Dlsu Paper

De La Salle University - Manila
Ramon V. Del Rosario College of Business
A Strategic Management Term Paper on
LAND BANK OF THE PHILIPPINES
In Partial Fulfillment of the Course Requirements in

Strategic Management
Submitted to:
Dr. Elfren S. Cruz
Submitted by:
Almira J. Garcia
Student No. 11183640
Master of Business Administration
Management and Organization Department
Submitted on:
rd
3 Term, AY 2014 2015
EXECUTIVE SUMMARY
This Strategic Management term paper aims to propose corporate strategies and competitive
advantages that can contribute to the attainment of the vision and objective of the Land Bank of
the Philippines or LBP aligned with the National Governments thrust of inclusive growth. As a
government financial institution, LBP is the only local universal bank which has a social
mandate to improve the quality of life of the Filipino people, primarily the small farmers and
fisherfolk, in the countryside -- pertaining to all the provinces, cities, and municipalities in the
Philippines. Thus, LBP is expected to extend more innovative financial services and tie-ups with
strong partners to provide credit support especially to areas/regions of the country which are
unbanked or have no bank branch presence.
Module One presents the Table of Contents, Acknowledgements and a brief Introduction about
the paper.
Module Two describes the External Environment Analysis using the Five Forces of Competition
by Michael Porter. It includes Industry Definition, Analysis of the Present Task Environment,
Analysis of Potential Changes in the Macroenvironment, identification of Threats &
Opportunities to the Industry, Industry and Competitive Analysis and Broader Societal
Expectations.
Below are the results of the analysis of the Financial Services Industry using Porters FiveForces Model:
Five Competitive Forces
Evaluation
Threat of new entrants
Low
Threat of substitute products
Low
Bargaining power of buyers
High
Bargaining power of suppliers
High
Intensity of rivalry among existing competitors
High
Page 1
Strategic Management Term Paper on Land Bank of the Philippines
Almira Jorda-Garcia Student ID no. 11183640
Identified Threats and Opportunities to the Industry:

Change in the
Segment
Demographic
Macroenvironment
Effect on the
Barrier /
Increases Industry
Growth
Demographic
Improving Labor and

Employment Rate
Demographic
Improving Consumer
Sentiment
Increasing number of
OFWs
competition
Determinant
Philippines' demographic 'sweet spot' to be

experienced in the years
to come
Demographic
Effect on the force of

Conclusion
Decreases Intensity of
Rivalry among existing
competitors
Decreases Bargaining
Power of Suppliers
OPPORTUNITY
Increases Industry
Growth
competitors
OPPORTUNITY
Increases Industry
Growth
competitors
OPPORTUNITY
Decreases Supplier
Concentration
Power of Suppliers
OPPORTUNITY
Increases Industry
Growth
OPPORTUNITY
Decreases Supplier
Concentration
competitors
Power of Suppliers
Decreases Supplier
Concentration
OPPORTUNITY
OPPORTUNITY
Social
Increasing Emphasis on
Good Corporate Citizenship
Strengthens Brand
Identity
Power of Buyers
OPPORTUNITY
Social
Extending the Retirement

Age of Employees
Increases
Availability of
Workforce Supply
Power of Suppliers
OPPORTUNITY
Technological
Increasing usage of Mobile

Commerce by Filipinos
Increases Industry
Growth
competitors
OPPORTUNITY
Increasing Geolocation
Information
Increases Number
of Buyers
Power of Buyers
OPPORTUNITY
Brand Identity
Increases Intensity of
competitors
OPPORTUNITY
Increase in Information and

Communications
Technologies (ICT)
Increasing Popularity of
Cloud Computing
Increases Industry
Growth
OPPORTUNITY
Despite slowdown in
economic growth,
industries in the Philippines
Increases Industry
Growth
Rivalry Among existing
competitors
competitors
competitors
Technological
Technological
Technological
Economic
Rising Investment in Next

Wave Cities
Groundbreaking designs of
banks in the future
Increases Industry
Growth
OPPORTUNITY
OPPORTUNITY
Page 2
Economic
Legal
Infrastructural
Political
Legal
Political
Ecological
Technological
will continue to experience

robust growth
Robust Growth of
Remittances to the
Philippines
Increase in Capital
requirements of Banks in
the Philippines
Philippine Government will
increase annual
appropriation for
infrastructure development
Continuing Pursuit for
Inclusive Growth
competitors
Decreases Threat of
Entry of New Entrants
OPPORTUNITY
Increases Industry
Growth
competitors
OPPORTUNITY
Increases Industry
Growth
OPPORTUNITY
Decreases supplier
concentration
competitors
Decreases bargaining
power of supplier
Increases number
of buyers
power of buyers
OPPORTUNITY
Impact of the Full

Implementation of the Basel
III Framework
Uncertainties ahead of 2016
National Elections
Increases
Concentration and
Balance
Decreases Industry
Growth
THREAT
More super typhoons are

expected to hit Philippines
in the future
Banks start to invest in antifraud technology
Decreases Industry
Growth
competitors
competitors
competitors
High Bargaining Power
of Suppliers
Increases Bargaining
Power of Suppliers
THREAT
High Threat of Entry of

New Entrants
THREAT
Government Policy

New Entrants
THREAT
Low Entry Barrier

due to Government
Policy

New Entrants
THREAT
Increases Diversity
of Competitors
competitors
THREAT
Technological
Emergence of Neobanks
Legal
Approval of E-Commerce
Act
Legal
Legal
Social
Eased and simplified

opening of banks branches
in PH
Increase in the probability
of passing new laws
allowing more foreign
organizations to operate in
the Philippines
Entry of crowdfunding as
an alternative financing
option for new ventures
Increase Industry
Growth
Low Entry Barrier
Increases Cost
Relative to Total
Purchases In the
Industry
Increases Cost
Relative to Total
Purchases In the
Industry
Government Policy
OPPORTUNITY
OPPORTUNITY
THREAT
THREAT
THREAT
Page 3
Module Three shows the Analysis of the Internal Environment of LBP by identifying the
companys Strengths & Weaknesses using the Banks financial ratios and the Value Chain
Framework. The personal values of key implementers in the company are also described as part
of the analysis of LBPs internal environment using the 10 Catholic Social Teaching framework.
Strengths
LBPs Superior Assets
and Capabilities
Strong Financial Standing
Basis:
Financial Ratios
Profitability Ratios
Value Chain: General
Administration
Direct affiliation with

National Government
(LGUs, NGAs, GOCCs)
Financial Ratios
Leverage Ratios
Value Chain: Supply
Chain Management
Activities:
Implementing the Banks lending policies
and procedures in strict compliance,
documenting and monitoring of loan
accounts performance, maintain
sound
accounting practices and performing risk
management measures.
Identifying and collaborating with strategic
partners to provide more loans/credit
access/supportto
newclientsand
maintaining a sound accounting and finance
performance compliant to regulatory policies
and procedures of BSP and COA.
Strong Tie-Ups with

established conduits (i.e.,
PFIs, cooperatives, SFF
groups)
Value Chain: Distribution
Partnering with reputable and good standing

institutions like key cooperatives, large
enterprises, and small farmers and fisherfolk
(SFF) groups.
Strong Commitment to
Extend More Credit to its
Mandated Sectors (Small
Farmers and Fisherfolk
and Agrarian Reform
Beneficiaries) and other
Priority Sectors
Financial Ratios
Providing financial and technical assistance

such
as
project
evaluation/impact
assessment,
account
servicing
and
monitoring when lending to its mandated and
priority sectors.
Extensive Branch Network

in all provinces of the
country
Providing easier access to distribution

channels by physically transporting the
ATMs to the place of the clients for them to
withdraw the cash needed without needing to
travel to the nearest branch available; thus,
reducing costs for the clients
Timely Delivery of
Innovative Products and
Services
Introducing
new
ways
of
making
credit/funds more convenient and easier to
access by the clients through faster
channels/conduits and more responsive cash
delivery systems
Value Chain Operations

and Research and
Development
Page 4
Strategic Management Term Paper on Land Bank of the
Philippines
Competent and Responsive Value Chain: HRM

