2009 Annual Report China Bank

2009 Annual Report

More Than Your Banker,The Right Partner

TABLE OF CONTENTS CORPORATE PROFILE

ABOUT THE COVER

China Banking Corporation (China Bank), stock symbol

CHIB, commenced business on August 16, 1920 as

the fi rst privately-owned local commercial bank in the

Philippines catering initially to the needs of Chinese-

Filipino businessmen. It played a key role in post-World

War II reconstruction and economic recovery through

its support to businesses and entrepreneurs in critical

industries. China Bank was listed on the local stock

exchange in 1947 and acquired its universal banking

license in 1991. The Bank serves the corporate,

commercial, middle, and retail markets with a wide range

of domestic and international banking services. It is one

of the largest universal banks in the country in terms of

assets, capital base and market value.

For almost ninety years, China Bank has been the right partner for our customers.

The theme of our Annual Report and its cover illustrate thisthat in the big picture

scale of business and fi nance, its the partnership that counts the most. To both large

corporations and individuals, China Bank has served as enabler of success, catalyst for

wealth creation. Throughout our pioneering origins (as the countrys fi rst privately-owned

commercial bank), heritage of service (that transformed entrepreneurs into industry

chieftains), and spirit for innovation (as the fi rst bank in Asia to process transactions

online), we place our customer at the heart of our business. This is what we mean in

our slogan: Your Success is our Business. We pay tribute to our customers not just

in this Annual Report and fi nancial results but most importantly, in our commitment to

be not just a banker, but the right partner.

Mission Statement / Core Values 1

Financial Highlights 2

Letter to Stockholders 4

Operating Highlights 10

Corporate Social Responsibility 26

Corporate Governance 28

Board of Directors 38

Management Committee 42

Vice Presidents 45

Financial Statements 46

Management Directory 120

Branch Network 122

Off-Branch ATM Locations 132

Subsidiaries and Affi liates 136

Consumer Banking Centers 138

Private Banking Centers 138

Remittance Affi liates 139

Products and Services 140

We will be a leading provider of quality services consistently delivered to institutions, entrepreneurs and individuals, here and abroad, to meet their fi nancial needs and exceed rising expectations.

We will be a primary catalyst in the creation of wealth for our customers, driven by a desire to help them succeed, through a highly motivated team of competent and empowered professionals, guided by in-depth knowledge of their needs and supported by leading-edge technology.

We will maintain the highest ethical standards, sense of responsibility and fairness with respect to our customers, employees, shareholders, and the communities we serve.

IntegrityHigh Performance Standards Commitment to QualityCustomer Service FocusConcern For PeopleEffi ciencyResourcefulness/Initiative

MISSION STATEMENT CORE VALUES

Mission Statement / Core Values

Financial Highlights

NET INCOME [In Million Pesos]

EARNINGS PER SHARE [In Pesos]

STOCKHOLDERS EQUITY [In Million Pesos]TOTAL RESOURCES [In Million Pesos]

CASH DIVIDENDS PAID [In Million Pesos]

RETURN ON EQUITY [In Percent] TOTAL CAR [In Percent]TOTAL DEPOSITS [In Million Pesos]

STOCK DIVIDENDS PAID [In Million Pesos]

3,68

1

3,53

9

3,18

4

37.7

5

36.3

0

32.6

6

29.9

2

42.0

7

05 06 07 08 09

05 06 07 08 09

05 06 07 08 09 05 06 07 08 09

05 06 07 08 09

175,

687

132,

951 15

5,64

6

1,54

1

1,47

9

1,27

8

1,54

1

1,06

3

140,

456

121,

628

102,

457

1,54

1

1,23

3

1,27

8

1,15

6

886

173,

779

16.0

3

23.0

5

23.1

7

13.4

9

12.8

0

208,

547 23

4,03

5

26,7

35

24,9

82

21,9

32

25,8

76

30,3

68

15.5

715.9

3

15.2

8

2,91

711

.98

4,10

215

.36

193,

290

LOAN PORTFOLIO BY INDUSTRY CLASSIFICATION

2008

17.57%

14.65%

15.24%

3.50%

14.24%

13.03%

5.22%

8.04%

0.25%

8.26%

Real Estate, Leasing & Business Services

Manufacturing

Agriculture

Wholesale & Retail Trade

Construction

Electricity, Gas & Water

Transportation, Storage & Communication

Mining & Quarrying

Others

Financial Intermediaries2009

21.72%

15.97%

12.58%11.34%

9.88%

9.40%

8.98%

0.99%

0.04%

9.10%

DISTRIBUTION NETWORKBRANCHES ATMs

05 06 07 08 09

187

148

141

215

247

249

226

204

320

380

400

350

300

250

200

150

100

0

50

2 CHINA BANK 2009 ANNUAL REPORT

PERFORMANCE HIGHLIGHTS 2007 2008 2009For the Year (In Pesos)

Gross Revenues 14,109,453,808 14,547,926,037 17,514,336,020 Net Interest Income 6,496,421,471 6,524,214,774 8,236,036,723Non-Interest Income 2,672,133,489 2,142,922,269 4,104,485,158 Provision for Impairment & Credit Losses 300,578,001 306,709,527 792,384,146 Gross Expenses 10,428,018,784 11,630,738,029 13,411,706,699 Operating Expenses 4,994,287,133 5,177,994,832 6,947,999,386 Net Income 3,681,435,024 2,917,188,008 4,102,629,321

At Year End (In Pesos)

Total Resources 175,687,170,475 208,547,054,007 234,035,615,754 Loan Portfolio (Net) 87,328,696,116 110,839,234,244 110,371,291,557 Total Deposits 140,456,325,304 173,779,256,090 193,290,039,246 Stockholders Equity Funds 26,735,041,242 25,876,687,638 30,368,495,744 Number of Branches 187 215 247 Number of ATMs 249 320 380 Number of Employees 3,489 3,861 4,150

Key Performance Indicators (In %)

Return on Average Equity 15.57 11.98 15.36 Return on Average Assets 2.25 1.53 1.90 Net Interest Margin 4.32 3.82 4.16 Cost to Income Ratio 54.47 59.74 56.30 Liquid Assets to Total Assets 41.84 39.55 46.42 Loans to Deposit Ratio 62.17 63.78 57.10Non-Performing Loans Ratio 6.19 5.14 4.16 NPL Cover 88.09 88.06 119.54 Capital Adequacy Ratio (Tier 1) 15.12 12.62 11.92 Capital Adequacy Ratio (Total CAR) 16.03 13.49 12.80

Shareholder Information

Earnings Per Share (In Pesos) 37.75 29.92 42.07 Cash Dividends Paid (In Pesos) 1,541,594,125 1,541,608,520 1,063,721,628 Cash Dividends Per Share (In Pesos) 25 20 12 Cash Payout Ratio (In %) 43.56% 41.88% 36.46%Cash Dividend Yield (In %) 3.79% 5.06% 3.24%Stock Dividends Paid (In Pesos) 1,541,666,100 1,156,304,300 886,530,300 Stock Dividends Per Share (In %) 25 15 10 Market Value Per Share (In Pesos) 660.00 395.00 370.00 Book Value Per Share (In Pesos) 274.18 265.38 311.44 Price to Book Ratio (x) 2.41 1.49 1.19


GILBERT U. DEEChairman of the Board

HANS T. SYVice Chairman of the Board andChairman of the Executive Committee

PETER S. DEEPresident and Chief Executive Offi cer

Letter to Stockholders


To Our Stockholders and Friends,

We are pleased to report very good results for 2009, against the backdrop of improving markets but nevertheless challenging global economic environment.

The global economy was in much better shape in 2009, as seen in the fi rmer 1.2% expansion for the G7 and fast-developing regions. After several quarters of weak results, the US economy settled on steadier ground, providing the fi nancial markets with a clearer indication of forthcoming policy decisions and actions. The federal rescue package averted what could have been a freefall in the fi nancial system, but in the process, set off an irreversible change in the banking paradigm as evidenced by tighter regulation and oversight worldwide. Massive fi scal support left the system fl ush with liquidity, bringing bond and borrowing rates down to record lows. Market confi dence recovered in step with the beginnings of an economic rebound, led by East Asia where China and India grew by 8.4% and 6.0%, respectively, on the back of heavy public spending and consumer demand.

The Philippines was spared the worst effects of the US fi nancial meltdown as the 5.6% growth of OFW remittances, lower export dependency and a highly

China Banks performance in profitability, efficiencyand financial strength continued to be at the forefrontof industry standardsleading to sustained delivery ofsuperior value and returns to our shareholders.

supportive monetary and fi scal policy cushioned the impact of the crisis. GDP growth of 0.9% was among the few in positive territory though below the regional average, refl ecting the devastation brought by Typhoons Ondoy and Pepeng upon agricultural production as well as lackluster spending by both households and investors. Headline infl ation inched up to 3.2%, as food prices were pushed up by these twin calamities and predictions of another El Nio weather phenomenon.

