ENABLING FILIPINO FAMILIES - bpiexpressonline.com · ENABLING FILIPINO FAMILIES 3 Loyalty We are proud of BPI. We are true to its ideals and vision, and we actively promote and defend

E N A B L I N G F I L I P I N O F A M I L I E S

B P I F A M I L Y S A V I N G S B A N KH E L P I N G F U L F I L L Y O U R

F A M I L Y ’ S D R E A M S

Every family’s dream is our passion. Together, we work hard to transform their hopes

and aspirations into reality today.

Annual Report 2017

Every family’s dream is our passion. Together, we work hard to transform their hopes

and aspirations into reality today.

ENABLING FILIPINO FAMILIES 1

Core Values and Credo

Our Aspiration and Mission

About the Report

Our Business

Chairman’s Message

President’s Message

Cultivating an Integrated Approach

Business Model and Value Creation

Pursuing Growth Through

Prudent Risk Management

BFSB Board of Directors

Corporate Governance and

Capital Adequacy

Appendices

Senior Management Team

Table of Organization

Products and Services

Audited Financial Statements

2

6

9

12

18

28

34

56

2 2017 Annual Report

Core Values

Credo

We believe our first responsibility is to our CLIENTS. If we understand and address our clients’ financial needs, we will be trusted with their most important financial transactions, and we will build lasting relationships. We do well when our clients do well.

We believe in our responsibility to our PEOPLE. We seek to hire the best person for each job, provide our employees with the means to perform at a high level and reward them fairly. We value integrity, professionalism, and loyalty. We promote a culture of mutual respect, meritocracy, performance, and teamwork. We strive to be the employer of choice among Philippine financial institutions.

We believe in our responsibility to our SHAREHOLDERS. We treat capital as a most valuable asset and seek to generate superior returns while being prudent in risk-taking, spending, and investment. We believe in our responsibility to our COUNTRY. Our prosperity is greatly dependent on the well-being of our nation. We aim to be inclusive and responsible in nation building. Through BPI Foundation, we are committed to the welfare and sustainability of the communities we serve.

Customer Service

We establish lasting relationships with clients, putting them first in our list of priorities. We delight them with our services andwe always try to anticipate their needs.

Excellence

Whatever our functions are, we always give our best and continuously upgrade our knowledge, skills, habits and attitudes. This way, we meet each challenge with determination and drive, opening ourselves to unlimited possibilities.


Loyalty

We are proud of BPI. We are true to its ideals and vision, and we actively promote and defend what BPI stands for.

Teamwork

We build relationships founded on mutual respect. We are totally committed to the achievement of the objectives of our team and of BPI. We actively participate as one in any undertaking and contribute our individual knowledge and talents for the benefit of all.

Integrity

As bankers, we strive to be worthy of the confidence in us by BPI, our clients and our shareholders. We earn the trust of those we meet and interact with, and always do what is morally and socially correct, contributing in our small way in shaping the future.

Concern for People

We are fair, supportive, friendly, caring, and sincere in our relations with the people around us.


Aspiration

BFSB aspires to strengthen its market leadership in terms of customer base, asset base, and profitability.

About the Report

Our Aspiration and Mission

Scope and Coverage

Enabling Filipino Families is BPI Family Savings Bank’s 2017 Annual Report, which covers the Bank’s business operations, from January 1 to December 31, 2017. It highlights our overall financial, economic, environmental, and social performance and how we create value through our products and services. This report adheres to the Bangko Sentral ng Pilipinas (BSP) guidelines on the submission of Annual Reports. This report will thereafter be published annually.

Additional Reference

The Bank’s financial and operational performance is disclosed and filed at the Philippines’ Securities and Exchange Commission (SEC). It forms part of the

Information Statement provided to stockholders. The report is available at https://www.bpiexpressonline.com/p/1/2031/about-bfsb. Data covering the Philippine banking industry, macroeconomic, behavioral, and demographic trends were sourced from the reports of the World Bank and Bangko Sentral ng Pilipinas.

Contact Information

For questions, comments, and suggestions, contact us: Email : [email protected] : +63917-8910000Phone : 89-100 for Metro Manila : 1-800-188-89100 for domestic toll free (available to PLDT subscribers) : +63+2+89-10000 for mobile

phone and international access (mobile and international call rates apply)

Mission

The Bank’s mission is to enable the Filipino Family to progress in life, and believe in their ability to achieve their dreams – today rather than tomorrow, sooner rather than later, in the near term rather than the long term.


Our Business

Established in 1985, BPI Family Savings Bank, Inc. (BFSB) is a wholly-owned subsidiary of the Bank of the Philippine Islands (BPI), and serves as BPI’s thrift bank and consumer lending arm.

Its parent bank BPI, is a Philippine-based universal bank which offers a variety of financial services, including corporate banking, consumer banking, consumer lending, investment banking, asset management, securities distribution, insurance services, and leasing.

Founded in 1851, BPI is known as the oldest bank in Southeast Asia, and today, a leader in Philippine banking.

BPI ranks third in the Philippines with assets, deposits, and loans at Php 1.6 trillion, Php 1.3 trillion, and Php 991 Bn, respectively, as of end-2017.

Leveraging on the strength of BPI, BFSB is the Philippines’ largest thrift bank in terms of assets, deposits, and loans, which, as of end-2017, stood at Php 267 Bn, Php 232 Bn, and Php 206 Bn, respectively. BFSB has also been recognized by The Alpha Southeast Asia as the Best SME Bank for six consecutive years, and Best Mortgage Lending Bank for two consecutive years.


A robust Philippine economy, one of the fastest growing economies in Asia, allowed BPI Family Savings Bank (BFSB) to turn in another remarkably profitable year in 2017. In the midst of one of the longest periods of strong economic growth, which saw the country register a GDP increase of over 6% for the 6th consecutive year, many industries, including the financial sector, posted healthy gains as the Philippine Stock Exchange Index closed at a record high of 8,558 by the end of December, 2017, which is 25.1% higher compared to end-2016.

The global economy also saw a cyclical recovery with global GDP growth estimated at 3% in 2017. This was coupled with a marked rebound in trade and investment activity for the year.

There will always be risks brought about by increasing global trade friction and monetary policy divergence from the world’s major central banks, but we expect that the structural reforms provide the needed resiliency of the Philippine economy that will allow it to weather these global threats. Moving forward, we believe that the Philippines is well-positioned to capitalize on the continued global economic recovery.

Industry growth

With domestic inflation at a controlled level of 3.2%, well within the government’s target range of 2% to 4%, Filipinos enjoyed greater purchasing power which further fueled GDP growth. Higher disposable incomes of families and individuals improved consumer confidence allowing for investments in more tangible assets such as real property, and vehicles. Consumers had a greater propensity to finance these assets through bank loans as monthly loan amortizations became more affordable.

A healthy competitive landscape supported affordability as universal and thrift banks priced their products aggressively, particularly in the retail space where margins and growth potential have wider room. The Bangko Sentral ng Pilipinas estimates that the consumer loans portfolio of the Philippine banking system doubled in size in the last five years to Php 1,491 Tn in 2017.

Chairman's Message


Cezar P. ConsingChairman


Cognizant of the higher risks in consumer banking, BFSB remained prudent with its underwriting practices, credit models management, and analytics-driven policies. The Bank had embarked on process improvements and upgrades in systems to support more aggressive business goals.

Financial Inclusion

BFSB is one with BPI in promoting financial inclusion in the country, understanding that inclusive growth will help foster a resilient society and a competitive economy. We continue to expand our reach nationwide to make our products and services available to as many customers as possible. We plan to add three more branches to our 160 branches by the first half of 2018. We will also expand our lending footprint by increasing the number of existing retail loan centers and establishing our presence in rapidly growing provincial areas to support our clients’ demand for faster loan processing and better customer servicing.

Drawing Strength from the BPI Heritage

BFSB is the Philippines’ largest thrift bank in terms of total assets, deposits, and loans, which as of end-2017, stood at Php 267 Bn, Php 232 Bn, and Php 206 Bn, respectively. Our brand has been further strengthened by the recognitions we have received from prestigious award-giving bodies here and abroad.

Alpha South East Asia named BFSB the Best SME Bank in the Philippines for six consecutive years, and Best Mortgage Lending Bank for two years in a row. Other organizations such as The Asian Banker and The Boomerang Awards also recognized BFSB for its Best Mortgage Products and effective digital programs.

We draw strength from the BPI, one of the most trusted companies in the country, built over its 166-year history. Studies show that BFSB enjoys higher brand consideration and awareness even when compared to other universal banks. A strong corporate equity combined with deep expertise in consumer lending and operational efficiencies makes BFSB well-positioned to capture growth in the retail banking space.

Superior Shareholder Return

BFSB earned a record-high net income of Php 5.6 Bn in 2017, up 27.8 % from the previous year. Return on average equity (ROE) stood at 19.7%, and return on average assets (ROA) at 2.0%. Our earnings allowed us to grow our capital to Php 27.8 Bn even after distributing cash dividends of Php 450 per share, for a total of Php 4.5 Bn or 80.8% of our income.

The Bank’s focus on the core middle market retail segment yields superior risk-adjusted margins with positive growth prospects. Investments made on expansion and upgrade of the physical

and digital infrastructure, build-up of risk management capabilities and system support for process improvements are expected to have long-term effects on revenues and efficiency.

All in all, BFSB continued to contribute significantly to BPI Group’s strong financial performance. BFSB’s loans accounted for approximately 17% of the Group’s total loans, while its assets made up 13% of the Group’s total assets. BFSB’s net income accounts for 25% of BPI’s consolidated net income.

We remain one of the Philippines’ largest retail lenders due in large part to the expertise and guidance of our Board of Directors, as well as the hard work, skill and compassion of our management team and bankers. Over and above our commitment to excellence, strong risk management systems, financial stability and track record, we believe that it is our genuine care for all stakeholders and our passion to serve that will help us maintain our leadership position in the years to come.



In 2017, BPI Family Savings Bank (BFSB) continued to build on its strengths and maintained its position as the leading thrift bank in the country. Intrinsic to our success is our belief that we do not just provide financial services to our customers; we help make people’s dreams happen in the best way possible. This involves understanding our customers’ varying needs, providing the most suitable solutions, and being a knowledgeable, responsive and trusted advisor for all our stakeholders.

Our dedication to live our core values has helped us exceed our goals through the years, as the Bank doubled in size and significantly improved its risk metrics over a 5-year period ending in 2017. We look to solidify our leadership position even further within the next few years as we enhance product relevance, expand our processing capacity, sustain adequate liquidity and maintain our operational efficiency. We expect to preserve our net interest margins through an optimal asset and funding mix and prudent management of our portfolio credit risk.

Strengthened Consumer Lending Operations

The year that passed saw a bank-wide renewed focus on consumer lending to capitalize on a consumption-driven

President's Message

Philippine economy. The Bank overhauled its consumer loan policies and processes to improve turnaround times for its auto and housing loans businesses.

As we move on to 2018 and beyond, we are well-positioned to capture a bigger share in the rapidly-growing consumer loans segment. Leveraging on the broad base of depositors and rich transaction data, the Bank extensively took advantage of its customer relationship and risk analytics capabilities to enhance loans underwriting, improve credit scorecard models, fine tune collections processes and implement targeted marketing campaigns.

We will continue to strive for operational excellence, knowing that our consistent growth and expansion necessitates a corresponding increase in internal capacity. We have succeeded at refining our processes, updating policies and procedures, and boosting overall efficiency. We have already seen significant improvements in auto loan turnaround times and we expect to see more gains in the coming years.

Leading the way as the country’s largest thrift bank

The Bank maintained its dominance with significant increases in profitability.

A record net income of Php 5.6 Bn was made possible primarily through better risk-adjusted revenues, augmented by trading gains. Prudent credit and liquidity risk management combined with strengthened collection capabilities yielded lower delinquencies and better recoveries.