Manpower
Recruiting, hiring, training, and developing

knowledge-based
skills
and
core
competencies of employees for better
delivery
of
customer
service
and
management of the Banks operations
Weaknesses
Lack of Capability
Basis:
Activities:
Inability to match the

preferred lending and
borrowing rates of clients
with other U/KBs
Value Chain: Operations
Sustaining the deposits of clients by

providing them with competitive rates as
compared to other U/KBs, and providing
clients, especially the big ticket clients, with
competitive lending rates by offering lowcost funds.
Concentration to Certain
Economic Sectors
Financial Ratios
Leverage Ratios
Lending to mandated sectors and extending

financial support for agriculture and fisheries
and other national government projects are
prioritized over private developmental
projects and other sectors.

Low Availment of
Financial Services in
Unbanked Regions/Areas
in the Country
Financial Ratios
Leverage Ratios
Reliance on High Cost

Funding Source
Financial Ratios: Leverage

Ratios
Extending
financial
assistance
to
areas/regions in the country that have no
bank presence and have low levels of bank
deposits and/or loan exposure and by
partnering with alternative Financial Services
Provider (FSP) to reach more private
individuals who does not want to deal with
banks and use of mobile, online
and
phonebanking facilities.
Acquiring alternative source of funds that the
Bank can use in addition to deposit liabilities
taken from Official Development Assistance
(ODA) or other foreign borrowings to
provide more credit assistance to priority
sectors.
Page 5
Module Four presents the detailed strategic plan for LBP. After analyzing the external and
internal environments, this section covers the identification and evaluation of the vision &
corporate objectives, evaluation of present corporate strategies, proposal of new corporate
strategies, and competitive advantages using Whartons Competitive Advantage Cycle model to
ensure that the companys strategies are sustainable. Each proposed corporate strategy is based
on the companys inherent strengths/weaknesses, mission and changes in the macroenvironment.
Based on its current vision-mission, LBPs corporate objective is to be the top universal bank in
providing the best technological solutions, environmentally sound, and adequate financial and
support services that effectively address the various needs of its multi-sectoral clients, especially
in promoting inclusive growth and improving the quality of life of people in the countryside,
through its highly ethical, professional, competent and committed workforce consistent with the
best in the world.
Strategic Objectives
As the National Governments official depository bank, LBPs strategic thrust is to spur
countryside development towards nation-building and promote inclusive growth. LBP shall
attain this by expanding its deposit liabilities base and loan portfolio to increase its market share
for the period 2015-2019, as follows:
Year
2013
2014
2015
2016
2017
2018
2019
Total Deposits
(Amount in Php Billions)
LBP*
U/KB System*
704.06
914.24
1,106.23
1,338.54
1,619.64
1,959.76
2,371.31
6,837.53
7,794.78
8,886.05
10,130.10
11,548.32
13,165.08
15,008.19
% Share
10%
12%
12%
13%
14%
15%
16%
* Projected annual growth rate from 2015 to 2019 is based on LBPs average deposit growth rate of 21%
and 14% Industrys average deposit growth rate from 2010 to 2013.
Page 6
Total Loans
LBP*
U/KB System**
Year
2013
2014
2015
2016
2017
2018
2019
267.1
276.4
320.6
371.9
431.4
500.5
580.5
% Share
4,256.96
4,725.23
5,245.00
5,821.95
6,462.37
7,173.23
7,962.28
6.27%
5.85%
6.11%
6.39%
6.68%
6.98%
7.29%
* Projected annual growth rate from 2015 to 2019 is based on LBPs average loan growth rate of 16%
and 14% Industrys average loan growth rate from 2010 to 2013.
Financial Objectives
In order to extend more credit assistance to its priority sectors, LBP seeks to maintain its
institutional viability by earning returns commensurate to its risk exposures. Thus, the Bank aims
to increase its Net Income each year for the period 2015 to 2019, as follows:
Net Income
Year
Net Income*
2013
2014
2015
2016
2017
2018
2019
11.53
12.08
13.39
14.84
16.44
18.22
20.19
% Growth
Baseline
Baseline
10.82%
10.82%
10.82%
10.82%
10.82%
* Projected annual growth rate from 2015 to 2019 is based on LBPs average net income growth rate of
10.82% and 10.72% Industrys average net income growth rate from 2010 to 2013.
Social Objectives
Extend microfinance services to farmers and fisherfolk individuals who are unbanked and
non-members of LBP-assisted key and anchor key cooperatives by engaging them in
financial literacy, wealth management and livelihood programs sponsored by the Bank,
with priority to the poorest and unserved provinces in the country as follows:
Page 7
Year
Target
Number of
Participants
2015
Target Number of
Financial
Literacy/Livelihood
Programs*
50 trainings
15,000
No. of Beneficiaries
enabled to become
eligible borrowers
of LBP
7,500
2016
50 trainings
15,000
7,500
2017
50 trainings
15,000
7,500
2018
50 trainings
15,000
7,500
2019
50 trainings
15,000
7,500
Target Priority
Areas
Apayao, Ifugao,
Sarangani, Ilocos,
Benguet
Negros Oriental
Masbate, North
Cotabato
Mindoro, Romblon,
Marinduque, Eastern
Samar, Northern
Samar
Biliran, Lanao del
Sur, Southern Leyte
Maguindanao,
Zamboanga del
Norte, Davao
Oriental, Sulu
*Target number of seminars conducted with at least 100 participants per training.
The table below summarizes the evaluation of the present strategic options of the company:
Strategic Dimension
Evaluation
Brand Identification
Maintain
Push versus Pull Strategy
Maintain
Vertical Integration
Maintain
Cost Position
Maintain
Price Policy
Maintain
Leverage
Maintain
Specialization
Improve
Channel Selection
Improve
Product and Service Quality
Improve
Technological Leadership
Improve
Service
Improve
Page 8