It was a turn-around year for the fi nancial industry, with profi ts rebounding from their very low base in the previous year. The repercussions of the global crisis continued to be felt in the fi rst half of the year, both from its direct effects as well as the impact of the policy responses from both fi scal and monetary authorities. The monetary response in terms of liquidity boost and lower interest rates pushed down government securities yields to record low levels at the shorter maturities, while concerns about the fi scal defi cits incurred for the stimulus programs to counter the recessionary impact of the crisis prevented yields on the longer maturities from going downa classic yield curve steepening effect. Greater confi dence in the emerging markets reduced risk premiums to more affordable levels and triggered a rebound in ROP prices.


HENRY SY, SR.Honorary Chairman and Advisor to the Board

In addition, the year 2009 saw industry loans growth relatively fl at as the capital markets absorbed the corporate bond issuances (volume totaling P412 billion in 2009) that would otherwise have landed on the banking systems loan books. As always, capital strength remained the defi nitive test of fi nancial stability as well as the basis of the governments regulatory and policy framework for the banking sector. With the monetary authorities and market players armed with the lessons from the Asian fi nancial crisis a dozen years back, Philippine banks emerged stronger from this recent crisis judging from their higher Tier 1 capital base, and average consolidated capital adequacy ratio (CAR) and return on equity of 15.76% (as of September 2009) and 10.79% (as of December 2009), respectively.

Even as the banking industry proved more resilient than ever in the face of the global crisis, we are very pleased to report that China Banks performance across key performance indicators in profi tability, effi ciency and fi nancial strength continued to be at the forefront of industry standardsleading to sustained delivery of superior value and returns to our shareholders.

Consolidated net income improved markedly to P4.102 billion, an increase of 41% from the previous

years P2.917 billion. China Bank continued to be ranked among the most profi table banks in the country with a return on equity (ROE) of 15.36% and a return on assets (ROA) of 1.90%. At the risk of being immodest, this is somewhat remarkable considering that we are in the midst of our most rapid network expansion in our 89-year history that entails massive investments and capital expenditures.

Revenue growth was driven by better than expected corporate and retail loan volume even as loans growth slowed down towards the end of the year and interest rates hit record lows. Non-interest income grew as well, from solid trading gains, and substantial contributions from fee-based businesses such as bancassurance, private banking, cash management services, foreign exchange, trust and other fee-based services.

We sustained our good net interest margins by maximizing yields on interest accruing assets while focusing on low-cost deposit generation to bring down the average cost of funds. The rise in interest revenues was attributed to the enhancement in the mix of our investment securities holdings, participation in more fi xed-rate syndicated term loans and build up of higher margin in consumer and retail portfolio. Underpinning

HEHon


China Bank was cited by Stern, Stewart & Co. as one

of the top 100 listed companies in ASEAN in terms of

delivering shareholder value.

our funding strategy was our renewed focus on building Checking Account/Savings Account (CASA) relationships through cash management offerings, broader compensating businesses as well as expansion of the branch footprint. Hence, CASA base rose by 17.43% from 2008 on average daily balance basis and 26.76% from year-end 2008.

Again despite the rapid branch expansion, prudent cost management led to further improvements in cost-effi ciency, with our cost to income ratio of 56.30% compared to 59.74% of the previous year.

Assets also grew by P25.49 billion to an all time high of P234.04 billion, mainly from the growth in loans, investment securities and short-term placements. Management prioritized quality over expansion of portfolio as seen in the moderate loans growth of 10% on an average daily balance basismainly from robust demand in the corporate and consumer sectors. But year-on-year, outstanding gross loans (inclusive of unquoted debt securities) fell by 0.36% to P118.4 billion as we vigorously pursued collection of past due accounts and improved collateral positions. Intensive monitoring at the Management and Board level led to a reduction in non-performing loans (NPL) by almost P1.5 billion, lowering

the NPL ratio to 4.16% from 5.14% last year. Loan loss coverage, or the ratio of reserves to non-performing loans, improved further from 88.06% to 119.54%.

China Banks fi nancial position remains as strong as ever with total capital funds of P30.37 billion that translate to a tier 1 CAR of 11.92% and total CAR of 12.80%. Our consistent profi t streams and equity build-up merited an affi rmation of our long term grade of BB+ from Fitch Ratings and a fi nancial strength rating of AA- on the National credit rating scale.

In a signifi cant market shift, the uptrend in corporate bond issuances tempered the growth in traditional wholesale lending so we ramped up our participation in the underwriting of bonds issued by triple-A corporations such as San Miguel Corporation, Petron, JG Summit Holdings Inc. Part of the proceeds from accessing the capital markets were used to pay down bank loans, refl ecting a double whammy effect on bank lending books from the disintermediation phenomenon. It was indeed becoming a borrowers market with serious implications for calculations of whether fi nancial institutions are obtaining adequate rewards for the credit risks being undertaken. This also led to a renewed focus on the role of fee-based businesses in revenue diversifi cation.

Letter to Stocholders


The program to put in place a dramatically larger geographic footprint continued apace in 2009. We inaugurated 32 new branchesfi ve for ChinaBank Savings, Inc. (ChinaBank Savings), the savings bank subsidiary, and twenty-seven for the bank properbringing our total network to 247 by year-end 2009. The growth in the combined branch network boosted low cost CASA deposit base by 17.43% to a record P58.85 billion. Supplementing the branch expansion is the growth in the ATM network from 320 to 374 installations, offering clients more convenience even outside of regular banking hours. The BancNet consortium consistently ranks China Bank as among their top ATMs in terms of earnings, on-line availability and transaction volume. The rapid growth in activation and usage of the other electronic channels China Bank Online Internet and mobile bankingshowed positive customer response to the provision of a seamless customer experience across channels.

The acquisition of Manila Bank with its 75 branch licenses presented a couple of strategic opportunities. One, it fast tracked the Banks branch expansion program to a higher trajectory from 200 to 300 branches. As the incremental business contribution of the bigger network was kicking into place, the network size was upgraded to 400 branches. Two, ChinaBank Savings provides the platform for a sharper focus on the retail/consumer market and serves as the Banks laboratory for new products and services and marketing approaches. Third, ChinaBank Savings could also serve as a hothouse for developing cutting-edge and competitively-priced products for the household, small business and younger segments that capitalize on its lower reserve requirements and slimmer cost structure.

With our sustained profi tability and delivery of superior shareholder returns, China Bank was recognized internationallywe were cited by US-based management consulting fi rm Stern, Stewart & Company as one of the top 100 listed companies in ASEAN in terms of delivering

shareholder value for the period 2002-2008. China Bank was one of only 11 Philippine companies and one of two Philippine banks to be included in the ASEAN Relative Wealth Index. Even at the height of the subprime crisis when stock indices plunged, our share price was among those that dropped the least and maintained substantial levels of cash and stock dividends payments.

The Bank was also cited by the Bureau of Treasury as one of Ten Best Performing Government Securities Eligible Dealers (GSED), ranked 6th place over-all (primary and secondary markets) and 5th place in the secondary market. We were recognized for our exemplary effort and contributions in money market and capital development as well as support of the governments efforts to ensure funding for continued economic growth. China Bank was likewise recognized by IFR Asia and The Asset Magazine for being one of the joint lead underwriters of the P38.8 billion San Miguel Brewery (SMB) Bonds issue, awarded

by IFR Asia as the Domestic Bond Deal of the Year Philippine Capital Markets and by The Asset as the Best Local Currency Bond in the whole Asian region.

As we embark on our new 5-year business plan for 2010-2014, we will continue to pursue the core strategies contained in the previous 3-year plans. The centerpiece of the plan is of course, the full implementation of the most rapid network expansion in China Banks 89-year historyboth for China Bank and ChinaBank Savings. In line with our commitment to become the best bank for our customers and their primary banker, we established a fi ve-year roadmap for service excellence which begins by building a customer-centric organization from the ground up. Customer focus involves developing expertise in selected market segments, mechanisms for monitoring quality of services and measuring client data as well as the redesign of processes around the customer. Our objective is to offer clients a highly personalized and professional banking experience, raising client retention rates and deepening the scope and scale of account relationships.

As we celebrate China Banks 90th year of service in

2010, we will continue our efforts to be the best bank for

our customers.

