EXECUTIVE SUMMARY

Banco de Oro Unibank, Inc. also known as Banco de Oro and BDO, is the

second largest bank in the Philippines in terms of assets and is owned by the SM Group

of Companies, the group company of SM in terms of industry leading, retail

merchandising, shopping mall operations, banking and corporate governance. Its

Industry is for Finance and Insurance and its products are its Financial Services

(Appendix Illustration 1.1). Its main Headquarters is situated in 12 ABD Avenue Ortigas

Center Mandaluyong City Philippines. As a universal bank, BDO provides a wide range

of corporate, commercial, retail and investment banking services in the Philippines.

These services include traditional loan and deposit products, as well as treasury, trust,

cash management, insurance, and credit card services. BDO’s principal market are

currently a select niche in the corporate, market and the middle market banking

segment, consisting of mid-sized corporations, the small and medium-sized enterprise

market and retail/consumer market.

After a thorough research primed, the external analysis of BDO shows a figure of

3.15, which confirms that the firm’s strategies effectively take advantage of existing

opportunities and minimize the potential adverse effects of external threats. The internal

analysis on the other hand, shows a figure of 3.67, which dictates that BDO has been

busy striving to be the best for its service not only to its investors and customers, but

also to its internal system that made them recognized and bagged awards a lot of times

and have been coined as the “transformational year”- it emerged as a bigger, better,

and stronger entity after the merger.

With the competitive advantages and market leadership records consolidated

into the merger entity, the researcher strongly recommends after comprehensive

consideration with the Grand Strategy Matrix (GSM), to pursue among these strategies;

Horizontal integration, Market development and Product development as these

strategies would lay of a claim to a solid foundation and dynamic synergy upon which to

build even more vigorous growth in the future.

I. COMPANY PROFILE

BDO had its humble beginnings on January 2, 1968 as it started as a Thrift bank called

Acme Savings Bank, having only two branches in Metro Manila. In November of 1976, Acme

was acquired by the Sy group, the group of companies currently owned by retail magnate Henry

Sy, and renamed Banco de Oro Savings and Mortgage Bank. In December of 1994, BDO

became a commercial Bank, and to reflect its new status, BDO is renamed Banco de Oro

Commercial Bank, and in September of 1996, BDO became a universal bank, which led to the

bank’s name changed to its current, Banco de Oro Universal Bank. BDO is one of the many

banks owned by a Chinese-Filipino in the Philippines, including one of its competitors

Metrobank and Chinabank. In its quest to explore and strengthen through vision, innovation and

value, in 1997, BDO involved in an insurance service by establishing a subsidiary called BDO

Insurance Broker, making it a, “bancassurance” firm. In 1999, it expanded its insurance through

partnership with Assicurazoni Generali s.p.a., one of the world’s largest insurance firms, and

Jerneh Asia Berhad, a member of Malaysia’s Kuok Group. In March of 2000, BDO partnered up

with its insurance affiliates, which are Generali Pilipinas Life Assurance Company and Generali

Pilipinas Insurance Company. On June 15, 2001, BDO merged with Dao Heng Bank’s

Philippine subsidiary. The merger boosted the number of BDO’s branches from 108 branches

before the merger to 120 after the merger. It became one of its competitive advantage as it

expanded through its branches, and as it reached out to its increasing number of depositors, it

further expanded when in April 2005, United Overseas Bank sold 66 out of its Philippine

subsidiary’s 67 branches to BDO, and as it set to rationalize its operation from retail to

wholesale banking, BDO, on March 22, 2006, after all United Overseas Bank completed its

integration into BDO network, it increased the number of its BDO branches to 220. On August 5,

2005, Banco de Oro and an SM subsidiary, SM investments, bought 24.76% of the shares of

Equitable PCI bank, the Philippines’ third-largest bank, and 10% of an Equitable PCI affiliate,

Equitable CardNetwork, one of the Philippines’ largest credit card issuers, from the Go Family

that founded the bank. On January 6, 2006, Banco de Oro, with the SM Group of Companies,

submitted to Equitable PCI a merger offer with Banco de Oro as the surviving entity. Under the

proposal, Banco de Oro will swap 1.6 of its shares for every 1 Equitable PCI share and as a

second option, Banco de Oro also offered to base the swap ratio on the book values of both

banks to be assessed by an independent accounting firm using International Accounting

Standards (IAS). To effect the merger, Banco de Oro needs consent of Equitable PCI

shareholders representing 67% of Equitable PCI. These include the Social Security System

(SSS) with 29%, the Government Service Insurance System (GSIS) with 14%, and the family of

Equitable PCI chairman Ferdinand Martin Romualdez with eight percent.

On December 27, 2006 both Banco de Oro Universal Bank and Equitable bank agreed

to merge producing the Banco de Oro-Equitable PCI bank. As of February 2007, it became

known as Banco de Oro Unibank, Inc. As estimated before the merger, their assets as of June

2007 reached about to P608 billion, making them the country’s second biggest bank. Just next

to Metrobank with P669.1 billion and the current third biggest bank in the Philippines with

P592.6 billion. Now BDO has branches in key business and commercial centers in Metro

Manila, Northern and Southern Luzon, Metro Cebu, Iloilo-Bacolod and Mindanao. From 220

branches prior to merger, to the current total of 703 combined branches nationwide, the service

have grown accustomed to and more. Now that the personnel force has doubled – with a total

count of close to 16,000 employees by year-end 2007.

II. RESEARCH DESIGN AND METHODOLOGY

The data requirement of this paper includes recent surveys, projections and operational

highlights. It also requires information regarding recent trends regarding the industry under

study. For comparative purposes, background of some major competitors in the industry is also

needed, especially in the financial and operations aspect. It is also necessary to have enough

internal information about Banco De Oro, the objective of this paper.

The information required in this paper was obtained primarily through the use of Banco

De Oro 2007 annual report. Authorized personnel were asked for a copy of financial highlights

and other relevant information. The information regarding competitors was obtained through the

use of internet. Certain internal information regarding the company under study was obtained

through personal interview with Ma. Teresita M. del Mundo, branch manager, BDO Arranque

Manila. Extensive research was made through the use of the internet to look for relevant figures,

statistics and projections.

This paper is limited only to Banco de Oro which operates solely in the Philippines.

Among the different sectors of this industry, this paper focuses on the banking institutions. The

focus of this paper is on the company’s performance and position in the banking and finance

industry vis a vis its competitors.

The annual report for the most recent year (2008) was not yet available when this study

was used. It is assumed therefore that the financial statements for the year 2008 were the same

as that of the year 2007, which is the most recently available financial statement. The

researcher made this assumption with consideration of the global financial crisis but

conservative enough for undesirable events this year that affected the company’s financial

standing. This annual report was used as a basis for comparison and projections. It is also

assumed that there will be no dividend payments in the years within the time frame of the

projections. The projections also assume that no tax holidays or special tax treatments and

changes in tax rates will occur in the future.

III. VISION/MISSION STATEMENTS

A. Statement of the Current Vision and Mission Statements

CORPORATE VISION MISSION STATEMENT

“To be the preferred bank in every market we serve by:

Consistently providing innovative products and flawless delivery of services;

Proactively re-inventing ourselves to meet market demands;

Creating shareholder value through superior returns;

Cultivating in our people a sense of pride and ownership; and,

Striving to be always better than what we are today…tomorrow”

B. Critiquing the Current Vision-Mission Statements

Vision-Mission is a short, concise, and inspiring statement of what the organization

intends to become and to achieve at some point in the future and what they will do to achieve it.

For some beliefs, these statements are just a waste of time, since they do believe that these

statements are just used for nothing but being published in the annual report and displayed in

reception areas. But as negated by Warren Bennis, a noted writer on leadership says: “To

choose a direction, an executive must have developed a mental image of the possible and

desirable future state of the organization. This Image, which we call vision, may be vague as a

dream or as precise as a goal or mission”. Mission on the other hand, makes the leader’s view

concrete of the direction and purpose of the organization. It is a vital element in any attempt to

motivate employees and to give them a sense of priorities.

Nine essential Components of a mission statement.

1. Customers Yes It is not clearly stated but by saying that they want to be the

“preferred bank in every market we serve”, it is assumed that

since they are a banking institution, their customers are

customers who are willing to deposit their money, or make

transactions to their company in every means. Therefore, they

were able to determine who they will serve and where to focus

their efforts on, without making confusion as to whom they will

serve.

2. Products or

Services

Yes “Consistently providing innovative products and flawless delivery

of services” – They were very clear as to what they are going to

offer their market/customers, and that is quality service and

innovative products. It is very concise, but the whole thought is

there. By means of innovation, and giving a variety of service

depending on with their customers, makes them attain this

statement they have made. Although they did not tell that they

offer financial services, as a banking institution, people should

already consider it. And for me, its concise statement made it

strong and powerful and invulnerable to critiques and creates a

mission to clearly

3. Markets Yes “Proactively re-inventing ourselves to meet market demands”

- Again they were able to address the demands of the market

through this statement. They were very clear that they will re-

invent to be competitive for its global success and growth.

Although they were not able to clearly state that they are into

financial sector, their mission to re-invent to meet market

demands is more than enough for them to say that they are

willing to extend themselves to possibilities, to cater new trends

in the market to satisfy their customers/clients.

4. Technology No They have not stated into what means they will be able to serve

their customers. Although they have addressed the above

mentioned concerns, technology was not mentioned in the

company’s mission statement, and makes it vulnerable as to how

the business will expand through its resources, how its assets

are in terms of technology, updated. And what are their plans to

further cultivate for the demands in the market with their existing

technology and how ones resources through technology will be

maintained as to the manner of purpose and usage.

5.Concern for

Survival,

Growth and

Profitability

Yes “Creating shareholder value through superior returns”

Since BDO is more acquainted of maximizing their shareholder’s

wealth than simply maximizing profit, they have clearly stated

their intentions to their shareholders. They are confident in

assuring their shareholders, and potential investors that their

investment to their company will become profitable through its

optimization. In its quest to innovate, it simply implies that their

great concerns are their shareholders, that is why they convert

their efforts through the quality of their services and products

they offer to their customers into opportunities for greater

rewards.

6. Philosophy Yes “Cultivating in our people a sense of pride and ownership”

BDO has shared to its shareholders that sense of belongingness

that they are safe in the arms of their company. That the

company will cater the needs of its people, and will re-invent,

innovate, and explore, to cope with the demands in the market to

satisfy their wants and needs for themselves. In this statement,

they want to let their employees, shareholders, customers and

others that concerns them, feel free as if it’s their own. The

reason they want them to make them feel its their own is that

generally, we take good care of our personal belongings, and

BDO wants that belief to be brought to its company. That feeling

that the people working in their company, and the people

patronizing their products and services will rise above and

beyond excellence, propelled by deep sense of pride in being

part of a dynamic team

7. Self

Concept

Yes With commitment to serve that shows through the quality of

service and products they offer, they have considered this

component, in being out professionalism in carrying out each and

every task, and respect for one another, their competitive

advantage rely on to their people. Their commitment that BDO

has instilled on them and collaboratively continuously

communicating with their customers in creating financial solutions

to match their needs makes it advantageous to them that their

customers patronize their products and services.