The Bank managed its liquidity demands by selling part of its SME portfolio to the parent company BPI. While total loans portfolio decreased by 3.0% to Php 201.1 Bn in 2017 as a result of this, the Bank has been able to optimize the use of its funding and capital to improve overall margins. Furthermore, the partial sale of the SME loans portfolio was a step towards building the SME business in BPI which allows for greater flexibility and underwriting efficiency given its bigger capital base. The forecasted potential of SMEs motivated the Unibank to strategically pursue this market segment with the establishment of a new unit called Business Banking in BPI. The Business Banking Group will cater to the needs of over 100,000 BPI clients, beyond the basic deposit products, to cross-sell business loans and cash management facilities.

Net interest income after impairment losses grew by 21.5% to Php 10.9 Bn. Marked improvements in auto and housing loans quality helped lower the


Bank’s loss provisions to only Php 207 Mn, lower by 88.4% compared to the previous year. Due to better net interest margins, net interest income inched up by 3.3% to Php 11.1 Bn, as we pushed for more low-cost CASA deposits, and invested in higher yielding auto and housing loans.

Despite the increase in our operating expenses BFSB has the lowest Cost-to-Income Ratio in the industry at 49.1%. This is a reflection of our efficient operations and financial prudence. 2017 also marked the conclusion of our preparations to transition the Bank to the new accounting standards under PFRS 9 effective January 1, 2018. The loan loss provisions based on the new expected credit loss models of PFRS 9 showed that the Bank had more than adequate reserves, reinforcing the Bank’s prudent credit risk management.

A Steady Hand Towards Future Growth

The Bank’s leadership in the thrift bank industry was built largely through an organizational culture that revolved around the Filipino family. We fueled our growth with an understanding of the Filipino family’s dreams and aspirations, providing innovative financial solutions that enable them to reach their goals and empowering them through trusted advice gained through years of experience.

With the guidance from the Bank’s Board of Directors, leadership of the Management Team and dedication of the employees, we remain committed to our mission of helping Filipino families achieve their dreams today and in the future.

Maria Cristina L. GoPresident





C U L T I V AT I N G A N

I N T E G R AT E D A P P R O A C H


Our Resources

BPI Family Savings Bank stands as the largest thrift bank in the country in terms of assets at Php 267.7 Bn in 2017.

We continue to grow our loan books while managing portfolio risk and maintaining adequate capitalization that stood at Php27.8 Bn last year. We fund our loan growth primarily through sustainable funding from deposit build-up.

As a partner of Filipino families in achieving their goals and contributing to the national agenda of inclusive growth, BPI Family Savings Bank has invested in branch expansion, digitalization and technology, and enhanced internal processes to meet the needs of the various markets and stakeholders it serves.

With the additional three new branches opened in 2017, the total number of BPI Family Savings Bank branches is now 160 across the country. BFSB also has 15 retail loan centers. The Bank has focused on establishing presence in the growing provincial areas in line with our commitment to make financial services more accessible to more Filipinos.

At 2,874-strong all over the country, our employees make it possible for Filipinos to access relevant financial solutions that address their needs. Our employees are trained to understand the changing needs and behaviors of the different segments of the market we cater to. They are kept abreast of the economic, social and political developments here and abroad. They go through extensive product orientation, service and sales skills seminars and regulatory briefings to enable them to provide trusted advice to clients. The Bank plans for career advancement and skills-building, advocates diversity and wellness, and promotes the importance of life-work balance.

Its 32-year history of leadership in thrift banking makes BPI Family Savings Bank a beacon of stability and credibility in the financial industry. We have built and sustained trust among our clients and business partners. As part of the BPI group, the Bank is committed to upholding the parent company’s commitment to provide innovative products, quality service and expert advice to our clients.

How We Create Value

Business Model and Value Creation

2,874total number of employees

160 BFSB branches and 15 retail loan centers

32 Years

Php 267.7 Billion

across the country

of leadership inthrift banking

in total assets as of 2017


We grow our resources through a family-focused approach that contributes to

We grow our resources through a family-focused approach that contributes to greater financial inclusion by encouraging more Filipinos to adopt the habit of saving and empowering them to start on their dreams – be it their own home through a housing loan, their first car through an auto loan or their own business with a Ka-Negosyo Loan.

Total deposits in 2017 was at Php 231.6 Bn. Encouraging more Filipinos to save up for the future has been the driving force of the Bank’s 160 branches. We offer various deposit products that make saving easier – Kaya savings account with no maintaining balance, regular savings account at low maintaining balance, time deposits at different terms and competitive rates, Pamana Savings with free insurance coverage and 5-year Plan Ahead deposit with higher yield. Our clients trust us with their hard-earned money and we ensure we are able to provide them with deposit products that suit their needs.

In 2017, housing loans stood at Php 116.3 Bn, up by Php 5.4 Bn from the previous year. Auto loans also grew to Php 57.1 Bn while SME loan portfolio reached Php 30.6 Bn. While a housing loan is typically intended to acquire a property, clients also obtain a loan to build a home using the lot or another property as collateral. We also offer fleet financing of vehicles to companies for their employees or delivery operations.

For businesses, we provide various forms of financing – from working capital loans, capital expenditure loans, supply chain and small business loans.

Other products and services available to address the day-to-day needs of our clients include credit and debit cards, remittance and foreign exchange services and cash management facilities.

Given our prudent risk management, we have institutionalized a credit underwriting process that ensures risk metrics are within internal limits. Our non-performing loan ratio of 3.52% is better than the consumer loans industry average of 3.86%.

Php 231.6 Billionin total deposits

PASSBOOK

Php 116.3 Billionin housing loans

Php 57.1 Billionin auto loans

Php 30.6 Billionin SME/Ka- NegosyoLoans and


8,468Ka-Negosyo clients


The Value We CreateAt the heart of BPI Family Savings Bank’s operations is the belief that empowering Filipino families to pursue their aspirations will ultimately enable the nation to achieve sustainable and equitable growth.

This growth does not only translate to loans that give access to new homes and new cars or to scale up existing business. It also means the delivery of sustainable development financing.

BFSB helped create sustainable communities, having disbursed loans amounting to Php 169 Bn since its establishment, for the acquisition of low-cost real estate and the development of socialized housing. It has also helped support education through loans for the acquisition, construction and improvement of school buildings totaling Php 43 Mn.

We work to make a change in the communities we serve through our participation in BPI Foundation’s programs and initiatives. As part of the foundation’s volunteerism program BPI Bayan, BFSB’s various area banks have spearheaded various grassroots projects.

The BFSB branch channel is actively involved in service and outreach projects. The Alabang-Las Piñas-Parañaque area conducted fundraising activities for its yearly enrichment program for children, PWDs and for the counseling of their parents. The Antipolo-Pasig-Ortigas area held a livelihood training program for visually impaired recipients to have an additional source of income.

The Manila-Pasay area worked together in their Kabuhayan Para sa Kinabukasan project to provide a certified housekeeping training for ALS graduating students. The Iloilo area held financial literacy talks and business seminars for homeowners of Savannah Subdivision, a subdivision in Iloilo with the biggest number of overseas Filipinos and their beneficiaries, as part of their Changed Lives, Change Live program.

BFSB helps createsustainable communities

Php169 Billiondisbursed loans for low cost housing


Our dedication and commitment to delivering quality service has resulted in increased client satisfaction. BPI Family Savings Bank allows its clients to transact in its 160 branches nationwide, withdraw from BPI’s ATMs without charge, and deposit through BPI cash accept machines. We understand our clients’ need to be able to transact anytime and anywhere. They can pay bills and transfer funds with peace of mind through the online and mobile banking platforms.

Enabling Filipino families to progress in their lives with the trusted advice they derive from the Bank’s relationship managers and branch personnel, with relevant financial products and services to address their needs and with our robust branch, ATM, CAM and digital infrastructure has been the cornerstone of BPI Family Savings Bank’s mission. The Bank’s continued business growth is largely attributed to the trust and loyalty of the Bank’s valued clients and business partners. In 2017, BPI Family Savings Bank posted a record-high net income of Php 5.6 Bn, which translates to a return on equity of 19.7%. We have paid out cash dividends of Php 4.5 Bn and still maintained a healthy capital adequacy ratio of 16.37%.

We are inspired to keep improving access to our financial advice and solutions, and our clients and stakeholders can be confident in BPI Family Savings Bank as their family’s partner for growth.

Php 5.6 Billionin net income, a record high

19.7%return on average equity




P U R S U I N G G R O W T H T H R O U G H

P R U D E N T R I S K M A N A G E M E N T


The Bank espouses a comprehensive risk management framework, which integrates the management of all its financial and non-financial risk exposures. The framework conforms not only to the Bank’s own rigorous standards, but also to BSP directives in promoting an effective ICAAP and other risk management processes. It also ensures that the Bank has adequate liquidity and capital levels to mitigate risks. The framework focuses on three (3) key components of:

• Sound risk management governance;• Effective risk processes, information

systems, and controls; and • Timely and reliable risk data.

BFSB’s Board of Directors fulfills its risk management function through the Risk Management Committee (RMC). At the management level, the Risk Management Office (RMO) is headed by the Chief Risk Officer (CRO). The CRO is responsible for leading the formulation of risk management policies, methodologies, and metrics in alignment with the overall strategy of the Bank, ensuring that risks are prudently and rationally undertaken according to the Bank’s risk appetite. The CRO and the RMO facilitate risk management learning programs and promote best practices on an enterprise-wide basis.

Risk Appetite

Risk management in BFSB follows a top-down approach, with risk-appetite setting and overall risk strategy emanating from the Board of Directors. The RMC defines risk appetite statements at functional risk areas, at aggregate and enterprise levels, and directs our risk strategy anchored on sound risk management governance, value-enhancing risk methods and processes, and risk-intelligent data and technology. It oversees and manages our exposures to financial and non-financial risks and monitors our regulatory and internal capital adequacy vis-a-vis these exposures.

Our risk culture is strongly anchored in our vision of transparency and integrity in the workplace, creation of sustainable value, and delivery of maximum returns to shareholders. In order to succeed in our mission of satisfying our responsibilities to our clients, employees, shareholders, and country, we exercise proactive and prudent risk management.

Risk Exposures

We have established robust and effective risk management processes and controls that allow us to manage risks closer to their source, either preventing them from happening or mitigating their impact. We use various methodologies, tools, and

systems to measure our risk exposure. We continuously invest in risk technology and business-enabling systems, and enhance our processes to ensure completeness and accuracy of data, and timely reporting.

We continuously promote a culture of proactive and prudent risk management, with the CRO and the RMO continuously engaging the RMC, management, and business units, communicating the risk awareness culture to the rest of the Bank through various internal channels, facilitating learning programs on risk management, and promoting best practices enterprise-wide. All these efforts have been undertaken and conscientiously practiced in recognition of the Bangko Sentral’s issuance of the Guidelines on Risk Governance.

Credit Risk. Our Credit Policy and Risk Management unit is responsible for the overall management of the Bank’s credit risk. Our Credit Risk Department (CRD) is accountable to the RMC in assisting to establish our risk appetite and in the RMC’s oversight function on credit risk and asset quality. In addition, CRD supports senior management in ensuring the quality of our loan portfolio by identifying, measuring, reporting, and controlling credit risks. CRD ensures that our stringent underwriting standards and rating parameters are met by the various lending units.

Risk Management Framework


We continue to maintain a diversified loan portfolio with no significant concentrations. Our top borrower-group exposures generally remain within the internal single borrower’s limit and operate in diversified industries.

Our corporate credit risk exposures are assessed individually using internal credit risk rating models that generate a probability of default per rating grade and take into account credit risk mitigants. Credit risk rating models are developed using statistical methods on quantitative and qualitative risk factors, including credit judgment overlays to account for borrower-specific and such other factors that cannot be modeled statistically. The credit risk ratings of corporate accounts are generally updated on an annual basis.

For consumer loans, we adopted credit risk scorecards to assess borrowers’ creditworthiness. Our models are independently validated, and their predictive power and performance are regularly monitored to ensure they are qualitatively and statistically acceptable.