Letter to Stockholders


GILBERT U. DEEChairman of the Board

HANS T. SYVice Chairman of the Board and

Chairman of the Executive Committee

PETER S. DEEPresident and CEO

Meanwhile, China Banks innovation initiatives will be driven by two major considerationsone, the ability to meet customers needs and expectations thru the full range of products and services in a highly responsive and cost-effective way and two, to put in place a highly robust set of platforms to enable the handling of accelerated growth in transaction volumes from the various businesses. Apart from the substantial capital expenditures allotted for the branch expansion, about half of the capital expenditure budget for 2010 will be invested in key infrastructure projects such as the acquisition of a new core banking system, asset-liability system (ALM), ATM/card management system, a new phone banking/call center software, servers upgrade and enhancements to our cash management platform to include supply chain functionalities. In addition, the year will also see the continued implementation of ongoing projects such as the Reuters platform for the Treasury system, business intelligence/customer relationship module, new remittance system and full roll out of the browser-based tellering system for China Bank and ChinaBank Savings.

In recording various accomplishments and achieving signifi cant milestones, we are humbled by the loyal and enduring support of our customers in the various markets we servecorporate, consumer and traditional Filipino-Chinese markets. In keeping with our roots as a bank for businessmen, we have kept alive an entrepreneurial spirit tempered by our innate conservatism, fully aware that the China Bank ethos is as relevant today, perhaps even more so, as it was in the past. But we must work harder to keep in step with the rapidly changing needs of our customers and continually enhance the value of their banking relationship. Only then can we justly claim to be their right banking partner by our understanding of their unique needs and helping them resolve day-to-day business issues.

In the last quarter of 2009, we launched a corporate advertising campaign anchored on this spirit of partnership. It refl ects a timeless message, of China Bank as the bank for businessmenthat we are not only their banker, but their Right partner for success.

The task of steering the Bank across a sea of economic, fi nancial and socio-political variables will continue to occupy your Board Members and Management in the coming periods. But the view from our boardroom is an exciting onefi lled with opportunities to do even better in our core and new businesses, push our people to achieve their full potential as ChinaBankers and further contribute to the success of our clients and partners in the industry. We will draw on our solid franchise and experience to help customers build and protect their fi nancial position, maintain more than adequate capital and liquidity levels and make bold yet prudent business decisions.

As we celebrate China Banks 90th year of service in 2010, the current decade is a signifi cant last leg before the Banks centenary. We will continue our efforts to be the best bank for our customers. The timelessness of China Banks Mission Statement continues to apply, that we will be a primary catalyst for the creation of wealth for our customers, driven by a desire to help them succeed, through a highly motivated team of competent and empowered professionals, guided by in-depth knowledge of their needs and supported by leading-edge technology.

It is only through the successful implementation of this missionand lived out thru the daily actions of all ChinaBankersthat China Bank can remain a key player in the industry, growing to meet and exceed our customers expectations, continuing to be a catalyst for their success, and in the process, delivering superior returns to our shareholders.


Building Relationships, Sustaining Partnerships

Over the last 89 years, China Bank has been growing, improving, evolvingin the quality of our performance, capabilities, banking services, management expertise, and technology. Our steadfast commitment to be more than our customers banker, but their right partner for the long term, constantly drives us to change for the better, while remaining deeply rooted to our heritage of strength and stability.


2009 has been an extraordinary year and we are proud and pleased to have emerged from the worst of the global fi nancial crisis in very good shape to face challenges and take advantage of new opportunities. Our different business groups, our partners in building relationships and sustaining partnerships in the markets where we operate, have also been evolving through the years as our business activities and volumes progressively increase. Their steady focus on meeting the needs of our customers and ensuring that we are delivering the standard of service to which our customers have grown accustomed and deserve, paves the way for a sustainable path of value creation, thus further improving our reputation and boosting shareholder and customer value.

Branch BankingOur network expansion, spearheaded by Branch Banking Group (BBG), remains robust as we expand

our geographic footprint to build more customer relationships. While focusing on our existing markets, we also target appropriate regional expansion as a driver of continued growth. In 2009, BBG opened 32 branches27 for the main bank and fi ve for ChinaBank Savings, bringing our nationwide branch network to 247 at year-end. As new branches were opened, existing branches were renovated or relocated to new and better sitesfour branches were transferred to bigger and better locations, and another two were renovated to match the Banks signature branch design.

Our branches remain at the forefront of low-cost deposit generation and overall funding growth in 2009. Checking Account/Savings Account (CASA) deposits continued to build up, growing by 27% to P59 billion. As a result, China Bank, with a healthy CASA to total peso deposits ratio of 42%, has one of the best net interest margins in the industry. Beyond CASA, the branches

Operating Highlights


are the key distribution channels for our products and services, growing the Banks loan balances, increasing net income and adding to the demographic diversity of our client base.

BBGs top priority in 2009, aside from expansion, was to prime our branch network for higher productivity. One of BBGs major initiatives, the Branch Transformation Project (BTP), launched in the fourth quarter, aims to streamline branch processes to transform China Bank into a customer-centric organization. Other re-engineering initiatives were also carried out to standardize and improve branch operations and centralize backroom operations.

BBGs continuing efforts to keep branch personnel motivated through regular area-level meetings, pep rallies, incentive schemes, the Annual Sales Convention and Awards Night, and year-round training programs, especially on good customer service, ensure that our frontliners have the skills and the mindset to be the right banking partners for our customers.

For 2010, BBG will continue its strategy of investing in additional branches, talent, resources and capabilities to enhance our branches ability to execute China Banks value proposition. Thirty more branches will be opened in Metro Manila and the provinces to extend our reach and visibility in new markets, bringing us closer to our goal of growing to 400-strong by 2014. While our branches remain as the primary customer touch point, we also continue to develop alternative delivery channels to meet customer expectations, such as strategically-located ATMs, improved online and mobile banking channels and better customer support.

Multi-channel BankingAt China Bank, we are committed to build and sustain strong relationships with our customers by being accessible and offering solutions that are relevant to them and responsive to their needs. Our customers have access to a full array of banking products and services, not just through our branches, but also via our ATMs as well as telephone banking, internet banking and mobile banking channels, 24/7, wherever they may be. As our customers increasingly conduct their banking electronically, growing these relationships is more important than ever. Our ATM Center and E-Banking Unit continue to enhance our electronic banking channels to add useful features while enhancing customer friendliness.

The ATM network was beefed up with the deployment of 56 new ATMs in 200927 of which were installed in high traffi c off-branch locations such as malls, schools and MRT stationsbringing the nationwide ATM network size to 374 at year end (380, including ChinaBank Savings). Our ATM cardholder base grew by 14% to over 670,000.

The year saw the launch of China Bank Smart Money Card, a cash card developed in partnership with Smart Communications, Inc. and China Banks Remittance Banking Division. With the China Bank Smart Money Card, remittances from our partner banks and remittance agencies abroad can be electronically loaded in the Card and may be withdrawn from any ATM in the Philippines. The Card can also be used to purchase at stores and supermarkets all over the country with BancNet Point-of-Sale (POS) terminals.

Aside from the continuous deployment of ATMs in strategic locations, ATM Center is undertaking a number

China Bank is in the midst of the most rapidexpansion in its history, with the branch networkfor the group targeted to grow to 400 branches in5 years.


of major projects to boost our capability to effi ciently service the growing volumes in 2010. These new initiatives include the standardization of ATM hardware and software confi guration; implementation of Cenbank System 2000 for the centralization of ATM vault control access; implementation of ECM (Enterprise Content Management); automation to capture, store, preserve and deliver content and documents; and upgrade to web-enabled screens for bills payment transactions. As our expanded operations call for a more robust technology platform, ATM Center will also be thoroughly evaluating the right ATM vendor, ATM Switch and IVRS vendor to partner with for our new hardware and software acquisitions.

The E-Banking Unit embarked on a year-round program in 2009 to beef-up enrollment in our proprietary internet and mobile banking facility, China Bank Online. A number of internal and external raffl e and instant rewards promos like Pay Online, Win Big Time and Click, Save & Win were launched to create awareness and encourage enrollment. The training programs for employees were also intensifi ed to include sessions on the features and benefi ts of the powerful e-banking channel. As a result, enrollment in China Bank Online increased by 33% and online transactions grew by 37%.

For 2010, our E-Banking Unit will sustain the momentum of the successful enrollment campaigns with more aggressive efforts and bigger and better rewards and raffl e promos. Underway is a computer upgrade program in partnership with Asus Philippines, a branch incentive program, a nationwide rewards program for China Bank branches, and an enhanced training program for frontline employees and China Bank Online users with the development of an interactive tutorial and fi nancial calculator to be made available in the China Bank website, DVD (to be used as sales and training tool), and internal e-mail system.