8. Concern for No Although they have engaged themselves to activities that

Public image addresses the environmental concerns and other social and

community issues of which are not stated in their mission, it is

much better if they have considered it since they are already

doing it. They should have stated their commitment to fulfill its

social, ethical, environmental and economic responsibilities,

considering this statement would further enhance and expand

their market through means of development program for sectors

they affect. Eliminating this statement would mean that BDO is

only acquainted to its positive image in terms of prioritizing

people because they are gaining profit from them, and might

stereotype the company’s image that it’s concerns are only for

profiteering resources.

9. Concern for

Employees

Yes They clearly stated that they are committed to the growth of their

employees and development that will nurture into becoming

better individuals. If BDO is striving to be its best, in working as a

team, professionalism and performance, they are bringing with

them their employees as altogether grow as one person, one

institution, and one corporation. They are treated as shareholders

that as to what services their employees has to offer and offered

it is properly compensated with the benefits and rewards that are

ready and waiting for them.

Generally speaking, BDO has a positive impact as it includes their concern to their

employees, customers and investors. There are lapses in statements in terms of technology and

concern for public image; however, it remains clear in its direction and quest for innovation and

growth. It strengths for being concise in its statement, makes it more memorable as it includes

engaging words. It simplicity has already describe of its bright future with its clear intention to

improve along with the people they are working with. But in terms of its achievements, it has not

articulated in its statements their recognitions in the field of public service and activities aiming

in the development of our country. Being socially aware and socially responsible could be a key

strength to influencing their employees and possibly attracting more investors since they benefit

in two ways, one is through their savings, interest and other transactions that would give them

profit, second is through the development programs BDO has instilled in the country.

C. Recommendation of Revised Vision and Mission statements

“To be the preferred bank in every market we serve by:

Consistently providing innovative products and flawless delivery of services;

Advancing towards the future of banking through technological innovation

Proactively re-inventing ourselves to meet market demands;

Creating shareholder value through superior returns;

Living in the virtue of honesty by abiding with the highest ethical standards

Cultivating in our people a sense of pride and ownership; and,

Striving to be always better than what we are today…tomorrow”

D. Recommend more effective ways of communicating the vision and mission statement

One of the most critical and yet hardest to corporate challenges is through

communicating vision and mission statements effectively. Corporations are beginning to realize

the value of binding the employees to the company and involving them more in corporate affairs

and encouraging them to share company goals. Communication needs to go beyond

transmitting information. Beyond putting the vision mission statements of one’s company in the

front hallways or in annual reports. It must be more than that. It must be instilled in the hearts of

its employees and transform employees behavior that will definitely result to excellence and

deep sense of belongingness in terms that they know that they can put their hearts in to what

they are doing, in earning for a living. This can make your employees work as a team, and will

lead to a contribution to an overall success.

In line with other audiences such as shareholders and investors, they should be

demonstrated with its corporate vision mission, setting out stories, finding and creating

examples of leaders embodying these in their actions, let them understand its traits and

importance. Creating dialogue with anyone involved in the corporation, from its employees to its

shareholders, getting feedbacks on how they experience culture and values in practice, and

then aligning in them the vision mission of the corporation would help them understand it clearly.

Moreover, it is necessary to align and be guided accordingly by the vision mission statements in

decision making. Be consistent in the company’s behavior, words and deeds, and bridge that

gap between employees to employees, employees to top management, the corporation to its

customer and collectively support the vision mission to the reality.

III. EXTERNAL ANALYSIS

A. General Environment

1. Socio-cultural, demographic and environmental forces.

Philippine society is a unique blend of diversity and homogeneity. The country is

culturally strongly Euro-American. Western Rule have left an indelible imprint on the Philippines,

serving as a means for the introduction of Western culture and as the catalyst for the

emergence of a sense of Philippine political and cultural unity. The country has experienced

some cultural trends such as; health food/diet craze, working women, children as consumers

early in life and youth as young investors which has paved a way to the integration of more

people to the banking industry. These eventually result to the affection of cultural enterprise,

industry development, household behavior, poverty reduction, voice and participation and other

Globalizing forces that drive one’s own identity. The population density of the Philippines is high,

but the distribution of the population is uneven. Parts of Metro Manila have a population density

that is more than 100 times that of some outlying areas such as the mountainous area of

northern Luzon. The country’s birth rate remains significantly higher than the world average

although there were efforts to slow the overall growth rate in mid-20’s. It had limited success in

part because reductions in the birth rate have been offset to some degree by reductions in the

death rate. The problem that the banking sector faces due to this over population lies in the fact

that almost 7.4% of the population was unemployed. This meant that an estimated 7.4M

Filipinos were not producing any income and were of no help for the banking system. As for

banking and gender, we have seen a great increase in men and women approaching banks for

their services such as savings, loans and even insurance due to the growing instability of our

economy and the fact that more and more people, not just women, are being driven to work due

to the economic crisis the country and the world is facing. Many former stay at home husbands

or wives have opted to getting a jobs in order to help sustain their family’s interests and needs.

2. Technology

The developments in information collection, storage, processing and transmission and

distribution technology have influenced all aspects of banking activity. And was regard as the

main driving forces for the changes in banking industry. It has been influencing the competition

and the degree of contestability in banking.

Due to the development of technology, bank’s superiority in information is deteriorated.

Entry barrier have been declining, new competitor have emerged. Some financial products and

services have become more transparent and commodities, customer show willing to unbundled

the demand for financial products and services, all these lead to a more competitive market

environment. Due to lowered entry and exist and deconstruction, for some sub-financial

markets, contestability in banking is also raised. On the other hand, it has also raised the

influence on the Economy of scale since Competitive pressure force banks to lower their cost.

Bank seeks to get economy of scale in bank procession instead of being a big bank. Bank

seeks to secure the optimal business structure, and secure the competitive imperative of

economy of scale. There are other options to get economy of scale, including joint venture and

confederation of financial firms. Small firms also can get economy of scale by outsourcing, i.e.

buy in economy of scale. It has also impacted on the way banking and financial services are

delivered. A wide range of alternative delivery mechanism becomes available, Internet, ATM

and other means of computerizations and these Reduces the dependence on the branch

network as a core delivery mechanism. With the development of technology, the financial

systems are substantially over-supplied with delivery system through a duplication of network,

bank has to change their delivery strategy and rationalize their branch network strategy.

Financial service could not provide the level of service it does without the support of advanced

information processing and telecommunication technologies. The creation of a new supply

channel has substantially reduced the cost of financial transactions.

3. Economic Environment

In 2008, our world experienced high oil prices, which led to drastic high food prices due

to the extremely loose monetary policies and low interest rates of the U.S. Federal Reserve, as

well as using food crop products such as corn ethanol and biodiesel as an alternative to

petroleum) and global inflation; a substantial credit crisis leading to the drastic bankruptcy of

large and well established investment banks as well as commercial banks in various, diverse

nations around the world; increased unemployment; and signs of contemporaneous economic

downturns in major economies of the world, a global recession.

The National Economic and Development Authority (NEDA) and the Board of

Investments were created in the late 20th century to help both public and private sectors in

planning further economic development. Much of the initial capital investment of many private

rural banks was provided by the government, and private development banks have likewise

received government assistance. Many commercial and thrift banks have been established

since the mid-1990s in response to increased liberalization, privatization, and the lifting of a ban

on foreign banks. The Philippine Stock Exchange, though still relatively small, has been growing

rapidly since weathering the Asian economic crisis at the end of the 20th century. But

nowadays, government is establishing banks in order to tailor economic activities to their wider

cultural and spiritual values, so that the operational activity is more directly valuable to the poor

themselves. Proposals of interest will be those that analyze recent Bank projects’ record of

success, or offer other ways of supporting the ability of the poor to reflect their culture in

development processes as it is facilitated by bank activities. Economy speaks out for the poor

as they seek help to those who are willing to take stock and draw on their values and strengths

in setting priorities and decision-making on project.

4. Political, legal and governmental aspects.

Over a period of time, the banking industry of the Philippines has seen a transformation

with the reforms being carried out by both the banking regulator and the government. The

reform process has resulted in improved banking industry, with industry income touching new

heights in 2008. Moreover, the Philippine banking industry has been undergoing consolidation

that will further strengthen its position as new entities will increase the competition level.

Moreover, banks will be geared up in facing the inconsiderate economic outlook, which

increases the likelihood of a sharp increase in unemployment or corporate bankruptcies.

The importance and benefits of a strong regulatory system with an open and well-

regulated financial sector fuels economic growth and a strong financial sector offers stability,

making the economy more resilient in the face of external and domestic shocks. In the

Philippines, the Bangko Sentral considers the sound supervisory and regulatory environment,

as well as the implementation of a broad set of financial reforms, as factors that have helped to

foster sustainability and growth in the banking industry. Year-end 2002 figures revealed a

steady growth in deposits, the resumption of lending activities, capitalization and bottom line

figures.

The important relationship between banks and political, legal and governmental welfare has

led researchers and international institutions to develop policy recommendations concerning

bank regulation and supervision. According to the National Bureau of Economic Research, the

International Monetary Fund, World Bank, and other international agencies have developed

extensive checklists of "best practice" recommendations that they urge all countries to adopt.

Most influentially, the Basel Committee on Bank Supervision recently revised and extended the

1988 Basel Capital Accord. The first support of these new recommendations develops more

extensive procedures for computing minimum bank capital requirements. The second support

focuses on enhancing official supervisory practices and ensuring that supervisory agencies

have the power to scrutinize and discipline banks. The third pillar envisions greater market

discipline of banks through policies that force banks to disclose accurate, transparent

information. (NBER Reporter research summary)

Companies are subject to government imposed taxes such as income tax, donor’s tax,

estate tax, withholding tax and other percentage taxes which at its normal tax rate is 35 % from

July 1, 2005 to December 31, 2008.The amendment for next year will be effective on January 1,

2009 for the 30% Normal tax rate applicable to Domestic Corporation together with the resident

and nonresident foreign corporation limited to the sources within the Philippines.

B. Industry and Competitor Analysis

PORTER’S FIVE FORCES

1. Threat of New Entrants LOW

2. Rivalry among competitors INTENSE

3. Threat of substitutes MEDIUM

4. Bargaining powers of suppliers LOW

5. Bargaining power of buyers MEDIUM

1. Threat of New Entrants

New potential competitors are always a threat to any industry, other possible threats

include; changing demographics/shifting demands, emergence of cheaper technologies and

regulatory requirements. In keeping with the aspect of Economies of scale, threat of new entries

would be low since minimum size of operations for banks to keep it profitable is quite high. The

threat of new entrants according to Capital Requirements and Access to distribution channels is

low since setting up a new business such as a bank needs a lot of capital investment not to

mention the technology required to compete with rivals such as ATM machines and access to

distribution channels can be monopolized by other competitors. Brand loyalty of customers also

shows a low threat to existing banking firms due to the fact that most banking institutions

prioritize customer service among other things. As for Government Policy the threat of a new

entrant is also low since there are several legal aspects that cannot be attained easily by new

businesses especially in the banking sector. With regards to Scarcity of important resources

such as qualified and expert staffing, the playing field is tilted to known banking operations

rather than to new banking operations due also to the fact that they control distribution channels

and have a higher brand loyalty making them the preferred choice of would be job-seekers.

Also, High switching costs for customers such as long term contracts hinders the threat of any

new banking institution since it poses great inconvenience for customers.