Proposed Corporate Strategies

Proposed Corporate Strategy No. 1:
Provide ancillary services to low-income farmers and fishermen by helping organize themselves
into small self-made groups that can enable them to have access to microloans from LBP using
the Grameen (which means Village) Bank model.
Strategic Dimension: Service
Basis: LBPs customer base will be expanded to include the non-bank and und non-member of
agricultural cooperatives or farmers associations thus meeting the Banks social
objective of extending microfinance services to the poor and low-income families of
farmers and fisherfolk in the unbanked and underserved municipalities in the country. It
will also address the strategic objective of the Bank to increase deposit and loan
portfolio and thus increasing its market share in the industry.
Proposed Corporate Strategy No. 2:
Seek technological leadership by investing in RFID technology for Mobile Electronic Money
platform.
Strategic Dimension: Technological Leadership
Basis: LBPs weakness is inefficiency in delivering fast financial services and its stringent loan
processing which poor or low-income people cannot afford or have access to where
they are and when they need it most. This mobile money platform of SMART will
bridge the distance between the unbanked/underserved poor or low-income individuals
and the Bank, thereby increasing the rate of collection of loan payments. This will
address the financial objective of increasing the net income for the Bank while saving
on cost in the branchs operations.
Proposed Competitive Advantages
LBPs competitive advantages relative to other government banks such as the Development Bank
of the Philippines (DBP) are:
Page 9
1. More Accessibility to Financial Products and Services - The Bank can develop more
innovative ways of marketing and delivering financial products and services to potential
clients, especially during times of natural disasters (i.e., typhoons/earthquakes) and
political instability (i.e., terrorist activities), particularly in unbanked localities or less
developed areas in the country where it can help uplift the quality of life of people.
2. Wider Service Delivery Networks in the Country. The Bank will add more service
delivery channels to add to its existing 351 branches/field offices and 1,338 Automated
Teller Machines (ATMs) networks to include alternative financial services providers such
as pawnshops, money changers and mobile money agents or remittance centers, to name a
few.
3. More Availability of Low-Cost Funding Source. The Bank will develop more strong tieups with new bilateral and multilateral agencies that can provide loan packages with
competitively low-cost funding and thereby enabling the Bank to offer more competitive
lending rates to its potential borrowers.
MODULE FIVE covers the identification of strategies for each of the functional areas of
LBP as follow: Marketing, Operations, Finance, Human Resources Management, and
Information Management.
MODULE SIX discusses the proposed steps for LBP in implementing the proposed
strategies using the frameworks, 7-S and 10-SIT (Strategy Implementing Tasks), and the 8Steps for Leading Change as guidance for executing strategies successfully.
MODULE SEVEN presents the projected financial statements of LBP for the period
covering 2015 to 2019, inclusive of notes to the financial statements, as an output based on
its vision-mission statements, corporate objectives and proposed strategies covered in the
previous sections of this paper.
Page 10
TABLE OF CONTENTS
EXECUTIVE SUMMARY ............................................................................................................ 2
MODULE ONE ............................................................................................................................ 14
1.1
ACKNOWLEDGMENT................................................................................................... 14
1.2 INTRODUCTION ............................................................................................................15

MODULE TWO EXTERNAL ENVIRONMENTAL ANALYSIS .......................................... 17
2.1
DEFINITION OF INDUSTRY......................................................................................... 17
2.2
ANALYSIS OF THE PRESENT TASK ENVIRONMENT ............................................ 34
(a)
Threat of New Entrants ............................................................................................... 35
(b)
Threat of Substitute Products .....................................................................................43
(c)
Bargaining Power of Suppliers ................................................................................... 45
(d)
Bargaining Power of Buyers....................................................................................... 48
(e)
Intensity of Rivalry among Existing Competitors ...................................................... 52
2.3
ANALYSIS OF POTENTIAL CHANGES IN MACROENVIRONMENT.................... 55

Macroenvironment Framework ........................................................................................... 55
a)
Social Segment ........................................................................................................... 56
b)
Economic Segment ..................................................................................................... 57
c)
Political Segment ........................................................................................................ 57
d)
Technological Segment ..............................................................................................57
e)
Ecological Segment .................................................................................................... 57
f)
Legal Segment ............................................................................................................ 58
g)
Institutional Segment .................................................................................................. 58
Discussion of the Potential Changes in the Macroenvironment .. 46

2.4 THREATS AND OPPORTUNITIES ................................................................................. 71
2.5 INDUSTRY AND COMPETITIVE ANALYSIS ............................................................. 74
2.5.1 Strategic Map .............................................................................................................. 72
2.5.2 Market Definition........................................................................................................ 77
2.5.3 Market Size and Parameters ........................................................................................ 83
2.6
BROADER SOCIETAL EXPECTATIONS ................................................................... 89
2.6.1 Corporate Social Responsibility (CSR) ..................................................................... 89

Page 11
MODULE THREE ANALYSIS OF INTERNAL ENVIRONMENT ...................................... 98

3.1 OVERVIEW OF THE COMPANY ...................................................................................
98
3.2 FINANCIAL ANALYSIS ...............................................................................................
3.2.1
115
Profitability Ratios ................................................................................................
117
3.2.2. Liquidity Ratios ....................................................................................................
120
3.2.3
Activity Ratios ......................................................................................................
122
3.2.4
Leverage Ratios ....................................................................................................
124
3.3 VALUE CHAIN ANALYSIS.........................................................................................

3.4 STRENGTHS AND WEAKNESSES ..................................................
126
136_Toc407981389
3.5 PERSONAL VALUES OF KEY IMPLEMENTERS ..........................
143_Toc407981402
MODULE FOUR ANALYSIS OF INTERNAL ENVIRONMENT.......................................
152
4.1 VISION .........................................................................................................................
152
4.2 OBJECTIVES ...............................................................................................................
154
a) Strategic Objective ...................................................................................................
155
b)
Financial Objective ...................................................... Error! Bookmark not defined.
c)
Social Objective ........................................................... Error! Bookmark not defined.
4.3
EVALUATION OF PRESENT CORPORATE STRATEGIES ................................
4.4
PROPOSED CORPORATE STRATEGIES .................................................................
4.5
1586
169
COMPETITIVE ADVANTAGE 176

4.5.1 Present Competitive Advantages .177
4.5.2 Proposed Competitive Advantages .... 180
MODULE FIVE - FUNCTIONAL AREA STRATEGIES... 182

5.1
MARKETING 182
5.2
OPERATIONS 188
5.3
FINANCE....... 191
5.4
INFORMATION MANAGEMENT... 192
5.5
HUMAN RESOURCES MANAGEMENT (HRM).194
5.6
SUPPLY CHAIN MANAGEMENT (SCM) .. 197
MODULE SIX STRATEGY EXECUTION............................................................................198

6.1
ANALYSIS OF LBPS CAPABILITIES TO EXECUTE STRATEGY.. 198

Page 12

6.2
MANAGING INTERNAL ORGANIZATION FOR STRATEGY EXECUTION.. 203
6.3
MANAGING STRATEGIC CHANGE. 208
MODULE SEVEN FINANCIAL PROJECTIONS..................................................................211