Corporate / Institutional BankingCorporate Banking plays an important role in the growth of our fi nancing activities and profi tability. Our Account Management Group (AMG) manages this core business and major source of revenue with its relationship-focused approach to handling the banking and fi nancing needs of our corporate customers.

In 2009, AMG maintained a cautious approach in booking new loans, focusing instead on deepening existing relationships, increasing the utilization rate of approved credit facilities, reducing large exposures to a

single corporate borrower to mitigate the concentration of risk, and diversifying our corporate portfolio across various sectors and industries that have growth potential or continue to show resilience. Amidst tighter controls and stricter credit standards, AMGs gross portfolio still grew 7% to P69 billion. Further improvements in loan portfolio asset quality were achieved, with a P596 million reduction in past due leading to a corresponding drop in the NPL ratio.

China Bank was active in the Capital Markets through its participation in several landmark deals such as the P38.8B San Miguel Brewery (SMB) Bonds issue, in which China Bank acted as joi nt lead managercited by IFR Asia as the Domestic Bond Deal of the Year - Philippine Capital Markets and by The Asset as the Best Local Currency Bond in the whole Asian region in 2009 and other major deals involving large corporations like PLDT, Petron Corp., Globe Telecoms, SM Investments, Robinsons Land Corp., JG Summit Holdings, Metrobank Card Corp., City Savings, Meralco, and Metro Pacifi c, to name a few. AMG also actively participated in the Specialized Lending Programs offered by the Development Bank of the Philippines (DBP) and the Land Bank of the Philippines (LBP) and other funding agencies, increasing its credit line with these institutions and also availed of the BSP rediscounting facility for qualifi ed customers.

To develop business from existing corporate customers suppliers and vendors, AMG set up a Factoring Unit manned by a dedicated team of banking specialists. Simply put, factoring is the purchasing of accounts receivable invoices at a discounted price for immediate cash fl ow. Factoring enables a business to have immediate access up to 95% of the face value of accounts receivable invoices. AMG provides three critical components of service with its full-service accounts receivable factoring: Finance, Credit Services, and Receivables Management.

For 2010, AMGs focus is on growing the portfolio and improving the industry-diversifi cation mix. Asset quality improvement continues to be a key priority thru strengthening relationships and building on the base of high quality customers.

Consumer LendingConsumer fi nancing is vital to relationship-building at China Bank. We make it a point to be our customers right partner in consumer loans by providing them with superior home and auto loan packages that are convenient and affordable. Competition in consumer fi nancing has



grown tougher. Coupled with the general slowdown in consumer borrowing in 2009 as Filipinos held back on the availment of loans, the operating environment proved to be very challenging. The China Bank Groups approach to the consumer lending market is being driven by two major business unitsthe Consumer Banking Group (CBG) and the savings bank arm, China Bank Savings, Inc. (ChinaBank Savings).

CBG represents this key area of business and over the years, CBG has taken prime-mover initiatives to establish sound business infrastructures, penetrate key market segments, and build recognizable brand identitiesChina Bank HomePlus Loan and China Bank AutoPlus Loanthereby growing our consumer lending operations and making it one of the pillars of our revenue-generating system. In 2009, CBG contributed over P473 million to the Banks bottomline. This amount is 55% more compared to the pre-provision income CBG posted in 2008.

Maintaining the credit quality of our loan portfolio remains a vital strategy for CBG. Our consumer loans past due ratio improved in 20093.95% for AutoPlus Loans and 5.63% for HomePlus Loans.

In light of the decision to turn over dealer-generated auto loans to ChinaBank Savings in the third quarter of 2009, CBGs business strategy for the auto loan business was realigned to maximize sales at the branch and CBG Center-level, refocusing on branch referred accounts, internal clients and walk-in customers. CBG also matched the rates and turn-around times of our competitors.

For the housing loan business, CBG maintained our competitive position by lowering housing loan rates in July 2009 to only 8.50% fi xed for 1 year, one

of the lowest in the industry, improving Mortgage Repayment Insurance (MRI) coverage limits, establishing Processing Teams to have better focus and control in the handling of accounts, and deepening relationships with top developers for greater access to buyer-loan applications.

With the key measures being put into place for faster and more effi cient account generation and credit processing, administration and collection, and suffi cient marketing support to create awareness on HomePlus and AutoPlus, CBG will be in a better position to grow our consumer lending business substantially in 2010.

RemittanceRemittance products and services have emerged as a strategic tool in our relationship-building efforts as they can lead customers to other China Bank fi nancial offerings. The Remittance Business Division (RBD), continues to build-up our remittance business not only as a means of revenue generation, but also as a gateway to establishing relationships with overseas Filipino workers and their families. Our remittance business expanded in 2009 as the overall volume, both in terms of dollar value and transaction count, increased substantially. Results confi rmed that despite having entered the remittance foray barely four years ago, China Bank has earned signifi cant market shares in certain countries where we have remittance tie-up arrangements, particularly in the Middle East, where we deployed a marketing team to promote our remittance products and services thru three Saudi Banks, all of which rank among the top in remittance business in the kingdom.

The China Bank Groups approach to the consumer lending market is being driven by two major business unitsthe Consumer Banking Group (CBG) and the savings bank arm, China Bank Savings, Inc. (ChinaBank Savings).



In 2009, RBD implemented major projects to further strengthen our remittance services, collectively branded China Bank On-Time Remittance. A new remittance product was rolled-out in the fi rst quarter, China Bank Smart Money Card, available through China Banks partner banks and money transfer agencies in over 4,000 locations worldwide. As our global remittance tie-ups expanded, so did our cash pay-out network in the country. A cash pay-out agreement was signed with Cebuana Lhuillier, one of the countrys leading pawnshops and fi nancial services providers, growing our remittance network of China Bank branches and partner cash pay-out outlets, including M. Lhuillier, to close to 3,000 convenient locations in the Philippines. The year also saw the Phase 1 implementation of the Carnelian System, automating the crediting of remittances to benefi ciary China Bank deposit accounts.

In line with our customers expectations, we will continue to improve China Bank On-Time Remittance, making it a stronger and more competitive remittance brand in 2010. In the pipeline are a number of strategic initiatives to build-up the Banks remittance tie-ups abroad, enhance the features of China Bank On-Time Remittance, and streamline backroom operations with the full implementation of the Carnelian System.

Cash ManagementChina Bank continues to harness technology while maintaining a personalized approach to banking. Our Cash Management Services (CMS) adds an innovative dimension to customer empowerment by providing our business customers with fl exible solutions that speed up collections, control payments, reconcile accounts,

and manage funds more effi ciently and securely. In 2009, CMS focused on enhancing our cash management product suite to a more robust line up of end-to-end fi nancial tools, and building up the business to make it one of the drivers of fee-based income.

Our Cash Management offering provides a fl exible range of collections, liquidity management and disbursement solutions. Our collection services enable companies to establish a single banking relationship in terms of collections, operated through our proprietary multi-channel payment system and through our partnership with industry-leading service providers. Through Corporate E-banking, business customers have the power to make fast, informed decisions involving their companys funds and liquid assets. Accurate reports, up-to-date account information and bank statements can be accessed online for a clearly identifi ed cash position at treasury level. We also provide business customers with nationwide disbursement solutions and online reporting tools necessary to effi ciently manage payables. Our host of payment delivery channels offers small companies and large corporations a complete disbursement infrastructure that is safe, secure and easy to utilize.

In 2009, CMS redoubled its efforts to increase the utilization of our cash management offerings. As a result, the number of business customers enrolled in corporate e-banking and payroll processing increased by 41% and 27%, respectively. Corporate taxpayers enrolled in China Bank-BIR eFPS grew by 27%, and the number of companies enrolled in our Checkwriting facility increased by 55%. Overall, the number of completed deals improved by 59% and CMS corporate client base expanded by 27%.


China Bank is one of the foremost institutions in trustbanking, ranking fifth in the Trust Industry in termsof assets managed, up two notches from the 2008ranking.


For 2010, CMS will further strengthen our cash management offerings thru a Supply Chain Management Module that will be integrated with our business customers accounting system and can support document exchange, processing and reconciliation between buyers and sellers (purchase orders, invoices, receipts). CMS will also continue to enhance the value proposition to boost penetration rates across all cash management solutions.

Trust BankingOur Trust Group continues to enhance China Banks position as one of the foremost institutions in trust banking, ranking fi fth in the Trust Industry in terms of assets managed, up two notches from the 2008 ranking.