2. Rivalry among competitors

BDO has been very aggressive and competitive in its field as it offers its best quality

service to its depositors, bringing in customers who patronize their products, as it also expands

to its quest to explore and strengthen through vision, innovation and value. It has always been a

challenge to different companies, what their rival competing firms has to offer. These factors

such as to enhance quality, add features, provide services, extending warranties, and

increasing advertisements, are one of the primary reasons why BDO has been very aggressive,

a threat to all banking firms:

LIST OF OTHER PARTICIPATING BANKS IN THE PHILIPPINES (PSE INC.)

1. AsiaTrust Development Bank, Inc.

2. Banco Filipino Savings and Mortgage Bank

3. Bank of the Philippine Islands (BPI)

4. China Banking Corporations

5.Chinatrust (Phils.) Commercial Bank Corporation

6.Citystate Savings Bank, Inc.

7.Export and Industry Bank, Inc.

8. Metropolitan Bank and Trust company

9. Philippine Bank of Communication

10. Philippine National Bank

11. Philippine Savings Bank

12. Philippines Trust Company

13. Rizal Commercial Banking Corporation

14. Security Bank Corporation

15. Union Bank of the Philippines, Inc.

As for rivalry among competitors especially to differentiation of product, the threat is

intense since all banking institutions offer the same product which is financial services, whatever

it may be; leasing, loaning, savings.etc. With respect to strategies, threat is also intense due to

the fact that almost all banking institutions have their own perks and advantages that lure

customers in their own way. Whether it’s BDO’s long banking hours, BPI’s Tele-Banking or

Metrobank’s convenient credit policy. There is also Low market growth rates in the banking

industry meaning that a banking firm can only truly grow with the loss or assimilation of other

banking firms as was the case for Banco De Oro Unibank which is comprised of Banco De Oro

and Equitable-PCI Bank.

3. Threat of substitutes

In banking institutions, competitive pressures arising from substitute products/services

increase as the relative price of substitute/services declines and as consumers’ switch cost

decrease. The scale of competitive pressure derived from development of substitute products

from competitors is generally evidenced by rivals’ plans for expanding production capacity, as

well as their sales and profit growth numbers. BDO, with its keen reading of international

financial trends, it enable themselves to access unique opportunities for increased value for

their customers. The threat of substitutes as far as customer brand loyalty is concerned is

medium since brand changing in banks is rare. Only poor account management and bad

customer relations lead to shifting in banks since banking institutions in our country operate

primarily in similar standards set by the government. Every banking establishment keeps a

close relationship with their customers so I believe that in this aspect, the threat for substitute is

low. As for relative pricing of performance of substitutes, the threat is medium since banking

institutions’ rates have only slight discrepancies. It’s only a matter of which bank rate you can

afford. Current trends also show that there is a low threat of substitution since it will be unwise

to move your savings to another savings institution provided that it is able to stay afloat during

this economic crisis.

4. Bargaining of power of Suppliers

With BDO merging to with another organization, they have expanded their networks

through branches and means and squeeze out important cost savings for themselves. With

these they have managed themselves very well, making them agile in their means, with its quick

ability to apply power of information to respond to their customers’ needs amid shifting market

conditions. With its, merging two organizations, with their distinct character and cultures, into

one cohesive and solid team presented great challenges and complex priorities for Human

Resource Management. In order to solidify their team faced with the increased expectations

following the merger, they have made corporate culture enhancement programs to ensure that

the bank faces the client with a common set of servicing philosophies. Other than that, the

speed availability of services of next generation components have widely denomination of

initiatives focused on the harmonization of the benefits and compensation packages of officers

and staffs, the resolution of issues between unions, and the administration of the required

training and development programs to adequately support the changes in structure, system, and

services.

5. Bargaining Power of Buyers

Bargaining power represents a major force affecting the intensity of competition in an

industry. With BDO’s inventive mindset, they view banking as a continuous creative process,

challenging them to always find ways to better serve their customers. They have special

services that gains customer loyalty compared to its rivals, in which they have offered a variety

of products and services to their customers. Through Generali pilipinas and BDO insurance

Broker, Inc. the bank achieved record expansion in the insurance business in 2007. It grew by

26% in terms of total gross premiums while BDO insurance broker, Inc. sailed to a 156%

increase in commission income due to the growth in bancassurance operations and the merger

with Equitable Banking Corporation insurance Brokers, Inc. With its list of achievements in the

corporate world, customers are attracted by it being the best performing fund manager for the

5th consecutive year. This has achieved the highest growth in assets under management of

P274 Billion, representing vigorous 60% increase from the previous year. In consideration with

our economy facing a volatile global financial environment, BDO focused on the successful

integration of the treasury operations of the merged entity. The combined team, with the years

of experience and expertise in the multi fixed-income, foreign exchange, and derivatives in the

markets, sought to make adjustments in their strategy to compensate for expected downturn in

the US and world economy, and volatility it brings. Gradually, to gain increasing bargaining

power, it shifted its portfolio to place more emphasis on spread income and less dependency on

trading gains. While more challenges appear on the horizon, particularly the forecast of a US

recession and the newly implemented SEC rules on over-the-counter market trading of

securities, BDO remains upbeat on its prospects. Increased volatilities and widened spreads

can lead to opportunities.

6. Summary of Porter’s Five Forces of Competition

To sum it up, The threat of new entrants in the banking industry can be considered low

since there are many steep requirements that are needed to be meant such as a high capital

investment, a share in distribution channels, government policies and of course the presumption

of an economy of scale. For the rivalry between competitors, we can clearly see that there are

intense threats present since banking institutions use similar strategies, there is low growth rate

for companies and not much differentiation between services leaving the choice up to the

consumers. Medium was the level of threat given to the threat of substitutes since there is a

slight conformity between the prices of the services rendered by banks and this business

usually centers itself in customer care and relationship. The threat of substitution is possible but

seldom happens. I believe that a clear explanation of why the bargaining power of suppliers is

low is the word service. This is why there are plenty of substitutes so banks can accommodate

anyone from any social class. As for the bargaining power of buyers it can be classified as

medium since banking operations have been always aimed to serve people.

COMPETITOR ANALYSIS

1.) Profile of Competitors

Collectively, the Philippine banking industry posted a Compound Annual Growth Rate

(CAGR) hike of 8.46% in asset base between 2004 and 2007 of which, Industry deposits in the

country grew at a CAGR of 9.82% from 2004 to 2007. The deposit mobilization is concentrated

with universal and commercial banks which some of its key players are Metropolitan Bank and

Trust, Bank of the Philippine Islands, Land Bank of the Philippines and Banco de Oro UniBank

Inc. which account for the majority of the Philippine banking industry deposit. Financial

Intermediation was the largest shareholder of the loan disbursal by banks during 2004-2007.

Bancassurance will account for 65% of the total sales of insurance products by 2011. Increasing

at a CAGR of 69.78%, micro financing in the Philippines is expected to reach 56.5 Billion Pesos.

Increasing mobile penetration will expand the mobile banking user base to more than 11 Million

by 2011.

Metropolitan bank and Trust (Metrobank)

Metrobank, as the largest Philippine bank, is always trying to stave off competition to

stay as the country's largest bank. It is largest in terms of its assets with P669.1 billion ($14.5

billion) (P46=$1) as of June 2007 and is also the largest Philippine bank in terms of overseas

presence. It has a total of 8,721 employees. It has a diverse offering of financial services, from

regular banking to insurance.

Metropolitan Bank & Trust Company (MBT) was incorporated on September 5, 1962 by

a group of Filipino businessmen principally to provide financial services to the Filipino-Chinese

community. Metrobank eventually expanded its business to provide a broad range of banking

and collateral services to all sectors of the Philippine economy. As of August 21, 1981,

Metrobank was granted a universal banking license by the Bangko Sentral ng Pilipinas (BSP).

This license allowed Metrobank to engage in non-allied undertakings, which include automobile

manufacturing, travel services and real estate, as well as finance-related businesses such as

insurance, savings and retail banking, credit card services and leasing.

Metrobank offers commercial and investment banking services. Its principal business

activities involve borrowing and lending, trade finance, remittances, treasury, investment

banking, credit card and savings banking. It is also a major participant in the foreign exchange

market in the Philippines, and is accredited by the BSP as a government securities dealer. The

company's customer base covers a cross section of the top Philippine corporate market, but has

always been particularly strong in the middle market corporate sector of the economy, a

significant portion of which consists of Filipino-Chinese businesses. Metrobank provides

investment banking services through First Metro Investment Corporation and retail banking

through Philippine Savings Bank.

Metrobank subsidiaries and affiliates include;

Domestic subsidiaries and affiliates

First Metro Investment Corporation

First Metro Securities Brokerage Corporation

First Metro Travelex

MBTC Technology

Metrobank Card Corporation

Orix Metro Leasing and Finance Corporation

Philippine AXA Life Insurance Corporation

Philippine Charter Insurance Corporation

Philippine Savings Bank

SMBC Metro Investment Corporation

Toyota Cubao

Toyota Financial Services Philippines Corporation

Toyota Manila Bay Corporation

Toyota Motor Philippines Corporation

International subsidiaries and affiliates

First Metro International Investment Corporation Ltd HK

MBTC Exchange Service GmbH - Vienna

MB Remittance Center HK

Metro Remittance Center SA - Spain

Metro Remittance (Italia) SpA

Metro Remittance Singapore Pte Ltd

Metro Remittance (UK) Limited

Ownership

George S.K. Ty : 18.26%

Philippine Depository and Trust Corporation: 17.96% (11.47% Filipino, 6.49% foreign)

Federal Homes: 7.53%

Philippine Securities Corporation: 7.5%

Mary Vy Ty: 6.43%

Metrobank directors: 3.75%

Metrobank officers: 0.003%

Public stock: 37.57%

It continues on its expansion thrusts as it expects to end the year with a total of 552

domestic branches and an automated teller machine (ATM) network reaching 800. The bank will

intensify the promotion of its electronic banking services to retail customers, including self-

service channels like phone and Internet banking. While deposit taking is still the key business

of branch banking, the bank steadily expanded its other retail businesses like housing and car

loans, bancassurance and credit cards. It likewise concluded its roll-out of its sales

effectiveness program that helped re-engineer all branches into sales-driven brick-and-mortar

outlets.

At the start of the last quarter of 2008, Metrobank’s funding was boosted by a 7.6 percent

growth in deposits to P541.4 billion. Cost of deposits was almost flat despite rising interest

rates, as low cost deposits grew by 10.9 percent, accounting for 45 percent of the total deposit

base. The increase in ATM coverage, meanwhile, has led to a corresponding increase in usage.

Metrobank registered 85.4 million ATM transactions, with over 30 percent from use of

Metrobank ATMs by local and international non-Metrobank cardholders. It boasts of its current

record of above average 99 percent service availability, among the highest within the Bancnet

consortium. BancNet is one of the country’s three major ATM service providers.

Bank of the Philippine Island (BPI)

BPI is the oldest bank in the Philippines still in operation and holds the record as the

largest bank in terms of market capitalization in the Philippines (P136 billion = US$3.24 billion

as of March 2008), and has consistently been the most profitable bank in the Philippines. It is

owned by the Ayala Corporation, the largest conglomerate in the Philippines, and is based in

Makati City's Central Business District, on the corner of Ayala Avenue and Paseo de Roxas,

across from the Philippine headquarters of HSBC. BPI is also the oldest bank in Southeast Asia

and has a long and distinguished history that spans over a century.

