1.8 %) (0.5 %)Bad Debts/Provisions for Probable Losses (52.4 %) (63.8 %) 199.8 % 33.6 % (83.2 %)Other Operating Expenses (23.4 %) (1.8 %) (13.7 %) (12.0 %) 35.5 %

Net Operating Income (16.9 %) (31.9 %) 51.4 % (44.4 %) 169.7 %Extraordinary Credits/(Charges) (55.8 %) 226.0 % (34.2 %) (73.5 %) 111.0 %Net Income Before Tax (24.6 %) (1.8 %) 18.3 % (60.7 %) 147.6 %Provisions for Income Tax (29.9 %) (52.2 %) 233.5 % 151.1 % 12.3 %Net Income After Tax (NIAT) (23.1 %) 11.5 % (6.0 %) (74.0 %) 229.7 %


1/ Annualized; first semester ratios based on second half of previous year plus first half of the current year2/ Earning Asset Yield refers to the ratio of interest income to average earning assets3/ Funding Cost refers to the ratio of interest expenses to average interest-bearing liabilities4/ Interest Spread refers to the difference between earning asset yield and funding cost5/ Net Interest Margin refers to the ratio of net interest income to average earning assets6/ Cost-to-Income Ratio refers to operating expenses, exclusive of bad debts and provisions to total operating income7/ ROA and ROE refers to the ratio of annualized NIAT to average assets and capital, respectively. r/ Revised


First Semester

Levels (P Billion)

Selected Ratios

Growth Rates

2/3/

4/

5/

6/

r/

7/7/

1/

r/



Table 39. Non-Banks with Quasi-Banking Functions (NBQBs): Asset Quality Indicators

2002 2003 2004 2004 2005

Total Assets 29.3 28.7 33.5 27.1 43.3Gross Assets 30.8 30.0 34.4 28.3 44.3Total Loan Portfolio (TLP) 9.9 14.2 13.4 12.1 16.3Interbank Loans Receivable (IBL) 1.5 1.6 1.1 0.8 0.5Total Loan Portfolio (TLP), (exclusive of IBL) 8.3 12.7 12.4 11.3 15.7Total Loan Portfolio (TLP), net (exclusive of IBL) 7.4 11.7 11.7 10.2 15.0Non-performing Loans (NPL) 1.0 0.8 0.5 0.8 0.6Loan Loss Reserves (LLR) 0.9 1.0 0.7 1.0 0.7ROPOA, gross 2.3 1.6 1.6 1.5 1.6Allowance for ROPOA 0.6 0.3 0.2 0.3 0.2Restructured Loans (RL), gross 0.5 0.3 0.4 0.3 0.3Restructured Loans (RL), current 0.4 0.2 0.2 0.2 0.2Non-performing Assets (NPAs) 3.4 2.3 2.1 2.4 2.2Allowance for Probable Losses on NPAs 1.5 1.2 0.9 1.3 1.0

Total Assets (23.5 %) (2.0 %) 16.5 % (16.6 %) 60.1 %Gross Assets (22.8 %) (2.6 %) 14.7 % (16.1 %) 56.1 %TLP (40.9 %) 44.3 % (5.8 %) (7.0 %) 34.8 %IBL (32.8 %) 0.1 % (32.2 %) (73.5 %) (33.1 %)TLP (exclusive of IBL) (42.2 %) 52.6 % (2.6 %) 13.0 % 39.6 %TLP, net (exclusive of IBL) (43.7 %) 58.0 % (0.3 %) 12.0 % 46.6 %NPL (36.8 %) (19.9 %) (35.7 %) 10.5 % (22.7 %)LLR (25.8 %) 7.2 % (30.0 %) 23.8 % (30.6 %)ROPOA, gross (27.7 %) (31.3 %) (1.7 %) (19.7 %) 3.6 %Allowance for ROPOA 74.4 % (52.5 %) (23.5 %) (49.3 %) (8.9 %)RL, gross (22.1 %) (34.3 %) 7.9 % (30.1 %) 16.6 %RL, current (9.2 %) (58.3 %) 41.6 % (53.2 %) 25.6 %NPAs (30.8 %) (32.3 %) (7.5 %) (11.3 %) (5.5 %)Allowance for Probable Losses on NPAs (4.5 %) (16.0 %) (28.5 %) (4.0 %) (26.2 %)

RL to TLP 5.1 % 2.3 % 2.7 % 2.5 % 2.1 %LLR to TLP 9.0 % 6.7 % 5.0 % 8.5 % 4.4 %NPL Ratio (inclusive of IBL) 10.5 % 5.8 % 4.0 % 6.8 % 3.9 %NPL Ratio (exclusive of IBL) 12.5 % 6.5 % 4.3 % 7.3 % 4.0 %NPL Coverage 85.7 % 114.6 % 124.8 % 125.7 % 112.9 %NPA to Gross Assets 10.9 % 7.6 % 6.1 % 8.3 % 5.0 %NPA Coverage 43.1 % 53.6 % 41.4 % 54.5 % 42.6 %

1/ Asset Quality Indicators defined per BSP Circular No. 351 dated 19 September 20022/ Gross Assets refers to Total Assets, net of reserves plus Loan Loss Reserves (LLR) plus provision for ROPOA3/ ROPOA refers to Real and Other Properties Owned or Acquired4/ NPA refers to NPLs plus ROPOA, gross excluding performing sales contracts receivable per BSP Circular No. 380 dated 28 March 20035/ NPL Coverage refers to the ratio of LLR to NPL6/ NPA Coverage refers to the ratio of valuation reserves (for Loans and ROPOA) to NPAs

End-June

Levels (P Billion)

Growth Rates

Selected Ratios

1/

2/

3/

4/

2/

3/

4/

5/

6/



Table 40. Non-Stock Savings and Loan Associations (NSSLAs) Selected Performance Indicators

2002 2003 2004 2004 2005


Cash and Due from Banks 3.4 5.1 5.4 4.6 6.6Loans, gross 46.1 52.1 59.4 55.9 59.7

Allowance for Probable Losses 2.4 4.0 6.1 5.6 6.6Loans, net 43.7 48.1 53.2 50.3 53.1Investments, net 3.9 5.2 4.3 4.3 4.2ROPOA, net 0.3 0.5 0.3 0.3 0.3Other Assets 3.1 2.6 3.7 3.8 2.9

Total Liabilities 6.6 6.8 7.9 7.2 8.1Deposits 3.7 3.9 4.8 4.4 4.9Bills Payable 0.4 0.4 0.4 0.4 0.4Other Liabilities 2.5 2.4 2.7 2.4 2.7



Cash and Due from Banks 0.7 % 48.4 % 7.7 % 25.3 % 44.5 %Loans, gross 16.8 % 13.0 % 14.0 % 10.8 % 6.8 %

Allowance for Probable Losses 46.3 % 68.2 % 53.0 % 50.0 % 17.6 %Loans, net 15.6 % 10.0 % 10.8 % 7.7 % 5.6 %Investments, net 26.4 % 32.6 % (17.4 %) 2.0 % (4.0 %)ROPOA, net 34.9 % 64.7 % (43.8 %) (2.4 %) 10.5 %Other Assets (8.6 %) (16.7 %) 42.5 % 6.6 % (23.7 %)

Total Liabilities (0.2 %) 2.6 % 16.9 % 10.4 % 12.4 %Deposits 4.7 % 6.5 % 22.3 % 16.8 % 13.2 %Bills Payable 0.5 % 7.9 % 9.5 % 34.1 % 4.6 %Other Liabilities (6.6 %) (3.8 %) 9.5 % (1.9 %) 12.2 %


Liquidity Cash and Due from Banks to Deposits 92.2 % 128.5 % 113.2 % 104.5 % 133.4 %Liquid Assets to Deposits 198.2 % 260.5 % 202.3 % 203.9 % 151.7 %Loans, gross to Deposits 1,249.0 % 1,325.2 % 1,235.6 % 1,283.2 % 1,210.2 %

Asset QualityNon-performing Loans (NPL) 6.1 % 16.7 % 15.3 % 16.8 % 17.1 %NPL Coverage 84.9 % 46.0 % 67.6 % 59.3 % 64.2 %Non-performing Assets (NPA) to Gross Assets 5.5 % 14.1 % 12.8 % 14.1 % 14.3 %NPA Coverage 76.6 % 43.5 % 65.6 % 57.5 % 62.3 %

Capital AdequacyTotal Capital Accounts to Total Assets 87.9 % 89.0 % 88.2 % 88.7 % 88.0 %Paid-in Capital to Total Capital Accounts 89.5 % 90.6 % 91.3 % 93.6 % 92.8 %

Business MixTotal Investments (gross) to Total Assets 7.2 % 8.4 % 6.4 % 6.8 % 6.2 %Total Loans (gross) to Total Assets 84.7 % 84.9 % 88.8 % 88.3 % 88.9 %

1/ Liquid Assets refers to Cash and Due from Banks plus Investments,net (less equity investments,net)

End-June

Growth Rates

Selected Ratios

Levels (P Billion)

1/



Table 41. Non-Stock Savings and Loan Associations (NSSLAs): Asset Quality Indicators

2002 2003 2004 2004 2005

Total Assets 54.4 61.4 66.9 63.3 67.1

Gross Assets 56.8 65.4 73.0 68.9 73.7

Total Loan Portfolio (TLP) 46.1 52.1 59.4 55.9 59.7

Total Loan Portfolio (TLP), (exclusive of IBL) 46.1 52.1 59.4 55.9 59.7

Total Loan Portfolio (TLP), net (exclusive of IBL) 43.7 48.1 53.2 50.3 53.1

Non-performing Loans (NPL) 2.8 8.7 9.1 9.4 10.2

Loan Loss Reserves (LLR) 2.4 4.0 6.1 5.6 6.6

ROPOA, gross 0.3 0.5 0.3 0.3 0.3

Non-performing Assets (NPAs) 3.1 9.2 9.4 9.7 10.5

Allowance for Probable Losses on NPAs 2.4 4.0 6.1 5.6 6.6

Total Assets 13.6% 12.8% 9.0% 8.3% 6.0%

Gross Assets 14.7% 15.1% 11.7% 10.8% 6.9%

TLP 16.8% 13.0% 14.0% 10.8% 6.8%

TLP (exclusive of IBL) 16.8% 13.0% 14.0% 10.8% 6.8%

TLP, net (exclusive of IBL) 15.6% 10.0% 10.8% 7.7% 5.6%

NPL 11.0% 210.2% 4.2% 170.4% 8.6%

LLR 46.3% 68.2% 53.0% 50.0% 17.6%

ROPOA, gross 34.9 % 64.7 % (43.8 %) (2.4 %) 10.5 %

NPAs 12.9% 196.0% 1.6% 156.7% 8.7%

Allowance for Probable Losses on NPAs 46.3% 68.2% 53.0% 50.0% 17.6%

LLR to TLP 5.2 % 7.7 % 10.3 % 10.0 % 11.0 %

NPL Ratio (inclusive of IBL) 6.1 % 16.7 % 15.3 % 16.8 % 17.1 %

NPL Ratio (exclusive of IBL) 6.1 % 16.7 % 15.3 % 16.8 % 17.1 %

NPL Coverage 84.9 % 46.0 % 67.6 % 59.3 % 64.2 %

NPA to Gross Assets 5.5 % 14.1 % 12.8 % 14.1 % 14.3 %

NPA Coverage 76.6 % 43.5 % 65.6 % 57.5 % 62.3 %

1/ Asset Quality Indicators defined per BSP Circular No. 202 dated 27 May 1999 amended by BSP Circular No. 351 dated 19 September 20022/ Gross Assets refers to Total Assets, net of reserves plus Loan Loss Reserves (LLR) plus provision for ROPOA3/ ROPOA refers to Real and Other Properties Owned or Acquired4/ NPA refers to NPLs plus ROPOA, gross5/ NPL Coverage refers to the ratio of LLR to NPL6/ NPA Coverage refers to the ratio of LLR (for Loans and ROPOA) to NPAs

End-June

Levels (P Billion)

Growth Rates

Selected Ratios

1/

2/

2/

3/

3/

4/

4/

5/

6/



Table 42. Offshore Banking System: Financial Highlights

2002 2003 2004 2004 2005

Income StatementTotal Operating Income 20 19 19 8 11

Net Interest Income 21 8 9 3 4

Non-interest Income (1) 11 10 5 7

Operating Expenses 16 12 14 6 8

Provisions for Probable Losses 3 1 1 0 1

Other Operating Expenses 13 11 13 6 7

Net Operating Income 4 7 5 2 3

Net Income Before Tax 3 7 5 2 3

Provision for Income Tax 0 1 0 0 0

Net Income After Tax (NIAT) 3 6 5 2 3

Balance SheetTotal Assets (net) 577 604 805 588 1258

Allowance for Probable Losses 86 85 77 85 33

Gross Assets 663 689 882 673 1291

Due from Other Banks 163 171 131 166 123

Loans, gross 332 282 256 236 664

Investment in Bonds and Other Securities 148 215 474 250 483

Other Assets 20 21 21 21 21

Total Liabilities 577 604 805 588 1258

Deposits of Non-residents Other than Banks 29 26 22 22 19

Due to Other Banks 212 193 210 185 187

Other Liabilities 16 15 23 21 339

Net Due to Head Office/Other Branches 320 370 550 360 713

r/ Revised

End-June

Levels ($ Million) r/



Table 43. Offshore Banking System: Selected Performance Indicators

2002 2003 2004 2004 2005

Income StatementTotal Operating Income (13.0 %) (5.0 %) 0.0% 0.0% 37.5 %

Net Interest Income (12.5 %) (61.9 %) 12.5 % 0.0% 33.3 %

Non-interest Income 0.0% 1,200.0 % (9.1 %) 0.0% 40.0 %

Operating Expenses (38.5 %) (25.0 %) 16.7 % 20.0 % 33.3 %

Provisions for Probable Losses (62.5 %) (66.7 %) 0.0% - -

Other Operating Expenses (27.8 %) (15.4 %) 18.2 % 20.0 % 16.7 %

Net Operating Income 233.3 % 75.0 % (28.6 %) (33.3 %) 50.0 %

Net Income Before Tax 200.0 % 133.3 % (28.6 %) (50.0 %) 50.0 %

Provision for Income Tax - 0.0% (100.0 %) - -

Net Income After Tax (NIAT) 200.0 % 100.0 % (16.7 %) (50.0 %) 50.0 %

Balance SheetTotal Assets (net) (24.2 %) 4.7 % 33.3 % (4.7 %) 113.9 %

Allowance for Probable Losses (10.4 %) (1.2 %) (9.4 %) 0.0% (61.2 %)

