Guidelines for the capital treatment of banks' investments in credit-linked notes (CLNs) and similar credit derivative products such as credit-lined deposits (CLDs) and credit-linked loans (CLLs)

Annex “A” Page 1 of 7 pages Revised January 2004 DEADLINE : 15 banking days after end of reference quarter (solo basis) 30 banking days after end of reference quarter (consolidated basis) SUBMISSION : Original copy to SED I/ SED II/SED III FOR UNIVERSAL BANKS, COMMERCIAL BANKS AND THRIFT BANKS (Name of Bank) (Code) (Address) COMPUTATION OF THE RISK-BASED CAPITAL ADEQUACY RATIO COVERING CREDIT RISKS ________________________________________ (Indicate if for Solo Basis or Consolidated Basis) As of ___________________________________ REPUBLIC OF THE PHILIPPINES) ___________________________ ) S.S. I solemnly swear that all matters set forth in this report and all its supporting schedules are true and correct, to the best of my knowledge and belief. _______________________________ (Signature of President/Senior/ Executive Vice President) SUBSCRIBED AND SWORN TO BEFORE ME this _______________ day of __________________________________________ 20___, affiant exhibiting to me his Community Tax Certificate No. _______________________ issued at ____________________ on ______________________________20___. ______________________________ Notary Public Until December 31, 20 ___________ PTR No. ______________________ Place _________________________ Doc. No. _________ Page No. _________ Book No. _________ Series of _________

Annex “A” Page 2 of 7 pages PART II. RISK-WEIGHTED ON-BALANCE SHEET ASSETS (Amounts in P0.000 million) Book X Risk = Risk Item Nature of item Value Weight Weighted (In %) Amount A. 0% Risk Weight – (1) Cash on hand (2) Claims on or portions of claims guaranteed by or collateralized by securities issued by Philippine national government and BSP (a) Due from BSP (b) TAS – loans i) GS purchased under resale agreement ii) GS purchased under certificate of assignment/participation with recourse iii) GS purchased under reverse repurchase agreement with BSP (c) TAS – investments i) GS purchased ii) GS sold under repurchase agreements (d) ASS – GS (e) IBODI i) GS ii) Agrarian reform credit – PD 717 (f) Loans and discounts secured by CBCI and other GS (g) Agrarian reform/other agricultural credit and alternative development incentive loans secured by CBCI and other GS (h) Others

Annex “A” Page 3 of 7 pages Book X Risk = Risk Item Nature of item Value Weight Weighted (In %) Amount (3) Claims on or portions of claims guaranteed by or collateralized by securities issued by multilateral development banks (4) Claims on or portions of claims guaranteed by or collateralized by securities issued by central governments and central banks of foreign countries with the highest credit quality as defined in Subsec. X116.3 (5) Loans and discounts to the extent covered by hold-out on, or assignment of, deposits/deposit substitutes maintained with the lending bank (6) Agrarian reform/other agricultural credit and alternative development incentive loans to the extent covered by hold- out on, or assignment of, deposits/deposit substitutes maintained with the lending bank (7) Loans or acceptances under LCs to the extent covered by margin deposits (a) Customers’ liability on bills/drafts under LCs/TRs to the extent covered by margin deposit (b) Customers’ liability on acceptances outstanding to the extent covered by margin deposit (8) Portions of STD loans covered by IGLF guarantee (9) Real estate mortgage loans to the extent guaranteed by the HGC (10) Loans to the extent covered by the TIDCORP (11) Loans to exporters to the extent guaranteed by the GFSME outstanding as of the date of the effectivity of the merger of the SBGFC and the GFSME, except those renewed after the merger of the SBGFC and the GFSME (12) Foreign currency notes and coins on hand acceptable as international reserves (13) Gold bullion held either in own vaults, or in another’s vaults on an allocated basis, to the extent it is offset by gold bullion liabilities (14) Sub-total (Sum of A(1) to A(13)) 0 0

