Afternoon DelightAfternoon Delight

““The way to succeed is by The way to succeed is by being a better evaluator and being a better evaluator and

manager of risk than manager of risk than competition”competition”

Glenn C. AlbertGlenn C. Albert

60 YEARS OF DEVELOPMENTAL BANKING

• MAJOR PROVIDER OF MEDIUM TO LONG - TERM FUNDS FOR: - INFRASTRUCTURE AND LOGISTICS - ENVIRONMENT - SMALL AND MEDIUM ENTERPRISE DEV’T. - SOCIAL SERVICES (HOUSING, HEALTH CARE, EDUCATION)

• FIRST PHILIPPINE BANK TO BE ISO 14OO1

• FINANCIAL INDICATORS AS OF 12-31-O6 - P235 BILLION IN RESOURCES - P 35 BILLION AUTHORIZED CAPITAL - P 3.7 BILLION NET INCOME

• COUNTRY’S PREMIERE DEVELOPMENT FINANCIAL INSTITUTION

DBP HEDGING PROGRAM FOR DBP HEDGING PROGRAM FOR EXPORTERSEXPORTERS

TO HELP EXPORTERS HEDGE THEIRUS DOLLAR INFLOWS AGAINST THEFLUCTUATIONS OF FX RATES

I. FOREIGN EXCHANGE INSURANCE PROTECTION

II. FOREIGN EXCHANGE FORWARD RATE PROTECTION

ALLOWS THE EXPORTER THE RIGHT BUT NOT THE OBLIGATION TOSELL HIS US DOLLARS AGAINST PHILIPPINE PESOS TO DBP AT ASPECIFIED PRICE ON A SPECIFIED DATE

• TERM OF 1 TO 3 MONTHS• MINIMUM AMOUNT OF $1O,OOO.OO• PROTECTION RATE• INSURANCE FEE BASED ON MARKET RATE

On On DAY 1DAY 1, exporter and DBP agree on the following:, exporter and DBP agree on the following: Protection Rate Protection Rate : USD/PHP 46.00: USD/PHP 46.00 USD/PHP Rate at Trade Date USD/PHP Rate at Trade Date : USD/PHP 46.20: USD/PHP 46.20 Notional Amount Notional Amount : $ 10,000.00: $ 10,000.00 Insurance FeeInsurance Fee : To be determined ( : To be determined (basedbased

on market conditions) on market conditions)

*Assuming rate of option fee based on market conditions is*Assuming rate of option fee based on market conditions is : 0.80% : 0.80% Insurance fee in USD = 0.8% x Notional AmountInsurance fee in USD = 0.8% x Notional Amount

= 0.8% x $10,000= 0.8% x $10,000 = $ 80= $ 80

EXAMPLE OF FOREIGN EXCHANGE INSURANCE PROTECTIONEXAMPLE OF FOREIGN EXCHANGE INSURANCE PROTECTION

EXPORTERS HEDGING PROGRAM

On On MATURITY DATEMATURITY DATE, ,

USD/PHP exchange rate : 46.40

Protection Rate : 46.00

SCENARIO 1: Peso Depreciates from 46.20 46.40

Exporter gains, he may sell his $10,000 at 46.40 to DBP

ACTUAL GAIN = (Exchange Rate at MATURITY) – ACTUAL GAIN = (Exchange Rate at MATURITY) – (Protection Rate) – (Protection Rate) –

(Insurance Fee in FX TERMS)(Insurance Fee in FX TERMS)

= P 46.40 – P46.00 – P 0.37 = P 46.40 – P46.00 – P 0.37 ($80 x($80 x P46.20)/$10,000P46.20)/$10,000

= = P 0.03 per dollarP 0.03 per dollar

EXAMPLE OF FOREIGN EXCHANGE INSURANCE PROTECTIONEXAMPLE OF FOREIGN EXCHANGE INSURANCE PROTECTION

EXPORTERS HEDGING PROGRAM

On On MATURITY DATEMATURITY DATE, ,

USD/PHP exchange rate : 45.00

Protection Rate : 46.00

SCENARIO 2: Peso Appreciates from 46.20 45.00

Exporter is covered at the protection rate, he sells his $10,000 at 46.00 to DBPOPPORTUNITY GAIN = (Protection Rate)OPPORTUNITY GAIN = (Protection Rate)

- (Exchange Rate at (Exchange Rate at MATURITY)MATURITY)

- (Insurance fee in FX TERMS)- (Insurance fee in FX TERMS)