Gross Assets (22.6 %) 3.9 % 28.0 % (4.1 %) 91.8 %

Due from Other Banks (9.9 %) 4.9 % (23.4 %) 6.4 % (25.9 %)

Loans, gross (25.1 %) (15.1 %) (9.2 %) (33.5 %) 181.4 %

Investment in Bonds and Other Securities (29.9 %) 45.3 % 120.5 % 45.3 % 93.2 %

Other Assets (9.1 %) 5.0 % 0.0% 10.5 % 0.0%

Total Liabilities (24.2 %) 4.7 % 33.3 % (4.7 %) 113.9 %

Deposits of Non-residents Other than Banks (23.7 %) (10.3 %) (15.4 %) (35.3 %) (13.6 %)

Due to Other Banks 15.8 % (9.0 %) 8.8 % (20.9 %) 1.1 %

Other Liabilities 128.6 % (6.3 %) 53.3 % 50.0 % 1,514.3 %

Net Due to Head Office/Other Branches (40.0 %) 15.6 % 48.6 % 7.5 % 98.1 %

Profitability Cost-to-Income Ratio 65.0 % 57.9 % 68.4 % 63.2 % 63.3 %

Return on Assets (ROA) 0.5 % 1.0 % 0.7 % 0.3 % 0.7 %

1/ Annualized

r/ Revised

End-June

Growth Rates

Selected Ratios1/

r/



Table 44. Total Trust Operations (Philippine Banks & NBFIs): Financial Highlights

2002 2003 2004 2004 2005

INCOME AND EXPENSE

Total Trust Income 3.5 4.7 4.9 2.4 2.7

Fees and Commissions 3.5 4.7 4.9 2.3 2.7

Other Income 0.1 . . . . . . . . . . . .

Total Trust Expenses 1.1 1.6 1.3 0.6 0.7

Compensation / Fringe Benefits 0.5 0.6 0.5 0.2 0.3

Depreciation / Amortization 0.1 0.1 0.1 . . . . . .

Management and Professional Fees . . . . . . . . . . . . . . .

Taxes and Licenses 0.1 0.1 0.2 0.1 0.1

Other Expenses 0.5 0.8 0.5 0.2 0.3

Operating Income / (Loss) 2.4 3.1 3.6 1.8 2.0

ASSETS AND ACCOUNTABILITIES

Total Trust Assets 596.8 707.0 812.8 729.5 828.4

Cash and Due from Banks 114.0 84.0 105.1 83.2 93.5

Loans and Discounts (net) 61.5 62.8 63.2 69.7 60.4

Investments in: 396.0 524.9 592.3 546.3 625.3

Government Securities (net) 257.1 342.0 423.7 386.2 444.0

Private Instruments and Shares of Stocks (net) 103.5 140.5 118.5 109.1 132.3

CTFs / UITFs 24.2 29.6 37.2 38.6 35.8

Real Estate (net) 11.0 12.6 12.8 12.3 13.3

Asset-Backed Securities 0.2 0.2 . . . . . . . . .

0.7 0.9 0.7 1.0 0.9

Other Assets 24.7 34.4 51.6 29.4 48.3

Total Trust Accountabilities 596.8 707.0 812.8 729.5 828.4

Trust and Other Fiduciary Accounts 254.5 343.9 394.0 340.3 420.0

Administratorship 22.2 25.2 27.5 26.9 28.8

Employees Benefit Plans Under Trust 57.5 73.1 84.3 77.4 90.4

Escrow 46.3 51.3 16.1 15.8 17.2

Personal Trust 51.2 95.7 117.4 107.4 130.0

Pre-need Plans 48.0 61.6 73.5 68.2 78.3

Other Institutional Trust 2.1 10.4 21.4 19.7 25.5

Others 27.1 26.5 53.8 24.9 49.8

122.6 249.4 296.8 272.3 257.6

Investment Management Accounts 94.9 102.1 111.2 106.9 137.0

Other Accountabilities / Unearned Income 124.9 11.7 10.9 9.9 13.8


* Differs from CSIE-Trust Department Income due to reporting inconsistencies; MAB dated 23 February 2005 issued to correct.

Real & Other Properties Acquired in Settlement of Loans (net)

Common Trust Funds / Unit Investment Trust Funds

End-June

Levels (P Billion)

*



Table 45. Total Trust (Philippine Banks and NBFIs) : Selected Performance Indicators

Growth Rates 2002 2003 2004 2004 2005

INCOME AND EXPENSETotal Trust Income 32.7 % 33.3 % 3.8 % 9.0 % 14.4 %

Fees and Commissions 33.1 % 33.8 % 4.5 % 11.1 % 14.3 %

Other Income 11.1 % (4.0 %) (60.4 %) (79.6 %) 40.0 %

Total Trust Expenses 16.0 % 41.5 % (19.2 %) 1.9 % 22.4 %

Compensation / Fringe Benefits 3.1 % 21.9 % (5.9 %) 2.0 % 14.1 %

Depreciation / Amortization 15.4 % 6.7 % (12.5 %) 11.5 % (24.1 %)

Management and Professional Fees (13.5 %) 34.4 % (34.9 %) (33.3 %) 141.7 %

Taxes and Licenses 15.3 % 19.3 % 88.9 % 19.6 % 58.2 %

Other Expenses 34.6 % 67.9 % (40.5 %) (0.8 %) 20.7 %

Operating Income / (Loss) 42.5 % 29.4 % 15.7 % 11.7 % 11.7 %

ASSETS AND ACCOUNTABILITIESTotal Trust Assets 27.0 % 18.5 % 15.0 % 12.0 % 13.6 %

Cash and Due from Banks 58.0 % (26.3 %) 25.1 % (24.9 %) 12.5 %

Loans and Discounts (net) (11.4 %) 2.1 % 0.6 % 5.7 % (13.3 %)

Investments in: 30.2 % 32.6 % 12.8 % 22.4 % 14.5 %

Government Securities (net) 66.8 % 33.0 % 23.9 % 31.9 % 14.9 %

Private Instruments and Shares of Stocks (net) (15.9 %) 35.7 % (15.7 %) (7.0 %) 21.2 %

CTFs / UITFs 54.7 % 22.5 % 25.7 % 55.8 % (7.4 %)

Real Estate (net) (2.2 %) 14.6 % 1.7 % 11.7 % 8.0 %

Asset-Backed Securities 17.5 % (97.2 %) (95.1 %) (77.8 %)

(19.4 %) 35.8 % (22.3 %) (15.3 %) (14.3 %)

Other Assets 5.1 % 39.5 % 50.0 % 8.3 % 64.6 %

Total Trust Accountabilities 27.0 % 18.5 % 15.0 % 12.0 % 13.6 %

Trust and Other Fiduciary Accounts 10.9 % 35.1 % 14.6 % 20.4 % 23.4 %

Administratorship 2.4 % 13.7 % 9.0 % 19.2 % 6.9 %

Employees Benefit Plans Under Trust 2.9 % 27.0 % 15.4 % 15.6 % 16.7 %

Escrow 14.3 % 10.8 % (68.6 %) (66.4 %) 9.1 %

Personal Trust 1.9 % 87.0 % 22.6 % 87.3 % 21.0 %

Pre-need Plans 15.8 % 28.3 % 19.4 % 18.4 % 14.8 %

Other Institutional Trust 388.1 % 105.0 % 153.0 % 29.4 %

Others 37.8 % (2.0 %) 102.8 % 6.8 % 99.8 %

49.2 % 103.5 % 19.0 % 75.1 % (5.4 %)

Investment Management Accounts 9.0 % 7.6 % 8.9 % 15.9 % 28.1 %

Other Accountabilities / Unearned Income 75.0 % (90.7 %) (6.8 %) (91.8 %) 39.2 %

Selected Ratios

ProfitabilityCost-to-Income Ratio 32.1 % 34.1 % 26.5 % 25.3 % 27.0 %

Return on Trust Assets 0.5 % 0.5 % 0.5 % 0.3 % 0.3 %

LiquidityCash and Due from Banks to Total Accountabilities 19.1 % 11.9 % 12.9 % 11.4 % 11.3 %

Liquid Assets to Total Accountabilities 67.0 % 79.4 % 80.0 % 79.3 % 80.8 %

Loans (gross) to Total Accountabilities 9.3 % 9.6 % 8.4 % 9.5 % 7.3 %

Asset QualityNon-performing Loans (NPL) Ratio n.a. 6.1 % 5.1 % 5.0 % 7.0 %

NPL Coverage Ratio n.a. 118.3 % 140.9 % 73.8 % 84.7 %

Non-performing Assets (NPA) to Gross Assets 0.2 % 0.8 % 0.6 % 0.7 % 0.7 %

NPA Coverage Ratio 496.2 % 97.1 % 115.0 % 105.7 % 99.3 %

1/ Annualized; first semester ratio based on second half of previous year plus first half of the year.

n.a. Data not available

End-June



1/



Table 46. Total Trust Operations (Philippine Banks & NBFIs): Balance Sheet Structure

2002 2003 2004 2004 2005

Total Trust Assets 100.0% 100.0% 100.0% 100.0% 100.0%

Cash and Due from Banks 19.1% 11.9% 12.9% 11.4% 11.3%

Loans and Discounts (net) 10.3% 8.9% 7.8% 9.5% 7.3%

Investments in: 66.4% 74.2% 72.9% 74.9% 75.5%

Government Securities (net) 43.1% 48.4% 52.1% 52.9% 53.6%

Private Instruments and Shares of Stocks (net) 17.3% 19.9% 14.6% 15.0% 16.0%

CTFs / UITFs 4.1% 4.2% 4.6% 5.3% 4.3%

Real Estate (net) 1.8% 1.8% 1.6% 1.7% 1.6%

Asset-Backed Securities . . . . . . . . . . . . . . .

0.1% 0.1% 0.1% 0.1% 0.1%

Other Assets 4.2% 4.8% 6.3% 4.1% 5.8%

Total Trust Accountabilities 100.0% 100.0% 100.0% 100.0% 100.0%

Trust and Other Fiduciary Accounts 42.6% 48.7% 48.5% 46.6% 50.7%

Administratorship 3.7% 3.6% 3.4% 3.7% 3.5%

Employees Benefit Plans Under Trust 9.6% 10.3% 10.4% 10.6% 10.9%

Escrow 7.8% 7.3% 2.0% 2.2% 2.1%

Personal Trust 8.6% 13.5% 14.4% 14.7% 15.7%

Pre-need Plans 8.0% 8.7% 9.0% 9.3% 9.4%

Other Institutional Trust 0.4% 1.5% 2.6% 2.7% 3.1%

Others 4.5% 3.8% 6.7% 3.4% 6.0%

20.5% 35.3% 36.5% 37.3% 31.1%

Investment Management Accounts 15.9% 14.4% 13.7% 14.7% 16.5%

Other Accountabilities / Unearned Income 21.0% 1.6% 1.3% 1.4% 1.7%

. . . Less than 0.05 percent



End-June

Total Trust Assets

Total Trust Accountabilities



LIST OF SCHEDULES

SCHEDULE 1 PHYSICAL COMPOSITION

FINANCIAL INSTITUTIONS UNDER BSP SUPERVISION/REGULATION AS OF SEMESTERS-ENDED INDICATED

SCHEDULE 2 COMPARATIVE STATEMENT OF CONDITION PHILIPPINE FINANCIAL INSTITUTIONS (BANKS AND NON-BANKS) AS OF SEMESTERS-ENDED INDICATED SCHEDULE 2.a COMPARATIVE STATEMENT OF CONDITION PHILIPPINE BANKING SYSTEM AS OF SEMESTERS-ENDED INDICATED SCHEDULE 2.b COMPARATIVE STATEMENT OF CONDITION UNIVERSAL & COMMERCIAL BANKING SYSTEM AS OF SEMESTERS-ENDED INDICATED SCHEDULE 2.c COMPARATIVE STATEMENT OF CONDITION THRIFT BANKING SYSTEM AS OF SEMESTERS-ENDED INDICATED SCHEDULE 2.d COMPARATIVE STATEMENT OF CONDITION RURAL & COOPERATIVE BANKING SYSTEM AS OF SEMESTERS-ENDED INDICATED SCHEDULE 2.e COMPARATIVE STATEMENT OF CONDITION NON-BANK FINANCIAL INSTITUTIONS AS OF SEMESTERS-ENDED INDICATED SCHEDULE 3 SELECTED CONTINGENT ACCOUNTS PHILIPPINE BANKING SYSTEM AS OF SEMESTERS-ENDED INDICATED SCHEDULE 3.a SELECTED CONTINGENT ACCOUNTS UNIVERSAL & COMMERCIAL BANKING SYSTEM AS OF SEMESTERS-ENDED INDICATED



SCHEDULE 3.b SELECTED CONTINGENT ACCOUNTS THRIFT BANKING SYSTEM AS OF SEMESTERS-ENDED INDICATED SCHEDULE 4 TRUST & FUND MANAGEMENT OPERATIONS ASSETS AND ACCOUNTABILITIES PHILIPPINE BANKS & NON-BANK FINANCIAL INSTITUTIONS (NBFIS) AS OF SEMESTERS-ENDED INDICATED SCHEDULE 4.a TRUST & FUND MANAGEMENT OPERATIONS ASSETS AND ACCOUNTABILITIES PHILIPPINE BANKS & NON-BANK FINANCIAL INSTITUTIONS (NBFIS) BY TRUST OPERATIONS AS OF SEMESTERS-ENDED INDICATED SCHEDULE 4.b TRUST & FUND MANAGEMENT OPERATIONS ASSETS AND ACCOUNTABILITIES UNIVERSAL & COMMERCIAL BANKING SYSTEM AS OF SEMESTERS-ENDED INDICATED SCHEDULE 4.c TRUST & FUND MANAGEMENT OPERATIONS ASSETS AND ACCOUNTABILITIES THRIFT BANKING SYSTEM AS OF SEMESTERS-ENDED INDICATED SCHEDULE 4.d TRUST & FUND MANAGEMENT OPERATIONS ASSETS AND ACCOUNTABILITIES NON-BANK FINANCIAL INSTITUTIONS (NBFIS) AS OF SEMESTERS-ENDED INDICATED SCHEDULE 4.e TRUST & FUND MANAGEMENT OPERATIONS INCOME AND EXPENSES PHILIPPINE BANKS & NON-BANK FINANCIAL INSTITUTIONS (NBFIS) AS OF SEMESTERS-ENDED INDICATED