It has either influenced or has been influenced by many nations, including parts of the

former Spanish Empire, especially Mexico, and the United States. While it is considered by

many as an old institution, BPI is trying, with moderate success, to promote itself as a dynamic

institution that caters to its various clients, which hail from various sectors of Philippine society.

The Group's principal activities are corporate banking, consumer banking, investment

banking, asset management, corporate finance, securities distribution and insurance services.

The Group derives its revenue from three operating business segments namely, Consumer

Banking, Investment Banking and Corporate Banking. Their total sale in 2007 is P46,

019,000,000, with a total of 11,925 employees. Consumer Banking covers deposit taking and

servicing, consumer lending such as home mortgages, auto loans and credit care finance as

well as the remittance business. It includes the entire transaction processing and service

delivery infrastructure consisting a network of branches, ATMs and point-of-sale terminals as

well as phone and Internet-based banking platforms. Investment Banking provides services

covering corporate finance, securities distribution, asset management, trust fiduciary services as

well as proprietary trading and investment activities. Corporate Banking consists of the entire

lending, leasing, trade and cash management services.

BPI also pioneered rural banking in the Philippines, as its countryside banking

operations preceded that of many other banks' rural banking operations by many years. Today,

it maintains a large rural branch network, with some branches dating bank to the Spanish or

American colonial periods. Its branch network of 830 branches is by far the largest branch

network of any bank in the Philippines.

The bank has received several awards from various financial magazines, such as “Euro

money” and the Far Eastern Economic Review. Its most recent award was for the best retail

bank in the Philippines in 2005.

Bank of the Philippine Island subsidiaries and affiliates includes:

• 1851 Club Inc. AF Holdings & Mgt. Corp.

• AF Merchants Inc. AF Money Brokers Inc.

• Ayala Life Assurance Inc. Ayala Plans Inc.

• BPI Bancassurance Inc. BPI Capital Corp.

• BPI Computer Systems Corp. BPI Direct Savings Bank Inc.

• BPI Family Savings Bank BPI Forex Corp.

• BPI Foundation, Inc. BPI International Finance Ltd.

• BPI Investment Mgt. Inc. BPI Leasing Corp.

• BPI Operations Mgt. Corp. BPI Paseo de Roxas Condominium

• BPI Rental Corp BPI Securities Corp.

• BPI/MS Insurance Corp. CityTrust Realty Corp

• CityTrust Securities Corp. Far East Bank Speed

• FCP Credit Corp. FEB Insurance Brokers, Inc

• FEB Management, Inc. FEB Savings Bank

• FEB Stock Brokers Inc. Filinvest Algo Financial Corp.

• First FarEast Development Corp. Greentop Condominium Corp.

• Santiago Land & Dev't Corp. Shenton Corp

• Zodiac Realty Corp

Ownership

• PCD Nominee Corporation: 35.55% (30.17% Filipino, 5.38% non-Filipino)

• Ayala Corporation: 23.28%

• Ayala DBS Holdings¹: 21.43%

• Roman Catholic Archdiocese of Manila²: 8.51%

• BPI directors and officers: 0.08%

• Public stock: 11.15%

Bank of the Philippine Island is known for its firsts in:

• BPI is the first bank in the Philippines, and in Southeast Asia.

• BPI is the first bank to issue the Philippine peso

• BPI financed the first rail system, telephone system, electric power utility, and steamship

service in the Philippines

• BPI established the Philippines' first ATM system, with its ATMs being called Express Tellers.

The system eventually evolved into the Expressnet ATM consortium, which has seven members

• Expressnet is also known for its Express Payment System (EPS), which was at first the debit

card system of the BPI Express Teller ATM card.

• BPI pioneered the concept of the banking kiosk in the Philippines, with its kiosks being called

Express Banking Centers or EBCs or by its older name, the Convenience Banking Center.

EBCs can be found in malls, supermarkets, plazas and other locations and operate beyond

normal Philippine banking hours, which are from 9.00 to 15.00 on weekdays.

• The first local bank in the Philippines to introduce 24 hour branch banking called BPI Express.

• BPI is the first bank in the Philippines to make use of a call center and telephone banking,

known as BPI Express Phone

• Launched BPI Express Mobile - Mobile Banking facility which enables accountholders to

inquire about their deposit, credit card, auto and housing loan and BPI Prepaid Card balances,

transfer funds between enrolled deposit accounts, pay bills to over 200 merchants, reload Globe

Telecom and Touch Mobile prepaid mobile phones and BPI Prepaid Cards BPI Express Cash,

and transfer money to and from Globe GCash wallet.

• Launched BPI Express Credit Gold Mastercard with Paysafe System, the country's first EMV

(Europay, MasterCard, Visa) compliant chip card.

• The first airline co-brand chip credit card issued in the Philippines - BPI WorldPerks

MasterCard with its partner Northwest Airlines.

• The first local bank in the country to offer most number of third currencies in its products

and services - Savings Accounts and Time Deposit Accounts (As of March 2007)

2.)Competitive Profile Matrix (CPM)

Legend: 4= Major Strength; 3= Minor Strength; 2= Minor Weakness; 1= Major Weakness

Banco De Oro Metrobank BPI

Critical Success

Factor

Weight Rating Weighted

Score

Rating Weighted

Score

Rating Weighted

Score

1. Financial

Position

0.10 3 0.30 4 0.40 3 0.30

2. Technology 0.07 4 0.28 3 0.21 3 0.21

3. Customer

Service

0.185 4 0.74 4 0.74 2 0.37

4. Strategic

Locations

0.175 4 0.70 4 0.70 3 0.525

5. Customer

Loyalty

0.05 3 0.15 3 0.15 3 0.15

6. Organization

Structure

0.06 4 0.24 4 0.24 4 0.24

7. Management 0.08 4 0.32 4 0.32 4 0.32

8. Human Capital 0.05 4 0.20 4 0.20 3 0.15

9. Innovation 0.08 4 0.32 3 0.24 3 0.24

10. Market Share 0.15 3 0.45 4 0.60 3 0.45

Total 1.00 3.70 3.80 2.955

In the Banking industry, the determined critical success factors are financial position,

technology, customer service, strategic locations, customer loyalty, organizational structure,

management, human capital, innovation, and market share. The highest weight is given to

customer service simply because the customers are the bread and butter of any banking

institution. Following the merger last May, there has been a tremendous surge of numbers in the

organization of BDO- 15,000 people, 700 branches, and 1,200 ATMs. With these, there is an

increase in customer numbers and with higher expectations to fulfill. That’s why BDO was given

the highest rating together with Metrobank as far as customer service is concerned. With an

increase in numbers of personnel, the company now tends to a higher number of customers.

Banks needs to cater to time-conscious depositors without sacrificing their services.

Considering the extent of competition in the banking industry, one should not only put a branch

in any location but in a strategic location. That’s why strategic location is the second factor given

the highest weight. Putting up branches in strategic locations like mall and urban areas will give

an advantage over its competitors. Metrobank and BDO were given the highest rating for their

branches were located strategically. Almost anywhere you can see their branches. Their ATM

machines are highly accessible. The next factor is market share. Being the market leader in an

industry is a certain advantage. Comparing the net assets of the Big three in the banking

industry, Metrobank shadows over the rest. BDO being the second largest is trailing behind

while BPI follow suit. The next factor with a given weight of 10% is financial position. The Big

three in the industry are Metrobank, BDO and BPI having a net assets of P669,100,000,

P60,540,628, 136,000,000 respectively. Having the same weight at 8%, the next factors are

management and innovation. Everyone was given the highest rating in management due to their

sheer expertise in managing their own respective organizations. Being in an industry that

adheres in servicing the customers with utmost importance, innovation is needed. With new age

at hand, industries should adhere and cater to time-conscious consumers with fast and state of

the art technology. Early preparation for business growth and capacity required to put the

necessary adjustments in place and move towards a smooth implementation. The next factor is

Organizational Structure. Having the mall magnate, Henry Sy, as the Chairman Emeritus and

Teresita Sy-Coson, as the Chairperson, we can say that BDO has a good organizational

structure. The last two factors are Customer Loyalty and Human Capital. Merging two

organizations, with their distinct characters and cultures, into one cohesive and solid team

presented great challenges and complex priorities for Human Resource Management. BDO

considers human resource integration and organizational development a continuing primary

trust. With such a huge manpower, they provide training and development programs to

adequately support the changes in structure, systems, and services. Everyone was given a

rating of 3 in the customer loyalty.

3.) Summary and Conclusion

The Philippine economy is buoyant but it is projected to have a slowdown due to

threatening crisis. Although GDP and GNP increased drastically in the past years due to the

appreciation of peso against the US dollar and a huge surge of OFW remittances, the Philippine

economy will feel the domino effect of the crisis in the upcoming months. Mass layoffs,

decrease in consumer spending, withdrawal of investments and deposits. With the decrease in

spending of households, the industry will take a sudden turn. With every country feeling the

effect of the sudden turn of events, very few businessmen will invest in our country to conduct

business. In this matter, capital sources will drastically decrease. A strong peso, increase in

remittances, and slight improvement of GDP-GNP will give the economy a shield to lessen the

impact of the ‘tsunami’ crisis. The improving technological conditions brought about a change in

the lifestyles of Filipinos. As a result, this brings an increase in production which provides for a

higher capital and higher borrowings. While bottom line numbers may not be as impressive, the

industry is clearly building for the future, putting a lot of emphasis on asset quality, governance

and transparency, and sound business strategies with clear accountabilities.

EXTERNAL FACTOR EVALUATION MATRIX (EFE)

Weight Rating Weighted ScoreOpportunities:

Trade and industry

expansion that will

generate a desired

multiplier effect on

incomes.

0.10 4 0.40

Inflation is expected

to depreciate

0.08 3 0.24

Upturn in Investments

elevating it to become

the largest trust

business in the

country.

0.10 4 0.60

Benign inflation and

an improved fiscal

position served as key

factors that held

interest rates at their

lowest levels.

0.10 3 0.30

Record-High

Remittances through

extensive distribution

networks coupled with

robust market base

and overseas

networks

0.10 3 0.30

Building business’

confidence through

increased government

spending, increased

volatilities and

widened spreads by

means of expansion.

0.07 2 0.14

Rapid Technological

Advancement to meet

heightened demands

in the market and

administrative

centers.

0.06 2 0.12

Threats:

Projected Increase in

Inflation due to US

recession.

0.07 2 0.14

Market Volatility and

Shifting Investors

0.07 3 0.21

Global Financial

Crisis

0.15 4 0.60

Confidence Over the

Country’s Solid

Fundamentals

0.05 2 0.10

Viruses and various

forms of damaging

software

0.05 2 0.10

Total 1.00 3.25

The External Factor Evaluation Matrix (EFE) is concerned solely with external factors.