= P 46.00 – P45.00 – P 0.37= P 46.00 – P45.00 – P 0.37 = = P 0.63 per dollarP 0.63 per dollar

EXAMPLE OF FOREIGN EXCHANGE INSURANCE PROTECTIONEXAMPLE OF FOREIGN EXCHANGE INSURANCE PROTECTION

EXPORTERS HEDGING PROGRAM

FOREIGN EXCHANGE FOREIGN EXCHANGE FORWARD RATE PROTECTIONFORWARD RATE PROTECTION

A foreign exchange contract where only the net difference between the agreed dollar/peso forward rate and the market rate shall be settled at maturity

FOREIGN EXCHANGE FOREIGN EXCHANGE FORWARD RATE PROTECTIONFORWARD RATE PROTECTION

• TERM OF 3O DAYS TO 12 MONTHS• MINIMUM AMOUNT OF $1O,OOO• NEEDS CREDIT APPROVAL FROM DBP

FIXING RATEFIXING RATE is the USD/PHP RATE is the USD/PHP RATE at at Fixing DateFixing Date

Fixing Date Fixing Date -- One business day prior to Maturity DateOne business day prior to Maturity Date

Fixing Rate is obtained from the AM PDS weighted Fixing Rate is obtained from the AM PDS weighted average rate on the REUTERS page PDSPESO1average rate on the REUTERS page PDSPESO1

PESO NET SETTLEMENT

Peso Net Settlement Amount = Fixing Rate – Peso Net Settlement Amount = Fixing Rate – NDF RateNDF Rate

Peso Net Settlement Amount will be paid on Peso Net Settlement Amount will be paid on the maturity date of the NDF Contractthe maturity date of the NDF Contract

FOREIGN EXCHANGE FORWARD RATE PROTECTIONFOREIGN EXCHANGE FORWARD RATE PROTECTION

EXPORTERS HEDGING PROGRAM

EXPORTER DBPExporter Pays P 0.28 x Exporter Pays P 0.28 x

Notional Amount to DBPNotional Amount to DBP

ON SETTLEMENT DATE

FX Forward Rate : 46.22 (computed in previous example)

USD/PHP Rate (Fixing Rate) : 46.50

EXAMPLE:

FX Forward Rate : 46.22 Notional Amount : $1O,OOO

Exchange Rate : 46.5OExporter Pays: (46.5O - 46.22) x $1O,OOO = P 2,8OO

If Fixing Rate > FX Forward Rate, thenIf Fixing Rate > FX Forward Rate, then

FOREIGN EXCHANGE FORWARD RATE PROTECTIONFOREIGN EXCHANGE FORWARD RATE PROTECTION

EXPORTERS HEDGING PROGRAM

EXPORTER DBPDBP Pays P 0.22 x DBP Pays P 0.22 x Notional Amount to Notional Amount to

ExporterExporter

ON SETTLEMENT DATE

EXAMPLE:

FX Forwrd Rate = P 46.22 Notional Amount = $1O,OOO

USD/PHP Rate = 46.OO

DBP Pays: (46.22 - 46.OO) x $1O,OOO = P 2,2OO

FX Forward Rate : 46.22

USD/PHP Rate (Fixing Rate) : 46.00

If Fixing Rate < FX Forward Rate, thenIf Fixing Rate < FX Forward Rate, then

FOREIGN EXCHANGE FORWARD RATE PROTECTIONFOREIGN EXCHANGE FORWARD RATE PROTECTION

EXPORTERS HEDGING PROGRAM

Evaluation Criteria

DBP shall finance projects which are technically, financially and economically viable and environment-friendly

CAMP ANALYSIS

CASH• Financial ratios• Balance sheet items

ADMINISTRATION• Mgmt. Experience• Owner’s health• Succession plan• Personal networth• Attitude towards banks

MARKET • Market Conditions • Clientele• Growth in sales

PRODUCTION• No. of suppliers• Inventory turnover• Potential to increase production and service capacity• Quality of business location

Does due diligence on the borrower’s:Does due diligence on the borrower’s:√ S S tabilitytability√ E E ntrepreneurshipntrepreneurship√ R R eputationeputation√ R R epayment Behaviorepayment Behavior

Sources information from Sources information from character references, character references, background and credit investigationbackground and credit investigation

Please Contact:

Senior Vice President Corazon D. CondeHead, SME DepartmentDevelopment Bank of the PhilippinesTel. No. 815-1520

OR

SAVP Dulce Ranosa Celia S. Patilan Tel. Nos. 818-9511 locals 2557/2529 (Trunkline) 840-3435/ 892-5727 (Direct Line)