2012 Annual Report
I. Strategic Directions
II. The President’s Report
III. Results of Operations
IV. Financial Highlights
V. Audited Financial Statements
VI. Material Risk Factors & Measures Taken by Postbank in Managing Risks
I. STRATEGIC DIRECTIONS
An Authentic Countryside Bank
A network of Postbank branches and Philpost post offices in a synergy alliance to bring financial services to the rural communities to promote business activity. Its mission is to mobilize savings and provide banking services especially to the unbanked sectors of the country to stimulate economic development, in the process helping improve the quality of life of the rural population.
II. THE PRESIDENT’S REPORT
The year 2012 essentially marked a new beginning for the century-old Philippine Postal Savings Bank. Almost throughout its long history, the Bank has been little known. In the recent past, certain events occurred which appeared to conspire to influence the management of Postbank. The first was the assumption of a new leadership, President Benigno S. Aquino to the Presidency and with it, a pledge to lead the country towards a straight path to vigorous economic growth. The second was a deterioration of the financial position of Postbank, which threatened to result in significant losses. The third was the discovery that the avowed nemesis of the President – corruption – had started to seep into a few echelons of the Bank. The fourth was that the BSP had issued certain operational improvement directives which needed to be promptly addressed.
Inevitably, the President strengthened the leadership at Postbank, as well as in its mother company, the Philippine Postal Corporation, with instructions not only to address the immediate concerns, but also to put the two institutions on a reformation track paralled with that of the new government.
Upon assumption into office, the new management of the Bank adopted the classical process of instituting the remedial measures of cutting operating costs, increasing revenues through more vigorous marketing and sales, and reviewing policies and operating systems to make them more responsive to achieving set goals. These and other interventions, including safeguards against corruption, stopped the “bleeding” and the Bank was able to record even a modest profit of about P5M by year end 2011, vis-à-vis earlier projections of a loss.
The review of the Bank’s objectives and operations was used, along with inputs provided by the BSP, in the development by new management of a Five-year Strategic Plan (2012-2016), which now serves as its operations “bible”.
The year 2012 represents the first full year under the Plan and judging from the results, the Bank appears to be over the proverbial hump, and it is now on its way towards achieving its goals. Net profit in 2012 jumped six fold from P5 M to P30M, and increases were registered in almost all financial indicators above. The infrastructure for good housekeeping and successful governance has been put in place: a lean but efficient organization with a core of competent management staff and a comprehensive set of manualized operating systems.
If 2012 marked the threshold for change, the year 2013 will essentially be the new beginning for Postbank. It is this year that the Bank will finally pursue its vision of making a difference in the rural environment by taking on the challenge of its founders for the Bank to use its grassroots orientation and infrastructure network in increasing rural access to financial services in the unbanked communities in the country.
Two projects which could take advantage of the built-in countryside profile of Postbank and Philpost received significant developmental attention in 2012. One is a program to establish micro-banking offices (MBO) using the post office network of Philpost and the branches of Postbank. This has led BSP Deputy Governor Nestor Espenilla to comment that he is “tantalized by the potential transformation of the Philippine financial landscape should the post offices accross the country become effective access points where Filipinos can carry out simple and suitable financial transactions.”
The other project is the remittance service for overseas Filipinos, using the post offices as access points for the efficient transfer of money from Filipinos abroad to their families and friends in the Philippines.
The two projects are being launched in 2013.
After over a year in office, the new leadership is convinced of the potential of Postbank to make a significant contribution to the improvement of the rural financial services environment. Being a public institution, the Bank’s unique character should allow it to leverage its resources and linkages towards evolving a system that will contribute to the financial inclusion policy objective of the government. It is a major challenge, but if the Bank is able to implement it successfully, it would have justified its over a century of existence.
III. RESULTS OF OPERATIONS
The year 2012 essentially marked the implementation of the first year of the Five-Year Strategic Plan for the Philippine Postal Savings Bank. The document was drafted to address the findings of a comprehensive review of Postbank operations in mid- 2011 by the new management team which then had just assumed its duties.