SCHEDULE 5 COMPARATIVE STATEMENT OF INCOME & EXPENSES PHILIPPINE BANKS & NON-BANKS WITH QUASI-BANKING FUNCTIONS (NBQBS) FOR THE PERIOD-ENDED INDICATED SCHEDULE 5.a COMPARATIVE STATEMENT OF INCOME & EXPENSES PHILIPPINE BANKING SYSTEM FOR THE PERIOD-ENDED INDICATED SCHEDULE 5.b COMPARATIVE STATEMENT OF INCOME & EXPENSES UNIVERSAL & COMMERCIAL BANKING SYSTEM FOR THE PERIOD-ENDED INDICATED SCHEDULE 5.c COMPARATIVE STATEMENT OF INCOME & EXPENSES THRIFT BANKING SYSTEM FOR THE PERIOD-ENDED INDICATED SCHEDULE 5.d COMPARATIVE STATEMENT OF INCOME & EXPENSES RURAL & COOPERATIVE BANKING SYSTEM FOR THE PERIOD-ENDED INDICATED SCHEDULE 5.e COMPARATIVE STATEMENT OF INCOME & EXPENSES NON-BANK FINANCIAL INSTITUTIONS FOR THE PERIOD-ENDED INDICATED

Schedule 1

PHYSICAL COMPOSITIONFinancial Institutions Under BSP Supervision/RegulationAs of Semesters-Ended Indicated

TYPE OF FINANCIAL INSTITUTIONS (FIs)

BSP SUPERVISED/REGULATED FIs 18,833 6,671 12,162 19,197 6,781 12,416 19,376 6,814 12,562

I. BANKS 7,570 896 6,674 7,612 893 6,719 7,624 881 6,743

A. Universal and Commercial Banks 4,338 42 4,296 4,329 42 4,287 4,316 42 4,274

Universal Banks 3,709 18 3,691 3,694 18 3,676 3,686 18 3,668

Private Domestic Banks 3,288 12 3,276 3,271 12 3,259 3,262 12 3,250 Government Banks 409 3 406 411 3 408 412 3 409

Branches of Foreign Banks 12 3 9 12 3 9 12 3 9

Commercial Banks 629 24 605 635 24 611 630 24 606

Private Domestic Banks 470 9 461 477 9 468 482 9 473 Subsidiaries of Foreign Banks 142 4 138 142 4 138 132 4 128 Branches of Foreign Banks 17 11 6 16 11 5 16 11 5

B. Thrift Banks 1,266 89 1,177 1,280 87 1,193 1,280 83 1,197

Financial Institution Linked Banks 502 17 485 582 18 564 593 17 576

Domestic Bank Controlled 478 14 464 558 15 543 569 14 555 Foreign Bank Controlled 19 2 17 19 2 17 19 2 17 NBFI Controlled 5 1 4 5 1 4 5 1 4

Non-Linked 764 72 692 698 69 629 687 66 621

C. Rural and Cooperative Banks 1,966 765 1,201 2,003 764 1,239 2,028 756 1,272 Rural Banks 1,850 717 1,133 1,885 716 1,169 1,908 708 1,200 Microfinance-oriented Rural Banks 12 4 8 12 4 8 13 4 9 Cooperative Banks 104 44 60 106 44 62 107 44 63

II. NON-BANK FINANCIAL INSTITUTIONS (NBFIs) 11,253 5,766 5,487 11,575 5,879 5,696 11,742 5,924 5,818

A. With Quasi-Banking Function 30 11 19 31 12 19 31 12 19

Investment Houses 16 6 10 16 6 10 16 6 10 Financing Companies 14 5 9 14 5 9 14 5 9 Other Non-Bank with QBF Function 1 1 1 1

B. Without Quasi-Banking Functions 1/ 11,223 5,755 5,468 11,544 5,867 5,677 11,711 5,912 5,799

Investment Houses 25 22 3 25 22 3 24 21 3 Financing Companies 41 27 14 47 28 19 41 23 18 Investment Companies 10 10 10 10 10 10 Securities Dealers/Brokers 19 19 20 20 19 19 Lending Investors 5 5 2 2 2 2 Pawnshops 10,986 5,572 5,414 11,307 5,689 5,618 11,483 5,742 5,741 Venture Capital Corporations 7 7 5 5 5 5 Government Non-Bank Financial Institutions 2 2 2 2 2 2 Non-Stock Savings & Loan Associations 122 85 37 120 83 37 119 82 37 Credit Card Companies 6 6 6 6 6 6

III. OFFSHORE BANKING UNITS (OBUs) 10 9 1 10 9 1 10 9 1

1/

Source : Supervisory Data Center, Supervision and Examination Sector

HEAD OFFICE

OTHER OFFICES

HEAD OFFICE

JUNE 2004

TOTAL

DECEMBER 2004

Except for pawnshops, one government non-bank financial institution and non-stock savings and loan associations, all NBFIs without quasi-banking functions includesubsidiaries/affiliates of banks/quasi-banks pursuant to Section 130 of R.A. No. 7653 and non-subsidiary/affiliate investment houses with trust/IMA licenses.

JUNE 2005

TOTAL HEAD OFFICE TOTALOTHER

OFFICESOTHER

OFFICES

Schedule 2COMPARATIVE STATEMENT OF CONDITIONPHILIPPINE FINANCIAL INSTITUTIONS (Banks and Non-Banks)As of Semesters-Ended Indicated(Amounts in Billion Pesos)

End-Jun'04 End-Dec'04 End-Jun'05 End-Jun'04 End-Dec'04 End-Jun'05 End-Jun'04 End-Dec'04 End-Jun'05

ASSETS 4,009.148 4,172.358 4,552.377 3,874.034 4,023.303 4,332.458 368.120 206.715 219.918

Cash and Due from Banks 331.492 330.247 347.644 324.167 319.953 330.746 116.966 13.648 16.898 Loan Portfolio (net) 1,930.827 1,961.092 2,130.635 1,855.094 1,869.853 2,013.973 155.200 112.703 116.662 Investments (net) 1,152.926 1,278.661 1,435.690 1,118.642 1,249.009 1,373.527 44.286 57.191 62.163 ROPOA (net) 233.625 235.804 224.069 233.625 235.804 219.893 3.345 3.888 4.175 Other Assets 360.278 366.554 414.338 342.506 348.684 394.319 48.323 19.286 20.019

- - LIABILITIES AND CAPITAL 4,009.148 4,172.358 4,552.376 3,874.034 4,023.303 4,332.458 368.120 206.715 219.918

- - Liabilities 3,426.916 3,569.366 3,910.951 3,378.657 3,517.353 3,817.466 116.580 80.352 93.485

- - Deposit Liabilities 2,596.281 2,771.222 2,922.339 2,591.923 2,766.416 2,917.406 4.358 4.806 4.933

- - Peso Liabilities 1,765.218 1,883.412 2,026.789 1,760.860 1,878.606 2,021.856 4.358 4.806 4.933

Demand and NOW 316.153 332.866 367.814 316.153 332.866 367.814 - - - Savings 1,208.709 1,244.783 1,170.827 1,204.732 1,240.398 1,166.227 3.977 4.385 4.600 Time 240.356 305.763 488.147 239.975 305.342 487.815 0.381 0.421 0.333

- - Foreign Currency 831.063 887.810 895.551 831.063 887.810 895.551 - - -

- - Bills Payable 485.294 419.503 497.912 461.647 386.540 433.840 35.158 53.061 64.072

Deposits Substitutes 8.741 13.643 26.182 3.971 2.293 4.921 4.770 11.350 21.261 Others 476.553 405.860 471.730 457.676 384.247 428.919 30.388 41.712 42.811

- - Special Financing 0.862 0.633 0.235 0.862 0.633 0.235 - - -

Time Certificates of Deposits - SF 0.388 0.396 0.102 0.388 0.396 0.102 - - - Special Time Deposits 0.474 0.237 0.132 0.474 0.237 0.132 - - -

- - Unsecured Subordinated Debt 48.472 51.387 50.744 48.472 51.387 50.744 - - -

- - Other Liabilities 296.007 326.621 439.721 275.753 312.377 415.241 77.063 22.485 24.480

- - Capital Accounts 582.232 602.992 641.423 495.377 505.950 514.991 251.541 126.364 126.432

- - Capital Stock 303.638 316.128 337.393 224.481 226.788 231.156 349.148 102.446 106.238 Assigned Capital 15.765 15.989 16.171 15.765 15.989 16.089 0.081 - 0.081 Net Due to H.O. 59.232 56.580 57.431 59.232 56.580 57.431 - - - Surplus, Surplus Reserves & Undivided Profits 203.597 214.295 230.429 195.899 206.593 210.315 (97.689) 23.917 20.114

1/ Total assets adjusted to net off the account "Due From Head Office" with "Due to Head Office" of branches of foreign banks2/ Inclusive of Interbank Loans Receivable r/ Revisedp/ Preliminary


ALL BANKS/NBFIsSelected Accounts ALL BANKS NON-BANK FINANCIAL INSTITUTIONS (NBFIs)1/

2/

p/ r/ p/r/r/ r/ r/ p/

Schedule 2.aCOMPARATIVE STATEMENT OF CONDITIONPHILIPPINE BANKING SYSTEMAs of Semesters-Ended Indicated(Amounts in Billion Pesos)

End-Jun'04 End-Dec'04 End-Jun'05 End-Jun'04 End-Dec'04 End-Jun'05 End-Jun'04 End-Dec'04 End-Jun'05 End-Jun'04 End-Dec'04 End-Jun'05

ASSETS 3,874.034 4,023.303 4,332.458 3,489.383 3,617.605 3,898.888 288.935 305.435 324.499 95.716 101.328 109.071

Cash and Due from Banks 324.167 319.953 330.746 280.583 274.535 286.335 24.113 27.242 24.555 19.471 18.482 19.857 Loan Portfolio (net) 1,855.094 1,869.853 2,013.973 1,647.128 1,647.117 1,771.769 152.960 162.380 177.546 55.006 60.931 64.658 Investments (net) 1,118.642 1,249.009 1,373.527 1,060.895 1,188.052 1,308.465 51.509 55.018 58.796 6.238 5.943 6.266 ROPOA (net) 233.625 235.804 219.893 192.920 194.926 179.127 32.982 32.985 32.715 7.723 8.022 8.052 Other Assets 342.506 348.684 394.319 307.857 312.975 353.192 27.371 27.810 30.888 7.278 7.950 10.239

LIABILITIES AND CAPITAL 3,874.034 4,023.303 4,332.458 3,489.383 3,617.605 3,898.888 288.935 305.435 324.499 95.716 101.328 109.071

Liabilities 3,378.657 3,517.353 3,817.466 3,049.477 3,167.136 3,443.562 248.477 265.759 281.368 80.703 85.323 92.536

Deposit Liabilities 2,591.923 2,766.416 2,917.406 2,315.116 2,472.346 2,592.660 208.562 223.728 248.005 68.245 70.988 76.741

Peso Liabilities 1,760.860 1,878.606 2,021.856 1,514.892 1,619.954 1,734.411 177.723 188.310 210.704 68.245 70.988 76.741 Demand and NOW 316.153 332.866 367.814 297.526 313.273 345.779 17.138 17.982 20.425 1.489 1.623 1.610 Savings 1,204.732 1,240.398 1,166.227 1,029.136 1,065.141 1,011.993 127.762 126.984 101.655 47.834 48.849 52.580 Time 239.975 305.342 487.815 188.230 241.540 376.639 32.823 43.344 88.624 18.922 20.517 22.552

Foreign Currency 831.063 887.810 895.551 800.224 852.392 858.250 30.839 35.418 37.301 - - -

Bills Payable 461.647 386.540 433.840 427.819 352.177 407.966 26.672 25.938 17.745 7.156 8.677 8.128 Deposits Substitutes 3.971 2.293 4.921 3.779 1.907 4.609 0.192 0.386 0.312 - - - Others 457.676 384.247 428.919 424.040 350.270 403.358 26.480 25.552 17.433 7.156 8.677 8.128

Special Financing 0.862 0.633 0.235 0.414 0.180 0.059 0.276 0.275 0.000 0.172 0.195 0.176 Time Certificates of Deposits - SF 0.388 0.396 0.102 0.005 0.004 0.005 0.276 0.275 0.000 0.107 0.118 0.097 Special Time Deposits 0.474 0.237 0.132 0.409 0.176 0.054 - - - 0.065 0.077 0.078

Unsecured Subordinated Debt 48.472 51.387 50.744 48.472 51.387 50.744 - - - - - -

Other Liabilities 275.753 312.377 415.241 257.656 291.046 392.133 12.967 15.818 15.618 5.130 5.462 7.491

Capital Accounts 495.377 505.950 514.991 439.906 450.469 455.326 40.458 39.676 43.132 15.013 16.005 16.534 -

Capital Stock 224.481 226.788 231.156 179.703 181.728 184.643 33.399 33.300 34.220 11.379 11.980 12.292 Assigned Capital 15.765 15.989 16.089 15.765 15.989 16.089 - - - - - - Net Due to H.O. 59.232 56.580 57.431 59.232 56.580 57.431 - - - - - - Surplus, Surplus Reserves & Undivided Profits 195.899 206.593 210.315 185.206 196.172 197.162 7.059 6.376 8.912 3.634 4.025 4.242

1/ Total assets adjusted to net off the account "Due From Head Office" with "Due to Head Office" of branches of foreign banks2/ Inclusive of 3 branches of foreign banks with universal banking license, other foreign bank branches and subsidiaries, and 3 government banks: Development Bank of the Philippines (DBP), Land Bank of the Philippines (LBP), and Al Amanah Islamic Bank3/ Inclusive of Interbank Loans Receivable r/ Revisedp/ Preliminary