REFERENCES............................................................................................................................212
Page 13
MODULE ONE
1.1 ACKNOWLEDGMENT
In finishing this paper, I would like to express my sincerest gratitude to the following:
Almighty God: for the gift of life, talents and blessings that He has bestowed
upon me and for His abounding love and mercy that has given me the strength,
hope and motivation to finish this paper.
My husband, Allan Garcia: for patiently waiting on me at the DLSU Taft to fetch
me after class or at RCBC whenever I need to work late at night to do my term
paper with my Strama classmates; for showing his unconditional love and
support by keeping up with me whenever I am stressed out from work and
feeling pressured in completing my term paper at the same time.
My company, LBP: for having a National Scholarship Development (NSFD)
Program that allowed me to experience studying in one of the best business
schools in the country the De La Salle University (DLSU).
My boss, Joseny Guevarra, and colleagues at LBP: for their patience and
understanding whenever I need to take time off the office to work on my paper.
To Dr. Elfren Cruz, our role model and mentor: for his patience and dedication in
teaching us all the frameworks needed to assess our company of choice and for
sharing with us his personal and professional experiences that have changed our
perspectives in work and life in general and has inspired us to reach beyond our
grasp.
To my MBA friends and checkers: for enriching my post-graduate experience,
for their continued support and words of encouragement that pushed me to finish
my term paper on time, and their suggestions on how to improve and present my
term paper in order to get OCE endorsement.
Page 14
1.2 INTRODUCTION
The author of this Strategic Management term paper is a student under the Masters in Business
Administration (MBA) program of the De La Salle University. She is currently working as a
Junior Management Associate at the Land Bank of the Philippines (LBP) under the Treasury
Support Department which provides Secretariat functions for the Banks Asset and Liability
Committee.
LBP was chosen as the subject of this paper primarily because the author has been employed
here for more than eight years since 2006 and it is her purpose that the proposed corporate
strategies and competitive advantages be considered by the Banks management to contribute in
its objective of promoting inclusive growth and improving the quality of life in the countryside.
LBPs mandate to provide credit assistance to small farmers and fisherfolk groups and agrarian
reform beneficiaries (ARBs) has expanded over the years to cater as well to the small and
medium enterprises, microenterprises, cooperatives, countryside financial institutions (CFIs),
rural and thrift banks, national government agencies (NGAs), local government units (LGUs),
and other big corporates/large enterprises.
With its vision of improving the quality of life of people in the countryside, LBP faces the
challenge of sustaining its institutional viability while committing to fulfill its social mandate as
a government bank that serves as a conduit or instrument for attaining a progressive and povertyfree Philippines.
To address this challenge of inclusive growth, the author used the various strategic management
frameworks to come up with her proposed corporate strategies on how can LBP can best direct
its service delivery efforts moving forward amidst the fast-changing macroenvironment and
continuous eroding of competitive dynamics in the financial services industry.
Page 15
By the end of year 2014, the Philippine economy has shown a good performance as revealed by
these highlights: (1) Public debt was reduced to below 50 percent of GDP ever since the Aquino
administration assumed office; (2) Philippines obtained ratings upgrade on sovereign debts
making it one notch below investment grade and at par with Indonesia; (3) 6.9 percent GDP
growth by the last quarter of 2014, pushing the average full-year growth to 6.1 percent; and (4)
Philippines ranking the third fastest in economic growth, next to the Peoples Republic of China
with 7.3 percent and Vietnam with 7.0 percent. But on a full-year basis, the country ranked
second next to China with 7.4 percent and slightly higher than Vietnam with 6.0 percent.
However, the National Economic and Development Authority (NEDA) announced on January 28
(Vera, 2015) that the Philippine economy annual GDP growth of 6.1 percent in 2014 was slower
than the 7.2-percent expansion posted in 2013. The 2014 GDP growth was below the
governments goal of 6.5-7.5 percent growth, but within the 6-7 percent range that economic
managers perceived as more realistic. The 6.9 percent GDP growth during the fourth quarter of
2014 was faster than the 6.5 percent posted in the fourth quarter of 2013.
With all these positive developments coupled with positive corporate earning especially on the
financial sector and several government reforms, Philippines is now dubbed as a nation on a
bright spot when it comes to foreign investments. Frederic Neumann, a senior economist at
HSBC Hong Kong, affirms to this statement as published in the New York Times article by
saying the Philippines stands out as the youngest population. As other countries see their labor
costs go up, the Philippines will remain competitive due to the sheer abundance of workers
joining the labor force. This statement, in effect, answers the question as to whether the recent
economic developments are sustainable or not.
In a time of heightened competition in the financial services industry coupled with extreme
consumerism, a goal for financial sustainability is a tall order. Hence, this paper aims to examine
and apply all the frameworks learned under Strategic Management in order to come up with
recommendations on how LBP can take advantage of opportunities in its industry, protect itself
from threats, and also to propose new corporate strategies that will make LBP capable to attain
its corporate objectives and ultimately its vision-mission.
Page 16
MODULE TWO EXTERNAL ENVIRONMENTAL ANALYSIS