These factors are ones that are subjected to the will of social, economic, political, and legal

forces. The firm’s strategies effectively take advantage of existing opportunities and minimize

the potential adverse effects of external threats. The opportunities and threats here are the

critical success factors in the external environment that can help position the industry to be

profitable. The chief opportunities identified include the favorable economic environment that

fosters mergers and acquisitions. Furthermore, the banking industry themselves have a unique

window of opportunity to merge or acquire other banking institutions which in turn promotes

globalization. The weight given to each factor implies the relative importance of each factor. The

range of weight is from 0.0 which is ‘not important’ and 1.0 which is ‘very important.’ A rating of

1 is given for poor response and a rating of 4 for superior response. Responsiveness to threats

is measured by the degree to which the company minimizes the incurrence or impact of threats.

Responsiveness to opportunities is measured by the degree to which company efforts take

advantage of opportunities.

Among seven opportunities, the improvement in investments was given the highest

rating. BDO was given the highest responsiveness rate. A big sudden upturn in investment gave

BDO the second largest bank in the Philippines. With the recent growth of the economy and

increase in tax impositions, there was a huge pour of investments coming from foreign

businessmen giving thousands of jobs which in turn provide an increase in consumer spending

and investments. It augmented the purchasing power of the consumers, furthering the

economy’s consumption-led growth and boosting the deposits, investments and capital

borrowings. With this at hand, banks fight for market leadership through formalization of unique

strategies, innovation of services, improved banking and intermediation activities, and

expansion. In recent years, the Philippines experienced its strongest economy and its best

performance yet. With an ever increasing remittances from overseas Filipino workers, an

improved financial condition after suffering its record high of almost 12% in inflation due to

weekly oil price hike and food shortage, and industry expansion which brought forth

globalization. They were given equal weight with the industry expansion having a superior

response and record high remittances and low inflation environment having the same ratings of

three. With good economic environment, it is a proper time for expansion and globalization. The

industry should learn to expand whether domestically or internationally. The move of expansion

will reflect both challenges and the rewards of that process. The power of synergy will serve to

reinforce the potential for sustainable growth. The opportunity with the lowest weights are the

increased in government spending and rapid technological advancement. This enabled the

government to channel more resources to productive spending, the first time it has done so in

recent years. With the technological wars at hand, the industry should adhere to such changes

for business growth, BDO supports Branch Banking’ conversion, relocation, and opening

requirements. Further, it conducted a series of retooling and team-building activities to reinforce

the staff’s capability to rise to heightened demand and expectations for IT support in the bank.

Compared to opportunities, there are only four threats for BDO with Global Financial

Crisis as the biggest threat and with the highest weight as well. With the stable economy, there

is a projection of a shift in economic conditions. Investors believed that the crisis will bring a big

swing in market conditions and withdrawal of investments. Investor confidence will decline

amidst the country’s solid fundamentals. Having an economy and market so volatile, depositors

and investors alike will think about of spending and depositing. Less borrowing, less spending,

high projection of inflation, bankruptcy of trust funds and other lending institutions will cripple the

industry without a strong foundation. Faced with this type of environment, the bank doubled its

efforts to build on the contemporary strengths and enhanced its risk management system to

meet the demands of the bank. Credit policies, procedures and guidelines were the first to be

harmonized. A common set of approval authorities and processes, including the risk rating

system and a credit committee approval process, were rolled out. BDO management has

closely monitored and directly managed the bank’s Non Performing Loans (NPL) and past-due

accounts, ensuring the implementation of appropriate strategies to maximize collection and

recovery of assets. Taking this approach fine-tuned the bank’s recovery efforts, thus making

progress in terms of a more proactive strategy and improved NPL levels over time. These

efforts suggest the company’s attempt to eliminate if not, lessen the impact of the threats

mentioned, thus giving it a rate of four.

IV. INTERNAL ANALYSIS

For BDO, the commitment towards the building for the future extends well beyond the

Bank and its network; it reaches far higher than the business targets for the year. Building for

the future is given real meaning in the profound, continued fulfillment of the Bank’s corporate

social responsibility objectives and programs. The bank’s endeavors hewed closely to a long-

standing track record of support to social development, reflecting a clear vision of a future built

on a foundation of excellence, self-determination, and fearless initiative.

A.Management

There are thirteen duly elected board of directors for Banco De Oro. Henry Sy, Sr., 84,

Filipino, is the Chairman Emeritus of BDO. He is the Founder and Chairman of SM Group of

Companies, he is known as the visionary of Philippine retail because of his innovations in the

industry. the shoe store he founded in 1958 as since evolved into a dynamic group of

companies, with retail merchandising and shopping centers as core businesses and

complementary ventures in banking, real estate, and leisure tourism development.

Teresita T. Sy-Coson, 57, Filipino is the Chairperson of BDO. Concurrently, she sits as

Chairperson and/or Director of various BDO subsidiaries such as BDO Private Bank, BDO

Leasing and Finance, Inc. (formerly PCI Leasing & Finance, Inc.), and BDO Capital &

Investment Corporation. Ms. Sy-Coson is also the Vice Chairperson of SM Investments

Corporation, Chairperson of Supervalue, Inc. and a director of SM Prime Holding, Inc.

Shoemart, Inc., multi-Realty Development Corporation, and First Asia Realty Development

Corporation.

Corazon S. De la Paz-Bernardo, 66, Filipino, assumed the post of Vice Chairperson of

BDO in July 2007. Prior to that, she served as the Chairperson of Equitable PCI Bank from

February 2006 to June 2007. She is currently the President and CEO of SSS.

Jesus A. Jacinto, Jr., 60, Filipino, was elected Vice Chairman of the Bank in May 1996,

and is concurrently the Chairman and President of BDO Insurance Brokers, Inc. He is likewise a

Director and Treasurer of BDO Realty Corporation. Mr. Jacinto is currently a Director and Vice

President of the Bankers Association of the Philippines.

Christopher A. Bell-Knight, 63, Canadian, was appointed Director of BDO in May

2005. He was formerly a Director of Solidbank Corp. from 1990 to 1998, and Vice President and

Country Head of the Bank of Nova Scotia. He has had over 40 years of banking experience in

England, Canada, and Asia.

Nazario S. Cabuquit, Jr., 74, Filipino, was elected Director of EPCIBank on July 2005.

he had also been elected to the board of several EPCIB subsidiaries as well as various board

committees in both EPCIB and some of its subsidiaries. He currently serves on the BDO Board

as a nominee of the SSS, where he is Special Assistant to the President and CEO.

Terence Ong Sea Eng, 58, Singaporean, was appointed BDO Director in July 2006. He

is also presently a Senior Executive Vice President of United Overseas Bank Ltd. and a Director

of United Overseas Bank-Philippines. He holds a Bachelor’s degree in accountancy from the

then University of Singapore and was previously the Deputy General Manager of the Board of

Commissioners of Currency in Singapore.

Henry T. Sy, Jr., 54, Filipino, was elected BDO Director in July 2007. he is the Vice

Chairman of SM Investments Corporation, SM Development Corporation, and Highlands Prime,

Inc., and a Director of SM Prime Holdings, Inc., and San Miguel Corporation. He is chiefly

responsible for the real estate acquisitions and development activities of the SM Group of

Companies and holds Board positions in several companies within the SM Group.

Josefina N. Tan, 62, Filipino, is a director of BDO. Concurrently, she serves as Director

and President of BDO Private Bank and a Director of BDO Realty Corp. Ms. Tan is also the Vice

Chairperson of Miriam College, the President of Regal Properties, Inc., and a trustee in the

Development Center for Finance and Laura Vicuna Foundation.

Nestor V. Tan, 50, Filipino, was elected President and Director of BDO in July 1998. He

concurrently sits as Director of various subsidiaries of BDO including BDO Capital and

Investment Corp., BDO Realty Corp., General Pilipinas Insurance Corp., BDO Leasing and

Finance, Inc., and Generali Pilipinas Life Insurance Corp.

Teodoro B. Montecillo, 73, Filipino, was appointed as an independent Director in

August 2004. He is concurrently an Independent Director in PDS Holdings Corp., Philippine

Dealing Exchange Corp., Philippines Securities & Settlement Corp., and Philippinne Depository

& Trust Corp.

Jimmy T. Tang, 72, Filipino, has served as Director of the Bank since 1984. He is also

the President of Avesco Marketing Corp. and presently the Honorary President of the

Federation of Filipino-Chinese Chambers of Commerce & Industry, Inc.

Edmund L. Tan, 62, Filipino, was appointed Corporate Secretary of BDO-EPCIBank on

July 2007. He is currently Chairman of EBC Investments, Inc. He was likewise appointed

Chairman and President of EBC Strategic Holdings Corp. He serves as Director and Corporate

Secretary of APC Group, Inc., Philippine Global Communications, Inc., PhilCom Corp., and

Aragorn Power & Energy Corp.

Corporate Governance

The Bank enforced strict accountability and transparency while, at the same time,

maintaining operational efficiency and pursuing dynamic innovations to deliver increased value

to the banking public. This Pro-active and long-term view of corporate governance was

translated into concrete actions and results by the Bank’s various working committees. The

committees reaffirmed in their respective areas how the Bank interprets corporate governance

as a conscious and methodical effort, reinforced in an active and day-to-day advocacy of

financial responsibility, integrity, and commitment to service.

Executive Committee

The Executive committee is headed by Teresita T. Sy-Coson with Nestor V. Tan; Jesus

A. Jacinto, Jr.; Corazon S. De la Paz-Bernardo; Josefina N. Tan as members. They are the

ones authorized to act on behalf of the Board of Directors on matters affecting the operations of

the bank subject to legal limits and by laws of the bank, and such ceilings that may be imposed

by the Board of Directors. It has the authority to approve within set limits, for instance,

technology-related project or such other initiatives for enhancing the Bank’s operating and

service delivery capabilities; operating policies and/ or manuals; and the establishment of

branches and/or extension offices as well as domestic or foreign subsidiaries. The Executive

Committee meets as necessary to pass upon matters referred to it and is comprised of at least

three directors appointed/designated by the Board.

Audit Committee

The Audit committee is headed by Teodoro B. Montecillo with Corazon S. De la Paz-

Bernardo; Henry T. Sy, Jr.; Jimmy T. Tang; Christopher A. Bell-Knight as members and Nazario

S. Cabuquit, Jr.; and Jesus G. Tirona as advisers. They act on behalf of the Board and provides

oversight of the Bank’s financial reporting and control as well as internal and external audit

functions. It reviews and assesses the Bank’s annual audit plan, its system of internal controls,

and regular financial and audit reports. It further reviews strategic issues relating to plans and

policies, financial and system controls, and methods of operation, seeing to their adequacy and

pinpointing possible improvements.

Compensation Committee

Headed by Teresita T. Sy-Coson with Corazon S. De la Paz-Bernardo; Josefina N. Tan;

Teodoro B. Montecillo as members. They provide oversight on director’s compensation and

senior management and other key personnel’s remuneration. It ensures consistency of

compensation policies and practices with the corporate culture, strategy, and control

environment as well as with peer institutions and designed to attract and retain qualified and

competent individuals. It evaluates and recommends to the Board incentives and other equity-

based plans for directors and senior management.

Corporate Governance Committee

Headed by Teodoro B. Montecillo wih Jesus A. Jacinto, Jr.; Nazario S. Cabuquit, Jr.;

Jimmy T. Tang; and Christopher A. Bell-Knight as members and Antonio C. Pacis as adviser.

They assist the Board in shaping the Bank’s corporate governance policies and practice.

