MANAGEMENT REPORT

As the Philippines continues to recover from economic distress, Cooperative Rural Bank of Bulacan topped the year 2007 with notable achievements and solid performances.

The year 2007, as economists regarded, is the year that outpaced forecasts and surpassed expectations when the Philippine economy grows at fastest rate in more than three decades since 1976 by posting a 7.3 percent real GDP growth, making it the fastest-growing economy in Southeast Asia.

Strong consumer and government spending, coupled by increased investments and robust farm production have enabled the national economy to absorb external shocks, particularly the slowdown of the US economy – the Philippine’s largest trading partner and major source of investments.

The gross national product, which includes remittances of overseas Filipino workers, grew 7.8 percent in 2007, also a 31-year high.  Remittances, which accounts for about tenth of the economy have help strengthened the peso to its highest level in eight years.

The inflation rate similarly posted an impressive 21-year low finish of only 2.8 percent in 2007. 

Moreover, industrial output increased by 6.6 percent while the agricultural sector grew by 5.1. percent.

These positive developments have cushioned the impact of declining exports as gains in the peso against the dollar made Philippine goods more expensive.

The services sector, now being viewed as the country’s main driver of economic growth and accounts for half of the domestic economy, expanded to 8.7 percent, the highest since 1982.  This sector, which includes financial services, transport, telecommunication and computer services, construction and insurance services, not only contributed significantly to the economic upsurge but also created employment opportunities for millions of Filipinos.

The finance sub-sector, posted the fastest growth among services at 11.5 percent, as banks brought down their non-performing loan (NPL) ratios to manageable levels.  Banks lending likewise registered a 7.1 percent increase as it cuts interest rates to attractively low levels.

The banking industry remained fundamentally sound as its average capital adequacy ratio posted at 19.3 percent as of end-June 2007, which was above the BSP statutory level of 10.0 percent and the Bank for International Settlements’ (BIS) standard of 8.0 percent.

The year 2007 for Cooperative Rural Bank of Bulacan (CRBB) was also a year of distinguished achievements, exceeding the previous year’s income accomplishment and achieving new record figures in assets, deposits, loans and equities.
Among the significant accomplishments we have done this year is the further strengthening of our balance sheet.  We have achieved another exceptional milestone when in a span of less than two years, the bank reached the Two Billion Pesos mark in total resources, making us the far-leading cooperative bank and ranked no. 5 rural bank in the country today.  By year-end, total assets posted at Php 2.237 billion, a 35 percent increase from previous year.

Sustaining our expanding lending operations amidst aggressive competition, total loan portfolio correspondingly increased by 35 percent or Php 1.670 billion, compared to Php 1.237 billion in 2006.   The Commercial Loan represented 51 percent of the total loan portfolio or Php 839.384 million while Microfinance Loan (Php 308.277 million) and Other Loan and Discount (Php 219.001 million) have 18 and 13 percentage shares, respectively.  Both the Agrarian Reform Loan and Other Agricultural Loan, on the other hand contributed about 8 percent to the total loans receivable while Industrial Loan accounted for only 2 percent of the portfolio.

Depositors continue to build-up their growing confidence with us as total deposits generated increased to Php 1.142 billion, a 24 percent growth from prior year.  Likewise, fund providers, both local and international, showed continuous trust with CRBB as they have increased their stake by 55.13 percent from Php 531.260 million to Php 824.133 million.

Total stockholders’ equity of Php 254.028 million increased by 43.28 percent or Php 76.737 million from 2006 figures, with preferred share capital growth of about 91.89 percent or Php 51.737 million contributed largely to its increase.  The remaining 37.05 percent or Php 24.979 million came from results of operation.  The approval of our application with BSP for the increase in the Authorized Capital Stock to Php 500.000 million is expected within the first semester of 2008.

As of year-end 2007, the risk-based capital adequacy ratio (CAR) stood at 14.11 percent, which is 4.11 percent higher that the BSP statutory level of 10.0 percent.  To further increase the bank’s qualifying capital and allow us better leverage, we have applied with BSP for the Authority for the Private or Negotiated Issuance of Unsecured Subordinated Debt (USD) Eligible as Tier 2 Capital so as to include Hybrid Tier 1 Capital amounting to Php 100.000 million

Net income for 2007 stood at Php 39.600 million compared to 2006 record of Php 25.658 million.  Despite the 54 percent increase in net profits, the Management will expand further its lending operation and focus on reasonably low-cost deposits and funds to achieve our 2008 net income target of Php 100.000 million.

We were able to reduce further our past due ratio to 3.15 percent from 4.53 percent last year, translating to a far better loan portfolio quality and way superior than the industry average of 17 percent and BSP maximum allowable ratio of 25 percent.

Portfolio at risk on microfinance loans likewise continuously posted a decreasing trend as it stood at 3.54 percent from 3.69 percent in 2006, which is 1.46 percent better than the internationally acceptable best practice maximum level of 5 percent.