ALL BANKSSelected Accounts THRIFT BANKS RURAL AND COOPERATIVE BANKSUNIVERSAL & COMMERCIAL BANKS

3/

1/ 1/ 2/

r/ p/ r/ p/r/r/

Schedule 2.bCOMPARATIVE STATEMENT OF CONDITIONUNIVERSAL AND COMMERCIAL BANKING SYSTEMAs of Semesters-Ended Indicated(Amounts in Billion Pesos)


ASSETS 3,489.383 3,617.605 3,898.888 2,840.809 2,927.448 3,091.572 648.574 690.157 807.316

Cash and Due from Banks 280.583 274.535 286.335 231.724 207.458 216.920 48.859 67.077 69.415 Loan Portfolio (net) 4/ 1,647.128 1,647.117 1,771.769 1,314.245 1,333.397 1,410.501 332.883 313.720 361.269 Investments (net) 1,060.895 1,188.052 1,308.465 871.646 963.158 1,021.230 189.249 224.894 287.235 ROPOA (net) 192.920 194.926 179.127 166.656 167.661 157.972 26.264 27.265 21.155 Other Assets 307.857 312.975 353.192 256.538 255.774 284.950 51.319 57.201 68.242

LIABILITIES AND CAPITAL 3,489.383 3,617.605 3,898.888 2,840.809 2,927.448 3,091.572 648.574 690.157 807.316

Liabilities 3,049.477 3,167.136 3,443.562 2,508.092 2,586.055 2,748.183 541.385 581.081 695.380

Deposit Liabilities 2,315.116 2,472.346 2,592.660 1,915.261 2,037.500 2,122.036 399.855 434.846 470.624

Peso Liabilities 1,514.892 1,619.954 1,734.411 1,291.758 1,374.414 1,453.309 223.134 245.540 281.102 Demand and NOW 297.526 313.273 345.779 250.148 261.361 286.149 47.378 51.912 59.631 Savings 1,029.136 1,065.141 1,011.993 923.393 952.680 896.702 105.743 112.461 115.291 Time 188.230 241.540 376.639 118.217 160.373 270.458 70.013 81.167 106.181

Foreign Currency 800.224 852.392 858.250 623.503 663.086 668.728 176.721 189.306 189.522

Bills Payable 427.819 352.177 407.966 369.504 293.207 340.880 58.315 58.970 67.086 Deposits Substitutes 3.779 1.907 4.609 3.657 1.082 3.873 0.122 0.825 0.736 Others 424.040 350.270 403.358 365.847 292.125 337.008 58.193 58.145 66.350

Special Financing 0.414 0.180 0.059 0.413 0.179 0.058 0.001 0.001 0.001 Time Certificates of Deposits - SF 0.005 0.004 0.005 0.004 0.003 0.004 0.001 0.001 0.001 Special Time Deposits 0.409 0.176 0.054 0.409 0.176 0.054 - - -

Unsecured Subordinated Debt 48.472 51.387 50.744 48.472 51.387 50.744 - - -

Other Liabilities 257.656 291.046 392.133 174.442 203.782 234.464 83.214 87.264 157.669

Capital Accounts 439.906 450.469 455.326 332.717 341.393 343.390 107.189 109.076 111.936

Capital Stock 179.703 181.728 184.643 138.598 139.591 141.189 41.105 42.137 43.454 Assigned Capital 15.765 15.989 16.089 3.828 3.827 3.828 11.937 12.162 12.262 Net Due to H.O. 59.232 56.580 57.431 11.482 11.482 11.483 47.750 45.098 45.948 Surplus, Surplus Reserves & Undivided Profits 185.206 196.172 197.162 178.809 186.493 186.890 6.397 9.679 10.271

1/ Total assets adjusted to net off the account "Due From Head Office" with "Due to Head Office" of branches of foreign banks2/ Inclusive of 3 branches of foreign banks with universal banking license and 3 government banks: Development Bank of the Philippines (DBP), Land Bank of the Philippines (LBP), and Al Amanah Islamic Bank3/ Inclusive of the other foreign bank branches and subsidiaries4/ Inclusive of Interbank Loans Receivable


TOTALSSelected Accounts UNIVERSAL BANKS COMMERCIAL BANKS1/ 2/ 1/ 3/

Schedule 2.cCOMPARATIVE STATEMENT OF CONDITIONTHRIFT BANKING SYSTEMAs of Semesters-Ended Indicated(Amounts in Billion Pesos)


ASSETS 288.935 305.435 324.499 157.484 201.332 213.811 131.451 104.103 110.688

Cash and Due from Banks 24.113 27.242 24.555 12.440 16.398 14.464 11.673 10.844 10.090 Loan Portfolio (net) 1/ 152.960 162.380 177.546 91.424 115.012 126.443 61.536 47.368 51.103 Investments (net) 51.509 55.018 58.796 32.874 41.117 42.601 18.635 13.901 16.195 ROPOA (net) 32.982 32.986 32.715 10.999 16.126 16.107 21.983 16.860 16.608 Other Assets 27.371 27.810 30.888 9.747 12.679 14.196 17.624 15.131 16.692

LIABILITIES AND CAPITAL 288.935 305.435 324.499 157.484 201.332 213.811 131.451 104.103 110.688

Liabilities 248.477 265.759 281.368 140.610 181.067 189.838 107.867 84.692 91.530

Deposit Liabilities 208.562 223.728 248.005 123.449 155.578 172.466 85.113 68.150 75.539

Peso Liabilities 177.723 188.310 210.704 100.887 126.321 141.300 76.836 61.989 69.404 Demand and NOW 17.138 17.982 20.425 10.705 13.304 15.180 6.433 4.678 5.245 Savings 127.762 126.984 101.655 66.455 78.086 47.728 61.307 48.898 53.927 Time 32.823 43.344 88.624 23.727 34.931 78.393 9.096 8.413 10.232

Foreign Currency 30.839 35.418 37.301 22.562 29.257 31.166 8.277 6.161 6.135

Bills Payable 26.672 25.938 17.745 11.559 17.052 9.226 15.113 8.886 8.520 Deposits Substitutes 0.192 0.386 0.312 - - - 0.192 0.386 0.312 Others 26.480 25.552 17.433 11.559 17.052 9.226 14.921 8.500 8.208

Special Financing 0.276 0.275 0.000 0.000 0.000 - 0.276 0.275 0.000 Time Certificates of Deposits - SF 0.276 0.275 0.000 0.000 0.000 - 0.276 0.275 0.000 Special Time Deposits - - - - - - - - -

Unsecured Subordinated Debt - - - - - - -



Capital Stock 33.399 33.300 34.220 9.216 10.661 10.722 24.183 22.639 23.498 Assigned Capital - - - - - Net Due to H.O. - - - - - Surplus, Surplus Reserves & Undivided Profits 7.059 6.376 8.912 7.658 9.604 13.252 (0.599) (3.228) (4.340)

1/ Inclusive of Interbank Loans Receivable


TOTALSSelected Accounts FINANCIAL INSTITUTION LINKED BANKS NON-LINKED BANKSr/ r/ r/

Schedule 2.dCOMPARATIVE STATEMENT OF CONDITIONRURAL AND COOPERATIVE BANKING SYSTEMAs of Semesters-Ended Indicated(Amounts in Billion Pesos)


ASSETS 95.716 101.328 109.071 89.678 94.921 102.181 6.038 6.407 6.890

Cash and Due from Banks 19.471 18.482 19.857 18.525 17.549 18.928 0.946 0.933 0.929 Loan Portfolio (net) 55.006 60.931 64.658 50.827 56.401 59.842 4.179 4.530 4.816 Investments (net) 6.238 5.943 6.266 6.000 5.716 6.029 0.238 0.227 0.237 ROPOA (net) 7.723 8.022 8.052 7.479 7.749 7.735 0.244 0.273 0.317 Other Assets 7.278 7.950 10.239 6.847 7.506 9.647 0.431 0.444 0.591

LIABILITIES AND CAPITAL 95.716 101.328 109.071 89.678 94.921 102.181 6.038 6.407 6.890

Liabilities 80.703 85.323 92.536 75.692 80.009 86.790 5.011 5.314 5.746

Deposit Liabilities 68.245 70.988 76.741 64.630 67.268 72.719 3.615 3.720 4.022

Peso Liabilities 68.245 70.988 76.741 64.630 67.268 72.719 3.615 3.720 4.022 Demand and NOW 1.489 1.623 1.610 1.464 1.598 1.585 0.025 0.025 0.025 Savings 47.834 48.849 52.580 46.220 47.165 50.728 1.614 1.684 1.852 Time 18.922 20.517 22.552 16.946 18.505 20.407 1.976 2.012 2.145

Foreign Currency - - - - - - -

Bills Payable 7.156 8.677 8.128 6.102 7.426 6.904 1.054 1.251 1.224 Deposits Substitutes - - - - - - - Others 7.156 8.677 8.128 6.102 7.426 6.904 1.054 1.251 1.224

Special Financing 0.172 0.195 0.176 0.132 0.154 0.134 0.040 0.041 0.042 Time Certificates of Deposits - SF 0.107 0.118 0.097 0.092 0.101 0.085 0.015 0.017 0.012 Special Time Deposits 0.065 0.077 0.078 0.040 0.053 0.049 0.025 0.024 0.030

Unsecured Subordinated Debt - - -



Capital Stock 11.379 11.980 12.292 10.689 11.242 11.535 0.690 0.738 0.758 Assigned Capital - - - - - - - Net Due to H.O. - - - - - - - Surplus, Surplus Reserves & Undivided Profits 3.634 4.025 4.242 3.297 3.670 3.856 0.337 0.355 0.386

r/ Revisedp/Preliminary


TOTALSSelected Accounts RURAL BANKS COOPERATIVE BANKSr/ p/ r/ p/ r/ p/

Schedule 2.eCOMPARATIVE STATEMENT OF CONDITIONNON-BANKS FINANCIAL INSTITUTIONS (NBFIs)As of Semesters-Ended Indicated(Amounts in Billion Pesos)

End-Jun'04 End-Dec'04 End-Jun'05 End-Jun'04 End-Dec'04 End-Jun'05 End-Jun'04 End-Dec'04 End-Jun'05 End-Jun'04 End-Dec'04 End-Jun'05

ASSETS 368.120 206.715 219.918 27.059 33.487 43.309 63.344 66.905 67.120 277.717 106.323 109.490

Cash and Due from Banks 116.966 13.648 16.898 0.976 1.495 2.942 4.555 5.439 6.581 111.435 6.714 7.375 Loan Portfolio (net) 155.200 112.703 116.662 11.033 12.750 15.546 50.347 53.243 53.144 93.820 46.710 47.972 Investments (net) 44.286 57.191 62.163 9.133 13.479 19.224 4.329 4.282 4.158 30.824 39.430 38.781 ROPOA (net) 3.345 3.888 4.175 1.284 1.368 1.364 0.292 0.279 0.323 1.769 2.241 2.489 Other Assets 48.323 19.286 20.019 4.633 4.395 4.232 3.820 3.662 2.913 39.870 11.229 12.874

- - LIABILITIES AND CAPITAL 368.120 206.715 219.918 27.059 33.487 43.309 63.344 66.905 67.120 277.717 106.323 109.490

- - Liabilities 116.580 80.352 93.485 11.330 17.277 27.447 7.181 7.909 8.069 98.069 55.166 57.969

- - Deposit Liabilities 4.358 4.806 4.933 - - 4.358 4.806 4.933 - - -

- - Peso Liabilities 4.358 4.806 4.933 - - 4.358 4.806 4.933 - - -

Demand and NOW - - - - - - - - - - Savings 3.977 4.385 4.600 - - 3.977 4.385 4.600 - - - Time 0.381 0.421 0.333 - - 0.381 0.421 0.333 - - -

- - Foreign Currency - - - - - - - - - -

- - Bills Payable 35.158 53.061 64.072 8.982 15.059 24.726 0.391 0.427 0.409 25.785 37.575 38.938

Deposits Substitutes 4.770 11.350 21.261 3.954 11.156 21.097 - - 0.816 0.194 0.165 Others 30.388 41.712 42.811 5.028 3.904 3.629 0.391 0.427 0.409 24.969 37.381 38.774

- - Special Financing - - - - - - - - - -

Time Certificates of Deposits - SF - - - - - - - - - - Special Time Deposits - - - - - - - - - -

- - Unsecured Subordinated Debt - - - - - - - - - -

- - Other Liabilities 77.063 22.485 24.480 2.347 2.218 2.721 2.432 2.676 2.728 72.284 17.591 19.031

- - Capital Accounts 251.541 126.364 126.432 15.729 16.210 15.862 56.164 58.997 59.050 179.648 51.157 51.521

- - Capital Stock 349.148 102.446 106.238 8.672 8.937 9.262 52.584 53.890 54.809 287.893 39.619 42.167 Assigned Capital 0.081 - 0.081 - - - - 0.081 - 0.081 Net Due to H.O. - - - - - - - - - - Surplus, Surplus Reserves & Undivided Profits (97.689) 23.917 20.114 7.057 7.273 6.600 3.580 5.107 4.241 (108.326) 11.537 9.273



ALL NBFIsSelected Accounts NSSLAs Other NBFIsNBQBs

3/

p/ r/p/ p/ p/r/

Schedule 3 SELECTED CONTINGENT ACCOUNTS PHILIPPINE BANKING SYSTEM As of Semesters-Ended Indicated (Amounts in Billion Pesos)

End-Jun '04 End-Dec '04 End-Jun '05 End-Jun '04 End-Dec '04 End-Jun '05 End-Jun '04 End-Dec '04 End-Jun '05

TRADE-RELATED ACCOUNTS 48.830 45.419 41.700 48.830 45.419 41.700

Unused Imports Commercial LCs 43.459 39.922 37.918 43.459 39.922 37.918

Export LCs - Confirmed 5.371 5.497 3.782 5.371 5.497 3.782

BANK GUARANTEES 104.610 105.702 96.691 104.177 105.129 96.081 0.433 0.573 0.610

Stand-by Letters of Credit 46.253 46.071 40.388 45.820 45.498 39.778 0.433 0.573 0.610