We regularly conduct stress tests on our loan portfolio to determine the impact of various economic scenarios, to surface any undue credit concentration risk and to comply with regulatory reporting. Results showed that our capital

adequacy ratio (CAR) and common equity tier 1 ratio (CET1) will generally remain above or at about the regulatory capital requirements even with assumed write down scenarios on our large exposures, exposures by industry (including real estate), and consumer portfolios. Any shortfall is expected to be adequately covered by our realizable future income.

We regularly review the appropriateness of classifications and impairment rates of classified loan accounts for proper assessment of loan quality. Corporate exposures are classified and managed according to rating grades. Loss provisioning takes into account the rating grade of each exposure. While specific reserves are set up for defaulted exposures and reviewed regularly, provisioning for non-default exposures is based on collective impairment, which is a function of the probability of default and loss given default. On the other hand, consumer loans are impaired through a portfolio approach methodology using historical flow-rates as basis for the impairment factors. We have begun internal preparations, including model development and validation of PFRS 9-based expected credit loss impairment models, in time for the implementation of the standard effective January 1, 2018.

We regularly conduct credit reviews to assess that the credit process—from loan origination, credit analysis, approval, implementation, and administration—conforms to the standards set in our internal policies and complies with regulatory requirements. In 2017, we reviewed key lending units, credit products, and portfolios nationwide that revealed generally acceptable credit performance and portfolio qualities.

For our credit risk exposures we measure the regulatory capital requirement using the standardized approach in compliance with Basel and BSP standards on minimum capital requirements.

We continuously enhance our credit policies, guidelines, and lending programs specifically on credit risk limits-setting process, credit risk concentration framework, and align with regulatory changes in the treatment of past due and nonperforming loans. Our credit risk information system is continuously being improved to enable more robust and granular analysis of the loan portfolio while delivering timely and accurate reporting of the Bank’s loan structures, credit concentrations, and other risk data analytics.

All these efforts have been undertaken in recognition of the Bangko Sentral’s


issuance of the Guidelines on Sound Credit Risk Management Practices.

Market, Interest Rate in the Banking Book, and Liquidity Risks. Our Market Risk Department employs various risk metrics to guide the Bank to effectively manage the risks arising from position-taking strategies balanced by the Board’s overall risk appetite. Risk limits are continuously reviewed and updated to align with the Bank’s goals, objectives, strategies, and overall risk appetite. For 2017, BFSB’s market, interest rate in the banking book, and liquidity risk exposures were generally within the RMC-approved limits.

We closely monitor the risk exposures of both trading and non-trading portfolios. Assets in both on- and off-balance sheet trading portfolios are marked-to-market and the resulting gains and losses are recognized through profit or loss. Market risk exposures from these portfolios are measured by using the historical simulation value-at-risk model complemented by several risk metrics such as Stop Loss and DV01.

Interest Rate Risk in the Banking Book (IRRBB) is inherent to our business operations, as movements in interest rates expose us to adverse shifts in the level of net interest income and could

impair the underlying values of its assets and liabilities. We are exposed to interest rate risk on unfavorable changes in the interest rate curves.

Interest rate risk exposure arising from the core banking activities is measured by (a) earnings-at-risk (EaR), or the potential deterioration in net interest income over the next 12 months, and (b) balance sheet value at-risk (BSVaR), or the impact on the economic value of the future cash flows in the banking book due to changes in interest rates. The interest rate gap model is measured based on the re-pricing schedule of the balance sheet accounts.

We ensure that liquidity levels are adequate at all times and contingency plans are in place in the event of liquidity stress. Our liquidity profile is currently measured and monitored through the Minimum Cumulative Liquidity Gap (MCLG) and the Minimum Liquidity Ratio (MLR) metrics. MCLG measures the smallest net cumulative cash inflow (if positively gapped) or the largest net cumulative cash outflow (if negatively gapped) over the next three months. This indicates the biggest funding requirement in the short term and the degree of liquidity risk present in the current cash flow profile of the

Bank. MLR on the other hand ensures adequate liquidity (stock of high quality liquid assets) in proportion to the total liabilities. We are also prepared to adopt and implement BSP Circular 996 by January 2018 requiring subsidiaries of universal banks to begin measuring the Liquidity Coverage Ratio (LCR) which is the ratio of high quality liquid assets (HQLA) to total net cash outflows in the next 30 days.

BFSB should maintain adequate liquidity to provide sufficient buffer for critical liquidity situations. An escalation procedure is in place to immediately report to management and the RMC when MCLG, MLR and LCR levels are expected to fall below the approved floor levels. Corrective actions are identified and implemented to resolve breaches, if any, in order to maintain a stable liquidity environment.

We continuously improve our liquidity and repricing gap models through improvements in model assumptions, resulting in more extensive and robust liquidity stress tests. Under assumed severe market stress scenarios, our CAR and CET1 will still be above the minimum regulatory requirement; in addition, our liquidity profile could withstand an assumed prolonged crisis period.


Operational and Information Technology Risks. Our Operational Risk Department monitors risks arising from inadequate or failed internal processes, people, and systems or from external events such as natural disasters that damage physical assets, electrical or telecommunication failures that disrupt business. Operational risk is inherent in all banking products and services, and may include risks that give rise to adverse legal, tax, regulatory, or reputational consequences.

Information technology is a significantrisk factor assumed in conjunctionwith operational risk, given the highlyautomated nature of our processes andservices. We define IT risk as the risk of any potential adverse outcome arising from the use of or reliance on IT (i.e. computer hardware, software, devices, systems, applications and networks). IT risk includes, but is not limited to, information security, service availability, reliability and availability of IT operations, completion on specification of IT development projects, and regulatory compliance pursuant to the Bangko Sentral’s policy guidelines on Information Technology Risk Management.

We devoted significant resources in employing Unit Business Risk Officers (URO) who are embedded across the organization in key functional and business units. The BROs are responsible to the Risk Management Office for promoting a sound risk management culture, implementing enterprise risk management best practices as determined by RMO, and ensuring timely submission of operational, IT, and other risk reports.

We develop and monitor key risk indicators (KRI), and oversee thoroughness of bank-wide risk and control self-assessments, loss event management processes, and operational risk management awareness and appreciation programs. We manage our operational and IT risks by ensuring such risks are thoroughly identified, assessed, monitored, reported, and mitigated.

We require operating units to undertake regular self-assessments to identify risks, assess the inherent and residual risks, identify controls, and assess the design and the performance effectiveness of the controls. KRIs are used to monitor risk profiles, trigger early warning alerts, and instigate mitigating action. Operational loss events data collection and analysis provide meaningful information in effectively managing risks. The risk and control library improves our aggregation and reporting process by providing an aligned taxonomy of risks and controls.

We currently use the Basel regulatory basic indicator approach to quantify operational risk-weighted assets.As part of our initiatives to advance risk management methodologies, we regularly perform operational risk stress tests, through scenario analysis, to


support the internal capital assessment for operational and IT risks. Through a series of stress scenarios, we were able to identify, analyze, and assess the impact of unexpected and severe operational risk events. This exercise ensures that the impact of high severity events are captured during risk assessment, especially those not yet reflected in our existing historical loss data.

Our risk management processes are ingrained in our new product development efforts. From inception to launch, new products, as well as its related processes and systems, are subject to design and testing activities aimed at safeguarding both the Bank and our clients from the risk of economic loss, operational disruption, or compromise of personal or financial data.

We have implemented One-Time Password (OTP) functionality to enhance security for credit card transactions. We are also updating our fraud detection system to include debit card transactions. E-mail and SMS notifications for ATM withdrawals exceeding set threshold amounts are also in place. We have also recently updated our ATM switch and upgraded our ATMs to be EMV-compliant, and have started migrating debit cards to become EMV-compliant.

Business Continuity Risk. We have a robust Business Continuity Management (BCM) program in place to ensure that the Bank is able to provide critical products and services even during times of business disruptions. To ensure recovery and availability of all critical customer-servicing infrastructures, we have in place sound business continuity and disaster recovery plans. With the implementation of the improved BCM Program, we increased the level of resilience and enhanced our capability in responding to emergencies and crisis events. Likewise, recovery strategies to address evolving threats were calibrated and included in the respective functional Business Continuity Plans (BCP). Cross-functional teams are identified to manage potential disruptive events, emergency situations, or disasters. An enterprise-wide crisis management strategy defines the Crisis Resiliency Committee (CRC) as providing oversight on incident management and handles incidents that rise to the level of a true crisis requiring strategic involvement and decision-making. It also includes an established crisis communications manual and a related social media policy that supplements our BCM and Crisis Resiliency manuals. We also have a robust BCM management structure that

includes BCP sites in strategic locations for critical head office services, and a secondary data center which houses backup facilities. The evaluation of our BCM performance metrics ascertained the effectiveness of our BCM program and that our capability to recover is aligned with our business objectives.

Information and Physical Security Risks. We are vigilant about information and physical security. Our Enterprise Information Security Management team is continuously revalidating and building the inventory of our information assets to enhance monitoring and reporting of information security risks. We address the evolving cyber threat landscape and adhere to applicable laws such as the Data Privacy Act by further improving our defenses through continued investments in technical controls. Recognizing the criticality of a cyber-aware organization in securing the Bank from attacks, we have deployed awareness programs that include trainings, road shows, periodic bulletins and e-learning courses. Awareness campaigns for clients to combat fraud are also conducted extensively online via social media, the BPI website, and e-mail bulletins.


We have established a third-party/vendor risk management program to ensure that the use of service providers and IT suppliers do not unnecessarily expose the Bank to operational, regulatory, and reputational risk. Due diligence activities have been improved to include assessment of service providers’ capability to secure our information as well as those of our clients’.

Contracts have been revised to add provisions that require compliance with our information security requirements. Management oversight of outsourced processes has also been enhanced through centralized monitoring and reporting activities. Our Central Security Office is responsible for the security of the Bank’s facilities and the overall safety of our clients and employees.

Increasingly sophisticated and cross-border threats on financial products and services fulfillment require an integrated approach to premises, infrastructure, people, and information security. CSO is at the forefront of ensuring an environment within which our clients and personnel can conduct business safely. To ensure this, we have deployed and constantly optimized a combination


of physical assets, personnel and technologies. Upgrades to our office and branch security infrastructures, including the enhancement and value engineering of monitoring systems, have been made to stay ahead of the evolving nature of financial fraud and related threats. Moving forward, investments in command and control will be made to improve situational awareness and response.

Legal and Tax Risks. BPI Group’s main legal resource has two competently manned and specialized legal services divisions composed of highly trained legal professionals with extensive experience in banking and corporate law. The Corporate Legal Affairs unit has a critical role of providing proactive legal measures to effectively manage legal and tax risks. It has the documentation and research departments to ensure that our rights and obligations are protected in our contractual relations and that we are abreast with the most recent legal developments and requirements. It also conducts a legal risk assessment of potential claims against the Bank and recommends legal risk mitigation measures. It further empowers the Bank units by issuing legal and tax advisory bulletins and providing supporting training seminars that highlight legal issues, new laws, and regulatory fiats that impact our products and services,

and promote awareness of initiatives of various regulatory agencies.

The Dispute Resolution and Litigation unit plays a significant role in protecting our rights and interests and in mitigating losses when we are involved in litigation. It files criminal, civil and administrative cases (including cybercrime cases) against delinquent clients or any party that attempts to violate any of our rights or impair our interests. Likewise, it handles defensive cases filed by any party against us for any reason.

We continually implement programs to make clients and employees aware of current cybercrime landscapes, emerging risks and trends and mitigating measures to further strengthen operational risk and information awareness. An online training platform is accessible anytime, anywhere and covers the basic and advanced information security awareness courses, as well as the business continuity management course, for employees.

We also facilitated Risk Management and Compliance forums to several head office, retail loans centers and branch employees with the goal of reinforcing risk management and internal control awareness, regulatory

and AML developments, which will be continuously rolled-out moving forward.