Analyzing the external environment helps the company have a detailed look at the industry in
which it operates (Suttle, 2015). It needs to know the competitors it faces in the market, what
makes their products or services competitive and what can the company do to remain
competitive in the marketplace. A company also need to examine new laws, a relaxing of tariffs,
or other factors that can affect a companys business.
By examining ones external environment, the company could assess opportunities in the
marketplace such as an unfulfilled need of consumers or new technological arrivals and threats
like a government regulation that would prevent sales of its products or offer new services.
2.1 DEFINITION OF INDUSTRY
Industry, as defined by Michael Porter, is a group of firms producing products and services that
are close substitutes for each other and satisfy the same needs and wants. It is principally
characterized by the need that it satisfies.
LBP is in the financial services industry under the developmental banking institutions group
classified as a specialized government bank with a universal banking license.
The Financial Services Industry is a group of banks and other financial corporations that offer
financial products and services to individuals, households, companies and constituents and act as
financial intermediaries between the providers (sources) and users of funds. Financial services
include deposit taking and lending, letters of credit, credit card services, commissions and
charges related to financial leasing, factoring, underwriting, and clearing of payments (Bangko
Sentral ng Pilipinas, 2013). Other forms of financial services are insurance, estate, trust and
agency services, securities, and all forms of financial or market intermediation and distribution
of financial products.
The primary goal of the financial services industry is to create economic opportunity by
channeling funds from lenders to borrowers and intermediating between them. Thus, the
Page 17
industry plays a pivotal role in the growth of an economy by providing credit assistance and
additional liquidity to businesses and individual consumers that spur economic activity in a
country.
The financial services industry is considered as one of the largest industry worldwide in terms of
earnings as it comprised a wide range of businesses including merchant banks, credit card
companies, stock brokerages, and insurance companies (Sutton and Jenkins, 2007).
The very nature of the bank as a business unit is to make profit from other peoples money
(OPM). Thus, the main sources of profit of banks are deposit taking, lending and investing, and
offering fee-based financial services (i.e., trading activities, international trade finance,
guarantees/stand-by letters of credit or LCs, loan syndications, underwriting, financial advisory,
and funds arrangement).
INDUSTRY STRUCTURE
In the Philippines, the financial intermediaries in the financial services industry are classified
into two -- (1) The Formal Financial Institutions which are highly regulated and supervised by
the government through the Bangko Sentral ng Pilipinas (BSP), the Insurance Commission (IC),
Philippine Deposit Insurance Corporation (PDIC), and the Securities and Exchange Commission
(SEC); and (2) The Informal Financial Institutions composed of individual moneylenders such as
those offering 5-6 and other similar types of scheme.
This paper will focus on analyzing the formal financial institutions as the informal financial
institutions group lacks existing literature that can be used as basis for analyses. These informal
financial institutions include informal moneylenders such as Five-Six (5-6) to whom rural
households commonly borrow from for both their personal and business-related financing needs
(Santos & Guce, 2001). Five-Six moneylenders usually charge a nominal interest rate of 20%
over an agreed period of time. For example, a person borrows P5.00 from a 5-6 moneylender
will repay P6.00 over a period of one week, including P1.00 interest. No collateral or documents
are required from the borrowers (Kondo, 2003).
Page 18
Non-Bank Financial Intermediaries (NBFIs). Banks account for a far larger share of total
resources and revenues of the Philippine Financial System. Banking institutions are entities
authorized by the BSP to engage regularly in lending out or investing of funds obtained from the
public through deposit. Non-bank financial intermediaries include all other institutions not
primarily engaged in the deposit taking activities.
The Philippine Banking System is composed of universal and commercial banks, thrift banks,
rural and cooperative banks.
a) Universal and Commercial Banks - represent the largest single group, resource-wise, of
financial institutions in the country. They offer the widest variety of banking services
among financial institutions. In addition to the function of an ordinary commercial bank,
universal banks are also authorized to engage in underwriting and other functions of
investment houses, and to invest in equities of non-allied undertakings.
b) Thrift Banking System - represent the banks engaged in accumulating savings of
depositors and investing them. They also provide short-term working capital and
medium- and long-term financing to businesses engaged in agriculture, services, industry
and housing, and diversified financial and allied services, and to their chosen markets and
constituencies, especially small- and medium- enterprises and individuals. Thrift Banking
System is composed of the following:
Savings and Mortgage Banks any corporation authorized by the BSP for the
purpose of accumulating savings deposits and investing tem together with its
capital, in bonds or in loans secured by bonds, real estate mortgages, and other
forms of security, or in loans for personal finance and long-term financing for
home building and home development.
Private Development Banks any bank organized in accordance with the Private
Development Banks Act, as amended, with the primary purpose of promoting
agriculture and industry. At the same time, place within easy reach of people the
medium and long term credit facilities at reasonable cost, to finance the socioPage 19
economic programs of the government and to meet the needs for capital of
Filipino entrepreneurs.
Stock Savings and Loan Associations any corporation authorized to engage in
the business of accumulating the savings of its members or stockholders, and
using such accumulations together with its capital, for loan and/or investment in
securities of productive enterprises or in securities of the Government, or any of
its political subdivisions, instrumentalities or corporations. These entities are
primarily engaged in servicing the needs of households by providing personal
finance and long-term financing for home building and development.
c) Rural and Cooperative Banks - consist of banks that promote and expand the rural
economy in an orderly and effective manner by providing the people in the rural
communities with basic financial services. These are banks that help farmers through the
stages of production, from buying seedlings to marketing of their produce. Rural banks
and cooperative banks are differentiated from each other by ownership. While rural banks
are privately owned and managed, cooperative banks are organized/owned by
cooperatives or federation of cooperatives (Bangko Sentral ng Pilipinas, 2013).
d) Specialized Government Banks consist of government-controlled banks organized for
specific purposes in accordance with their respective charters. At present, there are three
operating specialized government banks, namely:
Development Bank of the Philippines - organized under Republic Act No. 85, as
amended, the purpose of which is to provide long-term credit facilities for the
rehabilitation, development and expansion of agricultural and industry, the
reconstruction of property damaged by war, the broadening and diversification of
the national economy, and to provide the establishment of private development
banks in the provinces and cities.
Philippine Amanah Bank - This bank was created under Presidential Decree No.
264, as amended by P.D. No. 542, whose purpose is to provide credit,
Page 20
commercial, development and savings banking facilities at reasonable terms to the

people of primarily Muslim provinces of Mindanao. It operates under the Islamic
concept of banking called mudraba wherein the borrower or depositor is the
principal and the bank agent is called Mudarib. It is like a partnership.
Land Bank of the Philippines - This bank was created in 1963 through Republic
Act No. 3884 and was amended in 1973 by P.D. No. 521, whose purpose is to
provide timely and adequate financial support in all phases involved in the
execution of needed agrarian reform.
e) Microfinance banks - the newest type of banks that offer broad range of financial
services, such as deposits, loans, payment services and money transfer, to the poor and
low income households for their micro-enterprises and small businesses.
f) Offshore Banking Units (OBUs) - an offshore banking unit (OBU) is any branch,
subsidiary or affiliate of a foreign currencies involving the receipt of funds principally
from external sources and the subsequent utilization of said funds for undertakings inside
or outside the country.
Non-Banks with Quasi-Banking (NBQB) functions - consist of institutions engaged in the
borrowing of funds from 20 or more lenders for the borrower's own account through issuances,
endorsement or assignment with recourse or acceptance of deposit substitutes for purposes of
relending or purchasing receivables and other obligations (Bangko Sentral ng Pilipinas, 2014).
Non-Bank Financial Intermediaries (NBFIs) - refer to all financial institutions other than banks
engaged in the provision of financial services but not in the form of deposits (with guaranteed
interest payments) but rather as investments. This includes the following:
a) Investment house an enterprise which engages or purports to engage in the
underwriting of securities of another person or enterprise, whether in a regular or isolated
basis, including securities of the government and its instrumentalities. They are
considered the most sophisticated type and largest group of NBFI in terms of assets.
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b) Financing Company any corporation or partnership organized for extending credit

facility to consumers and to industrial, commercial or agricultural enterprises, either by
discounting or factoring commercial papers or accounts receivable or by buying and
selling evidence of indebtedness, or by leasing of heavy equipment and industrial
machinery. Mostly concentrated on consumer credit and housing loans.
c) Security Broker/Dealer one who buys and sells securities of another or acquires
securities for the purpose of reselling or offering them for sale to the public or otherwise
dealing or trading in securities for profit. A securities broker is a person engaged in the
business of effecting transactions in securities for the account of others. One that acts as a
go-between in arranging for a buyer to meet a seller of security and earns commission in
the process.
d) Investment Company any issuer which holds itself as a being engaged primarily to
engage in the business of investing, re-investing or trading in securities.
e) Fund Managers a judicial or natural person engaged in all forms of administration
administration of property or money or its equivalent for the benefit of the owner or a 3
rd
person. It may include administrators or executors of estates, trusts, life insurance,