Besides reviewing and assessing these policies and practices, it recommends applicable

guidelines, monitors compliance, and recommends needed adjustments to ensure

effectiveness. It also oversees the annual performance self-evaluation of the Board, its

committees, and executive management, as well as conducts an annual self-evaluation of its

own performance.

Credit Committee

The credit committee takes charge of the review and approval of the Bank’s loans and

investments as well as other credit related issues. It assesses the viability of credit and

investment proposals or related party, with specific attention of the appropriateness of the credit

extension and risks involved. Proposals beyond its approving authority are endorsed to the

Executive Committee. It also sees to regular credit reviews on a per account and portfolio basis,

as well as assessments of credit policies and procedures, risk standards, and, where required,

dissemination of credit manuals.

Nomination Committee

The nomination committee provides oversight on the qualifications of all nominees to the

Board as well as to other Bank positions requiring Board appointment. It recommends to the

Board the state of nominees for election to the Board during the Bank’s annual stockholders’

meeting. In case of Board seat vacancies, it seeks to qualified nominees and recommends

these to the Board for appointment.

Risk Management Committee

The risk management committee is responsible for policy development and oversight

over the Bank’s credit, market and operating risk exposures. It oversees the system of limits of

discretionary authority that the Board delegates to management, ensuring that these are

observed and any breaches are immediately corrected. It establishes the framework for

reporting risk to the Board including the assessment on the probability and potential impact of

each identified risk exposure of the Bank. These reports include information on portfolio

concentrations, value at risk measurements, and breaches on limits.

Trust Committee

The trust committee, acting within Board-set limits, is authorized to review and approve

transactions between trust and/or fiduciary accounts, to accept and close trust and other

fiduciary accounts and to approve the investment, reinvestment, and disposition of funds or

property. It evaluates trust and other fiduciary accounts at least once yearly to determine

compliance with the instrument creating the trust or other fiduciary relationship, as well as the

advisability of retaining or disposing of the trust or fiduciary assets.

B.Marketing

Over the course of 10 years, BDO – via a combination of organic growth and

acquisitions – has steadily increased its market position, from being the 16th largest Philippine

bank by assets in 1997, when it was first granted a universal banking license, to second largest

in 2007.This transformation has been funded and managed by the Sy Family’s SM Group,

which plays a dominant role in retail marketing in the Philippines because of its shopping malls,

department stores and supermarkets.

Banco de Oro’s marketing division is headed by Mr. Rafael G. Besa who is Senior Vice

President and Group head of Marketing Communications for Banco De Oro. This group is made

up of several marketing communicators and marketing communication managers who practice

advertising, branding, direct marketing, marketing promotions and public relations for the sake

of BDO.

Their marketing unit’s task is to broaden its market thru advertising and commercials

showing the different services that BDO can offer. Another one is their continued publication of

their different promos with companies such as SMART Telecommunications and PLDT. As for

the distribution of their services, BDO currently has 665 branches and over 1.253 ATM’s

nationwide.

C.Finance/Accounting

Profitability

The strength, quality and consistency of BDO's underlying earnings are important elements

underpinning its sound profitability. To enhance earnings, the bank improved its funding mix in

2007 as it shifted away from high-cost deposits. This helped to support an increase in net

interest income for the year. However, operating costs also rose as a result of the merger and

there were declines in trust fees. As a result, net profitability, as measured by returns on

average assets, was flat. Following the merger with EPCI, a moderate dilution in overall

profitability -- with the incurrence of integration expenses and EPCI's higher operating expenses

– is expected. But this situation should improve in time through the realization of revenue

synergies.

Liquidity

BDO is unlikely to experience any funding pressure for at least the next 12 months. Should

unexpected liquidity needs materialize, the bank's comfortable level of liquid assets (at end-

2007, liquid assets accounted for 42% of total assets) - comprising mostly government

securities - could be swiftly converted into cash.

Capital Adequacy

The bank’s capital position has come under downward pressure from both a shift in its asset mix

in favor of higher risk-weighted assets and the emergence of one-off changes associated with

Basel II. It has maintained its regulatory capital ratios through the issuance of subordinated

debt. However, from a ratings perspective, these instruments are ratings neutral, as such capital

retains fixed charges and provides limited loss-absorption capacity. Therefore, downward

pressure on the bank’s ratings could emerge if it does not additionally increase its Tier 1 capital.

Over the past year, BDO has shifted away from liquid, lower-risk securities in favor of increased

consumer and corporate loans. This shift should help to improve its earnings profile, but it also

entails taking on more credit risks, as evidenced by the faster growth in its risk-weighted assets

relative to total assets. Following implementation of Basel II in the Philippines and

implementation of a new capital charge for operational risk, BDO – like other Philippine banks –

experienced a decline in its Tier 1 capital ratio.

The bank has offset this reduction in part through the issuance of new shares and subordinated

debt. BDO issued 31.4 million in new common shares to the International Finance Corporation

(IFC) on August 31, 2007, pursuant to IFC's conversion of its remaining US$10 million

convertible loan to BDO.

Financial Performance Indicators

2007 2006 2005

Return on average

equity

11.5% 10.9% 13.9%

Return on average

assets

1.0% 0.9% 1.2%

Net interest margin 4.0% 3.0% 3.8%

Capital to risk 15.2% 15.0% 17.5%

assets ratio

Resources Capital Funds

Gross Customer Loans Deposit Liabilities

Net Income

D. Production/Operations

Banco de Oro’s banking services can be classified into 4 categories: Personal banking,

Business banking, Investment banking and Wealth management.

Personal banking deals with:

Branch Banking

Consumer Loans

Credit Cards, Insurance

Remittance

Electronic Banking

Investment & Advisory Services

Unit Investment and Trust Fund

For Business banking:

Cash Management

Merchant Acquiring

Insurance Loans

Trade Facilities

Wealth Management:

Private banking

Investment & Advisory Services

Personal Trust Services

Unit Investment Trust funds

Investment banking:

Equity & Quasi Equity

Underwriting and Management

Direct Equity Investment

Fixed- Income Underwriting

Packaging and Syndication

Securitization

Financial Advisory

Corporate Trust Services

E.Research and Development

Every company needs research and development. In the banking industry, there is a

need for research and development. These changes and development will bring increased

service and customer satisfaction. It will bring enhance intermediation and financing activities.

As far as banking industry is concern, the research and development falls under innovation and

technology. BDO tackled the challenges of operational integration while ensuring minimal

impact on client servicing. BDO strive to achieve one bank/ one face/ one service to its client

base in the shortest possible time. While integration is clearly a priority, the Bank did not lose

sight of the need to maintain and grow the business. The results reported by different operating

units showed equally impressive results attesting to the value and business case for the Bank.

Attesting to innovation and IT, BDO in its early preparation for business growth and

capacity required as a result of the merger enabled Information Technology to put to the

necessary adjustments in place and move towards a smooth implementation. It successfully

completed the interconnection of the Makati and Benguet Networks, as well as upgraded the

Bank’s main computers and other servers. It is also relocated the Business Continuity Centers

(BCC) of the Parent Bank and its subsidiaries to cluster around Benguet Center in Ortigas and

the Makati Corporate Center offices.

F.Summary and Conclusion:

BDO’s management is composed of great leaders and thinkers with a vast experience in

banking and finance. All of the Directors and managers are well educated and has the capacity

to lead and with a great deal of expertise. BDO is composed of different committees that will

address the different issues the firm has to face on the daily basis. Every committee has a big

part to the profitability and growth of not only the whole organization but the whole country as

well. They should have integrity, honesty, and dedication to work, responsibility, honesty and

transparency in their chosen field of work or expertise. They are the decision makers of the firm.

They decide on what is best for the company. They decide on certain issues to address the day-

to-day operations of the Bank. With a wide spectrum of human capital or workforce, BDO

adheres to customer service and customer satisfaction. BDO should find different ways aside

from the conventional banking practice. The firm should explore to uncharted lands of

opportunities and minimize threats. Being the second largest bank in the Philippines, BDO

boast a high amount of capital or net assets. BDO shares a place with Metrobank and BPI as

one of the market leaders in banking industry. The firm should never pass the chance for the

innovation of their services and adding up state of the art technologies to adhere to the

increasing number of customers and investors.

INTERNAL FACTOR EVALUATION MATRIX (IFE)

Key Internal

Strength Weight Rating Weighted Score

Strength:

Escalating Fiscal

Performance and

reliable Financial

Position

0.10 3 0.30

Reputation 0.15 4 0.60

BDO Information

Technology as

merged banks

0.05 3 0.15

Human Resource

Integration and

Organizational

development

0.10 4 0.40

Positive net present

value ventures

0.10 4 0.40

Risk Management

responsible for

flagging adverse

trends

0.07 4 0.28

Weaknesses:

Total earnings per

share is 2.86 in 2007

compared to 2006

P3.08

0.15 1 0.15

Pecuniary Wealth 0.10 2 0.20

Employee Benefits 0.10 2 0.20

Lesser volume ofbranches compared

totop competitors

0.08 1 0.08

Total 1.00 3.76

The Internal Factor Evaluation Matrix (IFE) found above lists nine key internal factors.

Six of these factors are considered strengths of BDO while three are weaknesses. The rate

suggests whether internal factors are major strength/weakness and minor strength/weakness.

For strength, the rate of four suggests major strength while three a minor strength. For

weaknesses, a rate of one suggests a major weakness while the rate of two implies minor

weakness. The weights used determine the importance of the factor identified in determining

success in the industry. The higher the weight, the more important it is.

Reputation has the highest weight amongst six major strengths. One important strength

of Banco De Oro is its reputation. When two industry leaders and models of excellence merge,

the result is an outstanding scorecard of proven and recognized distinction overall as well as in

specific areas of the business. This was evident in awards received by the Bank in 2007, which

displayed its pacesetting as an institution and as dominant player in the fields of investment

banking, trade finance, trust banking, and countryside development. Building for the future

means taking inspiration from these achievements and forging ahead to set new records. BDO

outperformed other Philippine banks to garner the coveted Best Bank title, made more

significant by the fact that the Bank won during what was described as its “transformational

year”- it emerged as a bigger, better, and stronger entity after the merger. Awarded by the

prestigious international publication, Euromoney, BDO was cited for its excellent management,

impressive fiscal performance, and continuing business expansion. BDO proved itself as a

major force to reckon with in the highly competitive Philippine banking industry. That’s why it

was given the highest rating for its upstanding nature in the industry and its good reputation not

only in the eyes of the consumers but also in international setting.

The next factor with the highest given weight was Positive Net Present Value Ventures

which was also given the highest rating. BDO focuses on intermediation activities. Business

lending, Leasing, Consumer Lending, Branch Banking, and Treasury was the major

intermediation activities of BDO. The Bank’s funding, lending, and investing activities strong

growth on the back of superior execution abilities, innovative products, and expansion into new

markets. Emphasis on client relationships continues to be the mantra as the Bank strives to

bring more value to more people with its improved reach and servicing capabilities. Branch

Banking heralded an unparalleled expansion of the BDO branch network, from 250 branch

licenses prior to the merger to the staggering current total of 703 combined branches

nationwide. The priority was the integration of the former EPCIBank branches into the BDO

system to assure the banking public of the continued excellent service they have grown

accustomed to and more. Branch servicing areas have been upgraded and expanded, office

hours now reflect the needs of its client base, and products now include the offerings of the

combined entity.