While the over riding concern of the Plan was to reverse the downslide of the Bank, there was also a need to chart a new direction which would allow the Bank to achieve its mission and be able to grow at a higher and more sustained plane. In the last decade, while the Bank operated profitably, its income traversed a narrow band and, save for servicing the financial services requirements of its mother company, the Philippine Postal Corporation, it operated almost like any private bank. It did not exhibit a special relevance to the national development effort and presumably, as a result, Postbank has really never taken off.
This apparently was not the vision which caused its founders to create the Bank. In the few existing records which survived the ravages of World War II, there was frequent mention of financial services and savings mobilization in the countryside. Interpreting this from the perspective of the profile of the major stockholder, Philpost, it is safe to conclude that the Bank was expected to play a role in the rural areas not only through its delivery function, but also in the long neglected financial environment. With its network of 1800 post offices in all municipalities of the country, and the grassroots lineage of its workers, the Bank appeared to be equipped to do more than just be a small savings bank. It is meaningful that Postbank to this day remains as the only public savings bank in the country.
The Five Year Plan is anchored on the accomplishment of this mission, and in resolving many management problems which mitigate against the Bank emerging as a potential mechanism for countryside financial development.
To bring this about, the Bank established a set of major inter-dependent objectives for the strategic plan period. These were:
- Create a strong presence in the rural areas, particularly in the unbanked communities in order to provide a wider access to financial services via a formal rural banking system.
- Offer a wide range of banking products and services that will address the needs of the rural communities as well as contribute to the build-up of the Bank’s financial capability.
- Achieve a strong financial position that will allow the Bank to expand its loans and investments programs and strengthen its financing assistance projects needed to spur economic, including infrastructure, development in the countryside.
- Establish a reputation as a reliable and much admired financial institution in order to facilitate the Bank’s efforts to build up its capital base and serve as a conduit for funding assistance from both the government and international funding institutions.
In 2012, Postbank carried out enabling programs designed to achieve these objectives, summarized herein as follows:
A Strong Rural Presence
The lack of banking services in the rural areas has often been cited as a major reason why the countryside has lagged behind its urban counterpart in the development process. The apprehensions of the private sector to spread its network to the rural areas is due principally to financial viability considerations.
During the plan period, Postbank has targeted the doubling of its branches, from 25 to 50 by the end of the first year. The financial and operational problems associated with branch banking, however, prompted the Bank to concentrate its efforts on the MBOs.
The MBO represents the flagship project of the synergy alliance of Postbank and Philpost. It shall, within a relatively short period of time, be able to bring financial services to the rural areas where the post offices are located, including in the many unbanked areas of the country.
The establishment of micro-banks in the rural communities is in response to a long-felt need of the Philippine economy to make financial services available in the countryside through the banking system. There exists a highly unbalanced distribution of banking offices between the urban and rural areas. For instance 37% of the country’s municipalities have no banking offices, based on a BSP survey.
In 2012, Postbank conducted the following activities in preparation for the start up of its MBO project in 2013:
- It conducted further feasibility studies for setting up the MBOs, covering the marketing, technical, financial and organizational requirements of the project.
- From the marketing perspective, it proceeded to identify the products and services to be offered by the MBO, and developed parameters for establishing the market attractiveness of each one for selection and prioritization.
- From the technical end, it started to review the list of post offices in terms of their location, structural appearance, business performance, demographic/market profile, etc., to serve as a basis for selection.
- From the financial aspect, it started to look into the financial feasibility of setting up the MBOs, as well as a cluster of MBOs, which shall compose the initial coverage under the project. The studies include possible arrangements for the sharing of costs and revenues.
- Organizationally, discussions were held with Philpost Management on possible working arrangements between the two institutions, including the sharing of equipment and personnel.
- The Bank looked into the approval/regulatory requirements of relevant government institutions for the project, and initiated discussions and applications, which could pave the way for operating the first MBOs in the middle of the year.
- The Bank initiated in the reorganization plan the establishment of the Bank Head Office of an MBO group, which shall be responsible for project implementation.