Outstanding Guarantees Issued 58.357 59.631 56.303 58.357 59.631 56.303 -

DERIVATIVES INSTRUMENTS 1,055.905 1,012.185 1,236.224 1,055.905 1,012.185 1,236.224 -

Currency Forwards 799.530 764.469 974.624 799.530 764.469 974.624 -

Interest Rate Forwards 12.920 2.253 - 12.920 2.253 - -

Financial Options 24.294 19.762 37.238 24.294 19.762 37.238 -

Financial Futures - Trading 15.842 28.171 - 15.842 28.171 - -

Financial Futures - Hedging - - - - - - -

Interest Rate Swaps 203.319 197.530 224.362 203.319 197.530 224.362 -

TRUST DEPARTMENT ACCOUNTS 722.706 805.651 820.871 699.785 780.677 798.486 22.921 24.974 22.385

r/ Revised


TOTALSelected Accounts

UNIVERSAL and COMMERCIAL BANKS THRIFT BANKS

r/ r/

Schedule 3.a SELECTED CONTINGENT ACCOUNTS UNIVERSAL AND COMMERCIAL BANKING SYSTEM As of Semesters-Ended Indicated (Amounts in Billion Pesos)


TRADE-RELATED ACCOUNTS 48.830 45.419 41.700 41.496 38.926 35.275 7.334 6.493 6.425

Unused Imports Commercial LCs 43.459 39.922 37.918 36.432 33.557 31.756 7.027 6.365 6.162

Export LCs - Confirmed 5.371 5.497 3.782 5.064 5.369 3.519 0.307 0.128 0.263

BANK GUARANTEES 104.177 105.129 96.081 90.776 91.085 84.409 13.401 14.044 11.672


Outstanding Guarantees Issued 58.357 59.631 56.303 56.069 56.137 51.977 2.288 3.494 4.326

DERIVATIVES INSTRUMENTS 1,055.905 1,012.185 1,236.224 687.081 652.899 843.435 368.824 359.286 392.789

Currency Forwards 799.530 764.469 974.624 530.012 520.261 687.767 269.518 244.208 286.857

Interest Rate Forwards 12.920 2.253 - 12.920 2.253 - - - -

Financial Options 24.294 19.762 37.238 1.061 1.447 4.954 23.233 18.315 32.284

Financial Futures - Trading 15.842 28.171 - - - - 15.842 28.171 -

Financial Futures - Hedging - - - - - - - - -

Interest Rate Swaps 203.319 197.530 224.362 143.088 128.938 150.714 60.231 68.592 73.648


r/ Revised



UNIVERSAL BANKS COMMERCIAL BANKS

r/ r/ r/

Schedule 3.b SELECTED CONTINGENT ACCOUNTS THRIFT BANKING SYSTEM As of Semesters-Ended Indicated (Amounts in Billion Pesos)


TRADE-RELATED ACCOUNTS -

Unused Imports Commercial LCs -

Export LCs - Confirmed -

BANK GUARANTEES 0.433 0.573 0.610 0.001 0.280 0.287 0.433 0.293 0.323


Outstanding Guarantees Issued -

DERIVATIVES INSTRUMENTS -

Currency Forwards -

Interest Rate Forwards -

Financial Options -

Financial Futures - Trading -

Financial Futures - Hedging -

Interest Rate Swaps -


1/ Revised



FINANCIAL INSTITUTION LINKED BANKS NON-LINKED BANKS

Schedule 4TRUST AND FUND MANAGEMENT OPERATIONS - ASSETS AND ACCOUNTABILITIESPHILIPPINE BANKS and NON-BANK FINANCIAL INSTITUTIONS (NBFIs)As of Semesters-Ended Indicated(Amounts in Billion Pesos)

End-Jun '04 End-Dec '04 End-Jun '05 End-Jun '04 End-Dec '04 End-Jun '05 End-Jun '04 End-Dec'04 End-Jun'05 End-Jun '04 End-Dec'04 End-Jun'05

TOTAL ASSETS 729.449 812.831 828.410 699.785 780.676 798.487 22.921 24.974 22.386 6.743 7.181 7.537

Peso / Regular Assets 549.291 600.310 641.835 519.627 568.155 611.912 22.921 24.974 22.386 6.743 7.181 7.537 Cash and Due from Banks 48.718 61.363 70.633 46.462 58.106 67.851 1.939 2.929 2.323 0.317 0.328 0.459 Loans and Discounts (net) 68.020 59.831 57.108 65.143 57.044 54.592 0.720 0.669 0.592 2.157 2.118 1.924 Investments (net) 405.485 439.956 477.976 382.311 415.236 454.705 19.412 20.453 18.570 3.762 4.267 4.701 Real & Other Properties Acquired in Settlement of Loans (net) 1.011 0.716 0.875 0.976 0.681 0.840 0.013 0.013 0.013 0.022 0.022 0.022 Others 26.057 38.444 35.243 24.735 37.088 33.924 0.837 0.910 0.888 0.485 0.446 0.431

FCDU/EFCDU Assets 180.158 212.521 186.575 180.158 212.521 186.575 - - - - - - Cash and Due from Banks 34.435 43.734 22.913 34.435 43.734 22.913 - - - - - - Loans and Discounts (net) 1.634 3.326 3.272 1.634 3.326 3.272 - - - - - - Investments (net) 140.772 152.314 147.301 140.772 152.314 147.301 - - - - - - Real & Other Properties Acquired in Settlement of Loans (net) 0.009 - - 0.009 - - - - - - - - Others 3.308 13.147 13.089 3.308 13.147 13.089 - - - - - -

TOTAL ACCOUNTABILITIES 729.449 812.831 828.410 699.785 780.676 798.487 22.921 24.974 22.386 6.743 7.181 7.537

Peso / Regular Accountabilities 544.841 594.988 633.966 515.435 563.169 604.433 22.687 24.663 22.021 6.719 7.156 7.512

Trust and Other Fiduciary Accounts 281.680 320.258 346.737 263.204 298.703 323.807 15.518 18.333 19.344 2.958 3.222 3.586 Administratorship 26.921 27.487 28.782 26.912 27.483 28.778 0.003 0.002 0.002 0.006 0.002 0.002 Employees Benefit Plans Under Trust 76.067 82.598 88.639 74.657 80.625 86.175 0.860 1.154 1.195 0.550 0.819 1.269 Escrow 8.766 8.905 10.943 8.411 8.633 10.618 0.351 0.268 0.321 0.004 0.004 0.004 Personal Trust 87.927 96.428 107.023 85.437 93.692 104.999 1.450 1.711 0.959 1.040 1.025 1.065 Pre-need Plans 59.779 61.332 67.308 46.177 45.341 49.726 12.688 15.171 16.839 0.914 0.820 0.743 Other Institutional Trust 13.348 14.026 16.128 13.104 13.703 15.785 - - - 0.244 0.323 0.343 Others 8.872 29.482 27.914 8.506 29.226 27.726 0.166 0.027 0.028 0.200 0.229 0.160 Common Trust Funds / Unit Investment Trust Funds 156.241 163.560 150.223 152.243 159.796 149.138 3.749 3.671 0.994 0.249 0.093 0.091 Investment Management Accounts 106.920 111.170 137.006 99.988 104.670 131.488 3.420 2.659 1.683 3.512 3.841 3.835

FCDU / EFCDU Accountabilities 174.702 206.990 180.631 174.702 206.990 180.631 - - - - - -

Trust and Other Fiduciary Accounts 58.650 73.772 73.227 58.650 73.772 73.227 - - - - - - Administratorship 0.004 0.001 - 0.004 0.001 - - - - - - - Employees Benefit Plans Under Trust 1.369 1.729 1.743 1.369 1.729 1.743 - - - - - - Escrow 7.041 7.219 6.297 7.041 7.219 6.297 - - - - - - Personal Trust 19.472 20.970 22.978 19.472 20.970 22.978 - - - - - - Pre-need Plans 8.373 12.166 10.961 8.373 12.166 10.961 - - - - - - Other Institutional Trust 6.336 7.354 9.347 6.336 7.354 9.347 - - - - - - Others 16.055 24.333 21.901 16.055 24.333 21.901 - - - - - - Common Trust Funds / Unit Investment Trust Fund 116.052 133.218 107.404 116.052 133.218 107.404 - - - - - -

Other Accountabilities / Unearned Income 9.906 10.853 13.813 9.648 10.517 13.423 0.234 0.311 0.365 0.024 0.025 0.025


ALL BANKS/NBFIsSelected Accounts

THRIFT BANKS NBFIsUNIVERSAL AND COMMERCIAL BANKSP/

Schedule 4.aTRUST AND FUND MANAGEMENT OPERATIONS - ASSETS AND ACCOUNTABILITIESPHILIPPINE BANKS and NON-BANK FINANCIAL INSTITUTIONS (NBFIs)As of Semesters-Ended Indicated(Amounts in Billion Pesos)

End-Jun '04 End-Dec '04 End-Jun '05 End-Jun '04 End-Dec '04 End-Jun '05 End-Jun '04 End-Dec '04 End-Jun '05 End-Jun '04 End-Dec '04 End-Jun '05

TOTAL ASSETS 729.449 812.831 828.410 349.120 403.224 430.088 272.752 297.444 258.752 107.577 112.163 139.570


FCDU/EFCDU Assets 180.158 212.521 186.575 63.902 79.091 78.595 116.256 133.430 107.980 - - - Cash and Due from Banks 34.435 43.734 22.913 8.998 9.599 9.957 25.437 34.135 12.956 - - - Loans and Discounts (net) 1.634 3.326 3.272 0.395 2.641 2.619 1.239 0.685 0.653 - - - Investments (net) 140.772 152.314 147.301 53.067 55.496 54.795 87.705 96.818 92.506 - - - Real & Other Properties Acquired in Settlement of Loans (net) 0.009 - - - - - 0.009 - - - - - Others 3.308 13.147 13.089 1.442 11.355 11.224 1.866 1.792 1.865 - - -

- - - TOTAL ACCOUNTABILITIES 729.449 812.831 828.410 349.120 403.224 430.088 272.752 297.444 258.752 107.577 112.163 139.570


Trust and Other Fiduciary Accounts 281.680 320.258 346.737 281.680 320.258 346.737 - - - - - - Administratorship 26.921 27.487 28.782 26.921 27.487 28.782 - - - - - - Employees Benefit Plans Under Trust 76.067 82.598 88.639 76.067 82.598 88.639 - - - - - - Escrow 8.766 8.905 10.943 8.766 8.905 10.943 - - - - - - Personal Trust 87.927 96.428 107.023 87.927 96.428 107.023 - - - - - - Pre-need Plans 59.779 61.332 67.308 59.779 61.332 67.308 - - - - - - Other Institutional Trust 13.348 14.026 16.128 13.348 14.026 16.128 - - - - - - Others 8.872 29.482 27.914 8.872 29.482 27.914 - - - - - - Common Trust Funds / Unit Investment Trust Fund 156.241 163.560 150.223 - - - 156.241 163.560 150.223 - - - Investment Management Accounts 106.920 111.170 137.006 - - - - - - 106.920 111.170 137.006

FCDU / EFCDU Accountabilities 174.702 206.990 180.631 58.650 73.772 73.227 116.052 133.218 107.404 - - -

Trust and Other Fiduciary Accounts 58.650 73.772 73.227 58.650 73.772 73.227 - - - - - - Administratorship 0.004 0.001 - 0.004 0.001 - - - - - - - Employees Benefit Plans Under Trust 1.369 1.729 1.743 1.369 1.729 1.743 - - - - - - Escrow 7.041 7.219 6.297 7.041 7.219 6.297 - - - - - - Personal Trust 19.472 20.970 22.978 19.472 20.970 22.978 - - - - - - Pre-need Plans 8.373 12.166 10.961 8.373 12.166 10.961 - - - - - - Other Institutional Trust 6.336 7.354 9.347 6.336 7.354 9.347 - - - - - - Others 16.055 24.333 21.901 16.055 24.333 21.901 - - - - - - Common Trust Funds / Unit Investment Trust Fund 116.052 133.218 107.404 - - - 116.052 133.218 107.404 - - -


1/ Trust and Other Fidusiary Accounts2/ Common Trust Funds / Unit Investment Trust Funds3/ Investment Management Accounts


TOTAL TRUSTSelected Accounts CTF / UITF 2/ IMA 3/TOFA 1/

Schedule 4.bTRUST AND FUND MANAGEMENT OPERATIONS - ASSETS AND ACCOUNTABILITIESUNIVERSAL AND COMMERCIAL BANKSAs of Semesters-Ended Indicated(Amounts in Billion Pesos)


TOTAL ASSETS 699.785 780.676 798.487 330.500 381.491 406.899 268.698 293.600 257.597 100.587 105.585 133.991


FCDU/EFCDU Assets 180.158 212.521 186.575 63.902 79.091 78.595 116.256 133.430 107.980 - - - Cash and Due from Banks 34.435 43.734 22.913 8.998 9.599 9.957 25.437 34.135 12.956 Loans and Discounts (net) 1.634 3.326 3.272 0.395 2.641 2.619 1.239 0.685 0.653 Investments (net) 140.772 152.314 147.301 53.067 55.496 54.795 87.705 96.818 92.506 Real & Other Properties Acquired in Settlement of Loans (net) 0.009 - - - - - 0.009 - - Others 3.308 13.147 13.089 1.442 11.355 11.224 1.866 1.792 1.865



Trust and Other Fiduciary Accounts 263.204 298.703 323.807 263.204 298.703 323.807 - - - - - - Administratorship 26.912 27.483 28.778 26.912 27.483 28.778 Employees Benefit Plans Under Trust 74.657 80.625 86.175 74.657 80.625 86.175 Escrow 8.411 8.633 10.618 8.411 8.633 10.618 Personal Trust 85.437 93.692 104.999 85.437 93.692 104.999 Pre-need Plans 46.177 45.341 49.726 46.177 45.341 49.726 Other Institutional Trust 13.104 13.703 15.785 13.104 13.703 15.785 Others 8.506 29.226 27.726 8.506 29.226 27.726 Common Trust Funds / Unit Investment Trust Fund 152.243 159.796 149.138 152.243 159.796 149.138 Investment Management Accounts 99.988 104.670 131.488 99.988 104.670 131.488