The next major strengths are the strong Financial Performance and Stable Financial

Position and Human Resource Integration. They were given the same weight but given different

ratings, a three rating and four rating respectively. Although after the merge, BDO boost a total

of P617, 421, 476 resources, compared to the biggest bank which is Metrobank they still lack

some figures to topple the reigning king of banking industry. That’s why it was given a rating of

three. But in terms of workforce, BDO shadows over the rest of the other competitors in the

industry, with a staggering 15,000+ personnel nationwide. The group ironed out adjustments in

the technical and operational areas, including the Human Resource Information System (HRIS)

and other technology-driven systems, policies, and procedures. Now that the personnel force

has doubled- with a total count of close to 16, 000 employees- the Bank considers human

resource integration and organizational development a continuing primary thrust.

Following suit is the Risk Management with a rating of four. One of the programs or

policy that BDO can really boast is their Risk Management. It is very timely to have a very good

risk management due to ‘tsunami crisis.’ The team doubled its effort to build on the

complementary strengths of BDO and EPCI and enhanced its risk management system to meet

the demands of the merged Bank. There’s Credit and Remedial Management, Market and

Liquidity Risk Management, Operating Risk Management, and Asset Management that they

offered.

The factor that was given the lowest rating was Information Technology. In terms of IT,

BDO was only subpar. Their main goal after the merger was not about Information Technology

but the integration of both banks and its eventual ‘harmonization.’ Although there was some

move to integrate IT in the operations of the firm but it was still in the premature stage without

utmost importance. Certain moves was conducted for retooling and team-building activities to

reinforce the capabilities of the staffs to rise to heightened demand and expectations for IT

support in the merged Bank.

The Bank’s earnings per share, which is one of the profitability indicators, declined from

P3.08 in the year 2006 to P2.86 in the year 2007. That’s why it was given a high weight and a

rating of 1. Although the firm’s net income doubled, so does its common shares outstanding

which brought forth a decline in the earnings per share. This means that a stock holder will earn

less from his or her investment this year compared to last year. BDO carries a minimal cash

balances on hand and other cash items. Carrying excessive cash on hand may prove unwise for

some but in banking parlance, it is somewhat appropriate to hold a sufficient amount of cash.

We don’t know what depositors think. Having P320 billion savings deposits liabilities compared

to P20 billion cash on hand is somewhat unwise. With the looming crisis and recent event that

brought the bankruptcy of many finance institutions, depositors may immediately withdraw their

investments in fear of losing their money. Also BDO did not declare any dividends. With a huge

amount of resources and a huge number of workforce, they lack to compensate their employees

very well.

V. STRATEGY FORMULATIONA. STRENGTHS-WEAKNESSES-OPPORTUNITIES-THREATS (SWOT) Matrix

SWOT

Strengths-S1.) Escalating Fiscal Performance and reliable Financial Position2.) Reputation3.) BDO Information Technology as merged banks4.) Human Resource Integration and Organizational development5.) Positive net present value ventures6.) Risk Management responsible for flagging adverse trends

Weaknesses-W1.) Total earnings per share is 2.86 in 2007 compared to 2006 P3.08

2.) Pecuniary Wealth3.) Employee Benefits

• Ranked 3rd in volume of branch networks (compared to BPI and Metrobank)

Opportunities-O1.) Trade and industry expansion that will generate a desired multiplier effect on incomes.2.) Inflation is expected to depreciate.3.) Upturn in Investments elevating it to become the largest trust business in the country.4.) Benign inflation and an improved fiscal position served as key factors that held interest rates at their lowest levels.5.) Record-High Remittances through extensive distribution networks coupled with robust market base and overseas networks.6.) Building business’ confidence through increased government spending, increased volatilities and widened spreads by means of expansion.

SO Strategies

1.) Invest on research and development and technology for the enhancement of customer service and transactions. (S3,O7)2.) Increase revenue growth through expansion of electronic banking by means of ATM networks and phone banking. (S1, S2, S3, O1, O3, O4, O5, O7)3.) Amplify advertising to clients and potential investors by means of websites. S1, S2, S3, O1, O3, O4, O5, O7)

WO Strategies

1.) Increase salaries and develop new employee package through increase income.(W3, O1, O3, O5, O6)2.) Increase borrowings.(WI, O2, O4)3.)Expected increase in profit can lead to expansion of additional branches(W4,O1,O5)

7.) Rapid Technological Advancement to meet heightened demands in the market and administrative centers.

Threats-T1.) Projected Increase in Inflation due to US recession.2.) Market Volatility and Shifting Investors3.) Global Financial Crisis4.) Confidence Over the Country’s Solid Fundamentals5.)Viruses and various forms of damaging software that can damage company technology

ST Strategies1.) Double the effort of the Risk Management Group to build on the complementary strength of BDO and enhance its risk management system to meet the demands of the merge bank.(S6, T1, T3, T4)2.) Product development(S1, S2, S3, O1, O2, O3)3.) Develop and add more bank intermediation activities; funding, lending and investing.(S1,S2,S3,S6,T2,T4)4.) Retrenchment to decrease cost (S1, S4, T3)

WT Strategies

1.) Invest on unrelated diversification to minimize the risk of bankruptcy.(W1,W2,W3,S1,S2,S3,S4)2.) Terminate employees or moderate salaries(W1,W2,W3,S1,S2,S3,S4)

3.) Set-up adept computer systems in new branches to efficiently protect the bank’s technological structure.(W4,T5)

The following are the strategies formulated from the SWOT analysis; Product

development – seeking increased sales through innovation, of developing new services

by means of the rapid technological advancement in our generation, Market

development – Ascertain BDO’s services by means of amplification of its strengths,

Unrelated diversification – by adding new services to cater the demands of the market,

Horizontal integration – by controlling the market by means of BDO’s business

confidence and upsurge in investments elevating it to become the largest trust business

in the country and Retrenchment – benefits of decreasing assets and cost to reverse

declining market shares and sales.

B. Strategic Position and Action Evaluation Matrix (SPACE)

It is also one of the Stage 2 matching tools. It has a four-quadrant framework that

indicates whether aggressive, conservative, defensive, or competitive strategies are

most appropriate for a given organization. The x-axis represents two internal

dimensions (financial strength [FS] and competitive advantage [CA]) while the y-axis

represents two external dimensions (environmental stability [ES] and industry strength

[IS]). 1

Internal Strategic Position

Financial Strength (FS) Ratings

Fiscal performance 4

Responsible Risk Management 5

Upturn in Investments 4

average 4.33

Competitive Advantage (CA) Ratings

Market Share -1

Reputation -1

Customer Loyalty -4

Innovation -3

average -2.25

External Strategic Position

Environmental Stability (ES) Ratings

Technological Advancement -3

Stable Inflation -1

Record High-Remittances -2

Increased Government Spending -3

Barrier to Entry -2

average -2.2

Industry Strength (IS) Ratings

Expansion and Diversification 6

Financial Stability 4

Potential for Growth 6

Utilization of Resources 4

average 5

Directional Vector Coordinates: x-axis: -2.25 + (5) = 2.75

y-axis: -2.2 + (4.33) = 2.13

The SPACE Matrix shows that BDO should pursue competitive strategies. The

directional vector points to the upper right quadrant which is the Aggressive quadrant.

BDO is in an excellent position to use its internal strengths to take advantage of external

opportunities, overcome internal weaknesses, and avoid external threats. Integration

and Intensive strategies should be use by the company in this kind of situation.

C. BOSTON CONSULTING GROUP MATRIX (BCG)

Boston Consulting Group Matrix is also called business portfolio. It is designed

specifically to enhance a multidivisional firm’s efforts to formulate strategies. It

graphically portrays differences among divisions in terms of relative market share

position and industry growth rate. The BCG Matrix allows a multidivisional organization

to manage its portfolio to businesses by examining the relative market share position

and the industry growth rate of each division relative to all other divisions in the

organization.

Having an annual growth rate of 8.46% and relative market share of 84%, BDO is

considered as Stars in the Boston Consulting Group (BCG) Matrix. (See appendix)

Being in a division with a high relative market share and a high industry growth rate, the

firm should receive substantial investment to maintain or strengthen their dominant

positions. The appropriate strategies are Forward, backward, and horizontal integration;

market penetration, market development, and product development that the

organization should consider.

D. THE INTERNAL – EXTERNAL (IE) MATRIX

The IE Matrix is based on two key dimensions: The IFE total weighted scores on

the x-axis and the EFE total weighted scores on the y-axis. It has nine grids (starting on

the first grid in the top-left side and moving to the right) which can be divided into three

major regions. The three major regions of the matrix are: grow and build grids (grids I, II,

IV), hold and maintain grids (grids III, IV and VII) and harvest or divest grids (grids VI,

VIII and IX). The total weighted scores derived from the divisions allow construction of

the corporate-level IE Matrix.1

As seen, BDO garnered a score of 3.75 in the EFE matrix which suggests that

the external environment the company is stable and also shows that the external threats

are leveled out by external opportunities that the company can utilize. In the IFE matrix,

BDO accumulated a score of 3.25 which shows that its strengths also level out its

weaknesses making a one of the strongest banks in the country.

In plotting the scores BDO obtained in both the EFE and IFE matrix it was plotted

at Region I, or the “grow and build” region. This would suggest that BDO should pursue

intensive strategies (i.e. market penetration, market development and product

development) or integrative strategies (backward integration, forward integration and

horizontal integration).

E. GRAND STRATEGY MATRIX (GSM)

Another alternative tool in formulating strategies is the GSM. It has also four

quadrants just like the SPACE Matrix but GSM is base of two evaluative dimensions:

competitive position and market growth.

Looking at the GSM, BDO is located in the quadrant I. They are in an excellent strategic

position. The perfect strategies are market penetration, market development, and

product development. Being in the quadrant I, they can afford to take advantage of

external opportunities in several areas. They can take risks aggressively when

necessary.

F. THE QUANTITATIVE STRATEGY PLANNING MATRIX (QSPM)

The QSPM objectively indicates which alternative strategies are best. It is a tool

that allows strategists to evaluate alternative strategies objectively, based on previously

identified external and internal critical success factors. Taking into account both the

external and internal factors that would affect the company, the QSPM matrix suggests

that BDO should engage in Horizontal integration as seen in their acquisition of

Equitable-PCI. The QSPM also shows that BDO can also apt to engage in Market

Development. Intense marketing strategies should be employed by BDO such as

promos using their ties with SM and SMART to reel in potential customers.

VI. STRATEGIC OBJECTIVES AND RECOMMEND STRATEGIES

A. Strategic and Financial Objectives:

SWOT SPACE BCG IEM GSM TOTALFORWARD INTEGRATION 4

BACKWARD INTEGRATION 4

HORIZONTAL INTEGRATION 5

MARKET PENETRATION 4

MARKET DEVELOPMENT 5

PRODUCT DEVELOPMENT 5

RELATED DIVERSIFICATION 1

UNRELATED DIVERSIFICATION 1

RETRENCHMENT 1

DEVESTITURE

JOINT VENTURES 1

MERGER/ ACQUISITIONCONGLOMERATE DIVERSIFICATION 1

CONCENTRIC DIVERSIFICATION 1

HORIZONTAL DIVERSIFICATION 1

TOTAL

34

1.) To increase or maintain its market share in the industry.