In 2009, total assets under management stood at P68.3 billion, an increase of 36% over the comparative 2008 fi gure. On the other hand, the total number of accounts grew by 19%. This strong performance was brought about by the Trust Groups major initiatives, which included the launch of the China Bank Money Market Fund, its third Unit Investment Trust Fund (UITF), as well as its active participation in various corporate bond issues and the Bangko Sentral ng Pilipinas (BSP) Special Deposit Account (SDA) facility under directional arrangements in behalf of investment management and/or trust accounts. The Group also worked very hard to ensure that all products and services are available to each client, with aggressive marketing thru branches, thereby expanding its coverage of branch-originated clients in the process. The Group also implemented business process and operations management initiatives to streamline operations as well as to comply with the BSPs regulatory standards in the administration of trust, other fi duciary and investment management activities.

To improve service level standards and keep pace with technological and regulatory advances, the Trust automated system was upgraded to a higher version. This is over and above the enhancements undertaken to make it compliant with the Financial Reporting Package for Trust Institutions (FRPTI) as required by the BSP.

Moving forward, our Trust Groups organizational structure, product offerings and business processes will evolve and expand in 2010 with the objective of building stronger relationships with our clients and adopting industry best practices. Trust desks in key business centers will be established initially in the

Visayas-Mindanao area and new products and services will be developed to take advantage of opportunities in foreign currency-denominated trust and Investment Management Account (IMA) arrangements, Personal Equity Retirement Accounts (PERA) and Real Estate Investment Trusts (REITs), among others. Also in the pipeline is the full implementation of FRPTIcompliant system, online interfaces, and other enhancements in the Trust automated system.

The Trust Group will also continue to capitalize on the Banks expanding branch network to increase market penetration and boost volumes and shall work closely with Private Banking Group and other frontline units in promoting trust products and services. To provide a broad and diversifi ed range of investment instruments for its clients, the Trust Group will be an active participant in corporate bond fl otations, loan syndications, private placements, Tier 2 Notes and equity issues, among others.

International and Transaction BankingOur international banking, OFW remittances, correspondent banking and transaction banking operations, have been successfully synergized under the Centralized Operations Group (COG). The fee- based revenue streams of the different products and services under the Foreign Currency Deposit Units, the Import and Export departments, the Loans and Discounts departments, Treasury operations, SWIFT delivery systems, the Correspondent Banking Unit, and the Remittance Business Division, are also dynamically managed by COG in collaboration with these business/lending groups and the Cash and Trade Management areas.

China Bank has been offering the full range of international banking products and services, the complete variations in inward and outward remittance modes, with global connections and relationships with practically all the biggest European, Asian and U.S. banks and leading international remittance institutions, which in turn, hold China Bank in the highest esteem and respect because of our strong credit standing and record as one of the best performing banks in the country and one of the most competently managed. We are proud to have been able to differentiate our Bank by continuously building up our technological sophistication, offi cer and staff competence in handling our customers transactions and providing expert advisories and solutions for all types of concerns.


COG continues to explore new products, systems and methods, even in co-usage of the proprietary systems of our global banking partners and remittance institutions, to give our customers what they want and need for their own businesses to fl ourish and to provide our individual customers with utmost convenience.

With higher growth projections for 2010, COG will continue its automation and system/equipment upgrade project. COG has several culminating system developments in the areas of, Treasury, with our state of the art front, middle and back end seamless automation; Trade Finance, with the latest upgrade of the Banktrade system; and Remittance business, with the implementation of an automated system according to China Banks stringent customer-driven requirements, that will defi nitely increase our processing and transaction handling effi ciencies, enhance our risk evaluating capabilities, provide immediate critical management information and further cut down already very closely monitored operating expenses.

TreasuryAs the global economic conditions generally improved in 2009 and investor confi dence consequently picked up, our Treasury Group continued to be a key profi t center, playing the crucial role of not only managing China Banks liquidity and securing adequate funding to support our current and future business requisites, but also developing our treasury business to provide an excellent mix of treasury products and services to institutional as well as individual investors. Treasury Groups effi cient hedging of the Banks various exposures to foreign exchange and profi t-grade risks and more active involvement in trading in 2009, pushed our business volume to grow.

Through the dynamic efforts of our Treasury Group, China Bank became a major player in the local fi xed income market through active participation in the corporate bond issues. The Group is also very active in government debt instruments trading to support the governments efforts to raise funds to ensure continued economic growth, acting as one of the selling agents of the Fixed Rate Bonds issued in September which raised P114.4 billion for the governments coffers, and as one of the primary dealers for the US Dollar Bond issuances of the Republic of the Philippines (ROP) and its agencies.

Treasury Groups continuing efforts in money market and capital development boosted our ranking among the Ten Best Performing Government Securities Eligible Dealers (GSED) in 2009. The Bureau of Treasury

recognized China Bank as 6th place over-all (primary and secondary markets) and 5th place in the secondary market.

Going forward, our Treasury Group will continue to focus on effi cient asset-liability management to ensure that we maintain a healthy fi nancial position in 2010 and beyond; as well as on broadening our involvement in the trading of debt instruments; developing key partnerships with local, regional and international fi nancial institutions, particularly in terms of product sourcing and distribution; and strengthening existing treasury and market risk systems.

Private Banking At China Bank, private banking is all about being a partner in helping our affl uent clients achieve their fi nancial and lifestyle goals, whether it is maximizing investment potential, wealth management or wealth preservation, by providing the highest level of personalized service, customized solutions, and fi nancial advice that correspond to individual requirements and designed to keep our clients portfolios in tune with the latest market developments and opportunities. Our Private Banking Group (PBG) takes the lead in providing a wide range of servicesportfolio management, advisory services, trust services, personalized lending services and traditional banking. Our open fi nance approach allows us to offer outstanding products of other institutions. Hence, our private banking clients are not limited to China Bank products; they also have access to the best-in-class products of other institutions.

Our Private Banking business has been steadily growing over the last three years, fuelled by PBGs steadfast efforts to acquire new clients and increase market share, expand product offerings and develop our strong and dynamic team of seasoned relationship managers. In 2009, PBG posted a substantial growth over the previous yearassets under management increased by 88% to P26 billion, net revenues improved by 99% to P134 million and income expanded by 168% to P95 millionand developed its network and capabilities to build stronger relationships. A Private Banking Center was opened in Quezon City, bringing the number of PBG centers to seven. These centers serve as a hub for our expanding wealth management services in selected areas. PBG also provided continuous training to offi cers and staff to enhance their technical competence and skills to better serve client requirements. As a complement to the fi nancial side



of customer care, PBG conducted wealth planning/estate planning forums and economic briefi ngs in key cities and provinces to provide our clients with useful tools and information on investments, taxation, insurance, estate planning, life planning for after retirement, and more.

As one of our selected growth segments, PBG is gearing up to be one of the major drivers for fee-based income. In the pipeline for 2010 is the opening of a center in Davao to service the high net-worth customers in the area, and the launching of new products and services. To support the expansion of the business, additional Relationship Managers will be hired and employee skills will be further developed through training programs. Furthermore, PBGs wealth planning forums will continue to be a staple value-added service to clients.

Non-Life Insurance We offer a wide range of non-life insurance products and services though our subsidiary, China Bank Insurance Brokers, Inc. (CIBI), a full service insurance brokerage agency. CIBIs industry-leading service, access to the best non-life insurance agencies and superior products and services, strengthen China Banks promise to be the right partner, not just in banking, but also in insurance.

2009 was a banner year for CIBI. The company posted P42 million in total commissions, slightly higher than the fi gure recorded in 2008; and P22.4 million in net operating income, up 10.3% as operating expenses decreased. CIBI also transferred to the VGP Center (formerly Manila Bank Building) along Ayala Avenue in May 2009. The move to a more spacious offi ce allowed the company to house its growing manpower in response to the increasing business volumes generated by both China Bank-mortgaged and non-China Bank mortgaged businesses. But what defi ned CIBIs performance in 2009 was its ability to negotiate with partner insurers to resolve claims quickly.

In late September 2009, Typhoon Ondoy fl ooded almost 80% of Metro Manila, damaging some of the insured assets of CIBIs clients. There were hundreds of claims for property and car damage amounting to P80 million. Through CIBIs effective claims management, 95% of the claims were settled before the end of 2009, while the residual 5% were processed and settled in the fi rst quarter of 2010.

Moving forward, CIBI is focused on maintaining its status as one the best-performing insurance brokerage fi rms in the country, expanding the business and enhancing customer value while improving operations

to be more effi cient and effective to face the challenges posed by competitors and the business environment in general.