Model Risk. Another enterprise-wide resource, the Risk Models Validation Unit is responsible for conducting the independent model validation activities of our risk and stress testing models. The independent validation of risk models is governed by our model risk management policy and governance framework, aimed at ensuring an active and effective model risk management across the enterprise. The RMV unit conducts an annual inventory of our models to ensure relevance, comprehensiveness, and usability across functional risk areas, to which the validation of all on-the-run models have been completed in 2017. Given the increased regulatory expectations on model validation and review in the context of PFRS9 and stress testing, and the necessity for business-enabling and risk-informed decision-making, we will continuously test the quality and robustness of our models, benchmarked to global best practices on model risk management.

Risk Governance Structure

Our Risk Management Office, headed by the Chief Risk Officer (CRO), leads the formulation of risk management policies and methodologies in alignment with


Board of Directors

Chief Risk Officer

Risk ManagementCommittee

Credit RiskManagement

Market RiskManagement

Operational RiskManagement

Enterprise RiskAnalytics

InformationSecurity and

Business ContinuityManagement

BFSB President

our strategy. The CRO ensures that risks are rationally undertaken, within our risk appetite and commensurate to returns on capital. Our risk appetite is a careful measure of the amount of risk we are willing to assume in order to achieve our business objectives. Our risk appetite statements on key risk areas are regularly reviewed, approved by, and reported to the Board through the RMC.

Risk management is carried out by a dedicated team of skilled risk managers and senior officers who have extensive prior operational experience working within the Bank. The Bank’s risk managers regularly monitor key risk indicators and report exposures against carefully-established credit, market, liquidity

and operational and IT risk metrics and limits approved by the RMC. Finally, independent reviews are regularly conducted by the Bank’s Internal Audit group, regulatory examiners, and external auditors to ensure that risk controls and mitigants are in place and functioning effectively as intended.



B F S B B O A R D O F D I R E C T O R S

30 2017 Annual Report30 2017 Annual Report


Xavier P. LoinazIndependent Director

Antonio Jose U. PeriquetIndependent Director

ENABLING FILIPINO FAMILIES 31 ENABLING FILIPINO FAMILIES 31


Ma. Ysabel P. SyliantengIndependent Director

Jesus V. Razon, Jr.Independent Director


Aurelio R. Montinola III Non-Executive Director


Mercedita S. Nolledo Non-Executive Director

Joseph Albert L. GotuacoNon-Executive Director

Joaquin Ma. B. AbolaExecutive Director


John Philip S. OrbetaNon-Executive Director


Gerardo C. Ablaza, Jr. Non-Executive Director

Rebecca G. FernandoNon-Executive Director



C O R P O R AT E G O V E R N A N C E

A N D C A P I TA L A D E Q U A C Y


Corporate Governance

The Bank’s Corporate Governance Framework embodies the principles of BPI Parent’s Corporate Governance which adheres to honesty, integrity, and professionalism in the conduct of its business, exercising prudence in arriving at decisions, enforcing internal discipline and a system of checks and balances in its operating processes, and providing transparency to its various publics regarding basic management policies and practices, major business strategies and decisions, and its operating results. BPI Family Savings Bank (BFSB/ the Bank) believes that sound and effective corporate governance is the cornerstone of its strength and long-term existence.

BFSB’s banking practices are, thus, consistent with Bangko Sentral ng Pilipinas (BSP) Circular Nos. 749 and 757 “Guidelines in Strengthening Corporate Governance in BSP Supervised Financial Institutions”, Circular No. 793 “Amendment to Align the Familial Restrictions Applicable to `Independent Director’”, BSP Memorandum No. 2013-002 “Guidelines in Assessing the Quality of Corporate Governance in BSP-Supervised Financial Institutions”, Securities and Exchange Commission (SEC) Memorandum Circular No. 6 s2009 “Revised Code of Corporate Governance” as amended by SEC Memorandum Circular No. 9 s 2014, applicable provisions in the BSP Manual of Regulations for Banks (MORB) and other relevant references.

Our corporate governance practices are embodied in our Manual of Corporate Governance. The Board of Directors and Management adopts this framework of policies, rules, systems and processes to govern the performance of their respective duties and responsibilities to stockholders and other stakeholders which include, shareholders, customers, employees, suppliers, government and communities in which it operates.

Selection

Our shareholder recommends candidates for board membership for consideration by the Nominations Committee. Such recommendations are sent to the Committee through the Office of the Corporate Secretary. Candidates recommended by the shareholder are evaluated in the same manner as Director candidates identified by any other means. The Committee itself may identify and recommend qualified individuals for nomination and election to the Board. For this purpose, the Committee may utilize professional search firms and other external groups to search for qualified candidates.

The Nominations Committee pre-screens the candidates and prepares a final list of candidates prior to the Annual Stockholders Meeting. Only nominees whose names appear on the final list of candidates are eligible for election to the Board.

No other nomination shall be entertained after the final list of candidates is drawn up. No nomination shall be entertained or allowed on the floor during the Annual Stockholders Meeting.

Board’s Overall Responsibility

The position of a bank director is a position of trust. A director assumes certain responsibilities to different constituencies or stakeholders, i.e., the Bank itself, its stockholder, its depositors and other creditors, its management and employees, the regulators, deposit insurer and the public at large. These constituencies or stakeholders have the right to expect that the institution is being run in a prudent and sound manner. The Board of Directors is primarily responsible for approving and overseeing the implementation of the Bank’s strategic objectives, risk strategy, corporate governance and corporate values. Under the leadership of the Chairman, the Board creates the framework within which the Bank’s executive team, headed by our President, steers the business. The Board sets the Bank’s strategy and risk appetite, and approves capital and operating plans presented by management for sustainable achievement of strategic objectives. Further, the Board of Directors is also responsible for monitoring and


overseeing the performance of senior management as the latter manages the day to day affairs of the institution.

Board Composition and Qualification

Every director holds 1 share which the law provides as the minimum.

Cezar P. Consing (Non-Executive Director), Filipino, 58 years old, Chairman of BFSB board of directors, and the President and Chief Executive Officer of Bank of the Philippine Islands (BPI), BFSB’s controlling shareholder. Mr. Consing also serves as chairman of BPI’s investment bank, UK bank, property and casualty insurance, leasing, and rental subsidiaries, and vice chairman of its foundation. He is also a board director of BPI’s life insurance, asset management and micro finance subsidiaries. Mr. Consing is the chairman of BFSB’s compensation, and nomination and election committee.

Outside of BPI, Mr. Consing serves as an Independent Director of publicly-listed Jollibee Foods Corporation (2010 – Present). He also serves on the boards of four private companies: The Rohatyn Group, Sqreem Technologies, FILGIFTS.com and Endeavor Philippines. Previously, he also served as an Independent Director of Malaysia-based CIMB Group Holdings (2006 - 2013) and First Gen Corporation (2005 - 2013), which is listed on the

PSE. He is also a board director of the US-Philippines Society and a trustee of the Manila Golf Club Foundation. Mr. Consing has been a member of the Trilateral Commission since 2014.

Mr. Consing first worked for BPI, in Corporate Planning and Corporate Banking, from 1980 - 1985. He worked for J.P. Morgan & Co., based in Hong Kong and Singapore, from 1985 - 2004, rising to co-head and head the firm’s investment banking business in Asia Pacific from 1997 - 2004, and head J.P. Morgan Securities (Asia Pacific) Ltd. in the last five years as President of J.P. Morgan Securities (Asia Pacific) Ltd. As a Senior Managing Director of J.P. Morgan, Mr. Consing was a member of the firm’s global investment banking management committee and its Asia Pacific management committee. Mr. Consing was a partner at The Rohatyn Group from 2004 - 2013, headed its Hong Kong office and its private investing business in Asia, and was a board director of its real estate, and energy and infrastructure private equity investing subsidiaries.

Mr. Consing received an A.B. Economics degree (Accelerated Program), magna cum laude, from De La Salle University, Manila, in 1979. At the university, he was a member of the student council, the student newspaper and the varsity track and field team. In recent years, he has served on the advisory committees

of the university and its school of economics. Mr. Consing obtained an M.A. in Applied Economics from the University of Michigan, Ann Arbor, in 1980.

Gerardo C. Ablaza, Jr. (Non-Executive Director), Filipino, 64 years old. He is currently a Management Consultant at the Ayala Corporation and a member of the Board of Directors in publicly-listed Manila Water Company, Inc., as well as other Ayala subsidiaries including AC Energy, AC Health, AC Infrastructures and Ayala Foundation.

From 2010 to 2017, Mr. Ablaza was the President and CEO of Manila Water Company. He was responsible for overseeing the financial and operational growth within Manila Water’s service areas in the Metro Manila East Zone and in its expansion areas. From 1998 to April 2009, he was President and CEO of Globe Telecom, Inc. During this period, he took the company from being the fourth-ranked mobile services provider to the second-largest full-service telecom operator with a subscriber base of 25 Mn in 2008.

In 2004, Mr. Ablaza was recognized by CNBC as the Asia Business Leader of the Year, making him the first Filipino CEO to win the award. He was also awarded by Telecom Asia as the Best Asian Telecom CEO. In 2013, he was recognized for his consistent leadership


and innovation across the banking, investment, telecommunications and utility service industries through the Citi Distinguished Alumni Award for Leadership and Ingenuity. He was the first Filipino to be awarded with such an honor. In June 2015, he became a member of the International Advisory Panel of the Institute for Water Policy under the Lee Kuan Yew School of Public Policy in Singapore.

In 2017, he became a member of the Board of Directors and Executive Committee of Advance Info Services, PLC based in Thailand.

Mr. Ablaza graduated summa cum laude from the De La Salle University in 1974 with a degree in Liberal Arts, major in Mathematics (Honors Program). As one of the most accomplished graduates of his alma mater, he sits as a member of the Board of Trustees in various De La Salle schools in the country.

Joaquin Ma. B. Abola (Executive Director), Filipino, 52 years old, also serves as the Head of BFSB Retail Loans Group. He has been with BPI since 2008, holding responsibilities in the Consumer Banking Group (Support Division and Project Management Office), as well as in Corporate Planning (Strategy Management and Investor Relations).

Prior to joining the Bank, he was Chief Financial Officer (CFO) of AstraZeneca Pharmaceuticals Philippines for three years. Before that, he held key positions in Finance and Operations in various consumer goods companies in the Philippines and abroad, including L’Oreal Philippines, Procter & Gamble, and San Miguel Corp.

In 1987 he earned his bachelor’s degree in Industrial Management Engineering from De La Salle University – Manila.

Rebecca G. Fernando (Non-Executive Director), Filipino, 69 years old, Ms. Fernando is a member of BFSB’s Audit Committee. She is also a member of the Board of Directors of BPI Parent, BPI Capital Corporation, and BPI Asset Management and Trust Corporation.

Ms. Fernando is the Financial Consultant and Member of the Finance Boards of The Roman Catholic Archbishop of Manila and of The Roman Catholic Archbishop of Antipolo.

She graduated with a BSBA degree major in accounting from the University of the Philippines in 1970. She took further studies for an MBA at the University of the Philippines and attended an Executive Program on Transnational Business at the Pacific Asian Management Institute at the

University of Hawaii. She is a Certified Public Accountant.

Maria Cristina L. Go (Executive Director), Filipino, 48 years old, has been the President of BPI Family Savings Bank since June 1, 2017. Prior to that, she served as Head of Retail Loans at BPI Family Savings Bank.

For 11 years, she was the Head of BPI’s Payments and Unsecured Lending Group. She led initiatives and innovations that have differentiated BPI in the industry, such as leading the launch of the first EMV-compliant credit cards. Before joining BPI, Ms. Go was Vice President at Citibank Philippines managing the bank’s Retail Bank Marketing then at Citibank Credit Cards Cross Sell Division in New York. She also worked in Ayala Land, Inc. as Head of its Market Planning and Development Division. She started her career in Procter & Gamble as Brand Assistant then promoted to Assistant Brand Manager, managing brands such as Mr. Clean and Perla Ultra, Star and Dari Creme.

She graduated magna cum laude with a degree in BS Business Administration and Accountancy from the University of the Philippines Diliman, was awarded one of the Ten Outstanding Students of the Philippines, placed first in the CPA licensure exam in 1991, and earned a Master’s degree from the Harvard


Business School with honors in 1996. She was also awarded as one of UP College of Business Distinguished Alumni in 2012 and one of the Most Influential Filipina Women by the Global Filipina Women’s Network in 2016.