Being in a high growth rate industry, BDO should remain vigilant for possible takeover of

competitors. They should increase or retain their market share to maintain their sphere of

influence and dominance in the industry. They should never be complacent because with tough

competition and being in a high growth rate industry, competitors may take advantage and have

an equal or if not, a greater market shares in just a short span of time. To prevent this, BDO

should increase their network branches. Comparing with other tough competitors in the industry

(Metrobank and BPI), BDO is only third in terms of branches all over the country. They should

put branches and ATM networks in key strategic location. They should not only focus in Metro

Manila but nationwide as well.

2.) Increase its deposits by encouraging investors and probable depositors.

The deposits have declined by 5.25% which indicates relatively poor banking programs

to attract probable depositors and retain existing ones. They should increase their deposits

because it is their source of funds which they can invest on certain portfolios to earn money.

With an increase in deposits, the firm can grab external opportunities and minimize threats

when they come around. A low deposit indicates poor management and they should address it

immediately to prevent future problems.

3.) Invest highly on Technology to increase customer transactions and to give

them convenience and satisfaction.

Nowadays, people are so busy that they can’t find time to go to the bank, if they have,

the banks are now close. To ease this problem, the company should invests on this kind of high

end technologies like cash-less transaction, debit cards, cash cards and other innovative ideas.

The company can implement an online banking system. This online banking system will be able

to give customers and depositors alike a much greater convenience than before which in return,

the customers will be more willing to transact with the bank.

4.) To have an increasing growth rate on loans, receivables and interest income.

One of the chief operating revenue of a bank is the interest on loans. That’s why

to increase the performance and income of the bank, loans should also increase. One way to

address it is an online loan application. The customers may avail the application online provided

that he or she has a good credit terms. Another way is attracting new and potential investors.

Advertisement is a good way in attracting investors. Giving out loan packages with special

features is a good catch. BDO should have a 10% increase in its loans for the next year and

increase of 5% in the succeeding years for its improving market share and enhanced service.

B. Recommended Business and Organizational Strategies

Given below are the following strategies that Banco De Oro may pursue to increase their

market share and take a competitive advantage over its competitors using the given internal

strength and weaknesses and external opportunities and threats stated before:

1.) Horizontal Integration

To lessen the competition in the industry, BDO must acquire some of its competitors to

increase its relative market share and to be the market leader in the banking industry. It is hard

for BDO to acquire its main competitors (Metrobank and BPI) but the bank may acquire the

other banks. They may also want to purchase their stocks just to gain control, if they don’t want

them to integrate it to their organization, to broaden their influence in the industry. BDO should

look at their internal weakness and address it by acquiring other banks with internal strength

that BDO lacks. By doing so, the firm can increase its market share and can become the

number one bank in the country. Seeking stock control is almost the same as the acquisition but

in a different aspect. BDO will not have any problem with this, given the fact that it has a strong

financial position.

2.) Market Development

BDO is a well known established bank in the country especially in Metro Manila and

other key cities. It is known for its service and dedication. But in some part of the country, in the

rural areas and some provinces, people tend to transact with rural banks. One move should

BDO make is to establish a market in that specific area to have an increase in transaction which

equals an increase in income. Rural banks offer less interest rate than those well established

banks but they are more prone to the global crisis that is happening. Another way is to integrate

those rural banks as part of the BDO conglomerate or acquire them to lessen the competition in

the rural areas.

3.) Product Development

BDO may be investing and inventing new ideas and programs but that’s also what their

competitors are doing. To differentiate their intermediation programs from the rest of the group,

the firm should think of a unique program that the competitor’s program has not. Since there is a

record high dollar remittances from OFWs, the firm may take the idea of money transfer

business firms. They may provide also such service but in a different way. Product development

means increasing the reliability and dependency of the customers on the bank. More than the

demand itself, the firm must be able to respond urgently. By improving BDO’s product quality, or

service, in terms of reliability and dependency, it will be able to have a proactive stand on the

perceived problems of the customers which will make the company, the preferred bank.

The firm does not have a research and development team which could take advantage

of available technology to initiate innovation in the banking industry. The team must invest on

this and conduct studies, surveys, and research how to carry out their service without

interruptions and delay.

C. Financial Projections and Overall Evaluation of the Strategies Proposed

Banco De Oro has been performing well in its operation for the past years. Its main

operation is all in the Philippines and its transactions are denominated in Philippine peso except

for foreign currency transactions but they are denominated in Philippine peso at the current

exchange rate. The Financial statements of BDO attest to the claim that it is in an excellent

condition and good financial performance and position. As presented in the table below, the

figures have all increased significantly since the merger took place with EPCIB.

Financial Highlights

(Bn PhP) 2006 2007 % Change

Resources 628.88 617.42 -1.8%

Gross Customer

Loans 257.96 297.03 15.1%

Deposit Liabilities 470.08 445.40 -5.3%

Capital Funds 52.42 60.54 15.5%

Net Income 6.39 6.52 2.0%

The recommended strategies for BDO are expected to maximize the company’s

strength and competitive advantage while minimizing the impact of threats and eliminating

its present weaknesses. These strategies have financial effects to the company and the

following are the financial projections considering the impact of these strategies

Projected Income Statement

Actual

(2007)

2008

10% increase

2009

15% increase

2010

20% increase

Interest Income

On

Loans and other

receivables 21, 414, 488 23, 555, 937 27, 089, 327 32, 507, 193

Investment and

Trading

Securities

11, 743, 428 12, 917 771 14, 855, 436 17, 826, 524

Due from other

banks 2, 338, 609 2, 572, 470 2, 958, 340 3, 550, 008

Others 2, 106, 781 2, 317, 459 2, 665, 078 3, 198, 094

Total 37, 603, 306 41, 363, 637 47, 568, 181 57, 081, 819

Interest Expense 16, 166, 574 16, 545, 455* 16, 648, 863** 19, 978, 637**

Net Interest

Income 21, 436, 732 24, 818, 182 30, 919, 318

37, 103, 182

*expense to sales ratio is 40%**expense to sales ratio is 35%

Increasing its income would lead to an increase in the market share. Increasing income

would mean that there are more customer transactions, more investors investing, more loan

applications which would lead to expansion and establishment of more branches and eventually

an increase in the market share. To enhance these projections and to fully fulfill the strategies,

the firm should decrease their expenses by reducing their bills payable and other liabilities. We

cannot decrease the interest in the deposits liabilities which would to decrease in customer

deposits. That would affect the recommended strategy. Due to recommended retrenchment in

the SWOT analysis (see SWOT analysis) expenses would decrease. BDO has over 15, 00

employees. Decreasing it would decrease the salaries and wages. 34% of the total other

operating expenses of BDO is for salaries and wages. (See financial statements)

Projected Balance Sheet

  Actual Projected

  2007 2008 2009 2010

    (10% increase) (15% increase) (20% increase)

Total Assets 617, 421, 476 679, 163, 626 781, 038, 170 937, 245, 804

Total Liabilities 556, 880, 848 612, 568, 933 704, 454, 273 845, 345, 128

Total Stockholders' Equity 60, 540, 628 66, 594, 691 76, 583, 895 91, 900, 674

Total Liabilities and Equity 617, 421, 476 679, 163, 624 781, 038, 168 937, 245, 801

The increase in income and decrease in the operating expense would subsequently lead

to an increase in the net assets of BDO. The branch expansion network and advertising will

increase transactions and will eventually lead to an increase in market share. The combination

of these factors will result in an increase in BDO clients, as a result, an increase in business

transactions.

The increase in liabilities is a result of increase in deposits for the succeeding years.

Increase in liabilities will likewise increase the asset. These deposits may belong on the cash

balance and major part of it will be invested in different investments like trading securities and

bonds. Increase in deposits will increase the loans and receivables of the bank thereby

increasing the income.

The total equity of BDO will also follow the increasing trend. The projected income

statement of the Bank resulted into an increase in the net income every year, following the year

2007. These are then transferred to the Retained Earnings section, which forms part of the

Stockholders’ Equity of BDO. The acquisition of assets, mainly the increase in the number of

branch networks, which increases total assets, will also result in the increase in the

Stockholders’ Equity.

VII. Action Plans and Departmental Programs

Based upon the internal and external analysis which are the basis of the matching tools

used for the formulation of strategies, three strategies stands out the company can use to

increase the market share and for better improvement. These strategies are: Horizontal

Integration, Market and Product Development. Of the three, horizontal integration is the most

appropriate. BDO has a high market share but in an industry with a high relative growth rate.

There are numerous players in the banking industry which only means competition. The top

three are Metrobank, BDO and BPI. Doing so would increase the market share of the company.

Activities Expected Output Timetable Unit(s) Responsible

Opportunity Analysis regarding investment and asset acquisitions

Increase in Capital resources and strategic acquisitions

Continuous Accounting and Finance Department, Treasury Department, Strategic Planning Group, Property Management Group

Advertising of the company

Increase in the number of clients and market share

Continuous Marketing Department, Branches

Regular Planning and Evaluation Meetings

Development of better plans and strategies for the company, assessment of whether objectives are met by all parts of the organization

Quarterly All Departments

Maintaining balance between total deposits and total loans and receivables

Better management and allocation of funds, greater profit from net interest income

ContinuousAccounting and Finance Department, Treasury Department

Employee Training and Development for new processes, standards, or updates in technology

Motivated employees and improvement in their skills and competencies

Semi-annually

Human Resource Management

Updating technologies of the company

Greater competitive advantage for the company, higher efficiency of operations, greater quality of services rendered

Once a year Technology Management Group

VIII. Strategy Evaluation, and Monitoring and Control

Proposed Strategy Key Result

Areas

Performance Indicators Time

Frame

Department in Charge

Horizontal Integration

An increase in number of branch networks and increase in market share in the banking industry

Industry Ranking based on total branch networks

2 to 3 Years

Individual branches, Strategic Management Group

Market Development

Market share in the rural areas and certain provinces

Establishment of branches in key strategic locations on the said areas

3 to 4 years

Marketing, Finance/Accounting, Production, and Operations Group

Product Development

Efficient operations increase in Net Income, technology advancement

Loans and receivables, Due from other banks, and net income

2 Years Marketing Department, Strategic Planning Group, Technology Management Group and Research and Development Group

Balanced Scorecard for Banco De Oro

Area of Objectives Scorecard Measurement Timetable

Clients Customer Transactions

Customer Satisfaction

Other Operating Income (Services,

Fees, Commissions)

Increase by 30 to 60%

Increase customer referrals by 20%

Increase by 15%

3 years

2-3 years

2 years

Financial Return on Investment

Increase by 15% to 25%

3 to 5 years

Operations Development and implementation of

online banking

Less than 1 year

Marketing Market Share Increase by 10% 2 years

Management Management recognitions and

awards

Learning and Growth Employee turnover

Employee Absenteeism

Decrease by 40%

Decrease by 40%

1 year

1 year

BIBLIOGRAPHY

BDO Annual Report 2007

Human Resources Policy Manual

http://www.mobilephonebanking.org

http://www.wikipedia.com

http://bdo.com.ph

David Dollar, the World’s Bank’s Director of Development Policy

NEDA updates on the economy

www.metrobank.com.ph

Fred R. David. Strategic Management: Concepts and Cases, 11th Edition.