Pilot implementation is targeted for July 2013 in the Bicol Region and Cebu Province.
Business Improvement Plan
In response to market demand, in view of the fact that they represented its bread and butter lines, the Bank continued to offer the traditional Bank products and services, topped by the acceptance of deposits and extension of loans. The differences are that (a) the Bank is pursuing a more aggressive marketing of the service, with specific volume targets, and (b) a more careful evaluation of loan proposals, regular and systematic monitoring of transactions, and a more intensive collection effort have been adopted to strengthen the process.
The lending operations of the Bank continued to lean towards consumption loans in response to market demand. Some interventions, however, are being made to expand the client base with emphasis on those with a development objective as well as those directed on LGUs/community organizations to directly impact the countryside. Examples are the loans extended to micro, small, and medium enterprises.
In 2012, the Bank launched the “Arangkada Pasada Program”, a special financing facility offered to organized transport cooperatives and micro-finance oriented institutions for relending to eligible members of the transport sector.
Even as the Bank refined its traditional product/service offerings, the better part of 2012 was devoted to coming up with new ones which are more development oriented and have the potential to positively impact on the Bank’s financial position.
These include the following:
THE REMITTANCE PROJECT
A major project which underwent detailed development in 2012 is the Remittance Service for Overseas Filipino Workers (OFWs) and other Filipino residents abroad in partnership with an international remittance company, Agilivant.
Under the arrangement, Agilivant will provide the electronic technology along with the generation of foreign remittances, which require considerable international marketing effort to attract patronage from overseas Filipinos workers, Postbank, on the other hand, will establish the remittance centers, which shall be in its bank branches, and the Post Offices spread out across the of Philippines which shall be joining the network of service centers on a phased basis. Postbank will also provide local advertising support, which is felt to be necessary because the families/relatives of the OFWs are a significant influence in the choice of the remittance company which the OFW will use.
The implementation plan is to operationally cover 75 postal offices in 2013 and new post offices every year thereafter until the full network of bank branches and post offices is completed in 2016.
THE LGU LENDING PROGRAM
Presently, development loans to Local Government Units (LGUs) form a significant share of the total loans portfolio of Postbank. By 2013, the Bank intends to be a competitive player in the LGU finance market in response to their various financing requirements.
Presently, Postbank is packaging several major lending programs for LGUs:
- Lending Program for enhanced revenue generation and improved services delivery.
- Lending Program in support of LGU Public Private Partnership Projects.
- Lending Program for Informal settlers
- Lending Program for cultural minorities/indigenous people.
CONTRACT-TO-SELL (CTS) FINANCIAL FACILITY
The CTS Financing Facility is the newest credit facility of the Bank designed to provide liquidity to its accredited real estate developers through purchase of their receivables covered by a Contract-to-Sell.
This facility was drawn up in 2012 and the Bank has been processing the applications of some real estate developers. The program is expected to significantly expand the Bank’s entry into the home financing market in response to a clamor in the rural communities.
FINANCIAL ASSISTANCE TO LOCAL WATER DISTRICTS
The Philippine Postal Savings Bank is collaborating with the Local Water Utilities Administration (LWUA) to provide credit facilities to Local Water Districts. The Bank has targetted the rural water sector as a priority area for development assistance in line with the countryside focus of its mandate.
Following preparatory activities in 2012, Postbank and LWUA have executed a Memorandum of Agreement that will allow them to address the water supply requirements of eligible water districts with the two institutions co-financing or Postbank solely financing the credit requirements, and LWUA taking care of the required technical assistance.
Governance Improvement Plan
Weak governance was identified as a major reason for the deterioration of the Bank’s financial condition in 2011, and this was promptly addressed in the interim by such measures as strengthening the management team through filling up vacancies with competent and dedicated new hires, consultancy assistance, streamlining, realignments, and even multi-tasking, While this worked to reverse the trend, management felt that the challenges posed by the new goals set for the Bank needed to be addressed on a more permanent and sustained basis.