She currently serves as the Secretary of the Chamber of Thrift Banks, Chairman of the BPI Payments Holdings, Inc. and a Board Director of TransUnion Philippines.

Joseph Albert L. Gotuaco (Non-Executive Director), Filipino, 52 years old, is Head of BPI’s Retail Banking Group and is responsible for the Bank’s retail customer relationships, and its branch and retail sales network. Mr. Gotuaco also serves as Chairman of the Board of BPI Direct BanKo, BPI’s microfinance arm. Mr. Gotuaco is a member of BPI’s Management, Asset & Liability, IT Steering, and Operating & IT Risk Management Committees. Mr. Gotuaco served as Chief Finance Officer of BPI between 2013 and 2017.

Mr. Gotuaco began his banking career in New York in 1986, as a trader and risk manager for fixed income products at Chemical Bank, a predecessor firm of J.P. Morgan. In 1994, he was based in Hong Kong for J.P. Morgan, then became a major shareholder of BPI, where he was responsible for arranging financings for corporate and sovereign clients in

the Philippines and in Southeast Asia. In 2002, Mr. Gotuaco worked at Credit Suisse; in 2005, he worked in Merrill Lynch and served on the firm’s Asia-Pacific Operating Committee. At both Credit Suisse and Merrill Lynch, he was responsible for developing and marketing fixed income financing and risk management solutions for sovereign, financial institutions and corporate clients across non-Japan Asia. Immediately prior to joining BPI in 2013, Mr. Gotuaco worked in a Singapore-based investment company, where he helped the Brunei government manage portfolio investments, and founded a captive finance company targeting U.S.-based retail and SME clients in the aviation sector. Mr. Gotuaco obtained his B.S. Economics in Finance and Marketing, summa cum laude, from the Wharton School, University of Pennsylvania, in 1986. He obtained his MBA from Harvard Business School in 1994. Mr. Gotuaco also serves as a non-executive board member of AirFleet Capital, Inc., a U.S.-based originator of retail and corporate loans for general aviation aircraft.

Xavier P. Loinaz (Independent Director), Filipino, 74 years old. He previously held the position of President and Chief Executive Officer of BPI for 22 years from 1982 to 2004. He was also President of the Bankers Association of the Philippines for two

terms from 1989 to 1991. Mr. Loinaz is a member of the Bank’s Personnel Compensation and Nomination Committee.

Mr. Loinaz is also an Independent Director of publicly-listed Ayala Corporation. He is also a member of the Board of Directors/Trustees of DAOI Condominium Corporation and E. Zobel Foundation, Chairman of the Board of Alay Kapwa Kilusan Pangkalusugan; Chairman and President of XPL Manitou Properties, Inc., and Vice-Chairman of XPL MTJL Properties Inc.

He graduated with an A.B. Economics degree from the Ateneo de Manila University in 1963, and obtained his MBA Finance at the Wharton School of Pennsylvania in 1965.

Aurelio R. Montinola III (Non-Executive Director), Filipino, 66 years old. Mr. Montinola also served as President and Chief Executive Officer of BPI Family Savings Bank, Inc. for twelve years from 1992 to 2004, and BPI for eight years from 2005 to 2013. He is a member of the BPI’s Executive, Risk Management, Personnel & Compensation and Nomination Committees. Among the several BPI subsidiaries and affiliates, Mr. Montinola serves as member of the Board of Directors of the following: BPI Capital Corporation; BPI Direct BanKo,


Inc.; BPI/MS Insurance Corporation; and BPI-Philam Life Assurance Corporation.

Mr. Montinola is the Chairman of the Board and Non-Executive Director of Far Eastern University and an Independent Director of Roxas and Company, both listed companies. Since May 2017, he is also an Independent Director of Xeleb Technologies, Inc., a subsidiary of publicly-listed Xurpas, Inc. He is also Chairman of the Nicanor Reyes Educational Foundation Inc., Roosevelt Colleges, Inc., East Asia Computer Center Inc., Amon Trading Corporation, and the Kabang Kalikasan ng Pilipinas Foundation, Inc. He is also a member of the Board of Trustees of BPI Foundation Inc. and Philippine Business for Education Inc. where he sits as Vice-Chairman. Significant awards received by Mr. Montinola include Management Man of the Year 2012 (Management Association of the Philippines), Asian Banker Leadership Award (twice), and Legion d’Honneur (Chevalier) from the French Government.

He obtained his Bachelor of Science in Management Engineering degree at the Ateneo de Manila University in 1973 and his MBA from the Harvard Business School in 1977.

Mercedita S. Nolledo (Non-Executive Director), Filipino, 77 years old. She is the Chairman of the BPI’s Retirement & Pension Committees

and a member of the Executive Committee and Corporate Governance Committee. Ms. Nolledo is also a Director in the following BPI subsidiaries and affiliates: BPI Investment Management, Inc., where she sits as Chairman; BPI Capital Corporation and BPI Asset Management and Trust Corporation.

Ms. Nolledo serves as a Non-Executive Director of publicly-listed Xurpas, Inc.; and, since 2016, is an Independent Director of listed company D&L Industries, Inc. She is also a Director of the following companies: Ayala Land Commercial REIT, Inc., Michigan Holdings, Inc., and Anvaya Cove Beach and Nature Club, Inc. She is also a member of the Board of Trustees of Ayala Foundation, Inc. and BPI Foundation, Inc. as well as Vice-President of Sonoma Properties, Inc. She was previously also a member of the Board of Directors of Ayala Corporation from 2004 until September 2010.

Ms. Nolledo graduated with a degree of Bachelor of Science in Business Administration major in Accounting (magna cum laude) from the University of the Philippines in 1960 and placed second at the Certified Public Accountant Licensure Board Examination administered in the same year. In 1965, she obtained her Bachelor of Laws degree (cum laude) also from the University of the Philippines where she also placed second at the Bar Examination held in the same year.

John Philip S. Orbeta (Non-Executive Director), Filipino, 56 years old. He serves as the Managing Director, Chief Human Resources Officer and Group Head for Corporate Resources of Ayala Corp. and covers its Strategic Human Resources, Corporate Communications and Information and Communications Technology.

He is currently the Chairman of Ayala Aviation Corporation; Chairman and President of HCX Technology Partners, Inc.; and Vice Chairman of Ayala Group Club, Inc. Mr. Orbeta also serves as a Board Director of Ayala Group Legal, AC Industrial Technology Holdings, Inc., Ayala Healthcare Holdings, Inc., Ayala Retirement Fun Holdings, Inc., ALFM Growth Fund, Inc., ALFM Money Market Fund, Inc., ALFM Peso Bond Fund, Inc., ALFM Dollar Bond Fund, Inc., ALFM Euro Bond Fund, Inc. and the Philippine Stock Index Fund Corp. Mr. Orbeta previously served as the President and CEO of AC Industrial Technology Holdings, Inc. (formerly Ayala Automotive Holdings Corporation) and Automobile Central Enterprise, Inc. (Philippine importer of Volkswagen), and the Chairman and CEO of Honda Cars Makati, Inc., Isuzu Automotive Dealership, Inc. and Iconic Dealership, Inc. Prior to joining Ayala Corporation, he was the Vice President and Global Practice Director of the Human Capital Consulting Group at


International Finance Ltd., Santiago Land Development Corporation, CityTrust Realty Corpoation, Far East Savings Bank, Inc. and FEB Management, Inc. She served as a Director of Prudential Bank since August 2005.

Ms. Sylianteng graduated AB-BSC Major in Accounting from the Assumption College in 1973 and obtained an MBA at the Stanford University in 1977.

Board-Level Committees

Executive Committee. The Executive Committee possesses and exercises all powers of the Board in the management and direction of the affairs of the Bank subject to the provisions of its by-laws, and the limitations of the law and other applicable regulations. It serves as the operating arm of the Board in all matters related to corporate governance. It approves all major policies and oversees all major risk-taking activities, including the approval of material credit exposure.

Nomination Committee. The Nominations Committee ensures that the Board of Directors is made up of individuals of proven integrity and competence, and that each possesses the ability and resolve to effectively oversee the Bank in his capacity as board member and member in their respective board committee. This Committee also reviews and evaluates the qualifications of all persons nominated to the Board.

Watson Wyatt Worldwide (now Willis Towers Watson), overseeing the firm’s practices in executive compensation, strategic rewards, data services and organization effectiveness around the world. He was also a member of Watson Wyatt’s Board of Directors.

He graduated with a degree in A.B. Economics from the Ateneo de Manila University in 1982.

Antonio Jose U. Periquet (Independent Director), Filipino, 57 years old. He is the Chairman/Independent Director of BPI Asset Management and Trust Corporation and an Independent Director of BPI Capital Corporation, Inc., ABS-CBN Corporation; ABS-CBN Holdings; Ayala Corporation; DMCI Holdings, Inc.; Max’s Group of Companies; and Philippine Seven Corporation. He is the Chairman of the Campden Hill Group, Inc. and Pacific Main Holdings and an Independent Director of Albizia ASEAN Tenggara Fund. He is a member of the Board of Trustees of Lyceum University of the Philippines and a member of the Dean’s Global Advisory Council at the University of Virginia’s Darden School of Business.

Mr. Periquet graduated from the Ateneo de Manila University with an AB Economics degree in 1982. He also holds a Master of Science degree in Economics from Oxford University and an MBA from the University of Virginia.

Jesus V. Razon, Jr. (Independent Director), Filipino, 71 years old, also serves as a member of the Personnel Compensation Committee and the Corporate Governance Committee of BPI Direct Banko. He is also a Director at Security Bank Savings Corporation, Premier Bank, and Prudential Bank. Previously, he served as the Senior Vice President of Consumer Segment Group, and Human Resources Management at the Bank of The Philippine Islands.

Ma. Ysabel P. Sylianteng (Independent Director), Filipino, 66 years old. She served as the Head of Customer Relationship Management Group and Head of Card Banking Division and Executive Vice President of Bank of the Philippine Islands. Ms. Sylianteng served as Senior Vice President of Bank of the Philippine Islands since 1998. Ms. Sylianteng served as the Head of Financial Control Group and Corporate Planning of Bank of the Philippine Islands from 1987 to December 2004. She joined BPI in 1983 with the rank of Assistant Vice President. She was Director of Ayala Life Assurance Incorporated (now known as BPI-Philam Life Assr. Corp.). She serves as Director of BPI Direct Savings Bank, Inc., BPI Computer Systems Corporation, BPI Operations Management Corporation, BPI Card Finance Corporation, Ayala Plans, Inc., BPI Bancassurance, Inc., FGU Insurance Corporation, BPI Express Remittance Corporation, BPI


Personnel and Compensation Committee. The Personnel and Compensation Committee directs and ensures the development and implementation of long-term strategies and plans for the Bank’s human resources, in alignment with the Board’s vision for the organization.

Audit Committee. The Audit Committee monitors and evaluates the adequacy and effectiveness of the Bank’s internal control system, risk management, and governance practices. It provides oversight on the integrity of the Bank’s financial statements and financial reporting process, performance of the Compliance Office, internal and external audit functions and compliance with bank policies, applicable laws, and regulatory requirements.

This Committee also reviews the external auditor’s annual audit plan and scope of work, and assesses its overall performance and effectiveness. In consultation with management, this Committee also approves the external auditor’s terms of engagement and audit fees.

Risk Management Committee. The Risk Management Committee is tasked with nurturing a culture of risk management across the Bank.

Chairman Cezar P. Consing

Members Xavier P. Loinaz

Jesus V. Razon, Jr.


Members Maria Cristina L. Go

Xavier P. Loinaz

Mercedita S. Nolledo

John Philip S. Orbeta


Members Xavier P. Loinaz

Mercedita S. Nolledo

Ma. Ysabel P. Sylianteng

Chairman Jesus V. Razon, Jr.