The latest BSP risk-based general examination as of 28 February 2008 2007, CRB Bulacan obtained a composite CAMELS (Capital Adequacy, Asset Quality, Management Quality, Earnings, Liquidity, and Sensitivity to Market Risk) rating of “4” that indicates the bank’s fundamentally sound financial position and capable of withstanding business fluctuations and functioning with limited supervisory concern, is another feat to reckon with.  While we are overwhelmed by the three consecutive CAMELS rating of “4”, it serves as a very challenging task for us to maintain, given the not-so-stable economic and political environment being experienced by the country and the global economy as a whole.

For a more accessible and faster delivery of superior banking services, BSP approved the opening of additional five branch offices in the municipalities of Angat, Bulacan, Calumpit, Meycauayan and Paombong.  The Angat, Bulacan and Meycauayan branches will be opened within the first quarter of 2008.  Our immediate plans also include the possibility of opening branches in other provinces such as Rizal, Laguna and Pangasinan.  This brave move will enable us to extend our services in much wider territories and thereby serve greater number of clientele.

The BSP likewise approved our Electronic Rediscounting System or eRediscounting application for a credit line of Php228 Million. The eRediscounting is an on-line internet-based rediscounting facility that allows us to conduct rediscounting transactions and inquiries with BSP in an on-line, real time basis at the convenience of our bank premises at very minimum cost.  This facility has reduced our transaction costs and enabled us to sustain the prompt delivery of our banking services at more affordable rates.

Meanwhile, our application for the authority to operate Foreign Currency Deposit Unit (FCDU) is currently on final review of BSP.  The FCDU facility will allow the flow of foreign exchange into the banking system, giving OFW beneficiaries the option to maintain foreign currency deposits. 

The year 2007 was also a year of new partnerships.  We were selected as conduits of Development Bank of the Philippines, Planters Development Bank and Small Business Guarantee and Finance Corporation for their various programs.

We were also able to finalize negotiation with Oikocredit, Ecumenical Development Cooperative Society, UA, a microfinance fund provider based in The Netherlands. The Oikocredit and Blue Orchard Finance, s.a. are currently the bank’s foreign funders. 

The bank’s microfinance operations continue to expand in terms of outreach and areas of coverage.  This year, the Paluwagang Nayon ng CRB Bulacan (PNCB), the bank’s biggest microfinance program, already penetrated the city of Caloocan following its successful implementation in Quezon and Valenzuela City.  We are finalizing negotiations with the City Governments of Manila and Malabon to replicate the same program in their localities.

The bank’s Production Loan, a credit facility for the agricultural sector, was able to disburse in 2007 a total of Php 88.192 million to more than 900 farmers.  Meanwhile, the Livelihood Credit Assistance Program (LCAP), a lending program for agrarian reform communities was able to serve a total of 2,600 agrarian reform beneficiaries for al total loans granted of Php 117.857 million.

In June 2007, we launched the MicroSOLO (Microfinance for Sustainability, Outreach and Livelihood Opportunities) program.  Its three sub-programs (Financial Assistance for Micro-Entrepreneurs, Financial Assistance for Overseas Filipino Workers and Micro-Housing) provide credit assistance to eligible micro-entrepreneur individuals with higher/more formal levels of enterprises and to Overseas Filipino Workers and their families.  As of year end 2007, the program was able to lend to 391 individuals for a total loans granted of Php 33.280 million.

We have also upgraded our Management Information System to keep abreast with the recent demands for better and faster banking facilities.  Since October 2007, we are operating on an inter-branch on-line banking system that speeds up and simplifies operations, minimizes transaction and administrative costs and develops better client relation and convenience.

To keep our competitive advantage, we will be launching this coming year our own website that will be accessible to the public 24 hours a day, 7 days a week.  This website, which is a very effective and low-cost way to market our business, will enable our clients to easily access the internet on information about our latest products and services, special promotions, our company profile and achievements and other relevant information about the bank. 

We are continuously strengthening our organizational capabilities to accomplish a more effective risk management strategy. Hence, we are constantly reviewing and refining our policies on credit, operational and market risks and incorporating them into our daily business activities and decision making to ensure a much stable financial position.

Along with our aggressive expansion plans, we are at the same time investing largely on our people who remains to be the most important resource in our institution.  While we are working on the total development of our employees, we are also ensuring their commitment to the organization. Simply put, commitment drives success and committed employees will help us achieve critical business outcomes and financial goals by satisfying clients’ needs, delivering prompt and quality services while maintaining operational efficiencies.  To achieve this, we will further strengthen the bank’s Human Resource and Training Departments.  Continuous people development, through in-house and out-source trainings will be provided on regular basis to extensively enhance our employees’ knowledge, capabilities and skills. 

Year 2007 has been a very good year for us.  And as we enter our thirtieth year, we are very confident that year 2008 will even outshine the milestone of achievements of the past twenty-nine years.  This optimism though comes from our conviction that our stakeholders --- shareholders, customers, program partners, Board of Directors, employees and friends --- whom we pay our deepest gratitude for the unwavering support and patronage, will incessantly be with us in every step we make.  And to our Almighty Father, whose infinite guidance and profuse blessings made our successes even more rewarding.