In 2012, a thorough review and reorganization of manpower was undertaken, and this was approved by the Board of Directors. Revisions and refinements continue to be undertaken as the new organization is debugged, and as new bank products and services are added.
As the reorganization proceeded, the entire Human Resource Development component was developed and operating systems were installed or refined. Corollary, therefore, the following were undertaken:
- The manualization of company policies and operating systems, which is required by the BSP of banking institutions. All of the 18 manuals have essentially been completed and are now being used in the management of the bank.
- The development of personnel recruitment, manpower development, and personnel management systems has been pursued since day one of the new administration. In 2012, a Job Evaluation program and a Performance Management System were developed for implementation in early 2013.
- The development of the Information Systems and Technology Management (ISTMG) plan to provide the Bank leadership with authentic, timely and updated information in order to improve its decision-making to solve problems and exploit opportunities was also undertaken. The plan has substantively been completed and on-going is the training and development of the Bank Managers in the innovative application of IS and IT in their functional areas.
Strengthen the Bank’s Financial Position
Following the Bank’s financial problems in 2011, nursing it back to health became the primary concern in 2012. The task became even more urgent as the strategic plan laid out an expansion program which needed to be supported by adequate capital.
In 2012, action plans designed to strengthen the financial position of the Bank were implemented to:
- Build up capital through additional capital infusion from various sources such as Philpost and other government corporations and international funding institutions.
- Increase deposits through more aggressive deposit generation activities from local government units, government institutions, private companies, etc. The Bank branches were asked to pitch in with assigned quota deliverables.
- Tap lending operations more substantively by increasing loanable funds to 90 percent during the five year plan period.
- Increase fees/commission income through the various business transactions offered by the Bank.
CORPORATE IMAGE AND COMMUNICATIONS PLAN
Public awareness of the existence of an institution, particularly if it conjures a positive association, is a prerequisite to sound business performance. This is often demonstrated in product brands, where oftentimes it is the brand that carries the product.
Unfortunately for Postbank, it is an unknown brand, in spite of being a public institution and even if it has existed for over a century.
The New Management has put in place a corporate communications plan starting in 2012.
A NEW LOGO FOR POSTBANK
A new logo was created to replace the old mail envelope logo which appeared to be more symbolic of Philpost, and which was not compatible with the e-money system now being introduced by the Bank. The new logo contains three major elements: A stylized Philippine Flag to show that the Bank is public, an arrow, to stress movement and dynamism, and the slogan, “Kung Nasaan Kayo Nandoon Kami” to suggest the strong presence of the Bank in the countryside as the MBO project is implemented.
A RENOVATED BUILDING
The PPSB building in Plaza Lawton will still be in the shadow of its iconic “mother” building, the Bureau of Posts, but its recent acquisition and still on going renovation may acquire a distinct character especially, if Philpost proceeds with its plan to transfer offices.
In 2012, the building was dressed up with a new coat of paint, some sections underwent a facelift, and the interiors were aesthetically improved.
A REVAMPED WEBSITE
The Postbank website was installed over a decade ago, but it has hardly been used as evident from the dearth of information about the Bank
Realizing the potential value of the website for the Bank’s advertising marketing and sales requirements at relatively little cost, the Postbank website underwent a revamp in 2012 and has been reopened in time to be used as an advertising medium for the Bank’s Remittance Project.
IV. 2102 FINANCIAL PERFORMANCE HIGHLIGHTS
PostBank’s resources increased by 3% from PhP6.00 billion in Year 2011 to PhP6.22 billion in Year 2012. Loans and discounts (net) account for 43% (PhP2.69 billion), while Investments comprise 36% (PhP2.20 billion) of Total Resources. The remaining twenty one per cent (21%) or PhP1.32 billion is composed of other assets (Real and Other Properties Acquired or ROPA of PhP95.6 million, Due from Bangko Sentral ng Pilipinas and Other Banks of PhP584.19 million, Cash on Hand, checks and other items of PhP134.96 million, Bank Premises, Furniture, Fixture and Equipment of PhP88.28 million, Sales Contract Receivables of PhP56.13 and Others of PhP361.33 million).