Members Rebecca G. Fernando

Ma. Ysabel P. Sylianteng

Executive Committee

Nomination Committee

Personnel and Compensation Committee

Audit Committee


It supports the Board by overseeing and managing the Bank’s exposures to financial and non-financial risks, assesses new and emerging risk issues across the Bank, regularly reviews the Bank’s risk management appetite, policies, structures and metrics, and monitors overall liquidity and capital adequacy, in order to meet and comply with regulatory and international standards on risk measurement and management.

Corporate Governance Committee. The Corporate Governance Committee assists the Board in fulfilling its corporate governance responsibilities, and ensures the Board’s effectiveness and due observance of sound corporate governance principles and guidelines, as embodied in the Manual of Corporate Governance.

Related Party Transaction Committee. The Related Party Transaction Committee is charged with ensuring that the Bank’s dealings with the public and various stakeholders are imbued with the highest standards of integrity. In conjunction with the Executive, Audit, Risk, and Corporate Governance Committees, this Committee endeavors to ensure compliance with Bangko Sentral regulations and guidelines on related party transactions.

Chairman Octavio V. Espiritu

Members Rebecca G. Fernando

Romeo L. Bernardo

Rosemarie B. Cruz

Marita Soccorro D. Gayares

Chairman Ma. Ysabel P. Sylianteng

Members Mercedita S. Nolledo

Jesus V. Razon, Jr.

Chairman Jesus V. Razon, Jr.

Members Gerardo C. Ablaza, Jr.

Antonio Jose Y. Periquet

Risk Management Committee

Corporate Governance Committee

Related Party Transaction Committee


Regular board meetings are convened monthly, held every third Wednesday of the month. Board of Directors meetings are set immediately after the Annual Stockholders Meeting to cover the full term of the newly elected or re-elected members of the Board, reckoned from the date of the current year’s Annual Stockholders Meeting to that of the following year. Special meetings may be called for as needed. Discussions during the board meetings are open and independent views are given due consideration. Board reference materials are made available to the directors at least five days in advance of the scheduled meeting. Independent and Non-Executive Directors of the Bank also

meet at least once a year without the presence of the executive director or management.

In 2017, average attendance of re-elected and newly-elected members at the Board of Director’s 14 meetings was 97%. In those instances when a Director was unable to attend meetings due to prior commitments or unavoidable events, said Director provided input to the chairman so that his views were known and considered.

The Board’s full-year attendance at the 2017 Board Meetings and Committee Meetings are outlined as follows:

Name of Directors Board NOMCOM PERCOM AUDITCOM RMC CGCOM

1 Cezar P. Consing 100% 100% 100% n/a n/a n/a

2 Gerardo C. Ablaza, Jr.* 100% n/a n/a n/a 100% n/a

3 Joaquin Ma. B. Abola 100% n/a n/a n/a n/a n/a

4 Rebecca G. Fernando 100% n/a n/a 100% n/a n/a

5 Maria Cristina L. Go 100% n/a n/a n/a n/a n/a

6 Joseph Albert L. Gotuaco* 75% n/a n/a n/a n/a n/a

7 Xavier P. Loinaz 100% 100% 100% n/a n/a n/a

8 Aurelio R. Montinola III 100% n/a n/a n/a n/a n/a

9 Mercedita S. Nolledo 100% n/a 100% n/a n/a 100%

10 John Philip S. Orbeta 100% n/a n/a n/a n/a n/a

11 Antonio Jose U. Periquet 92% n/a n/a n/a 100% n/a

12 Jesus V. Razon, Jr. 100% 100% n/a 86% 100% 100%

13 Ma. Ysabel P. Sylianteng 100% n/a 100% 100% n/a 100%

It independently reviews, vets, and endorses significant and material related party transactions—above and beyond transactions qualifying under directors, officers, shareholders, and related interests restrictions—such that these transactions are dealt on terms no less favorable to the Bank than those generally available to an unaffiliated third party under the same or similar circumstances. The Bank currently shares the member of its Related Party Transactions Committee with BPI Parent.

Meetings and Attendance

The BFSB Board meets regularly for the effective discharge of its obligations.

*Elected as board member effective June 1, 2017


Performance Assessment Program and Self-Assessment

Monitoring of governance by the Board requires a continuous review of the internal structure of the Bank to ensure that there are clear lines of accountability for management throughout the organization. In this regard, the Board, under the guidance of the Corporate Governance Committee, annually conducts a self-assessment to ascertain the alignment of leadership fundamentals and issues, validate the Board’s appreciation of its roles and responsibilities and confirm that the Board possesses the right mix of background and competencies. Performance of the Board is measured on the basis of what it delivers and how it delivers, how it meets its responsibilities to all BFSB stakeholders, and how it addresses issues that impact the Board’s ability to effectively fulfill its fiduciary duties.

Using a widely-advocated, standard evaluation method of self-assessed and feedback review, performance is assessed across three levels: the Board as a body, Board Committees, Individual Directors. Key evaluation criteria are built on the Board’s terms of reference and committee charters, and framedaround broad leadership fundamentals and best practices.

The Corporate Governance Committee processes and tabulates the results of the self-assessments and communicates them to the Board. Areas for improvement are discussed by the Board, in order to agree on remedial actions.

The Corporate Governance Committee may also develop recommendations and action plans for the Board, whenever necessary and desirable.

Succession Planning and Talent Management

Financial services today face many transformative factors— regulation, market disruption, new technologies and business models, competition—that affect the business in major and long-term ways. Our Board understands that the Bank must continually evolve, adapt, and even restructure the business to remain ahead of strategic, market, technology and regulatory shifts. The Board, through its Personnel and Compensation Committee, manages the talent pipeline and assembles the required personnel capable of navigating such changes.

In consultation with the President and CEO, the Personnel and Compensation Committee reviews the Bank’s talent development process for proper management. Senior management

provides a report to this Committee on the results of its talent and performance review process for key management positions and other high-potential individuals. Aside from ensuring that there is a sufficient pool of qualified internal candidates to fill senior leadership positions, this review process identifies opportunities, performance gaps, and proactive measures in the Bank’s executive succession planning. And as part of the same executive planning process, the Committee as a whole or a part thereof, in consultation with the Board and the President and CEO, evaluates and nominates potential successors to the President and the CEO.

Our succession planning has effectively ensured leadership continuity in the last decade, marked by early planning and mentoring, smooth organizational and operational transitioning, and prudent but progressive institutional building across the BPI group. Our Board is likewise regularly refreshed in a continuing cycle for the Bank to remain relevant, agile, and anticipatory of future programs and directions.

Induction and Director Education

Board members acquire appropriate skills upon appointment, and thereafter remain abreast of relevant new laws, regulations, and changing commercial


Other in-bank courses, also available to senior management, include seminars and online courses on anti-money laundering, business continuity management, conflict of interest, risk management overview, and information security awareness. Board members also regularly attend governance fora, conferences, and summits.

In 2017, the members of our Board, including our senior officers, attended the requisite corporate governance seminars provided by SEC- and Bangko Sentral-accredited institutions.

Remuneration

Our remuneration decisions for the Board and management are aligned with risk incentives and support sustainable, long-term value creation.

Under the Bank’s Amended By-Laws, as approved by the shareholder, the Board of Directors, as a whole, determines the level of remuneration and/or benefits for directors sufficient to attract and retain directors and compensate them for their time commitments and responsibilities of their role.

Our Personnel and Compensation Committee recommends to the Board the fees and other compensation for directors, ensuring that compensation fairly remunerates directors for work

risks through in-house training and external courses. New Directors are briefed on BFSB’s background, organizational structure, and, in compliance with Bangko Sentral Circular No. 758, the general and specific duties and responsibilities of the Board.

They also receive briefings on relevant policies and rules governing their roles as Directors. They are given an overview of the industry, regulatory environment, business of banking, strategic plans of the Bank, its governance framework, i.e., Manual of Corporate Governance, Director’s Code of Conduct, Board operations (schedules, procedures and processes), including support from the Corporate Secretary and senior management. Continuing education of Board members includes internal meetings with senior executives and operational or functional heads, dedicated briefings on specific areas of responsibility within the business andspecial presentations on current issues or regulatory initiatives with respect to Data Privacy, Cyber Risk and Cyber Security, the Anti- Money Laundering and Terrorist Financing Prevention Program, Foreign Account Tax

Compliance Act, Securities Regulations Code, SEC memorandum circulars, and Bangko Sentral regulations, among others. The Bank brings in technical, subject matter experts as needed.

required in a company of BFSB’s size and scope. As provided by our Amended By-Laws and pursuant to a Board resolution, each director is entitled to receive fees and other compensation for his services as director. The Board has the sole authority to determine the amount, form, and structure of the fees and other compensation of the directors. In no case shall the total yearly compensation of the Board Directors exceed 1% of the Bank’s net income before income tax during the preceding year.

Board members receive per diems for each occasion of attendance at meetings of the Board or of a board committee. All fixed or variable remuneration paid to directors may be given as approved by stockholders during the Annual Stockholders Meeting, upon recommendation of the Personnel and Compensation Committee. Other than the usual per diem arrangement for Board and Committee meetings and the aforementioned compensation of Directors, there is no standard arrangement as regards compensation of directors, directly or indirectly, for any other service provided by the directors for the last completed fiscal year.

Board members with executive responsibilities are compensated as fulltime officers of the company, not as Executive Directors or Non-Executive Directors. No director participates in


discussions of the remuneration scheme for himself or herself. Historically, total compensation paid annually to all directors has been significantly less than the cap of 1% of the total net income stipulated by the Bank’s Amended By-Laws. The remuneration policy is reviewed annually to ensure that it remains competitive and consistent with the Bank’s high performance culture, objectives, and long-term outlook, risk assessment and strategies.

Related Party Transactions

In the normal course of business, the Bank transacts with related parties which include its Directors, officers, stockholders and related interest, subsidiaries and affiliates (including those under the Ayala group of companies, or conglomerate), as well as other related parties defined in the Bank’s internal policy.

These transactions involve credit and non-credit exposures such asborrowings, guarantees, agreements for the periodic provision of leases or other services, asset purchases and sales, derivative transactions, and investments for which related parties are perceived to have significant influence. As part of the Bank’s effort to ensure that transactions with related parties are normal banking activities and are done at arm’s length (particularly, on terms and conditions

comparable to those offered to nonrelated parties or to similar transactions in the market), vetting is done either by the Unibank Related Party Transaction Committee or the Bank’s Management Vetting Committee, depending on materiality, prior to implementation and approval.

Related parties whose individual and group exposures, existing or potential, are considered material have been vetted by the Unibank RPTC.

The RPTC is composed of three Directors of BPI, majority of whom are Independent including its chairman, and two non-voting members from management. The Internal Audit and the Compliance Office conducts post verification of RPTs.

The Bank is committed to ensure strict compliance with laws, regulations and reporting requirements relating to DOSRI and related party transactions, by instituting rigorous vetting processes and establishing adequate controls and oversight mechanisms.

Compliance

The Bank views compliance to mean not only adherence to laws, regulations, and standards but, more importantly, the consistent conduct of the affairs of the Bank within a culture of high

integrity, bounded by conformity to ethical business practice, abiding by the principles of fair dealing, accountability and transparency. This ensures that in all our areas of activity, the Bank and its stakeholders are protected from business risks as comprehensively as possible. We value most our reputation and the fact that we are trusted by our shareholder, clients, employees, partners, and members of the communities we serve.

Oversight of the management of the Bank’s business risk and implementation of its compliance function is the responsibility of our Board of Directors, through the Audit Committee. At the management level, the compliance function is carried out by the Compliance Office, led by our Chief Compliance Officer.

The Compliance Office oversees the implementation of the Bank’s compliance programs. These programs take into account the size and complexity of the Bank, the relevant rules and regulations that affect its operations, and the business risks that may arise due to non-compliance.

By using self-assessment compliance matrices, compliance measures are formulated to mitigate identified business risks and tested to ensure effectiveness.


sophistication of customer preferences and needs, the Compliance Office evolves in its coverage of compliance practice areas to anticipate and meet forward challenges. Enhancement of our compliance function’s scope and domain is redefined for new and emerging sources of compliance risk.