FCDU / EFCDU Accountabilities 174.702 206.990 180.631 58.650 73.772 73.227 116.052 133.218 107.404 - - -

Trust and Other Fiduciary Accounts 58.650 73.772 73.227 58.650 73.772 73.227 Administratorship 0.004 0.001 - 0.004 0.001 - Employees Benefit Plans Under Trust 1.369 1.729 1.743 1.369 1.729 1.743 Escrow 7.041 7.219 6.297 7.041 7.219 6.297 Personal Trust 19.472 20.970 22.978 19.472 20.970 22.978 Pre-need Plans 8.373 12.166 10.961 8.373 12.166 10.961 Other Institutional Trust 6.336 7.354 9.347 6.336 7.354 9.347 Others 16.055 24.333 21.901 16.055 24.333 21.901 Common Trust Funds / Unit Investment Trust Fund 116.052 133.218 107.404 116.052 133.218 107.404




IMA 3/

Selected Accounts TOTAL TRUST TOFA 1/ CTF / UITF 2/

P/P/P/P/

Schedule 4.cTRUST AND FUND MANAGEMENT OPERATIONS - ASSETS AND ACCOUNTABILITIESTHRIFT BANKSAs of Semesters-Ended Indicated(Amounts in Billion Pesos)


TOTAL ASSETS 22.921 24.974 22.386 15.657 18.507 19.597 3.799 3.746 1.059 3.465 2.721 1.730

Peso / Regular Assets 22.921 24.974 22.386 15.657 18.507 19.597 3.799 3.746 1.059 3.465 2.721 1.730 Cash and Due from Banks 1.939 2.929 2.323 0.791 1.409 1.392 0.331 0.594 0.254 0.817 0.926 0.677 Loans and Discounts (net) 0.720 0.669 0.592 0.245 0.216 0.213 0.244 0.247 0.130 0.231 0.206 0.249 Investments (net) 19.412 20.453 18.570 13.915 16.108 17.151 3.143 2.813 0.651 2.354 1.532 0.768 Real & Other Properties Acquired in Settlement of Loans (net) 0.013 0.013 0.013 0.013 0.013 0.013 - - - - - - Others 0.837 0.910 0.888 0.693 0.761 0.828 0.081 0.092 0.024 0.063 0.057 0.036

FCDU/EFCDU Assets - - - - - - - - - - - - Cash and Due from Banks - - - Loans and Discounts (net) - - - Investments (net) - - - Real & Other Properties Acquired in Settlement of Loans (net) - - - Others - - -



Trust and Other Fiduciary Accounts 15.518 18.333 19.344 15.518 18.333 19.344 - - - - - - Administratorship 0.003 0.002 0.002 0.003 0.002 0.002 Employees Benefit Plans Under Trust 0.860 1.154 1.195 0.860 1.154 1.195 Escrow 0.351 0.268 0.321 0.351 0.268 0.321 Personal Trust 1.450 1.711 0.959 1.450 1.711 0.959 Pre-need Plans 12.688 15.171 16.839 12.688 15.171 16.839 Other Institutional Trust - - - - - - Others 0.166 0.027 0.028 0.166 0.027 0.028 Common Trust Funds / Unit Investment Trust Fund 3.749 3.671 0.994 3.749 3.671 0.994 Investment Management Accounts 3.420 2.659 1.683 3.420 2.659 1.683

FCDU / EFCDU Accountabilities - - - - - - - - - - - -

Trust and Other Fiduciary Accounts - - - - - - - - - - - - Administratorship - - - Employees Benefit Plans Under Trust - - - Escrow - - - Personal Trust - - - Pre-need Plans - - - Other Institutional Trust - - - Others - - - Common Trust Funds / Unit Investment Trust Fund - - -




IMA 3/


Schedule 4.dTRUST AND FUND MANAGEMENT OPERATIONS - ASSETS AND ACCOUNTABILITIESNON-BANK FINANCIAL INSTITUTIONS (NBFIs)

As of Semesters-Ended Indicated(Amounts in Billion Pesos)


TOTAL ASSETS 6.743 7.181 7.537 2.963 3.226 3.592 0.255 0.098 0.096 3.525 3.857 3.849

Peso / Regular Assets 6.743 7.181 7.537 2.963 3.226 3.592 0.255 0.098 0.096 3.525 3.857 3.849 Cash and Due from Banks 0.317 0.328 0.459 0.217 0.216 0.290 0.048 0.038 0.038 0.052 0.074 0.131 Loans and Discounts (net) 2.157 2.118 1.924 0.457 0.299 0.271 0.007 0.005 0.004 1.693 1.814 1.649 Investments (net) 3.762 4.267 4.701 2.106 2.578 2.905 0.165 0.023 0.022 1.491 1.666 1.774 Real & Other Properties Acquired in Settlement of Loans (net) 0.022 0.022 0.022 0.011 0.011 0.011 - - - 0.011 0.011 0.011 Others 0.485 0.446 0.431 0.172 0.122 0.115 0.035 0.032 0.032 0.278 0.292 0.284

FCDU/EFCDU Assets - - - - - - - - - - - - Cash and Due from Banks - - - Loans and Discounts (net) - - - Investments (net) - - - Real & Other Properties Acquired in Settlement of Loans (net) - - - Others - - -



Trust and Other Fiduciary Accounts 2.958 3.222 3.586 2.958 3.222 3.586 - - - - - - Administratorship 0.006 0.002 0.002 0.006 0.002 0.002 Employees Benefit Plans Under Trust 0.550 0.819 1.269 0.550 0.819 1.269 Escrow 0.004 0.004 0.004 0.004 0.004 0.004 Personal Trust 1.040 1.025 1.065 1.040 1.025 1.065 Pre-need Plans 0.914 0.820 0.743 0.914 0.820 0.743 Other Institutional Trust 0.244 0.323 0.343 0.244 0.323 0.343 Others 0.200 0.229 0.160 0.200 0.229 0.160 Common Trust Funds / Unit Investment Trust Fund 0.249 0.093 0.091 0.249 0.093 0.091 Investment Management Accounts 3.512 3.841 3.835 3.512 3.841 3.835

FCDU / EFCDU Accountabilities - - - - - - - - - - - -

Trust and Other Fiduciary Accounts - - - - - - - - - - - - Administratorship - - - Employees Benefit Plans Under Trust - - - Escrow - - - Personal Trust - - - Pre-need Plans - - - Other Institutional Trust - - - Others - - - Common Trust Funds / Unit Investment Trust Fund - - -




IMA 3/


Schedule 4.eTRUST AND FUND MANAGEMENT OPERATIONS - INCOME AND EXPENSESPHILIPPINE BANKS and NON-BANK FINANCIAL INSTITUTIONS (NBFIs)For the Periods-Ended Indicated(Amounts in Billion Pesos)


TRUST INCOME 2.352 4.911 2.691 2.283 4.768 2.620 0.047 0.101 0.055 0.022 0.042 0.016

Fees and Commissions 2.342 4.892 2.677 2.275 4.752 2.608 0.046 0.098 0.053 0.021 0.042 0.016

Other Income 0.010 0.019 0.014 0.008 0.016 0.012 0.001 0.003 0.002 0.001 - -

TRUST EXPENSES 0.594 1.303 0.727 0.559 1.234 0.690 0.020 0.043 0.027 0.015 0.026 0.010

Compensation/Fringe Benefits 0.249 0.530 0.284 0.229 0.492 0.265 0.012 0.024 0.013 0.008 0.014 0.006

Management and Professional Fees 0.029 0.028 0.029 0.011 0.025 0.028 - 0.002 0.001 0.001 0.001 -

Depreciation/Amortization 0.012 0.056 0.022 0.027 0.052 0.019 0.001 0.002 0.002 0.001 0.002 0.001

Taxes and Licenses 0.067 0.187 0.106 0.066 0.183 0.104 0.001 0.003 0.002 0.001 0.001 -

Other Expenses 0.236 0.502 0.287 0.226 0.483 0.274 0.006 0.012 0.010 0.004 0.008 0.003

Rent 0.014 0.030 0.013 0.013 0.028 0.012 0.001 0.002 0.001 - - -

Power, Light and Water 0.005 0.012 0.007 0.005 0.011 0.006 - 0.001 0.001 - - -

Advertising and Publicity 0.006 0.020 0.013 0.006 0.020 0.013 - - - - - -

Postage, Telephone, Cable and Telegram 0.006 0.015 0.009 0.006 0.015 0.009 - -

Miscellaneous Expenses 0.205 0.425 0.245 0.196 0.409 0.234 0.005 0.009 0.008 0.004 0.008 0.003

OPERATING INCOME / (LOSS) 1.758 3.608 1.964 1.724 3.534 1.930 0.027 0.058 0.028 0.007 0.016 0.006


ALL BANKS/NBFIsSelected Accounts

THRIFT BANKS NBFIsUNIVERSAL AND COMMERCIAL BANKS

Schedule 5 COMPARATIVE STATEMENT OF INCOME AND EXPENSES PHILIPPINE BANKS and NON-BANKS with QUASI-BANKING FUNCTIONS (NBQBs) For the Period-Ended Indicated (Amounts in Billion Pesos)

Jan-Jun '04 Jan-Dec '04 Jan-Jun '05 Jan-Jun '04 Jan-Dec '04 Jan-Jun '05 Jan-Jun '04 Jan-Dec '04 Jan-Jun '05

OPERATING INCOME 105.055 213.663 117.373 87.382 189.361 108.435 17.673 24.302 8.938

Net Interest Income 68.245 143.835 79.601 60.011 128.198 73.656 8.234 15.637 5.945 Interest Income 123.678 261.239 146.049 114.688 242.904 138.543 8.990 18.335 7.507 Less: Interest Expenses 55.434 117.405 66.447 54.678 114.706 64.886 0.756 2.698 1.561

- - - - Non-interest Income 36.810 69.826 37.772 27.371 61.161 34.779 9.439 8.665 2.993

Fee-based Income 19.695 32.832 16.332 12.851 27.335 14.591 6.844 5.497 1.741 Trading Income/(Loss) 6.645 16.333 12.518 6.419 15.675 11.902 0.226 0.658 0.616 Trust Department Income 2.248 4.699 1.995 2.248 4.699 1.995 - - - Other Income/(Loss) 8.222 15.962 6.928 5.854 13.452 6.292 2.368 2.510 0.636

- - - - OPERATING EXPENSES 93.650 163.387 86.472 71.708 151.993 83.105 21.942 11.394 3.367

- - - - Bad Debts Written Off 0.030 0.123 0.013 0.029 0.097 0.010 0.001 0.026 0.003

- - - - Provision for Probable Losses 14.228 23.095 13.555 9.458 19.628 12.667 4.769 3.467 0.888

- - - - Other Operating Expenses 79.392 140.168 72.902 62.221 132.268 70.427 17.172 7.900 2.475

Overhead Costs 52.751 90.178 46.573 40.885 85.459 45.056 11.866 4.720 1.517 Other Expenses 26.641 49.990 26.330 21.336 46.810 25.372 5.305 3.181 0.958

- - - - NET OPERATING INCOME (LOSS) 11.405 50.275 30.901 15.674 37.367 25.330 (4.269) 12.908 5.571

EXTRAORDINARY CREDITS/(CHARGES) 6.260 8.404 6.780 5.141 7.973 6.097 1.119 0.430 0.683

NET INCOME/(LOSS) BEFORE TAX 17.665 58.678 37.682 20.816 45.340 31.428 (3.150) 13.338 6.254 - - - -

Provision for income tax 4.589 10.996 6.832 4.139 10.338 6.379 0.450 0.658 0.453 - - - -

NET INCOME/(LOSS) AFTER TAX 13.078 47.682 30.850 16.677 35.002 25.049 (3.599) 12.680 5.801

Profitability Return on Assets (%) 1.05 1.19 1.46 1.08 0.91 1.06 0.55 7.21 7.13Return on Equity (%) 6.26 7.91 9.27 8.27 7.10 8.59 0.82 11.53 11.09

1/ Includes only the reporting entitiesr/ Revisedp/Preliminary


BANKS/NBFIsSelected Accounts BANKS NBFIsp/r/r/ p/r/r/r/ p/

1/

Schedule 5.a COMPARATIVE STATEMENT OF INCOME AND EXPENSES PHILIPPINE BANKING SYSTEM For the Period-Ended Indicated (Amounts in Billion Pesos)

Jan-Jun '04 Jan-Dec '04 Jan-Jun '05 Jan-Jun '04 Jan-Dec '04 Jan-Jun '05 Jan-Jun '04 Jan-Dec '04 Jan-Jun '05 Jan-Jun '04 Jan-Dec '04 Jan-Jun '05

OPERATING INCOME 87.382 189.361 108.435 75.172 163.790 94.067 7.583 15.599 8.936 4.627 9.972 5.433

Net Interest Income 60.011 128.198 73.656 51.148 109.349 63.075 5.684 11.950 6.884 3.178 6.899 3.697 Interest Income 114.688 242.904 138.543 97.789 207.285 118.373 11.423 23.961 13.725 5.476 11.659 6.445 Less: Interest Expenses 54.678 114.706 64.886 46.641 97.935 55.298 5.739 12.011 6.842 2.298 4.760 2.747

- - - - Non-interest Income 27.371 61.161 34.779 24.024 54.441 30.992 1.899 3.649 2.052 1.449 3.071 1.736

Fee-based Income 12.851 27.335 14.591 10.641 22.723 11.916 1.155 2.391 1.389 1.055 2.221 1.285 Trading Income/(Loss) 6.419 15.675 11.902 6.157 15.261 11.641 0.247 0.383 0.251 0.015 0.031 0.010 Trust Department Income 2.248 4.699 1.995 2.200 4.600 1.943 0.049 0.099 0.052 - - - Other Income/(Loss) 5.854 13.452 6.292 5.027 11.856 5.492 0.448 0.776 0.360 0.379 0.820 0.440