Total Revenues for 2012 reached PhP527.09 million, 6% higher than the previous year’s level of PhP496.32 million. This was due to increase in the level of loan portfolio and management of expenses which is just 1% higher than the previous year’s level from PhP490.98 to PhP496.72. Interest income totaled
PhP457.18 million from PhP422.52 million in the Year 2011, with interest income from loans contributing PhP303.16 million, as against last year’s PhP292.55 million and interest income from investments of PhP121.99 million against PhP107.11 million in December 2011. Non-interest income reached PhP69.90 million composed of Fees and Commissions Income ( PhP46.54 million), Gains from Financial Assets (PhP7.68 million) and Other Income (PhP15.69 million).
Net income after tax stood at PhP30.37 million for Year 2012, which is about six times higher than the previous year’s income of PhP5.34. The Net Income is equivalent to 4.21% Return on Equity (ROE) compared to industry’s ratio of 13.43% (as of June 2012) and a Return on Assets (ROA) of 0.05% vs. the industry’s ratio of 1.60% (as of June 2012).
Our deposits (outstanding) stood at PhP5.40 billion. Total Deposit Liabilities (outstanding) increased by 3% from PhP5.24 billion last year to PhP5.40 billion in year-end 2012.
In terms of deposit mix, the bank generated 70% of its total deposits or PhP3.80 billion from government entities, while the remaining PhP1.60 billion or 30% was contributed by the private sector compared to a deposit mix of 70:30 government to private deposits, registered in the year 2012.
Deposit by Type
By type of deposits (outstanding), 91% or PhP4.89 billion were savings deposits. Time deposits comprised 4% of total deposit liabilities while demand deposits comprised 5% for the year 2012.
Current loans (gross of provisions for probable loss) outstanding totaled PhP2.49 billion, while Non-Performing loans (gross provisions for probable loss) outstanding amounted to PhP429.27 million or 14.68% of total loan portfolio.
Consumption loans comprise 31.3% or PhP915.72 million while the remaining 68.7% or PhP2.00 billion were regular and other loans, composed of the following: (1) Loans to Government – PhP347.04 million; (2) Agrarian Reform and Other Agricultural Loans – PhP174.04 million; (3) Development Incentive Loans – PhP189.79 million; (4) Microfinance Loans – PhP0.62 million; (5) Small and Medium Enterprises – PhP319.58 million; (6) Contract to Sell – PhP68.79 million; (7) Loans to Private Corporations – PhP706.31 million; (8) Loans to Individuals for Housing Purposes – PhP136.70 million; and (9) Loans to Individuals for Other Purposes – PhP64.34 million.
Our Lending Efficiency stood at 86% of the Bank’s loanable funds.
Total investments decreased to PhP2.21 billion from PhP2.45 billion last year or by 10%. This was due to increase in lending operations thus lesser funds for investments.
In terms of regional/ branch performance, the top deposit generators were Head Office with PhP1.35 billion or 25.0% of total deposits, followed by Tuguegarao with PhP472.42 million or 8.7%, Cagayan de Oro with PhP326.05 million or 6.0%, Cebu with PhP315.00 million or 5.80% of the total deposits and Legazpi with PhP314.81 million or 5.8%.
For loans, the top performers were Head Office with gross loan portfolio of PhP1.1 billion or 37.7%, Cagayan De Oro with PhP172.29 million or 5.9%, Tuguegarao with PhP159.90 million or 5.5%, San Fernando (La Union) with PhP142.52 million or 4.9% and Iloilo with PhP139.83 million or 4.8%.
On a per area level, top funds generator was the Metro Luzon Area, contributing PhP1.74 billion to the total deposit portfolio. This was followed by the North Luzon Area with PhP1.16 billion deposit funds. In terms of loans, Head Office with Metro Luzon Area contributed PhP1.31 billion to the total loan portfolio, which was followed by North Luzon Area which contributed PhP604.01 million.