The Compliance Office implements an assessment program consisting of a unit self-assessment and independent testing. In addition, the enterprise Internal Audit conducts ex post reviews of compliance with internal policies and guidelines. Results of these reviews are elevated to the Board’s Audit Committee.

The Compliance Office promotes adherence and awareness to laws, rules and regulations by issuing compliance advisories and conducting annual compliance trainings. Regular meetings are conducted by the Compliance Office with the Compliance Representatives to discuss the impact of new regulations, decide on the required compliance measures and amend compliance matrices as necessary. Through continued coordination with regulators, the Compliance Office ensures the prompt dissemination of new regulations and other developments affecting bank operations.

Regulatory Compliance Unit. Our Regulatory Compliance Unit (RCU)

The Compliance Office routinely provides advice to individual business units on applicable laws, directives, standards, and regulations. It develops guidance on operations and business processes in order to guard against potential compliance risk, and reviews and assists in interpretations of laws, implementing rules and regulations, standards and guidelines of the Bangko Sentral, SEC, AMLC, PDIC, National Privacy Commission and other regulatory bodies for compliance, communicating them and verifying adherence.

The Compliance Office also helps in efforts towards achieving adherence to the Bank’s internal confidentiality regulations (“Chinese Walls”); provides regular training and education for employees on the applicable regulations, rules and internal standards; and leads the Bank’s business units in compliance risk assessment, rules-based testing and reporting.

The Compliance Office is currently organized to cover Regulatory Compliance, Corporate Governance, the Money Laundering and Terrorist Financing Prevention Program, FATCA Compliance, Consumer Protection and Data Privacy. Considering the rapid developments in the regulatory sphere as well as the growing complexity of the Bank’s products, services and transactions, and the increasing

cover adherence to all relevant and applicable Philippine banking laws and regulations. RCU is in charge of regulatory compliance management with respect to the Bangko Sentral’s institutional compliance rating system, which comprehensively evaluates the effectiveness of a bank’s compliance system in mitigating business risk.

Partnership-building with our regulators (Bangko Sentral, SEC, AMLC and PDIC), external auditor, and industry organizations (like the Association of Bank Compliance Officers and the Bankers Institute of the Philippines and the Chamber of Thrift Banks) is also essential work in regulatory compliance management. Through continued coordination with regulators and interaction with compliance colleagues in the industry, this department ensures that the interests of the Bank are duly considered in prioritizing industry initiatives.

Corporate Governance. The Corporate Governance Unit, in coordination with BPI Parent’s Corporate Governance Department , covers the compliance aspect of the Bank’s corporate governance framework and governance requirements, externally, with respect to the laws relevant and applicable to the Bank as a subsidiary such as the Corporation Code, and the rules and regulations of the Bangko Sentral, SEC,


and the PDIC, and internally, with respect to BFSB’s Amended By-Laws, Manual of Corporate Governance, and corporate governance-related policies such as those on, whistleblower, and related party transactions.

Anti-Money Laundering Compliance. The prevention of financial crimes is a top priority of BFSB, not only because they pose a significant threat to our reputation, but because they weaken the integrity of the global financial system. Hence, our Compliance Office extends its ambit beyond the Bank, its policies, and its employees to ensure that our clients also act within the law and do not use the Bank for illegal activities.

The Compliance Office’s Anti-Money Laundering Unit is responsible for monitoring customer and counterparty transactions in compliance with the Anti-Money Laundering Law, its implementing rules and regulations, and Bangko Sentral Circular No. 706 and 905. Developed under the guidance of the Bangko Sentral’s Money Laundering and Terrorist Financing Prevention Program, the Bank’s anti-money laundering program covers all its subsidiaries and affiliates.

This program aims to implement sound anti-money laundering practices and combat terrorist financing and

other financial crimes. It consists of conscientious customer due diligence and know-your-customer or KYC, processes; technology and automated tools to identify and detect financial transactions of a suspicious nature; and monitoring, periodic review, and timely reporting of anti-money laundering-combating the financing of terrorism (AML-CFT) events to senior management.

This program also includes regular and effective AML-CFT training and awareness programs for all personnel; maintenance of customer data and transaction documents within prescribed timelines; and timely updates of policies and procedures in accordance with changes in regulations and AML and CFT typologies.

With increasing global AML initiatives and numerous new regulations, we

recognize that our AML processes and controls are changing from a stand-alone function under Compliance, to an increasingly complex and overarching function cutting across legal, risk and operations.

In coordination with BPI Compliance Office, the AML Unit constantly reviews the program to ensure compliance with the latest legislative and regulatory developments. Our Board and management support bank-wide efforts towards establishing strong AML assurance mechanisms and globally consistent procedures.

The enterprise specialized IT system captures information required for covered transaction reports, and detects suspicious transaction patterns for reporting to the Anti-Money Laundering Council. To promote awareness,


(EISO), implements the BPI Group’s information security management program. The information security program ensures that information assets across the Bank are protected and secured by technology-based and process-based controls commensurate to their value. The Bank continues to put a premium on building and maintaining a cyber-aware organization and has correspondingly invested in an Information Security Awareness Program that ensures that employees are aware of the importance of protecting information and how best to handle these assets securely. The Bank has online information security training programs which are taken by employees as mandatory courses and regularly observes the Cyber Security Awareness Month where lectures, workshops and demonstrations on current cyber-attacks, emerging defense technologies and best practices are conducted by regional experts from the Bank’s partner cyber security firms. EISM also functionally reports to the Risk Management Office and the Board’s Risk Management Committee.

Data Privacy Office. Republic Act No. 10173, known as the Data Privacy Act of 2012, requires government and private sector entities to apply the principles of Transparency, Legitimate Purpose and Proportionality in their processing of personal data so that the data is only used in relevant and

knowledge and understanding of AML concepts, principles and requirements, all employees are required to attend training programs conducted by the AML Unit or through e-Learning courses available with the BPI University, our in-house training academy.

FATCA Compliance. We recognize global movements to widen tax regimes across borders such as the enactment into law by the United States government of the Foreign Account Tax Compliance Act. We value our ability to transact efficiently in US dollars. Thus, the Compliance Office, in coordination with the Branch Channel ensures consistent and effective compliance with FATCA regulations throughout the Bank and its subsidiaries.

As required under the rules of FATCA, we have appointed a responsible officer to oversee the Bank’s compliance with regulations, establish a program to ensure its effective implementation, and accomplish certain certifications with the IRS. Our FATCA compliance program provides for additional requirements on customer due diligence and documentation and new reporting guidelines to relevant tax authorities.

Enterprise Information Security Management. The Enterprise Information Security Management (EISM) Unit which is headed by BPI Group’s Enterprise Information Security Officer

specifically stated ways, is not stored for longer than necessary, is kept safe and secure, is used only within the confines of the law and is stored following people’s data protection rights. Cyber security and data privacy and protection have, today, become corporate governance and risk management concerns.

The Bank is committed to protecting and respecting individuals’ privacy and rights to control information about themselves and to decide how and to what extent such information is shared with others.

1. Data Privacy PolicyBFSB has a strong Data Privacy Statement in place, which describes to whom the policy applies to, what personal data the Bank collects and how such data is collected, how the Bank may use personal data for core business and marketing purposes, how the Bank may disclose and share such personal data, how such personal data is stored and retained, and how such data can be accessed or corrected. The Data Privacy Statement is posted in the company website and complies with the requirements of the Data Privacy Act of 2012.

2. Governance for Privacy, Confidentiality, Security and Compliance BFSB’s Data Privacy Statement is supported by a comprehensive Data Privacy Program utilizing a combination


for a comprehensive review of risks and compliance in the institution, and ensures that business units proactively manage the risk and compliance exposures.

The internal audit function as empowered by the Internal Audit Charter includes free access to all records, properties and personnel. In this respect, the Audit Committee reviews the internal audit function, including its independence and the authority of its reporting relationships. The enterprise Audit Division continuously improves the capabilities of its auditors through continuous education on specialized areas of knowledge, auditing techniques, regulations, and banking products and services.

The enterprise Internal Audit Division has an established quality assurance and improvement program to ensure that audit activities conform to the International Standards for the Professional Practice of Internal Auditing. The program includes periodic internal and external quality assessments and ongoing monitoring of the performance of the internal audit activity. Periodic internal assessments are conducted annually, while external quality assessments are conducted at least once every five years by a qualified independent validator.

Ultimately, the Board of Directors is responsible for ensuring that data privacy is a fundamental element in the overall corporate governance, responsible for overseeing implementation of the Bank’s strategic objectives and risk strategies for data privacy. At the Board level, apart from oversight through its Risk Management and Audit Committees, directors focus on key issues of cybersecurity and data privacy at board meetings in order to execute the Board’s compliance and managerial oversight as well as to mitigate risk.

Internal Audit and Control. The enterprise Internal Audit Division is an independent body that supports the BPI and its subsidiaries’ respective Audit Committees in fulfilling its oversight responsibilities by providing an independent, objective assessment on the adequacy and effectiveness of the Bank’s risk management, internal controls, and governance processes through well-established risk-based audit plans. Internal Audit also ensures that the Bank’s operating and business units adhere to internal processes and procedures and to regulatory and legal requirements.

It collaborates with other assurance providers such as the Risk Management Office, Compliance Office, external auditors, and other oversight units

of policies, organizational structure, access controls and technologies designed for risk reduction.

The Bank has a Data Privacy Office, headed by a Board-appointed Data Protection Officer (DPO), a lead senior management officer. The key focus of the DPO is to oversee data privacy compliance and manage data protection risks for the organization consistent with the Data Privacy Act of 2012 rules and regulations, issuances by the National Privacy Commission and other applicable laws. Management may also appoint Compliance Officers for Privacy (COP) for major business units of the Bank.

Security of personal data is critical to the Data Privacy Program. The Bank has in place safeguards that help ensure that personal data stored with BFSB is secure and protected in accordance with its Data Privacy and Information Security policies The Bank maintains strict security standards and procedures with a view to preventing unauthorized access to personal data by anyone, including its employees. BFSB uses leading technologies such as, but not limited to, data encryption, firewalls and server authentication to protect the security of personal data. All BFSB employees are required to observe the privacy standards and are audited for compliance.


This unit maintains its “generally conforms” ratings on both internal and external assessments, which indicate that its activities have continuously conformed to professional standards, code of ethics, and other internal standards.

The Board appoints a Chief Audit Executive who reports functionally to the Board of Directors through the Audit Committee and administratively to the President . This ensures that the Chief Audit Executive is not dependent on any bank executive or operating officer for the security of his or her position. Additionally, it ensures that the Chief Audit Executive has access to the Board, on a confidential basis, and that the Internal Audit Division is independent of bank management, both by intent and actual practice.

The Audit Committee recommends to the Board the appointment of a Bangko Sentral-accredited external auditor for the purpose of preparing or issuing an audit report or related work. It also assesses the external auditor’s effectiveness, independence and objectivity, ensuring that key partners are rotated at appropriate intervals. The Committee reviews the external auditor’s annual plan, scope of work, and, in consultation with management,

approves the external auditor’s term of engagement and audit fees. They also oversee the resolution of disagreements between management and the external auditors in the event that they arise.

Financial Consumer Protection Framework

Aligned with BPI Parent, BPI Family Savings Bank established the BFSB Customer Assistance Program to implement guidelines that will help ensure that all feedback from customers and potential customers are well handled in alignment with the Bank’s consumer protection policies. The designated Customer Assistance Officers underwent on-site training to equip them in their function in addressing customer issues

and to ensure compliance with the Bank’s Consumer Protection Program. The need to conduct continuous information and education campaign on the Financial Consumer Protection Program has been a major priority of the unit.

For 2017, the Bank tracked and monitored customer issues and feedback concerning its products and services Action plans were implemented to ensure that the most pressing and important issues raised by customers were resolved within the committed turn-around times.