- - - - OPERATING EXPENSES 71.708 151.993 83.105 60.063 127.167 69.492 7.805 16.343 9.152 3.840 8.482 4.462

- - - - Bad Debts Written Off 0.029 0.097 0.010 0.007 0.012 0.002 0.003 0.014 0.000 0.019 0.070 0.008

- - - - Provision for Probable Losses 9.458 19.628 12.667 8.605 17.936 11.479 0.731 1.422 1.004 0.123 0.270 0.184

- - - - Other Operating Expenses 62.221 132.268 70.427 51.452 109.219 58.011 7.071 14.907 8.148 3.698 8.142 4.269

Overhead Costs 40.885 85.459 45.056 33.931 70.682 37.192 4.500 9.382 5.077 2.454 5.394 2.787 Other Expenses 21.336 46.810 25.372 17.521 38.537 20.819 2.571 5.525 3.071 1.244 2.748 1.482

- - - - NET OPERATING INCOME (LOSS) 15.674 37.367 25.330 15.109 36.623 24.575 (0.221) (0.745) (0.216) 0.787 1.488 0.971

EXTRAORDINARY CREDITS/(CHARGES) 5.141 7.973 6.097 4.325 6.119 5.207 0.560 1.354 0.625 0.256 0.501 0.266

NET INCOME/(LOSS) BEFORE TAX 20.816 45.340 31.428 19.434 42.742 29.782 0.339 0.609 0.409 1.043 1.989 1.237 - - - -

Provision for income tax 4.139 10.338 6.379 3.745 9.475 6.288 0.281 0.566 (0.092) 0.113 0.297 0.183 - - - -

NET INCOME/(LOSS) AFTER TAX 16.677 35.002 25.049 15.689 33.267 23.494 0.058 0.043 0.501 0.930 1.692 1.054

Profitability Return on Assets (%) 1.08 0.91 1.06 1.16 0.96 1.11 (0.08) 0.01 0.16 1.92 1.77 1.77Return on Equity (%) 8.27 7.10 8.59 8.98 7.61 9.18 (0.54) 0.11 1.16 12.19 11.14 11.51

1/ Inclusive of 3 branches of foreign banks with universal banking license, other foreign bank branches and subsidiaries, and 3 government banks: Development Bank of the Philippines (DBP), Land Bank of the Philippines (LBP), and Al Amanah Islamic Bankr/ Revisedp/Preliminary


ALL BANKSSelected Accounts UNIVERSAL & COMMERCIAL BANKS RURAL AND COOPERATIVE BANKSTHRIFT BANKS1/1/

1/

1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/

r/ p/ r/ p/r/ r/r/

Schedule 5.b COMPARATIVE STATEMENT OF INCOME AND EXPENSES UNIVERSAL AND COMMERCIAL BANKING SYSTEM For the Period-Ended Indicated (Amounts in Billion Pesos)




- - Non-interest Income 24.024 54.441 30.992 20.668 46.152 24.413 3.356 8.290 6.579

Fee-based Income 10.641 22.723 11.916 8.037 17.370 9.051 2.604 5.353 2.866 Trading Income/(Loss) 6.157 15.261 11.641 5.968 14.253 8.910 0.189 1.009 2.731 Trust Department Income 2.200 4.600 1.943 2.012 4.218 1.784 0.188 0.382 0.159 Other Income/(Loss) 5.027 11.856 5.492 4.651 10.311 4.669 0.376 1.545 0.823

- - OPERATING EXPENSES 60.063 127.167 69.492 49.155 103.584 57.339 10.908 23.583 12.153

- - Bad Debts Written Off 0.007 0.012 0.002 0.007 0.007 0.001 0.000 0.005 0.001

- - Provision for Probable Losses 8.605 17.936 11.479 7.548 15.112 10.443 1.057 2.824 1.037

- - Other Operating Expenses 51.452 109.219 58.011 41.601 88.465 46.895 9.851 20.754 11.115

Overhead Costs 33.931 70.682 37.192 27.915 58.171 30.403 6.016 12.512 6.789 Other Expenses 17.521 38.537 20.819 13.686 30.295 16.492 3.835 8.242 4.327

- - NET OPERATING INCOME (LOSS) 15.109 36.623 24.575 11.944 27.779 17.247 3.165 8.844 7.328


NET INCOME/(LOSS) BEFORE TAX 19.434 42.742 29.782 15.482 32.829 21.988 3.952 9.913 7.794 - -

Provision for income tax 3.745 9.475 6.288 2.492 6.652 4.180 1.253 2.824 2.108 - -

NET INCOME/(LOSS) AFTER TAX 15.689 33.267 23.494 12.991 26.178 17.808 2.699 7.089 5.686


1/ Inclusive of 3 branches of foreign banks with universal banking license and 3 government banks: Development Bank of the Philippines (DBP), Land Bank of the Philippines (LBP), and Al Amanah Islamic Bank2/ Inclusive of the other foreign bank branches and subsidiariesr/ Revised


TOTALSelected Accounts UNIVERSAL BANKS 1/ REGULAR COMMERCIAL BANKS 2/

r/ r/

Schedule 5.c COMPARATIVE STATEMENT OF INCOME AND EXPENSES THRIFT BANKING SYSTEM For the Period-Ended Indicated (Amounts in Billion Pesos)




Non-interest Income 1.899 3.649 2.052 0.865 1.847 1.047 1.034 1.802 1.005 Fee-based Income 1.155 2.391 1.389 0.479 1.198 0.677 0.676 1.192 0.713 Trading Income/(Loss) 0.247 0.383 0.251 0.141 0.226 0.171 0.106 0.157 0.080 Trust Department Income 0.049 0.099 0.052 0.015 0.033 0.010 0.033 0.066 0.043 Other Income/(Loss) 0.448 0.776 0.360 0.230 0.390 0.190 0.219 0.386 0.170

OPERATING EXPENSES 7.805 16.343 9.152 3.723 9.056 5.254 4.082 7.288 3.898

Bad Debts Written Off 0.003 0.014 0.000 - - - 0.003 0.014 0.000

Provision for Probable Losses 0.731 1.422 1.004 0.373 0.762 0.731 0.357 0.660 0.273

Other Operating Expenses 7.071 14.907 8.148 3.349 8.293 4.523 3.721 6.614 3.625 Overhead Costs 4.500 9.382 5.077 2.227 5.310 2.884 2.273 4.072 2.193 Other Expenses 2.571 5.525 3.071 1.123 2.983 1.640 1.448 2.542 1.431

NET OPERATING INCOME (LOSS) (0.221) (0.745) (0.216) 0.782 1.736 0.847 (1.004) (2.481) (1.063)


NET INCOME/(LOSS) BEFORE TAX 0.339 0.609 0.409 0.926 2.239 1.146 (0.588) (1.630) (0.738)

Provision for income tax 0.281 0.566 (0.092) 0.160 0.410 0.069 0.121 0.156 (0.161)

NET INCOME/(LOSS) AFTER TAX 0.058 0.043 0.501 0.767 1.830 1.078 (0.709) (1.786) (0.577)

Profitability Return on Assets (%) (0.08) 0.01 0.16 1.05 1.05 1.15 (1.41) (1.54) (1.37)Return on Equity (%) (0.54) 0.11 1.16 9.23 9.82 10.48 (7.29) (8.19) (7.74)


TOTALSelected Accounts FINANCIAL INSTITUTION LINKED BANKS NON-LINKED BANKSr/ r/

Schedule 5.d COMPARATIVE STATEMENT OF INCOME AND EXPENSES RURAL AND COOPERATIVE BANKING SYSTEM For the Period-Ended Indicated (Amounts in Billion Pesos)




Non-interest Income 1.449 3.071 1.736 1.283 2.722 1.545 0.166 0.349 0.191 Fee-based Income 1.055 2.221 1.285 0.931 1.964 1.147 0.124 0.257 0.138 Trading Income/(Loss) 0.015 0.031 0.010 0.015 0.028 0.010 - 0.003 - Trust Department Income - - - - - - - Other Income/(Loss) 0.379 0.820 0.440 0.337 0.730 0.388 0.042 0.090 0.053

OPERATING EXPENSES 3.840 8.482 4.462 3.573 7.889 4.158 0.267 0.593 0.303

Bad Debts Written Off 0.019 0.070 0.008 0.018 0.068 0.008 0.001 0.002 -

Provision for Probable Losses 0.123 0.270 0.184 0.111 0.241 0.173 0.012 0.029 0.012

Other Operating Expenses 3.698 8.142 4.269 3.444 7.581 3.977 0.254 0.562 0.292 Overhead Costs 2.454 5.394 2.787 2.275 5.008 2.586 0.179 0.386 0.201 Other Expenses 1.244 2.748 1.482 1.169 2.573 1.391 0.075 0.175 0.091

NET OPERATING INCOME (LOSS) 0.787 1.488 0.971 0.716 1.363 0.893 0.071 0.125 0.078


NET INCOME/(LOSS) BEFORE TAX 1.043 1.989 1.237 0.964 1.847 1.143 0.079 0.142 0.094

Provision for income tax 0.113 0.297 0.183 0.113 0.297 0.183 - - -

NET INCOME/(LOSS) AFTER TAX 0.930 1.692 1.054 0.851 1.550 0.959 0.079 0.142 0.094


r/ Revisedp/Preliminary


TOTALSelected Accounts RURAL BANKS COOPERATIVE BANKSr/ p/ r/ p/ r/ p/

Schedule 5.e COMPARATIVE STATEMENT OF INCOME AND EXPENSES NON-BANK FINANCIAL INSTITUTIONS (NBFIs) For the Period-Ended Indicated (Amounts in Billion Pesos)

Jan-Jun '04 Jan-Dec '04 Jan-Jun '05 Jan-Jun '04 Jan-Dec '04 Jan-Jun '05 Jan-Jun '04 Jan-Dec '04 Jan-Jun '05 Jan-Jun '04 Jan-Dec '04 Jan-Jun '05

OPERATING INCOME 17.673 24.302 8.938 0.970 2.342 1.585 4.337 11.398 4.407 12.366 10.562 2.946

Net Interest Income 8.234 15.637 5.945 0.494 1.008 0.771 4.168 9.515 4.209 3.572 5.114 0.966 Interest Income 8.990 18.335 7.507 0.852 1.771 1.547 4.215 9.700 4.297 3.923 6.864 1.663 Less: Interest Expenses 0.756 2.698 1.561 0.358 0.763 0.776 0.047 0.185 0.088 0.351 1.750 0.697

Non-interest Income 9.439 8.665 2.993 0.476 1.334 0.815 0.169 1.883 0.198 8.794 5.448 1.980 Fee-based Income 6.844 5.497 1.741 0.333 0.674 0.393 0.113 1.667 0.110 6.398 3.156 1.239 Trading Income/(Loss) 0.226 0.658 0.616 0.349 0.573 0.456 - - (0.123) 0.085 0.160 Trust Department Income - - - - - - - - - - Other Income/(Loss) 2.368 2.510 0.636 (0.206) 0.087 (0.034) 0.055 0.216 0.088 2.519 2.207 0.582

OPERATING EXPENSES 21.942 11.394 3.367 0.606 1.000 0.603 0.945 2.753 0.890 20.391 7.641 1.874

Bad Debts Written Off 0.001 0.026 0.003 - - 0.001 - - 0.026 0.003

Provision for Probable Losses 4.769 3.467 0.888 0.184 0.070 0.031 0.502 1.424 0.385 4.083 1.973 0.472

Other Operating Expenses 17.172 7.900 2.475 0.422 0.930 0.572 0.442 1.328 0.504 16.308 5.642 1.399 Overhead Costs 11.866 4.720 1.517 0.315 0.725 0.440 0.315 0.904 0.332 11.236 3.091 0.744 Other Expenses 5.305 3.181 0.958 0.107 0.205 0.132 0.126 0.425 0.172 5.072 2.551 0.654

NET OPERATING INCOME (LOSS) (4.269) 12.908 5.571 0.364 1.342 0.982 3.392 8.645 3.517 (8.025) 2.921 1.072

EXTRAORDINARY CREDITS/(CHARGES) 1.119 0.430 0.683 0.220 0.369 0.464 (0.033) (0.014) 0.002 0.932 0.075 0.217

NET INCOME/(LOSS) BEFORE TAX (3.150) 13.338 6.254 0.584 1.711 1.446 3.359 8.631 3.519 (7.093) 2.996 1.289

Provision for income tax 0.450 0.658 0.453 0.221 0.489 0.248 - - - 0.229 0.169 0.205

NET INCOME/(LOSS) AFTER TAX (3.599) 12.680 5.801 0.364 1.222 1.198 3.359 8.631 3.519 (7.322) 2.827 1.084

Profitability Return on Assets (%) 0.55 7.21 7.13 0.89 3.93 5.85 11.80 13.46 13.48 (3.38) 3.51 5.22Return on Equity (%) 0.82 11.53 11.09 1.60 7.45 13.02 13.29 15.19 15.26 (5.47) 7.68 8.75

1/ Includes only the reporting entitiesr/ Revisedp/Preliminary


ALL NBFIsSelected Accounts NBQBs Other NBFIsNSSLAs1/

1/1/

1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/

1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1/

r/ p/ p/ r/ p/r/r/

1/ 1/1/

Appendix 1


Source: Office of Supervisory Policy Development, Supervision and Examination Sector Page 1 of 9

CHANGES IN BANK REGULATIONS FROM JANUARY TO JUNE 2005

A. CIRCULARS

BSP CIRCULAR NO. DATE

PARTICULARS

467 1/10/05 Approval of the regulations that shall apply to repurchase agreements covering government securities, commercial papers and other negotiable and non-negotiable securities or instruments of banks and NBQBs, as well as sale on a without recourse basis of said securities by banks, NBQBs and other FIs

468 1/12/05 Approval of the rules and regulations that shall govern banks’ investments in securities overlying securitization structures

469 1/13/05 Approval of the rules and regulations that shall govern the capital treatment of banks’ exposures to structured products

470 1/17/05 Approval of the revised guidelines for the Currency Rate Risk Protection Program or the CRPP Facility

471 1/24/05 Approval of the rules and regulations that shall govern the registration and operations of foreign exchange dealers/money changers and remittance agents

472 2/01/05

Approval of the amendments to the MORB’s section on the grant of loans and other credit accommodations