Annex “A” Page 4 of 7 pages Book X Risk = Risk Item Nature of item Value Weight Weighted (In %) Amount B. 20% Risk Weight - (1) Checks and other cash items (2) Claims on or portions of claims guaranteed by or collateralized by securities issued by non-central government public sector entities of foreign countries with the highest credit quality as defined in Subsec. X116.3 (3) Claims on or portions of claims guaranteed by Philippine incorporated banks/quasi-banks with the highest credit quality as defined in Subsec. X116.3 (4) Claims on or portions of claims guaranteed by foreign incorporated banks with the highest credit quality as defined in Subsec. X116.3 (5) Loans to exporters to the extent guaranteed by SBGFC (6) Foreign currency checks and other cash items denominated in currencies acceptable as international reserves (7) Claims on Philippine incorporated banks, which claims obtain and maintain credit ratings of at least equal to that of the Philippine national government (8) Sub-total (Sum of B(1) to B(7)) 20 C. 50% Risk Weight – (1) Loans for housing purpose, fully secured by first mortgage on residential property that is or will be occupied or leased out by the borrower (2) LGU bonds which are covered by Deed of Assignment of IRA of the LGU and guaranteed by LGUGC (3) Securities issued by SPVs against assignment of receivables arising from future payments of the Philippine national government in connection with projects undertaken in pursuance of R.A. No. 6957, as amended, which securities obtain and maintain credit ratings of at least one notch below the credit rating of the Philippine national government

Annex “A” Page 5 of 7 pages Book X Risk = Risk Item Nature of item Value Weight Weighted (In %) Amount (4) Claims on Philippine incorporated banks, which claims obtain and maintain credit ratings of not more than one notch lower than that of the Philippine national government (5) Sub-total (Sum of C(1) to C(4)) 50 D. 75% Risk Weight – (1) Direct loans component of defined SME and microfinance loan portfolio 75 E. 100 % Risk Weight – (1) Other assets (Total assets, gross of general loan loss provision less sum of A(14), B(8), C(5)) and D(1) ) E.1 Deductions From Other Assets (1) Total outstanding unsecured credit accommodations, both direct and indirect, to DOSRI (2) Deferred income tax (3) Goodwill (4) Sinking fund for redemption of limited life redeemable preferred stock (5) Equity investments in unconsolidated subsidiary banks and other subsidiary financial allied undertakings, but excluding insurance companies (for solo basis) (6) Investments in debt capital instruments of unconsolidated subsidiary banks (for solo basis) (7) Equity investments in subsidiary insurance companies and subsidiary non-financial allied undertakings (8) Reciprocal investments in equity of other banks/enterprises (9) Reciprocal investments in unsecured subordinated term debt instruments of other banks, in excess of the lower of (i) an aggregate ceiling of 5% of total Tier 1 capital of the bank; or (ii) 10% of the total outstanding unsecured subordinated term debt issuance of the other bank.

Annex “A” Page 6 of 7 pages Book X Risk = Risk Item Nature of item Value Weight Weighted (In %) Amount (10) Net due “from” head office, branches, subsidiaries, and other offices outside the Philippines, if any (for foreign bank branches) (11) Total book value of credit-linked notes and similar products (Refer to Schedule A) (12) Total Deductions (Sum of E.1(1) to E.1(11)) E.2 Net Other Assets (E(1) minus E.1(12)) 100 F. TOTAL BOOK VALUE, GROSS OF GENERAL LOAN LOSS PROVISION (Sum of A(14), B(8), C(5), D(1) and E(1)) G. TOTAL RISK-WEIGHTED CREDIT-LINKED NOTES AND SIMILAR PRODUCTS (Refer to Schedule A) TOTAL RISK-WEIGHTED ON-BALANCE SHEET ASSETS (Sum of A(14), B(8), C(5), D(1), E.2 and G)