Life Insurance China Bank has successfully ventured into allied fi nancial services to be a one-stop-shop for banking and insurance. Through Manulife China Bank Life Assurance Corporation (MCBLife), our bancassurance joint venture with The Manufacturers Life Insurance Company (Manulife), a wholly-owned subsidiary of Canada-based Manulife Financial and one of the leading life Insurance companies in the world, we offer a full range of innovative insurance and fi nancial solutions for health, wealth, and education.

Two years since MCBLife rolled out its insurance solutions at China Bank branches nationwide, it has been steadily gaining traction. MCBLife posted an annualized net profi t (ANP) of P323 million, contributing to 34% of combined Manulife Groups ANP. For China Bank, the bancassurance venture generated over P30 million in fee income, a 51% increase compared to the 2008 level. An important milestone achieved during the year was the generation of targeted qualifi ed sales leads (QSL) from China Bank. The various measures implemented by the Banks management resulted in 106% achievement of QSL goals for the year. To steer the business to a higher level, a new senior management team took over the helm of MCBLIfe in late 2009. Together with the senior management of China Bank and CIBI, the business model was refocused resulting in a substantially better performance compared to the previous years.

New products such as MoneyMax (an endowment product) and Critical Illness were introduced in October 2009 which became the best sellers in the last two months of 2009 and accounts for the bulk of MCBLife products sold in the fi rst quarter of 2010. With a new business model and clear-cut strategies in place, MCBLife aims to grow the business substantially and increase market share in 2010.

Savings Bank2009 marked the fi rst full year of operations of China Bank Savings, Inc., (ChinaBank Savings) our savings bank arm focused on servicing the retail market. ChinaBank Savings main strategy for the fi rst year was to lay the foundations for effi cient and sustainable operationsconverting the savings banks existing technology infrastructure to China Banks more robust platforms, hiring top-caliber personnel and training them



in the highest level of customer service and banking operations, and opening new branches and launching new retail products to raise sales volumes and increase customer base. It also expanded its branch network, from one branch in 2008its main branch in Ayala Avenue, Makati Cityto six branches, opening highly accessible branches in Quezon City, Alabang, Kalookan, Greenhills, and Cebu, all of which have contemporary interior design and architecture and are equipped with modern equipment and ATMs for 24/7 banking convenience.

With a mission to make banking easy for customers, ChinaBank Savings offers superior deposit and loan products and know-you-by-name service that create trust and build loyalty. The savings banks deposit products have very attractive features and competitive interest rates: Easi-Save ATM Account, Easi-Earn Passbook Account, Easi-Checking Account, Easi-Save Loaded, and US Dollar Deposit Account. In the last quarter of 2009, ChinaBank Savings rolled out three new deposit products: Easi-Earn High Five, a fi ve-year time deposit account that earns 5.5% p.a., tax-free; Easi-Save for Kids, a fun savings account for children,12 years of age and below; and Easi-Checking Diary, a checking account that comes with a passbook for easier monitoring. It also enhanced its Easi-Save ATM Account with the launch of the instant ATM cardcustomers who open an Easi-Save ATM

Account at any of the banks branches will receive their personalized instant-issue ATM card on the same day, ready to use at any ATM and BancNet-accredited stores nationwide. Within its fi rst year of operations, ChinaBank Savings low cost deposit level grew by 48.7% and the ratio of low cost-to high cost funds improved to 22.2%-77.8% in 2009.

The savings bank also launched its fi rst consumer loan product, Easi-Drivin Auto Loan, in the third quarter of 2009, which gives customers the chance to easily acquire a vehicle for a low monthly interest of only 0.5% per month. To support this undertaking, China Banks IPP (Installment Paper Purchase) auto loan sourcing (dealer-generated) was turned over to ChinaBank Savings, giving the business a solid springboard for future growth. ChinaBank Savings is targeting to grow its auto loan portfolio to P2.1 billion in the next three years.

To fuel the momentum of the fi rst year and drive signifi cant business growth in 2010, ChinaBank Savings is opening ten branches in Metro Manila and key cities in the provinces. Product development will continue and new banking products that cater to different consumer segments like teens and senior citizens will be introduced to support its value proposition of offering a full range of banking products and services that suit customers fi nancial needs at every life stage.


Expanding Capabilities 2009 has been a year of accelerated growth and expansion. In an environment marked by heightened competition, we have been able to broaden our customer base while escalating volumes across all areas of our operation. We planned for this growth and have taken the necessary steps to accommodate the challenges that accompany it. We continue to strengthen our workforce through a combination of focused recruitment programs and internal personnel development and training, and make signifi cant investments in customer service and IT infrastructure to further enhance China Banks competitive position.


Human ResourcesOur people represent a distinguishing advantage in a very competitive environment. Our Human Resources Division (HRD) hires and retains dedicated and highly qualifi ed banking professionals to deliver the best combination of service, solutions and products to our customers. As of December 31, 2009, the Banks total manpower complement reached 4,150. 704 new employees, 79 of whom are offi cers and 15 are management trainees, were hired to support China Banks continued expansion and succession planning efforts. Various retention programs were implemented as well, helping reduce the turn-over rate from 15% in 2008 to 9.65% in 2009.

We invest heavily in developing our people and nurturing our culture as we strongly believe that well-trained, motivated and engaged employees understand our corporate objectives better and, as a result, will enhance our customers banking experience. In 2009, HRD undertook a thorough review of the Banks training

programs and facilities and inaugurated a bigger and better training center in Makati City, the CBC Academy, in the fourth quarter. A comprehensive training plan was put together to respond to the Banks evolving business requirements and to meet the needs of employees. A total of 243 internal seminars, classroom sessions and hands-on fi eld trainings were conducted, including the Banks fl agship development programs for staff, management trainees and offi cers. Main areas of focus include sales and marketing, branch operations, lending and credit, customer service, product awareness, fraud prevention, regulation and compliance, including anti-money laundering practices, and more. To supplement the Banks training programs, HRD also sent employees to 185 external seminars.

As part of the strategy to constantly enhance operations and improve over-all performance, HRD acquired the SAP Human Capital Management (HCM) solution to automate core HR processes such as recruitment, payroll, benefi ts,



training, reporting, and more. The SAP HCM, with all of its modules fully activated by 2010, is expected to streamline HR operations, maximize resources and reduce administrative costs.

For 2010, HRD will continue to implement the Banks employee developmental programs and initiate new ones; launch the revised and updated Performance Management System; review and improve compensation and benefi ts; reassess job levels; strengthen the Banks culture to drive performance, accountability, sense of urgency and execution; hire qualifi ed candidates for various positions; and review and enhance the Code of Ethics.

2010 also marks the start of a new two-year Collective Bargaining Agreement (CBA) deal. Thus, HRD looks forward to a successful negotiation and a fair and mutually-benefi cial agreement with our employee union.

Customer ServiceWe strongly believe that our customers are our reason for being. When we fi rst opened our doors in 1920, our Bank was founded on a simple premiseto be the best bank for our customers. That is why we have been working hard to continually instill a customer-focused service culture to ensure the consistent delivery of our products and services, within the highest quality service parameters. Our promise of being more than a banker to our customers, but the right partner for them, is fulfi lled, in part, by the strong emphasis we place on customer satisfaction. With our excellent customer service, we have one of the highest customer retention rates in the

country. Many of our customers have been our banking partners for several generations.

Our dedicated team in the Service Quality Department (SQD) promotes and implements our service mission at various levels. A service quality structure has been developed and implemented throughout the Bank to closely monitor the operational function and effi ciencies of our branches and different business units. In place is a sound Service Level Agreement (SLA) to compel our branches and various departments and business units to deliver according to pre-defi ned agreements, Key Service Indicator (KSI) or service standards monitoring to measure the performance of key departments in terms of customer-related processes, and customer feedback monitoring wherein Customer Feedback/Suggestion boxes are deployed at branches to measure performance against customer expectations. The SQD also houses the centralized unit that deals with all customer queries and complaints, and coordinates their resolution with the concerned departments.

2009 saw the launch of our internal service brand campaign, I am China Bank. The campaign aims to get all our people involved in building a China Bank brand that is differentiated in the eyes of our customers by not only delivering the right products but also by creating the compelling experience to drive our customers to do more business with us, as well as to evoke a strong sense of pride about belonging to a bank that espouses excellent customer service. SQD rolled out the campaign in three parts, beginning with the standardization of telephone greetings, followed

A service quality structure has been developedand implemented throughout the Bank to closelymonitor the operational function and efficiencies ofour branches and different business units.


by the reinforcement of China Banks brand values of being empathetic, responsive and proactive via regular communications, to the launch of ISpeak.IWin, a promo that encouraged our employees to speak out on how to improve our customer service. Employee engagement in SQDs campaign was high as evidenced by the high number of entries for the promo and the marked improvement in the way our people answer the phone and greet customers.