473 2/01/05 To recognize internationally accepted credit rating agencies (CRAs) that will undertake local and national ratings for bank supervisory purposes, provided that said CRAs have at least a representative office in the Philippines

474 2/03/05 To amend/add to Subsec. X164.1 of the MORB and Sections 4172Q, 4172N and 4172S of the MORNBFI the regulations concerning the conduct of annual financial audit whereby banks/quasi-banks/NSSLAs/NBFIs shall engage the services of an external auditor acceptable to the BSP and that report of such audit shall be made and submitted to the board of directors/trustees and the appropriate supervising and examining department of the BSP not later than 90 calendar days after the start of the audit

Appendix 1



BSP CIRCULAR NO. DATE PARTICULARS

475 2/14/05 To implement certain revisions relative to the adoption of the risk-based capital adequacy framework (Circular No. 280 dated 29 March 2001) and the guidelines to incorporate market risk in the said framework (Circular No. 360 dated 3 December 2002) as follows:

a. Reduction of risk weights applicable for claims on highly rated foreign incorporated and Philippine incorporated private enterprises and increasing the risk weight on certain non-performing accounts

b. inclusion of the definition of a non-performing debt security and a private enterprise with a highest credit quality and clarification of the use of credit ratings for regulatory capital purposes

c. revision of specific risk capital charge of certain trading book positions

d. revision of prescribed report forms on the computation of the risk-based capital adequacy ratio covering credit risk and the adjusted risk-based capital adequacy ratio covering combined credit risk and market risk

476 2/16/05 Approval of the revised rules and regulations on the accounting for investments in debt and equity securities, amending Appendices 33 and Q-20 of the MORB and MORNBFI and superseding Circular No. 161 dated 30 March 1998

477 2/22/05 Approval of the rules of procedure on administrative cases involving directors and officers of banks, quasi-banks and trust entities, pursuant to the provisions cited in R.A. 7653 (The New Central Bank Act) and R.A. 8791 (The General Banking Law of 2000)

478 2/22/05 Approval of the amendments to the provisions of Sections 72 and 73 of Circular No. 1389 dated 13 April 1993, Item d of Circular No. 433 dated 13 May 2004, the Manual of Accounts for Expanded Commercial Banks and Commercial Banks, and the Manual of Accounts for Thrift Banks so as to allow banks’ EFCDU/FCDUs to purchase foreign currency denominated government securities under resale agreements from other banks’ EFCDU/FCDUs, non-resident financial institutions and OBUs

Appendix 1



BSP CIRCULAR NO. DATE PARTICULARS

479 3/01/05 Approval of the amendment to Subsection X169.3 of the MORB so as to include legal services from local legal counsel as among the services/functions that banks may outsource

480 3/15/05 To amend Subsections X269.1 and X269.2 of the MORB so that rediscounting availments of all eligible banks shall be drawn against their rediscounting line to be based on their total credit score under the new Credit Information System (CRIS)

481 3/21/05 Deferral of the implementation of the P650 million minimum capital requirement for non-bank financial institutions authorized to engage in quasi-banking functions under Circular No. 459

482 5/05/05 To add Item c under Subsection X281.1 (Exemption from reserve requirement) of the MORB so as to exempt borrowings by accredited financial institutions under the Wholesale Lending Program for SMEs of the Small Business Guarantee and Finance Corporation (SBGFC) from reserve requirements

483 5/10/05 To amend the second paragraph of Section X238 of the MORB pertaining to unregistered commercial papers that may be sold, discounted, assigned, or negotiated by banks

484 5/24/05 To amend item “(b)” of Subsection 4126Q.2 of the MORNBFI to implement Section 57 (Prohibition on Dividend Declaration) of R.A. No. 8791

485 5/26/05 New regulations on the imposition of dormancy fees and service charges

486 6/1/05 To amend the deadline for submission of the Report on Crimes and Losses involving bank personnel

487 6/3/05 Rationalize requirements on loans and credit accommodations granted under the bank’s fringe benefits program

Appendix 1



BSP CIRCULAR NO. DATE

PARTICULARS

488 6/21/05 To amend Subsec. X169.3 of the MORB on services or activities that banks may outsource with prior approval of the MB and those that may be outsourced without need for prior approval of the MB

489 6/21/05 1. To amend the provisions of Circular No. 433 dated 13 May 2004 and Circular No. 448 dated 3 September 2004 so as to: allow the use of “Available for Sale Securities” (AFS) in repurchase agreements by banks; and allow the use of Held for Trading Securities (HFT) and AFS under the Regular Banking Unit (RBU) of universal and commercial banks in repurchase agreements

2. To amend the Manual of Accounts for Universal Banks and Commercial Banks and the Manual of Accounts for Thrift Banks so as to create under the general ledger account “Available for Sale Securities” the corresponding subsidiary ledger accounts

B. CIRCULAR LETTERS

DATE PARTICULARS

1/11/05 Directive of the Anti-Money Laundering Council (Res. No. 457 dated 29 December 2004) to all banks and NBFIs to check and report to the Council covered or suspicious transactions involving the Al-Muntada Al-Islamic Organization (AMAI), a.k.a. Al-Muntada Al-Islami Trust, and its officers and employees

1/31/05 Directive of the AMLC under Res. No. 06 dated 14 January 2005 to all banks and NBFIs to check and report to the Council covered or suspicious transactions involving terrorist activities of certain individuals

1/31/05 Approval of the policies and guidelines in reckoning covered institution’s compliance with the prescribed reporting period under R.A. No. 9160 or the Anti-Money Laundering Act of 2001

2/01/05 To caution all banks and NBFIs against a syndicate currently victimizing people by presenting spurious documents allegedly issued by the BSP

Appendix 1



DATE PARTICULARS

2/16/05 Notice to all rural and cooperative banks that only checks and demand drafts included in the Manila clearing are accepted by the BSP Cash Department at Manila as deposit for legal reserves and payments of supervisory fees, penalties and other accounts and that the same shall be made payable to Bangko Sentral ng Pilipinas

2/28/05 Recognition of domestic credit ratings issued by Fitch Singapore Pte Ltd. for bank supervisory purposes

3/02/05 To furnish banks and NBFIs with a copy of R.A. No. 9225 or the Citizenship Retention and Re-acquisition Act of 2003

3/08/05 To furnish all banks and NBFIs with copies of the amendments to the authorized signatories of transmittal letters of sequestered/surrendered companies covering disbursement which are pre-audited by the Presidential Commission on Good Government (PCGG)

3/10/05 Directive of the Anti-Money Laundering Council (Res. No. 15 dated 28 February 2005) to all banks and NBFIs to check and report to the Council covered or suspicious transactions involving Sulayman Khalid Darwish

3/31/05 To remind all concerned banks and NBQBs that the reduced statutory reserve of two percent provided under Circular No. 444 dated 18 August 2004 may not yet be availed of pending the issuance of the pertinent market convention acceptable that shall govern deposit substitutes transactions evidenced by repurchase agreements covering government securities and the opening for the purpose of a separate Registry of Scripless Securities (RoSS) account with the Bureau of Treasury by the BSP-accredited third party custodian

4/04/05 Directive of the Anti-Money Laundering Council (Res. No. 19 dated 16 March2005) to all banks and NBFIs to check and report to the Council covered orsuspicious transactions involving Muhsin Al-Fadhi a.k.a. Muhsin Fadhil, AyyidAl Fadhil, Abu Majid Samiyah, Abu Samia

4/05/05 To enjoin all banks and NBFIs to exercise vigilance in implementing the Know-Your-Customer (KYC) policy amid reports of growing incidence of casesinvolving counterfeit or spurious customized corporate checks and moneytransfers to fictitious accounts

Appendix 1



DATE PARTICULARS

4/12/05 To require all Philippine branches and subsidiaries of foreign banks to:

1. Notify the BSP if their parent bank and/or branches abroad of their parent bank offer or market products in the Philippines, either through electronic means (website) or through its local desks (within bank premises); and

2. Submit to the appropriate supervising and examining Department within

10 banking days from receipt of this Circular Letter the list of products offered/marketed, the corresponding manuals containing the policies and procedures, the flow chart of transaction and the risk management system for each particular product.

5/11/05 Inclusion of 8 Regional Clearing Centers (RCCs) in the Manila Clearing in furtherance to Circular Letters to all rural and cooperative banks dated 19 March 2004 and 16 February 2005 regarding checks and demand drafts acceptable as deposit for legal reserves and payments of supervisory fees, penalties and other accounts payable to Bangko Sentral ng Pilipinas

6/02/05 Extension of registration of Foreign Exchange Dealers (FXDs)/Money Changers (MCs) and Remittance Agents (RAs) for another 90 calendar days

6/02/05 Directive of the Anti-Money Laundering Council (Res. No. 54 dated 25 May 2005) to all banks and NBFIs to check and report to the Council covered or suspicious transactions involving Mr. Ibrahim Buisir

6/09/05 To clarify that the option to register with BSP all foreign investments in securities listed in the PSE shall only apply to those purchased or acquired outside the trading floor of the PSE. All other foreign investments in PSE-listed securities under Section 37 of Circular No. 1389, as amended by Item No.3 of Circular No. 224, shall be registered with a custodian bank.

6/16/05 Directive of the Anti-Money Laundering Council (Res. No. 42 dated 29 April 2005) to all banks and NBFIs to strictly observe required format and deadline for submission of all Suspicious Transactions Reports (STRs) and Covered Transactions Reports (CTRs)

6/16/05 Directive of the Anti-Money Laundering Council (Res. No. 58 dated 25 May 2005) to all banks and NBFIs to defer reporting by covered institutions to AMLC of certain non-cash, no/low risk covered transactions and to report specific transactions falling under “non-cash, no/low risk” covered transactions

Appendix 1



DATE PARTICULARS

6/16/05 To furnish all banks and NBFIs a list of suspicious transaction indicators or “red flags” to serve as guide in submitting reports of suspicious transactions to the Anti-Money Laundering Council (Res. No. 59 dated 1 June 2005)

6/21/05 To enjoin all banks to observe the Small and Medium Enterprise Development (SMED) Week on 18-24 July 2005 and help raise public awareness on the role of SMEs in economic development

6/23/05 To enjoin all banks to participate in the national observance of the Savings Consciousness Week on 30 June to 6 July 2005 and help promulgate the theme “Tumulong sa Pag-angat ng Ating Kabuhayan, sa Bangko Palaguin ang Ipong Yaman”

C. MEMORANDUM TO ALL BANKS/NON-BANK FINANCIAL INSTITUTIONS

DATE PARTICULARS

2/03/05 To inform all rural and cooperative banks of the clarifications made in the computation and submission of the Weekly Report on Required and Available Reserves (WRRAR)

2/14/05 To implement Section 2 of Circular No. 448 dated 3 September 2004 so as to further amend the General Ledger and the monthly Consolidated Statement of Condition of universal banks, commercial banks and TBs by including the following accounts:

1. Investments in Bonds and Other Debt Instruments Lent Under Securities Lending Agreement (Foreign Regular and FCDU/EFCDU Books)

2. Investment in Bonds and Other Debt Instruments Sold Under Repurchase Agreements (Foreign Regular and FCDU/EFCDU Books)

2/21/05 To inform all U/KBs of the revision to be implemented in the Additional Information Schedule (SCHAD.DBF) and the Consolidated Statement of Condition schedules and its sub-schedules (Schedules 1 to 17) which shall be in an absolute amount format, effective for reports as of 31 March 2005

Appendix 1



DATE PARTICULARS

2/23/05 Issuance of guidelines concerning the treatment of the Income/(Loss) – Trust Department account in the CSIE, clarifying the following:

1. The correct amount to be reported for said account in the CSIE of U/KBs and TBs is the net Income/(Loss) amount reflecting the income earned and loss incurred by the Trust Department (GL Account code 18-0 in the quarterly U/KB Trust report)

2. The income and expenses of the Trust Department should not be combined with the corresponding Bank Proper income and expenses using appropriate accounts in the CSIE.

2/24/05 To remind all non-bank financial intermediaries with quasi-banking functions

of the guidelines for reporting the deposit substitutes evidenced by repurchase agreements (repos) covering government securities so as to implement the provisions of Circular No. 444 dated 18 August 2004

3/04/05 To remind all banks and NBQBs that the deadline for the availment of tax incentives and fee privileges under the SPV Act for all transactions enumerated as Items 1 to 6 of the IRR shall not be later than 12 April 2005, and that the SES may accept applications for COE from banks/NBQBs until 12 May 2005

3/29/05 To implement the provisions of Circular No. 478 dated 22 February 2005, the following shall be observed in the preparation of BSP reports:

1. Unblock the EFCDU/FCDU portion of the monthly CSOC of Commercial and Thrift Banks so as to reflect the outstanding balances of “Government Securities Purchases Under Resale Agreement – FCDU/EFCDU” account

2. Include in the SCHAD.DBF file outstanding resale agreements with maturities of over one year

3. Include in the Consolidated Report on Compliance with FCDU Cover Requirement short term Government Securities Purchased under Resale Agreements under the “FCDU Liquid Assets” and those outstanding Government Securities Purchased Under Resale Agreements with maturities of more than one year under the “Other Eligible FCDU Asset Cover”

4/14/05 To clarify the guidelines on the implementation of Circular No. 475 dated 14

February 2005 with respect to the treatment of non-performing secured loans

Appendix 1



DATE PARTICULARS

4/15/05 Guidelines on the standard definitions of default and loss in connection with the data requirements for banks’ internal credit risk rating systems

4/19/05 To advise all rural/cooperative and microfinance-oriented rural banks of the live implementation of the General Ledger (GL) Reporting System together with the supporting schedules of CSOC (RB/COB Form 2A) beginning the quarter-end March 2005 reports

4/19/05 Invitation to all banks to comment on the exposure draft of Basel 2 Implementing Guidelines for the Philippines

5/11/05 To inform all universal and commercial banks of the regulatory requirements for investing in credit-linked notes, structured products and securities overlying securitization structures

6/08/05 Temporary suspension of the SL Reporting System on account of anticipated changes in the existing financial report structure owing to current initiatives to adopt the International Accounting Standards

6/22/05 To clarify that 24 June 2005 (Araw ng Maynila), a special non-working holiday in the City of Manila, is considered a regular reserve day

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