Sound Capital Management

Effective capital management supports the Bank’s assets and absorbs losses that may arise from credit, market and liquidity, operational and IT, and other risk exposures. The Bank’s capital management framework ensures that there is sufficient capital buffer at all times to support the Bank’s risk profile,

as well as changes in the regulatory and accounting standards and other future events.

BFSB submits a comprehensive internal capital adequacy assessment process, or ICAAP, document annually to the Bangko Sentral, in accordance with the Pillar 2 guidelines of the Basel framework.

As of December 31, 2017, BPI Family Savings Bank CAR stood at 16.37%, higher than the minimum regulatory requirement of 10.0% and the Bank’s internally set IMCAR and CARMAT. The Bank’s CET1 capital ratio at 15.52%, likewise compare favorably with regulatory and internal limits and buffers.

A summary of our CAR is set forth in the audited financial statements of this annual report, under Note 25.5 (Capital Management). Computation of the Bank’s CAR in the audited financial statements was primarily based on the CAR reporting template provided by Bangko Sentral circulars and other relevant updates.

To fully comply with the phased-in implementation of the Basel III capital and liquidity reforms by the Bangko Sentral effective January 2014, BPI has adopted the Basel III CAR reporting template, as well as aligned with limits and reportorial requirements on liquidity coverage, domestic systemically important banks, and leverage ratios. The Bank continues to monitor and prepare for possible effects of Basel III revisions to risk-based capital requirements by performing simulations, such as those relating to the net stable funding ratio, as well as an interim stress testing, based on mid-year financial data.

Capital Adequacy

Risk (Php Mn) Regulatory Capital 2017

Credit Risk 13,062

Market Risk 127

Operational Risk 2,283

Nature of Item Amount

Qualifying Capital 25,322

Tier 1 Capital, net of regulatory deductions 24,008

Common Equity Tier 1 Capital 24,008

Tier 2 Capital 1,314

Total Risk Weighted Assets 154,721

Total Credit Risk-Weighted Assets 130,621

Total Market Risk-Weighted Assets 1,270

Total Operational Risk-Weighted Assets 22,830

RISK-BASED CAPITAL ADEQUACY RATIO

Common Equity Tier 1 Ratio 15.52%

Capital Conservation Buffer 9.52%

Tier 1 Capital Ratio 15.52%

Total Capital Adequacy Ratio 16.37%

The tables below show the Bank’s CAR components for December 2017.


Capital Structure (Php Mn) December 31, 2017

CET1/Tier 1 Tier 2 Total

Core Capital 26,688 1,314 28,002

Paid-up common stock 1,000 1,000

Additional paid-in capital - -

Retained Earnings 20,560 20,560

Undivided profits 5,562 5,562

Net unrealized gains or losses on AFS Securities (93) (93)

Cumulative foreign currency translation - -

Remeasurement of Net Defined Benefit Liability (Asset) (341) (341)

Minority Interest - -

General Loan Loss Provision 1,314 1,314

Deductions 2,679 - 2,679

Total O/S unsecured credit accommodations 2 2

Total O/S unsecured loans - -

Deferred tax assets 2,668 2,668

Defined benefit pension fund assets - -

Other intangible asset 9 9

Investments in equity - -

Significant minority investments - -

Other equity investments - -

TOTAL QUALIFYING CAPITAL 24,008 1,314 25,322

% to Total 95% 5% 100%

Credit RWA (Php Mn) Amount 2017

Total RWA (On-Balance sheet) 131,399

Total Gross RWA 131,399

Deductions: General loan loss provisions 779

Total Credit RWAs 130,621

Discussions both at the Bank management and Board levels also covered the subsequent phases of the transition and implementation plans in order to meet the revised minimum capital and liquidity requirements prescribed by Basel III, including interdependencies with the impending PFRS 9 implementation by January 2018.

Supplementary Schedules on Capital and Risk Management Disclosures Pursuant to Bangko Sentral's Memorandum M-2017-007

The Bank’s qualifying capital for the year 2017 was Php 25.3 Bn, was largely composed of CET1 and Tier 1, both at 95%.

Credit risk-weighted assets. Using the Basel regulatory standardized approach, our total credit risk-weighted assets as of December 31, 2017 amounted to Php 130.6 Bn.

The table provides a summary of the Bank’s credit risk-weighted assets for 2017.

The table shows the composition of the Bank’s capital structure.


Market risk-weighted assets. In terms of capital usage using the Basel standardized approach, totalmarket risk-weighted assets stood at Php 1.3 Bn as of end-2017.

Operational risk-weighted assets. We currently use the Basel regulatory basic indicator approach to quantify operational risk-weighted assets, by using the historical total annual gross income as the main measure of risk. In 2017, the Bank’s total operational risk-weighted assets stood at Php 22.8 Bn.

The Bank’s credit risk exposures after mitigation, broken down by risk buckets, for 2017 are as follows:

December 31, 2017 (Php Mn)Exposure after risk mitigation

0% 20% 50% 75% 100% 150% Total

Cash on hand 902 902 - - - - - 902

Checks and other cash items 18 - 18 - - - - 18

Due from BSP 19,492 19,492 - - - - - 19,492

Due from other banks 3,378 - - 3,378 - - - 3,378

Available-for-sale (AFS) 8,776 8,709 - 50 - 17 - 8,776

Held-to-maturity 19,540 10,482 - 9,059 - - - 19,540

Loans and receivables 138,563 - 678 39,611 11,301 83,661 3,312 138,563

Loans and receivables - Others 6,941 6,941 - - - - - 6,941

ROPA 2,274 - - - - - 2,274 2,274

Sub-total 199,885 46,526 697 52,098 11,301 83,678 5,586 199,885

Other Assets 3,095 - - - - 3,095 - 3,095

Total Exposures, plus other assets 202,979 46,526 697 52,098 11,301 86,773 5,586 202,979

Total risk-weighted OBSA (no CRM) - - 139 26,049 8,476 86,773 8,379 129,815

Total risk-weighted OBSA (with CRM) - - 2 - - 1,583 - 1,584

Total RWA (on-balance sheet) - - 141 26,049 8,476 88,355 8,379 131,399

Market RWA (Php Mn) Amount 2017

Using standardized approach

Interest rate exposures 1,123

Foreign exposures 147

TOTAL MARKET RWA 1,270

Operational RWA (Php Mn) Amount 2017

Gross Income (a) 36,528

Capital Requirement 5,479

Average capital requirement (b) 1,826

Adjusted capital charge 2,283

TOTAL OPERATIONAL RWA 22,830

The table below presents the breakdown of the Bank’s market risk-weighted assets for 2017.

The table below presents the Bank’s operational risk-weighted assets for 2017.



A P P E N D I C E S



Maria Mercedes RocesSenior Vice President,

Ka-Negosyo Loan Division Head

Joaquin Ma. B. Abola Senior Vice President,

Retail Loans Group Head


Dennis T. Fronda Vice President,

Auto Loans Division Head


Maria Cristina L. Go President

Felipe P. Carlos Senior Vice President,

Housing Loans Division Head

Raul D. Dimayuga Senior Vice President,

Branch Channel and Support Division Head



Maria Cristina L. Go President

Joaquin Ma. B. Abola Senior Vice President, Retail Loans Group Head

Felipe P. Carlos Senior Vice President, Housing Loans Division Head

Rosemarie B. Cruz Senior Vice President, Chief Audit Executive

Raul D. Dimayuga Senior Vice President, Branch Channel and

Support Division Head

Maria Mercedes D. Roces Senior Vice President, Ka-Negosyo Loan Division Head

Luisito R. Ballelos Vice President, Property Sales and Leases Division Head

Amy Belen R. Dio Vice President, Chief Compliance Officer

Susan L. Erguiza Vice President, Chief Risk Officer

Dennis T. Fronda Vice President, Auto Loans Division Head

Victoria Marie G. Ricardo Vice President, Credit Division Head

Dominador R. Bernales Assistant Vice President, Security Office

Erwin M. Galura Assistant Vice President, Field Services Division Head

Juvylyn S. Reniva Assistant Vice President, Consumer Protection/

Data Privacy Officer



Table of Organization

Board of Directors

Corporate Secretary

Related PartyTransactions Committee

Risk ManagementConsumer Protection

and Data Privacy

Branch Channeland Support Retail Loans Group Property Sales

and LeasesTreasury and

Financial Planning

Manila

Alabang, Las Piñas,Parañaque

Antipolo, Pasig,Ortigas

Cubao

Kamuning,Caloocan, Malabon

Marketing andSystems

North Luzon

Controllership

SME/Ka-Negosyo

Auto Loans Treasury

Housing Loans

South Luzon

VisMin

Clearing Operations

Branch Field Sales

Makati, San Juan,Mandaluyong

Funds Transfer & Remittance

BFSB President Compliance Internal Audit

ExecutiveCommittee

Coprorate Governance Committee

Audit Committee

Loan Services andRecovery

Wholesale Credit

Retail Loans Center Credit

Sales and Support

Risk ManagementCommittee

Greater Metro Manila Area Sales

Provincial Sales

Financial Planning and Control

Housing Loans Credit

Auto Loans Credit

Field Services

Real Estate Appraisal

Credit Investigation

Title Verification/Annotation

Credit

Auto/ME/CarHistory Department


Products and Services

Deposit Products

BFSB offers checking and savings accounts, along with time deposits in pesos and U.S. dollars. BFSB regards a deposit as the primary entry point of its relationship with clients, and the deposit base as a significant channel to which it markets its loan products.

Housing Loans

The Bank offers loans to property buyers in the Philippines who intend to use the premises as their primary residence. The Bank’s home mortgage loans have funded horizontal developments by reputable developers. The Bank also lends primarily in the middle to high-end market segment. Home mortgage loans are secured by a first mortgage on the property being purchased. In addition, the Bank generally requires residential mortgage borrowers to have an equity interest of at least 20% of the value of the property. Home mortgage loans are typically payable in monthly amortizing payments based on market-linked interest rates with terms of oneto five years. The Bank may lend up to 80% of the developer selling price or the Bank’s appraised value of houses and lots. The Bank requires home mortgage borrowers to obtain both fire insurance and mortgage redemption insurance.

As of December 31, 2017, home mortgage loans to individuals on average amount to Php 2.5 Mn. Interest rates on the Bank’s home mortgage loans range from 5.3% to 11.5% over the same period. In accordance with industry practice in the Philippines, interest rates on the Bank’s home mortgage loan portfolio are set at a fixed rate applicable for an initial period of between one and 15 years, depending on the maturity of the loan, which ranges from one to 25 years. Following the expiry of this initial period, the interest rate is reset at a fixed rate applicable to succeeding periods.

Auto Loans

The Bank offers loans primarily for the acquisition of new cars and only for accredited brands for which a consistent track record of after-sales service has been established. The Bank focuses its lending efforts on those brands that it believes will be able to best retain their resale value. The Bank also works with local dealers to supply financing solutions and easier access to auto loans to their customers. As of December 31, 2017, the Bank’s auto loans on average amount to Php 850 thousand in principal amount


and have average terms of between 12 and 60 months. The applicable interest rate is generally fixed with an amortizing repayment schedule over the term of the loan. The Bank also typically lends up to 80% of the value of a new car. The maximum amount varies depending on the model and year of the car and is based on the Bank’s internal assessments of the resale value.

All of the Bank’s auto loans are secured by a first mortgage or legal charge over the cars being purchased. As of December 31, 2017, the prevailing

effective interest rates of the Bank’s auto loans range from 7.0% to 10.5%, depending on the loan tenor.

Ka-Negosyo Loans

To address the financing needs of the SME segment, the Bank provides term loans and credit lines under its Ka-Negosyo brand. On average, small business loans range from a principal amount of Php 300 thousand to Php 100 Mn and may be collateralized by real estate mortgages, deposits or investments.

Credit Cards

BPI Family Credit Card is positioned to cater to the family’s daily necessities. The “no frills” credit card helps the family stretch its cash flow with interest rates and card maintenance fees that are among the lowest in the market. BPI Family MasterCard addresses the family’s emergency cash needs by allowing cash advances of up to 30% of the credit card limit.

Documents

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