In 2010, SQD is moving on to the next phase of the campaign with the Quality Circle competition to enjoin employees in process improvement initiatives and the nationwide Mystery Shopping project to gauge employee performance, the compliance level of our branches versus service standards, transaction turnaround time and overall perception of the China Bank experience. An External Customer Satisfaction Survey will likewise be rolled out to generate information on the level of satisfaction and dissatisfaction on our bank products and quality of service based on major product groups, loyalty measurements based on the likelihood to continue banking with us in the future and on the likelihood to recommend China Bank, and image rating based on the level of agreement/disagreement with a number of attributes, among others. SQD is also setting up a phonebanking center to have a single customer hotline number that will make transacting with China Bank very convenient for our customers.

Technology From the onset, China Bank is deeply rooted in progressive technology. We are the fi rst bank in Southeast Asia to process deposit accounts online in 1969, the fi rst Philippine bank to offer phone banking in 1988, and again the fi rst bank in Southeast Asia to acquire and deploy the leading-edge NCR SelfServ ATMs in 2008. Our ongoing investment in information technology (IT) continues to deliver dividends as customer acquisition and retention, product development, trade fi nance, account management, risk management initiativesessentially our whole business operationsbenefi t from the competitive advantage that our up-to-date technology provides.

China Bank Properties and Computer Center, Inc. (PCCI), our subsidiary and partner in all our IT under

takings, made signifi cant strides in 2009 to buttress our banking systems for increased transaction volumes. Foremost among these accomplishments was the upgrade of our Metavante Banking System to a multi-bank system. This enabled us to defi ne more than one fi nancial institution in our core banking system. Corollary to this upgrade was the conversion of ChinaBank Savings from various old systems to the Metavante system for Deposits, Loans, ATM, and General Ledger. Hence, we now have just one core banking solution servicing both China Bank and ChinaBank Savings.

Another banner project was the implementation of Browser Teller, a browser-based tellering system. It was implemented in all the six branches of the savings bank and in thirty branches of China Bank. Of the thirty, ten were converted from the Mosaic Tellering System, while the rest were newly opened branches.

Aside form branch-related systems, there were also implementations for Trust and Remittance. For Trust, TAPS was upgraded to version 9, the latest version available. This is a mandatory upgrade to ensure continued vendor support. The Branch Trust Reporting System (BRTRS) was also enhanced such that it is now a web-based reporting system with more fl exibility and security built into it. BTRS is used by the branches to post their trust fund transactions online. Its output is used by Trust to determine its real-time cash position for the day which, in turn, is used to make timely investment and divestment decisions. For Remittance, Phase 1 of the Carnelian System was implemented. This automated the crediting of remittances to benefi ciary China Bank deposit accounts.

We will continue to employ state-of-the-art technology to ensure cost-effective operations, effi cient management of information systems, enhanced delivery capability and high service quality in 2010 and the years ahead.



Helping Out,Making ConnectionsAt China Bank, we have always recognized our corporate social responsibility and sense of community. True to our commitment of being more than a banker, but the right partnernot just to our customers but also to the communities we serveour corporate participation in the many celebrations, sports events, and endeavors to help certain sectors of our society, give us a great sense of joy and satisfaction in being able to give something back. In 2009, we once again helped out and made the connections that make the conduct of our business much more rewarding.

Help for victims of Typhoons Ondoy and PepengImmediately after Ondoy devastated Metro Manila

and nearby provinces in September 2009, we donated

P1,000,000 for the victims through the Philippine National

Red Cross (PNRC). We also set-up a calamity fund to

encourage our employees and customers nationwide to

donate as well, especially when Pepeng ravaged Luzon

soon after. We raised P200,000 through our donation

drive which we again turned over to PNRC to support

their relief operations.

For our employees who also fell victim to these

calamities, we gave a P5,000 cash assistance to each

of the 358 severely affected employees and released

P12.34 million in calamity loan proceeds at 3% interest,

payable in three years. We also launched an internal

donation campaign to benefi t employee-victims. The

almost P390,000 in cash donations and in-kind donations

which we repacked into bags of canned goods, food

items, toiletries, and clothes, from our employees, were

divided and distributed to employee-victims and agency

personnel.

Tulong Barya para sa EskwelaA coin collection campaign of the Bangko Sentral

ng Pilipinas (BSP) and the Department of Education

(DepEd), Tulong Barya para sa Eskwela was launched

in July 2008 to benefi t public schools. We participated

by distributing the collection containers to our branch

network and raising P89,000 in coin donations from our

Corporate Social Responsibility


customers. In June 2009, we turned over P100,000 for

the project, which includes our share for the success of

this admirable endeavor.

A China Bank ATM for a scholarship grantWe found a way to provide day & night banking

convenience to students and employees of Ateneo de

Manila University (ADMU) and at the same time, help

a gifted student get the education he deserves. Our

Binondo Business Center signed an agreement with

ADMU offi cials to install an ATM inside the Loyola

campus. But instead of paying rent for the ATM, it was

agreed that China Bank will be a benefactor of ADMU

scholar, Victor Andrew Antonio. We have been paying for

the tuition and other fees of Antonio until he graduates in

2012 with a BS Math degree.

Gilbert U. Dee and Dee C. ChuanScholarship FundsOne of our continuing CSR projects focuses on giving

promising children of China Bank employees the

quality education they deserve. The G.U.D Scholarship

Fund, named after Board Chairman Gilbert U. Dee, is a

scholarship program for incoming high school students,

while the D.C.C. Scholarship Fund, named after one of

our founding fathers, Dee C. Chuan, is a program for

incoming freshmen, particularly those pursuing business

degrees. Both scholarship programs cover the tuition

fee for high school and 4-year college education in any

school or university in the country.

Sponsorship PartnerThe fabric of our communities is woven with our

continuous involvement in national and local events

from our sponsorship of sports events and tournaments,

support of cultural fairs and activities, participation in the

anniversary celebrations and conventions of different

associations, organizations and universities, to our

support of charitable institutionswe allocate a portion

of our yearly budget to help, in our little way, make these

noteworthy celebrations and undertakings a success.


Pursuing Sound Corporate Governance We have always believed that China Banks success is infl uenced by our good reputation, character, integrity and credibility. Guided by our fi rm commitment to be more than a banker to our customers and a truly reliable and dependable partner, we have worked very hard not only on delivering customer and shareholder value, but also in conducting our business duly compliant with the regulatory requirements and recognized norms.


For close to nine decades, we have anchored our business on honesty, fairness, transparency and accountability to our customers, shareholders and other stakeholders. In relation to this, we ensure the timely submission of complete and accurate reports to the regulatory agencies, including related party transactions. We have also been transparent by disclosing to both the Philippine Stock Exchange (PSE) and the Securities and Exchange Commission (SEC) all sensitive information that may affect the value of China Banks stocks.

Our guiding corporate governance principles call for us to always protect the rights of the minority shareholders, pursue continuous improvement and excellence, and adopt the best practices in good governance to foster a culture of a proactive board of directors that is accountable and responsible for the affairs and performance of China Bank, and dynamic offi cers and staff who support our goal of bank wide compliance.

Governance structureChina Banks corporate governance structure is a vital element in enhancing our fi nancial growth, competitiveness, and in implementing our sustainability framework. The Board of Directors is at the core of our corporate governance structure. The Board represents our shareholders, guides our overall philosophy and direction, and sets the pace for our current operations and future developments. Governance by the Board also includes continuous review of our internal structure to ensure that there are clear lines of accountability for management throughout the Bank. The Board also oversees our risk management and remuneration systems.

The roles of Chairman of the Board and Chief Executive Offi cer are segregated, with a clear division of duties and responsibilities. Our Chairman of the Board is responsible for the leadership and effective running of the Board; on the other hand, the CEO is primarily responsible

Corporate Governance


for the achievement of agreed objectives and execution of strategy as established by the Board of Directors, and leading the senior executive team in the day-to-day running of the business.

Manual on Corporate GovernanceChina Banks Manual on Corporate Governance was revised in 2009 and approved by the Board, aligned with the updates issued by the Securities and Exchange Commission (SEC) and the Bangko Sentral ng Pilipinas (BSP) incorporating best practice in good corporate governance.

Compliance with the provisions of the Corporate Governance Manual is being monitored by our Compliance Offi ce, which also identifi es, monitors and controls compliance risk. The revised Manual was disclosed to the PSE, SEC and BSP and is available in the Banks website under Investor Relations.