guardianships, custodianships, transfer agency, escrow agency and other activities as the
Monetary Board may determine.
f) Lending Investors are persons who practice lending money for themselves or others.
They use their own capital for the purpose of extending all types of loan, generally short
term, oftentimes without collateral. They provide small consumer loans; salary secured
loans from P 3,000 to P 20,000 and secured real estate loans up to P 1 Million.
g) Pawnshops refer to an entity engaged in the business of lending money with personal
property as security. Pawnshops are the most visible among NBFIs which offer low
transaction costs, rapid loan processing, and average loan amount between few hundreds
to few thousand pesos at interest rates ranging between 4.00% and 7.00%. Loan terms are
100 days to one year with interest rates of 35-45% p.a. Loan collectors go to borrowers,
Page 22
transactions costs are low, and processing period is fast.
Repayment rates are as high as
98%.
h) Money Broker - a financial intermediary engaged in the business of money brokering,
i.e., intermediary on the supply and demand of currency and matching borrower with
lender or buyer with seller at an agreed rate without taking any trading position.
i) Cooperative Credit Unions cooperative members can borrow 2 to 3 times their fixed
deposits. Average loan size is estimated at P 10,000 to
P 300,000 and is for business or
consumption.
j) Non-Stock Savings and Loan Associations - mainly based in communities and among
retirees in the armed forces and the police organization and other employees of the
government of the Philippines. Prominent of these small savings services is the Armed
Forces of the Philippines Savings and Loans Association, Inc. or AFSLAI which is
exclusive to active servicemen and retirees of the armed forces in the Philippines.
Figure 1. Categories in the Financial Services Industry (Formal Financial Institutions)
Source: Bangko Sentral ng Pilipinas (2014)
Based on physical network, NBFIs comprise majority of the industry with 17,855 offices,
followed by banking institutions with 10,024 offices and NBQBs with only 75 offices.
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The Philippine financial services industry is extremely fragmented. This means that there are
numerous players competing but no firm has a significant market share which can strongly
influence events or outcomes within the industry (Porter, 2004).
While it is physically dominated by NBFIs at 64%, these entities role differs from the banking
sector which has long dominated the financial system. Likewise, based on the BSPs Status
Report on the Philippine Financial System for the 2nd Semester of 2013, NBFIs (including
NBQBs) comprise only 4.5% (P448.5 billion) of the industrys total resources (P9.7 trillion).
However, NBFIs partaking in credit expansion must not be taken lightly as this can also impact
competition within various localities.
Banks accounted for 34.8 percent (from 34.5 percent at end-June 2012) of all financial
institutions being supervised by the BSP. As of end-June 2013, the total number of financial
institutions under the effective supervision of the BSP reached 27,395. Of these financial
institutions, the 17,514 pawnshops cornered the lions share at 63.9 percent.
Table 1. Philippine Banking System Physical Composition: Share to Total Banking
Offices for End-June 2013 vs. End-June 2012
The distribution of banking offices barely changed across categories during the review period.
Rural and cooperative banks (R/CBs) continued to hold a bigger slice of the banking system
landscape in terms of operating head offices with a share of 84.5 percent as of end-June 2013. On
the other hand, universal and commercial banks (U/KBs), though fewer in number of head
offices, still have the most extensive network of branches at 58.7 percent.
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Other bank categories with less than five percent share of the overall physical network of the
banking system were government banks at 4.9 percent and foreign bank branches and
subsidiaries at 1.4 percent.
Table 2. Philippine Banking System Physical Composition: Distribution of Physical
Network as of End-June 2013
Domestic banks captured the largest share of physical landscape at 98.6 percent compared to
foreign banks 1.4 percent. Local banks are predominantly rural banks at 87.0 percent while
foreign banks are mostly universal and commercial banks at 80.0 percent.
Notwithstanding physical breadth however, each of these banking categories plays a unique role
in intermediating funds and allocating resources and investments that support economic
development. The continuing challenge for these banks is to scale up growth and increase
efficiency to be able to deliver financial services to a broader market base.
Banks have been responding well to market innovations for greater banking convenience. In
recent years, electronic banking (e-banking) platforms have widely evolved from automated
teller machine (ATM) networks, internet banking, mobile phone banking to the more
sophisticated use of electronic money (e-money) instruments such as cash/remittance cards and
electronic wallet which are accessible via mobile phones or other portable/smart devices such as
tablets and mobile data packets. To keep pace with changing market dynamics, banks have
Page 25
capitalized on the use of e-banking technology to provide fast, efficient and reliable services to a
broader customer base. This broadly indicated the growing usage of mobile ATMs additional
financial access points that cater various clientele.
By banking group, universal and commercial banks continued to hold the biggest share of the
entire ATM network at 86.0 percent. The remaining shares went to thrift banks at 11.9 percent
and rural and cooperative banks at 2.1 percent, respectively. The share of foreign banks stood at
only 1.1 percent. As of end-June 2013, banks with ATM network reached 74. These banks were
composed of 69 domestic banks and five foreign bank branches and subsidiaries. In terms of
year-on-year growth, off-site ATMs or stand-alone ATM units outpaced the growth of on-site
ATMs. As of end-June 2013, off-site ATMs grew by 20.5 percent to 5,405 units compared to onsite ATMs growth of 12.9 percent to 7,724 units.
As of end-June 2013, there were 62 banks offering electronic wallet, 29 banks with
cash/remittance card products, 43 banks with internet banking, 16 banks offering phone banking
(computer-based, non-mobile), 30 banks engaged in mobile banking, 13 banks with proprietary
services and 35 banks with hybrid mobile/internet via BancNet-MegaLink switch banking
services.
FINANCIAL SERVICES INDUSTRY PERFORMANCE
As at 17 February 2014, there are 36 universal and commercial banks, 71 thrift banks, 533 rural
banks, 40 credit unions and 6,267 non-banks with quasi-banking functions, all licensed with the
BSP under Republic Act No. 8791, also known as the General Banking Act of 2000.
In terms of profitability, the Philippine Banking System reported a positive net growth rate of
18.5% to P144.9 billion in 2012. Most of the banks income came from interest registering a net
interest income growth of 10.9% which is slightly lower than the non-interest income growth of
13.7% (BSP, 2013).
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Figure 2. Philippine Banking System Results of Operations

As of the end period 2005 to 2013
Based on BSPs report (2013), NBFIs also reported sound and profitable operations during the
same review period. As of end-December 2013, its net profit hit P39.6 billion.
In terms of income, the net interest income continued to hold a sizeable share of total operating
income at 58.0 percent by end-June 2013. Across banking groups, interest-based earnings are
still the foremost source of income. Net interest income rose modestly by 5.2 percent to P124.3
billion from P118.2 billion in end-June 2012 as the significant decline in interest-related
expenses on savings and time deposits muted the modest expansion in interests earned from
lending activities.
Figure 3. Philippine Banking System Ratio of Sources of Revenue to Assets
for End-June 2013 in Percent (%)
Page 27
In terms of banking groups, private domestic universal and commercial banks as well as
government banks demonstrated narrower net interest margin and interest spread compared to
banks which offers limited financial services such as thrift banks, and rural and cooperative
banks.
Figure 4 presents detailed comparative profitability indicators across banking groups:
Figure 4. Philippine Banking System Profitability Component Indicators
for End-June 2013
With strong overall profit growth, Philippine banks provided positive returns to shareholders,
received higher returns in their investments in the period. Annualized return on assets (ROA)
stood at 2.0 percent from 1.6 percent same period in 2012. last year. Similarly, annualized return
on equity (ROE) inched up to 15.4 percent from 12.7 percent in 2012. By subgroup, universal
banks led all banks in registering the highest ROA and ROE ratio of 2.1 percent and 17.2
percent, respectively. Commercial banks with an ROA and ROE of 1.4 percent and 8.4 percent
provided the lowest returns to shareholders.
Compared to other ASEAN economies, the Philippines had one of the most profitable banking
industry in the region in end-March 2013 as shown in Table 3.
Page 28
Table 3. ASEAN 5 ROA and ROE as of End-March 2013
The Philippine Banking System exhibited steady asset expansion, with total resources as of end
of June 2013 stood at P8,613.1 billion, or 16.2 percent higher than last years P7,410.1 billion.
The build-up in assets was fuelled by growths in all three asset components: cash and due from
banks specifically, placements on special deposit accounts (SDAs), which grew by 259.6 percent,
and loans of 10.5 percent and portfolio investments of 9.0 percent.
Financial assets other than loans particularly, those Available-for-Sale (AFS) grew year-on-year
by 33.2 percent in end-June 2013. This asset profile underpins banks liquid position as liquid
assets mainly cash and due from banks and financial assets other than loans accounted for
42.8 percent of total assets at end-June 2013.
Real estate, renting and business activities had the largest loan intake at 18.4 percent while
financial intermediation had 16.9 percent. Credit activity in real estate, renting and business
activities is reflected not only in residential real estate loans (RELs) but also in commercial
RELs which expanded to P458.0 billion from P302.0 billion in 2012. The other economic
activities with double-digit percent shares were manufacturing at 13.5 percent, followed by
wholesale and retail trade at 12.5 percent.
The level of consumer loans stood at P680.4 billion, higher than year agos P587.0 billion. All
components of consumer loans, i.e., auto loans, credit card receivables, residential real estate
loans and other consumer loans, posted year-on-year growth.
Page 29
Figure 5. Philippine Banking System Loan Portfolio Structure

