FINANCIAL ANALYSIS

BDO

Presented By:

Singgo, Angelica Joy Y.

Presented to:

Dr. Enrique Rodrigo

 Financial System and Institution

Financial Statements
In compliance with the General Banking Law of 2000, below is the Report of the Audit
Committee to the Board of Directors. In accord to the supervisory powers of the Bangko Sentral
ng Pilipnas and the authority and powers indicated therein.
Guided by its Board-approved Terms of Reference, the Board Audit Committee (BAC)
discharged its oversight functions independently over the Bank’s financial reporting process,
system of internal control, overall management of risks and governance processes, Internal and
External Audit functions and compliance with applicable rules and regulations. The BAC,
composed of three independent directors and three advisers had thirteen meetings in 2018.
In 2018, the BAC accomplished the following:

1. On the financial reporting process

 Extensively reviewed and discussed with Management and the External Auditor the annual
audited financial statements for the year ended December 31, 2018 before endorsing the
same to the Board of Directors. The related internal controls on the financial reporting
process, compliance with accounting standards and tax regulations, as well as the impact
of new accounting standards and regulations more specifically the adoption of Philippine
Financial Reporting Standards (PFRS) 9 were likewise reviewed.
 Reviewed and discussed with Management the quarterly unaudited financial statements,
results of operations and disclosures prior to endorsement to the Board of Directors
for approval.

2. On its oversight function over Internal Audit

 Deliberated with Internal Audit and approved the risk-based audit plan covering the scope,
audit methodology, risk assessment and rating processes, financial budget, manpower
resources, as well as changes to the plan during the year.
 In accordance with regulation, reviewed the revised Internal Audit Charter.
 Periodically received audit reports and constantly deliberated high and moderate risk
findings relating to operational, financial and compliance controls including risk
management systems and information security.
 Regularly tracked the timely resolution of findings and asked for Management’s action
plans on items that needed more time to be addressed.
 Ensured Internal Audit’s independence and free access to all records, properties and
information to be able to fully carry out its functions.
 Assessed the performance of the Chief Internal Auditor and key Audit Officers.

3. On its oversight function over External Audit

 Ensured the independence, qualification and objectivity of the appointed BSP-accredited
External Auditor.
  Reviewed and discussed with the External Auditor the content of the engagement
letter, audit plan, scope of work, focus areas, engagement team among others, prior to
commencement of audit work.

Regulatory Environment-BSP

The BSP continued the implementation of Basel III reforms in 2018 as it required banks
to comply with the following: the Liquidity Coverage Ratio (LCR), which states that banks’
high-quality assets must meet 90% of their obligations under normal and stressed conditions,
increasing to 100% in 2019; the Leverage Ratio, which requires banks to put up at least 5% of
Tier 1 capital against risk exposures; and the third and final tranche of the Domestic
Systemically Important Banks (DSIB) surcharge, which takes effect by January 2019. As well,
the BSP issued the implementing guidelines on Net Stable Funding Ratio (NSFR), which
mandates that bank’ assets and activities must be structurally funded with long-term and more
stable funding sources, and with minimum requirement at 100% beginning January 2019. The
BSP also released the guidelines on the Countercyclical Capital Buffer (CCyB) which requires
banks to set aside additional capital as reserves to cover potential losses arising from cyclical
systemic risks. The BSP initially set the CCyB at 0%, citing no imminent risk from ongoing
credit buildup. Further, banks were required to adopt the Philippine Financial Reporting
Standards 9 (PFRS9) beginning 2018, which covered among others, the classification and
measurement of financial assets and liabilities, investment portfolio, and impairment
methodology.
Moving forward, the BSP is expected to continue with additional macro-prudential
measures and expand its financial toolkit to better monitor risks from potential overheating and
ensure financial stability Inflation is seen falling within the BSP’s 2%-4% target range and
should allow the BSP to keep interest rates on hold and even cut reserve requirements. The more
stable market environment should benefit the banking sector in terms of sustained, albeit more
tempered loan growth while asset quality is generally expected to remain benign.
The Bank ensures that credit, market, interest rate, and liquidity risks are within Board-
approved operating limits. Operational, legal, regulatory, and reputational risks are invariably
managed by the development of both a strong “control culture” and an effective internal control
system that constantly monitors and updates operational policies and procedures with respect to
the Bank’s activities and transactions.
The Board is composed of 11 members and aided by 5 Advisors. The members of the
Board are all professionals with expertise in banking, accounting and finance, law, merchandise
marketing, strategy formulation, bank regulations and risk management. It is led by a Non-
Executive Chairperson with 5 Independent Directors, 3 Non-Executive Directors and 2
Executive Directors who are the Vice Chairman and the President & CEO. Independent
Directors make up 45.45% of the members of the Board which exceeds the requirement of the
Securities and Exchange Commission (SEC) and the Bangko Sentral ng Pilipinas (BSP).
Non-Executive Directors, who include Independent Directors, constitute 82% of board
strength. This is more than the BSP’s requirement that non-executive directors should comprise
at least majority of the board of directors. Seven of nine Board committees namely Risk
Management, Board Audit, Corporate Governance, Related Party Transactions, Information
Technology Steering, Nominations, and Compensation are chaired by Independent Directors.
This provides independent and objective judgment on significant corporate matters and ensures
that key issues and strategies are objectively reviewed, constructively challenged, thoroughly
discussed and rigorously examined. No Director serves as such in more than five publicly-listed
companies.

ANTI-MONEY LAUNDERING ACT

The BDO Compliance Office is responsible for overseeing, coordinating, monitoring and ensuring
compliance of the Bank with existing laws, rules and regulations through the implementation of
the overall compliance system and program in accordance with the requirements of the BSP and
other regulatory agencies, including but not limited to the identification and control of compliance
risks, prudential reporting obligations as well as compliance training.

BDO’s Compliance System forms the processes, people, policies and other components that, as an
integral unit, ultimately drive the Bank’s initiatives to conform to industry laws, regulations and
standards. In line with the Bank’s initiatives is its commitment to ensure that activities of the Bank
and its personnel are conducted in accordance with all applicable banking laws and regulations
and industry standards, and this commitment to compliance serves to protect the Bank and its
stakeholders. The Anti-Money Laundering Unit (AMLU) under the Compliance Office, together
with the Bank's Anti-Money Laundering (AMLC), focuses on the enforcement of the Anti-Money
Laundering Act and its implementing rules and regulations, as well as the Terrorism Financing
Prevention and Suppression Act of 2012; the monitoring and reporting of covered and suspicious
transactions, and conduct of AML training, aimed towards mitigating the risk of the Bank being
used for money-laundering and terrorist financing activities. The Bank seeks to prevent money
laundering, combat terrorist financing and stop the flow of funds by detecting and reporting
money-laundering and terrorist financing red flags, establishing policies and guidelines as
articulated in a Board-approved Money Laundering and Terrorist Financing Prevention Program
Manual (MLPP) aligned with AML laws and BSP regulations, with which front liners and
responsible bank officers comply. The Bank's MLPP supports the conduct of proactive and
targeted monitoring initiatives to identify suspected money launderers and terrorists as well as
terrorist-related transactional activities.