Code of EthicsIt is fundamentally important that our values and principles are clearly defi ned, understood and adhered to by all our employees to ascertain that all of China Banks activities are executed in compliance with the relevant laws and in accordance with the legitimate interests of our customers, shareholders and all other stakeholders. We have a Code of Ethics, approved by the Board of Directors in 1996, in which the Banks values and principles are embedded. Our Human Resources Division (HRD) is fully committed to disseminating the principles of the Code and ensuring that our people perform their duties and responsibilities in accordance with this Code. All employees who join the Bank undergo a New Employees Orientation Course (NEOC) wherein the Code is discussed extensively the standard behavior, business conduct, and corresponding sanctions for violations. Employees are also required to sign the acknowledgement receipt that they have a copy of the Code and that they will comply with its provisions.

Board CommitmentThe China Bank Board of Directors is collectively responsible for the governance of the Bank. It has control of and makes decisions on matters relating to the Banks affairs, including annual plans and performance targets, specifi ed senior appointments, acquisitions and disposals above predetermined thresholds, and any signifi cant change in balance sheet management policy.

Upon their election, the members of the Board are issued a copy of their general and specifi c duties and responsibilities as prescribed by the Manual of Regulations for Banks (MORB), which they acknowledged to have received and certify that they read and fully understood the same. Copies of the acknowledgement receipt and certifi cation are submitted to BSP within the prescribed period. Moreover, the Directors also individually submit a Sworn Certifi cation that they posses all the qualifi cations as enumerated in the MORB. These certifi cations are submitted to BSP after their election. Additional certifi cations are executed by Independent Directors to comply with Securities Regulation Code and BSP rules which are then submitted to the SEC.

The China Bank Board meets every fi rst Wednesday of each month. In 2009, the Board had 15 scheduled meetings. All the Directors were notifi ed in advance and provided with the pertinent materials and information prior to each Board meeting to allow them to prepare for discussion of the items at the meeting. Special meetings were held when necessary. It is the Boards policy to encourage each directors attendance at all scheduled Board meetings and all meetings of the Banks stockholders.

Board CompositionThe 2009 Board comprises eleven Directors and two Advisors to the Board. Of the eleven, three are executive Directors and the rest are non-executive Directors. Candidates are selected for, among other things, their integrity, independence, leadership, their ability to exercise sound judgment, and their experience at policy-making levels involving issues affecting business, government, as well as areas relevant to the Banks operations. The Corporate Governance Committee reviews and evaluates the qualifi cations of the candidates, the full Board confi rms these candidates nomination, and the shareholders elect the Directors during the Annual Stockholders Meeting.

We recognize the crucial role of Independent Directors in our Board; that is why we have three independent non-executive Directors, exceeding the requirements of BSP and SEC, to create a strong element of independence in the China Bank Board. They are in the Board to protect the interest of the shareholders, exercise independent judgment on issues or matters presented to the board, and ensure effi cient and transparent management especially on areas of related

Corporate Governance


party transaction. Our Independent Directors are free from any business, family, or any other relationship with China Bank, the controlling shareholders, or the management, which could affect their judgment. In addition, all three of them meet BSP and SECs guidelines in assessing their independence, including not having been an offi cer of the Bank for the past three years, not a director or offi cer of the majority stockholder of the China Bank, and owns less than two percent of the subscribed capital stock, among other requirements.

Induction program of the Board In place is a full orientation and continuing education process for Board members that includes extensive materials, meetings with key management and visits to branches.

All Directors have full and timely access to all relevant information about the Bank so that they can effectively discharge their duties and responsibilities as Directors. The Directors are provided Board materials related to the agenda suffi ciently in advance of Board meetings to allow them to prepare for discussion of the items at the meeting. They likewise have access to the Corporate Secretary who is responsible for ensuring that the Board procedures and related rules and regulations are followed.

All the members of the Board have attended the required Corporate Governance Seminar.

And as part of the Boards continuing education, the Directors as well as senior executives of the Bank attended a seminar on the Anti-Money Laundering Act (AMLA) organized by our Compliance Offi ce in partnership with the AML Council Secretariat in November 2009.

Evaluation SystemIn accordance with international best practice and as mandated by the SEC, China Banks Board has an evaluation system for individual Directors patterned after the suggested form of the Institute of Corporate Directors (ICD). In 2005, in compliance with the BSP requirements, the Board adopted an evaluation system to assess the Board Committees, specifi cally the Audit Committee, Compensation or Remuneration Committee, Corporate Governance Committee and Risk Management Committee. The Compliance Committee and Compliance Offi ce are now also evaluated.

Self-evaluation of performance is done annually. The results are summarized by the Chief Compliance Offi cer, discussed by the Corporate Governance Committee and reported to the Board. The results of the 2008 Board Review were presented to the Board on February 4, 2009. Based on the results of the annual evaluation, there are no signifi cant deviations and in general, the Bank has complied with the provisions and requirements of the Corporate Governance Manual.

An annual Certifi cation of Compliance on Good Corporate Governance is submitted to the SEC and the Philippine Stock Exchange (PSE).

Board CommitteesTo assist in the execution of its responsibilities, the Board has established a number of key committees. The members of the different committees are appointed by the Board during the Annual Organizational Meeting of the Board, following the Annual Meeting of Stockholders in May.

Board Attendance - January to December 2009

Director Present Absent Percentage

Gilbert U. Dee 14 1 93% Hans T. Sy 14 1 93% Peter S. Dee 15 0 100% Joaquin T. Dee 15 0 100% Dy Tiong* 14 1 93% Herbert T. Sy 15 0 100% Harley T. Sy 15 0 100% Alberto S. Yao* 15 0 100% Robert F. Kuan* 13 2 87% Jose T. Sio 15 0 100% Ricardo R. Chua 15 0 100%

*Independent Director


Executive Committee or ExCom, when the Board of Directors is not in session, has the powers of the Board of Directors in the management of the business and affairs of the Bank, except with respect to: approval of any action for which stockholders approval is also required; the fi lling of vacancies in the Board of Directors; the amendment or repeal of the By-laws or the adoption of new By-laws; the amendment or repeal of any resolution of the Board of Directors which by its express terms is not so amendable or repealable; a distribution of cash dividends to the stockholders; and such other matters specifi cally excluded or limited by the Board of Directors and/or by laws or regulations.

The ExCom meets on Wednesdays. In 2009, it had 36 meetings. Aside from these regularly scheduled meetings, it also had three joint committee meetings with the Risk Management, Corporate Governance and Audit Committees.

Chairman: Hans T. Sy; Members: Gilbert U. Dee, Peter S. Dee, Joaquin T. Dee and Dy Tiong*

Management Committee or ManCom formulates the Banks business plans as directed by the Board of Directors and reports to the Board on the implementation of corporate strategies designed to fulfi ll the Banks corporate mission and business goals. At the operating level, it covers top management matters such as, but not limited to, environmental assessment, objectives setting, performance and budget review, asset/liability issues, organizational and human resource development, product development, and major operating policies. Majority of the members are not directors but the Banks senior offi cers. The ManCom meets weekly.

Chairman: Ricardo R. Chua;

Members: Gilbert U. Dee, Peter S. Dee, Nancy D. Yang**,

Samuel L. Chiong**, Rhodora Z. Canto**,

Ramon R. Zamora**, Rene J. Sarmiento**,

Antonio S. Espedido, Jr.**, Margarita L. San Juan**,

Rabboni Francis B. Arjonillo**, Alberto Emilio V. Ramos**

and Alexander C. Escucha**

Credit Committee or CreCom, a management committee, reviews and approves all credit applications within its credit approval authority and endorses all credit applications exceeding its credit

approval authority, including related party transactions (DOSRI), to the Executive Committee or the Board of the Directors for appropriate action. The CreCom meets once a week.

Chairmen: Gilbert U. Dee and Peter S. Dee;

Vice Chairman: Ricardo R. Chua;

Members: Nancy D. Yang**, Margarita L. San Juan**,

Samuel L. Chiong**, Ramon R. Zamora**,

Rhodora Z. Canto*** and Rabboni Francis B. Arjonillo***

Risk Management Committee is principally responsible for the oversight and development of all the Banks risk management functions, including but not limited to market risk, credit risk, and operational risk. It develops a written risk management plan appropriate for managing the major categories of risk events to minimize the magnitude of expected losses and evaluates the plan to ensure its continued relevancy, comprehensiveness and effectiveness. It likewise oversees the system that manages the discretionary authority limits delegated to Management, ensures that this system continues to be effective, that the authority limits are observed, and that immediate corrective actions are taken whenever breaches occur. The Committee meets once a month.

Chairman: Hans T. Sy; Members: Peter S. Dee,

Joaquin T. Dee and Robert F. K

Documents

2009 Annual Report China Bank