Annex “A” Page 7 of 7 pages Schedule A (NAME OF BANK) CREDIT-LINKED NOTES (CLNs) AND SIMILAR PRODUCTS IN THE BANKING BOOK Supporting Schedule to the Computation of Risk-Based Capital Adequacy Ratio Covering Credit Risks As of __________________ Description of CLN Issuer/Collateral Reference entity/ies 1/ Amounts in P0.000 Million Risk-weighted exposure Using issuer/ Using reference Risk weight Risk weight collateral RW 4/ entity/ies RW 5/ Name 2/ (RW) Name (RW) 3/ Book value of CLN (1) (2) Higher of (1) or (2) A. Direct Issuance 1. Issuer A 2. Issuer B 3. Issuer C Sub-total B. Issued by SPV 1. SPV A a. Collateral A 2. SPV B a. Collateral A Sub-total TOTAL 6/ 7/ 1/ There may be more than one reference entity per issuer. Add more lines where necessary. 2/ Indicate if the CLN meets the criteria of a security with the “highest credit quality” 3/ For proportionate protection CLNs, the risk weight of the reference entity should be weighted according to the reference entity's share of protection under the contract. 4/ For CLNs issued by SPVs, this is equal to the book value of the CLN multiplied by the risk weight of the riskiest eligible collateral. 5/ For nth-to-default CLNs, this is equal to the book value of the CLN multiplied by the sum of the risk weights of all the reference entities (less the risk weights of n-1 reference entities) capped at 10 times the book value of the CLN. For nth-to-default CLNs that meet the criteria of a security with the “highest credit quality”, this is equal to the book value of the CLN multiplied by the highest risk weight in the basket of reference entities. 6/ To Part II. Item E.1(11) of the Credit Risk CAR Report Form 7/ To Part II, item G of the Credit Risk CAR Report Form

Annex “B” Page 1 of 4 pages Revised January 2004 DEADLINE : 15 banking days after end of reference quarter (solo basis) 30 banking days after end of reference quarter (consolidated basis) SUBMISSION : Original copy to SED I/ SED II/SED III FOR UNIVERSAL BANKS AND COMMERCIAL BANKS (Name of Bank) (Code) (Address) COMPUTATION OF THE ADJUSTED RISK-BASED CAPITAL ADEQUACY RATIO COVERING COMBINED CREDIT RISK AND MARKET RISK ________________________________________ (Indicate if for Solo Basis or Consolidated Basis) As of ___________________________________ (Quarter–End) REPUBLIC OF THE PHILIPPINES) ___________________________ ) S.S. I solemnly swear that all matters set forth in this report and all its supporting schedules are true and correct, to the best of my knowledge and belief. _______________________________ (Signature of President/Senior/ Executive Vice President) SUBSCRIBED AND SWORN TO BEFORE ME this __________________ day of _________________________________________________ 20___, affiant exhibiting to me his Community Tax Certificate No. _______________________ issued at ____________________ on ______________________________20___. ______________________________ Notary Public Until December 31, 20 ___________ PTR No. ______________________ Place _________________________ Doc. No. _________ Page No. _________ Book No. _________ Series of _________

Annex “B” REPORT FORMS – For Universal Banks and Commercial Banks Part I Interest Rate Exposures (Trading Book) 1. Debt securities and other debt related derivatives – specific risk 1/ In 0.000 Million Pesos Govern- LGU ment Qualifying Bonds and and Debt Debt Credit- Multi- Residual Securities Securities Linked Item Nature of item 2/ lateral Over 6 Issued by Issued by Notes Develop- 6 months Phil. Phil. Banks and ment months to 24 Over 24 Banks (Items 1.9 Similar Positions Banks or less months months (Item 1.8) and 1.10) Others Products TOTAL 1.1 Debt securities issued by the Philippine national government and Long BSP Short 1.2 Debt securities issued by central governments and central banks of Long foreign countries with the highest credit quality Short 1.3 Debt securities issued by multilateral development banks Long Short 1.4 Debt securities issued by non-central government public sector Long entities of foreign countries with the highest credit quality Short 1.5 Debt securities issued by Philippine incorporated banks/quasi-banks Long with the highest credit quality Short 1.6 Debt securities issued by foreign incorporated banks with the highest Long credit quality Short 1.7 Other debt securities with the highest credit quality Long Short 1.8 Debt securities issued by Philippine incorporated banks, which have Long credit ratings of at least equal to that of the Philippine national government Short 1.9 LGU bonds covered by Deed of Assignment of Internal Revenue Long Allotment and guaranteed by LGU Guarantee Corporation Short 1.10 Debt securities issued by Philippine incorporated banks, which have Long credit ratings of not more than one notch lower than that of the Philippine national government Short 1.11 All other debt securities in the trading book not included under 1.1 to Long 1.10 above Short TOTAL Long Short Risk Weight 0.00% 0.25% 1.00% 1.60% 1.60% 4.00% 8.00% SPECIFIC RISK CAPITAL CHARGE FOR CREDIT-LINKED NOTES AND SIMILAR PRODUCTS (Refer to Schedule A) SPECIFIC RISK CAPITAL CHARGE FOR DEBT SECURITIES AND DEBT DERIVATIVES (ON GROSS POSITION, I.E., LONG PLUS SHORT)