by Economic Sector (in Percent) (June 2012 vs. June 2013)
Table 4. Philippine Banking System Composition of Consumer Loans

(Levels in PhP Billions, Ratios in Percent) as of End-June 2013
Across banking groups, universal and commercial banks accounted for 66.1 percent of total
consumer loans while thrift banks held the remaining 33.9 percent.
Banks continuously provide credit accommodations to micro, small and medium enterprises
(MSMEs) under R.A. No. 6977 (as amended by R.A. Nos. 8289 and 9501) as total funds
allocated to MSMEs totaled P380.2 billion, lower than P396.2 billion in 2012. Rural and
cooperative banks far exceeded the statutory floor for loans granted to micro and small
enterprises at 25.6 percent and 16.4 percent, respectively. On the whole, the banking system was
Page 30
generally compliant with the 8.0 percent required credit allocation for MSMEs, as the overall
compliance ratio of 12.1 percent is well above the required minimum.
In terms of capital adequacy ratio (CAR), the Philippine banking system in end-June 2013 stayed
above the BSPs minimum statutory requirement of 10.0 percent and international standard of
8.0 percent. CAR of universal and commercial banks stood at 18.0 percent on a solo basis and
19.3 percent on a consolidated basis. Meanwhile, net Tier 1 ratio stood at 16.5 percent and 16.8
percent on solo and consolidated basis, respectively. The hike in CARs was mainly attributed to
the hefty net profits and issuances of common stocks in the total qualifying capital as of the first
semester of 2013. On the other hand, the Philippines CAR on solo basis in end-March 2013 is
the second highest among economies in ASEAN.
Table 5. ASEAN 5 Capital Adequacy Ratio (as of End-March 2013)
As of September 2014, the ranking of the top 10 commercial banks in the Philippines (Table 6)
was led by Banco De Oro Unibank, Inc. (BDO) in terms of assets, deposits, loans, and capital. It
was followed by Metrobank, BPI, and LBP, respectively. Except for capital, LBP ranked fourth
in largest deposits, assets, and loans, except for capital which registered a negative growth rate (3.0%) at rank 5.
Page 31
Table 6. Top 10 Commercial Banks in the Philippines as to Deposits, Loans,

Assets and Capital
In the first semester of 2014, the decline in interest rates boosted banks treasury gains. But most
were striving to build a durable source of income not just by growing their loan books but by
diversifying their portfolio through more loans to households and small and medium enterprises.
Going down-market not only addresses concentration risks but also boosts the banks net
interest margins.
Based on the first-semester results this year, most banks got a big kick from the strong trading
gains in the first quarter. Nine of the countrys 10 largest local banks reported an increase in net
profit in the first six months compared to a year ago, which means they are on track to top last
years record high bottom-line levels.
Here is how the countrys biggest banks fared in the first six months of 2014 as compared to the
same period last 2013:
Page 32
Bank of the Philippine Islands (BPI) grew net income by 52 percent to P9.4 billion,
already accounting for 63.5 percent of the market consensus forecast net profit of P14.8
billion for the whole year. The profits translated to a 21 percent ROE and a 2.3 percent
return on assets.
Metropolitan Bank and Trust Co.s (Metrobank) net profit went up 21 percent year-onyear to P7.4 billion, achieving 57.4 percent of the P12.9-billion market consensus net
profit for the bank for 2012.
Banco de Oro Unibank (BDO) grew its net income by 15 percent to P5.83 billion, putting
the bank on track to meet its full-year profit guidance of P12.5 billion (growth of 19
percent).
Land Bank of the Philippines (LBP) grew its net income by 4 percent to P5.74 billion,
translating to a 16.3-percent ROE.
Security Bank (SB) doubled its first-semester net profit to P5 billion, or an annualized
ROE of 31 percent.
Union Bank of the Philippines (Unionbank) grew its net profit by 42 percent to P4.07
billion; equivalent to a return on equity of about 18 percent.
Rizal Commercial Banking Corp. (RCBC) saw net profit jump by 35 percent to P3.01
billion, equivalent to an annualized return on average equity of 15.43 percent.
Philippine National Bank (PNB) posted a 94-percent year-on-year growth in net profit to
P2.2B billion in the first semester.
China Bank Corporation (CHB) posted a 14.27-percent drop in its first-semester profit to
P2.03 billion due to lower margins on lending and the cost drag of its business expansion.
Development Bank of the Philippines (DBP) grew its net profit by 9.2 percent to P1.9
billion.
The biggest challenge for Philippine banks moving forward, according to INGs country
manager Consuela Garcia, would be the preparation for Basel III, which introduces a complex
package of reforms designed to improve the ability of banks to absorb losses, extend the
coverage of financial risks and have a stronger firewall against periods of stress.
Page 33
In a recent report, Fitch Ratings said it did not expect the capital and liquidity standards under
the Basel III framework to be overly onerous for most major Philippine banks, noting they
were generally well-capitalized and with adequate liquidity.
2.2 ANALYSIS OF THE PRESENT TASK ENVIRONMENT
To understand the interactions between an organization and its macroenvironment, business
operates within several layers or levels of environment.
The task environment encompasses the set of customers, suppliers, and competitors that
constitute the firms immediate environment. The day-to-day operations of the firm involve
activities or decisions related to its task environment. The task environment is more or less
specific to a firm, and is not necessarily shared by its competitors.
The industry or competitive environment surrounds the task environment where environmental
factors at the industry level directly affect most competitors, but not everyone feels them with the
same intensity. For example, the threat of new entrants may be a major concern of competitors in
one segment on an industry but other segments may be much less threatened.
The general environment or macroenvironment is the broadest and most complex area affecting
an organization.
The relevant environment defines the boundaries of the general environment for analytical
purposes based on the key aspects that significantly affect a particular organization. For example,
demographics and lifestyles may be of crucial importance to the consumer goods but of lesser
relevance to the industrial goods firm.
The Five Forces Model of Competition by Michael Porter is used as the key analytical tool for
diagnosing the competitive environment of LBP. The five competitive forces entry, threat of
substitution, bargaining power of buyers, bargaining power of suppliers, and rivalry among
current competitors show that competition in an industry goes well beyond the established
players. On particular circumstances, the customers, suppliers, substitutes, and potential entrants
are all competitors to firms in the industry. These five competitive forces determine the
Page 34
intensity of industry competition and profitability. The strongest forces become crucial in
strategy formulation.
Table 7: Summary of LBPs Present Task Environment