Annex “B” 1/ Debt securities in items 1.1 to 1.11 include cash positions, such as: (a) GS purchased (b) GS sold under repurchase agreement (c) GS purchased under resale agreement (d) GS purchased under certificate of assignment/participation with recourse (e) GS purchased under reverse repurchase agreement with the BSP (f) Private debt securities/CPs purchased (g) Private debt securities/CPs sold under repurchase agreement (h) Private debt securities/CPs purchased under resale agreement (i) Private debt securities/CPs purchased under certificate of assignment/participation with recourse (j) TAS – equity – non-convertible preferred shares which trade like debt securities (for UBs) (k) UA – debt securities (for UBs) (l) UA – equity – non-convertible preferred shares which trade like debt securities (for UBs) (m) ASS – government (n) ASS – private (o) ASS – foreign as well as underlying of debt derivative contracts. (However, interest rate and currency swaps, FRAs, forward foreign exchange contracts and interest rate futures will not be subject to a specific risk charge.) For debt related options, either the delta weighted positions shall be reported above, or if the bank engages in purchase of options only as defined in the Instructions for Accomplishing the Report, the options shall be carved out and reported under Part IV.1.1. 2/ Excluding CLNs and similar products

Annex “B” Schedule A (NAME OF BANK) CREDIT-LINKED NOTES AND SIMILAR PRODUCTS IN THE TRADING BOOK (SPECIFIC RISK) Supporting Schedule to the Computation of the Adjusted Risk-Based Capital Adequacy Ratio Covering Combined Credit Risk and Market Risk As of __________________ Description of CLN Risk weight (RW) 1/ Amounts (In P 0.000 Million) Capital Charges Market Capital Capital Maturity of Issuer/ Reference Market value of charge for charge for Issuer/ Maturity Reference reference Collateral obligation value of reference issuer/ reference Collateral 2/ of CLN obligation 3/ obligation RW RW 4/ CLN 5/ obligation collateral obligation 6/ Total A. Direct Issuance 1. Issuer A 7/ 2. Issuer B 7/ 3. Issuer C 7/ Sub-Total B. Issued by SPV 1. SPV A a. Collateral A 7/ 2. SPV B a. Collateral A 7/ Sub-Total TOTAL 8/ 1/ Risk weights as per Part I.1 of the Market Risk CAR Report Forms 2/ Indicate if CLN meets the criteria of a security with the “highest credit quality” 3/ There may be more than one reference obligation per issuer. Add more lines where necessary. 4/ For proportionate protection CLNs, the risk weight of the reference obligation should be weighted according to the reference obligation’s share of protection under the contract. For nth-to-default CLNs that meet the criteria of a security with the “highest credit quality”, a single risk weight equivalent to that of a debt security with the “highest credit quality” corresponding to the residual maturity of the CLN shall be applied. 5/ Also has a general market risk charge 6/ For nth-to-default CLNs, this is equal to the book value of the CLN multiplied by the sum of the risk weights of all the reference obligations (less the risk weights of n-1 reference obligation/s) capped at 10 times the book value of the CLN. 7/ To Part I.2 of the Market Risk CAR Report Form 8/ Sum of specific risk capital charges. To Part I.1 of the Market Risk CAR Report Forms.

Annex “B”