Porter's Five Forces of Competition
Conclusion
Low
Low
High
High
High
(a) Threat of New Entrants

Threat of entry of potential new entrants is dependent on the barriers to entry and reaction from
existing firms in an industry (Porter, 2004). If barriers to entry are high, a newcomer can expect
sharp retaliation from existing firms/competitors in an industry; thus, threat of entry is low.
Analyses of the present barriers to entry are as follows:
Economies of Scale -High. It refers to declines in unit costs of a product (or operation or
function that goes into producing a product) as the absolute volume per period increases
(Porter, 1980). This barrier prevents entry by forcing potential entrants to enter at a large scale
Page 35
and risk strong reaction from existing firms or come in at a small scale and accept the cost
disadvantage.
Financial services industry in the country is primarily bank-based with the banking
institutions comprising 81.3% of the systems total assets. There are a small number of large
banks or U/KBs and large number of medium and small banking institutions such as TBs,
RBs, and NBFIs. These banking institutions continue to compete on cost by investing in latest
technologies and streamlining the operations in which economies of scale can be achieved.
The increase in continued industry consolidation and exit of weaker players increases the
advantage of surviving firms economies of scale with the shared infrastructure and synergies
created by such event.
The geographic expansion of banks has increased the economies of scale of industry
participants as it broadens client base. As of June 2014, BSP report showed there were 10,120
operating banking units consisting of 664 head offices and 9,456 branches and other offices.
This number is expected to increase with the lifting of the moratorium in restricted areas and
ongoing initiative of domestic banks to increase presence in strategic areas of the country in
view of the impending ASEAN financial integration. This is equated to greater customer
volumes sharing in the cost of facilities and banking system, hence decreasing cost of service.
With the extensive branch networks and synergies created through shared infrastructure and
increased resources due to continued consolidation and mergers of existing banking
institutions, new entrants would have difficulty in matching to gain greater economies of
scale. Higher costs posted to new entrants would cause diseconomies of scale making this
barrier high.
Product Differentiation-High. It means that established firms have brand identification and
customer loyalties as a result of past advertising, customer service, production differences,
or being a pioneer in the industry (Porter, 2004). Most customers patronize the same firms
for their financial services such as savings, loans or insurance for several years. Since
financial services firms deal with public funds, trust plays an important role to ensure a
Page 36
loyal customer base. Players took a long time to establish integrity and credibility to
customers which are factors that new entrants in this industry will find hard to match.
In order for new entrants to establish loyal customer bases or maintain customer-firm
relationship, it should heavily invest in advertising to create brand awareness and
technological infrastructure to deliver quality service and build strong relationships with
sophisticated clienteles such as investment banking. The skills required and the
relationships with such clientele cannot be achieved in a short span of time. Therefore,
product differentiation as barrier to entry is high by forcing entrants to spend heavily to
overcome existing customer loyalties.
Capital Requirements-High. It creates a barrier to entry because potential entrants will need
to invest heavily on land, facilities, equipment and human resources in order to compete
with the existing firms. Bangko Sentral ng Pilipinas (BSP) sets high capital requirements in
establishing banks and other non-financial institutions in the country. Banks and nonfinancial institutions are exposed to higher risk and are required to have excess funds in
order to sustain their operations. Below is the new minimum capitalization of banks as
approved by the Monetary Board on October 9, 2014.
NEW CAPITALIZATION OF BANKS IN THE PHILIPPINES
(BSP Circular No. 854, series of 2014)
Bank
Category
Minimum
Capitalization
Universal Banks
Head Office only
Up to 10 branches1/
3.00 billion
6.00 billion
11 to 100 branches1/
15.00 billion
More than 100 branches1/
20.00 billion
Commercial Banks
Head Office only
Up to 10 branches1/
2.00 billion
4.00 billion
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11 to 100 branches1/
10.00 billion
15.00 billion
Thrift Banks
Head Office in National Capital
Region
Head Office only
500 million
Up to 10 branches1/
750 million
11 to 50 branches1/
1.00 billion
2.00 billion
Head Office in All Other Areas

Outside
National Capital Region
Head Office only
200 million
Up to 10 branches1/
300 million
11 to 50 branches1/
400 million
800 million
Rural and Cooperative Banks

Head Office in National Capital
Region
Head Office only
50 million
Up to 10 branches1/
75 million
11 to 50 branches1/
100 million
200 million

Outside
(All Cities up to 3rd class
municipalities)
Head Office only
20 million
Up to 10 branches1/
30 million
11 to 50 branches1/
40 million
80 million
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Outside
(4th to 3rd class municipalities)
Head Office only
10 million
Up to 10 branches1/
15 million
11 to 50 branches1/
20 million
40 million
1/
Branches - inclusive of Head Office
The above shall also be the required minimum capitalization (a) upon establishment of a new
bank, (b) upon conversion of an existing bank from a lower to a higher category bank and
vice versa, (c) upon relocation of the head office of a TB/RB in an area of higher
classification, and (d) when majority of an RBs total assets and/or majority of its total
liabilities are accounted for by branches located in areas of higher classification.
Because entering the financial services industry would require large amount of capita which
new entrants may find difficult to obtain, this barrier to entry is assessed as high.
Switching Cost- Moderate. It is the one-time cost of buyers for switching from one
suppliers product to another. If switching costs are high, then new entrants must offer a
major improvement in cost or performance in order for the buyer to switch from an
incumbent (Porter, 2004).
This may include employee retraining costs, costs of new ancillary equipment, cost and
time in testing or qualifying a new source, need for technical help as a result of reliance
on seller engineering aid, product redesign, or psychic costs of severing a relationship.
New entrants entrants can attract clients by providing better service and offering highly
competitive rates for their products. However, before clients can avail of preferential
rates, they would have to transfer and maintain large deposit amounts to the new entrant
which may deter switching. While savings and demand deposits may entail minimal
switching cost to clients, there are also products and services governed by contracts and
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formal agreements which entail high switching costs such as pre-termination costs for
loans and investments.
New players in the financial services industry must put efforts in improving and
differentiating their products and services, which creates high switching costs for the
buyers. High switching costs entail high capital requirement; therefore, switching cost as
barrier to entry is moderate.
Access to Distribution-High. It creates a barrier to entry because of new entrants need for
a secured and reliable distribution channel. Players in the financial services industry
invest heavily in their distribution channels, such as ATMs, branches or outlets and
electronic transfers, in order to reach a wider market base.
U/KBs and some TBs enjoy broader customer base because of their established wider
branch and ATM networks in key areas of the country and to some extent abroad. By
banking group, U/KBs continued to hold the biggest share of the entire ATM network at
85.7% (BSP, 2013). Share in ATM network of TBs is 12% while rural and cooperative
banks share is 2.3%. The share of foreign banks stood only at 1.6%.
The prevalence of electronic banking (e-banking) platforms have widely evolved in
recent years from ATM networks, internet banking, mobile phone banking through the
use of electronic money (e-money) instruments such as cash/remittance cards and
electronic wallet which are accessible via mobile phones or other access devices. To keep
pace with the changing market dynamics, banks have to capitalize on using e-banking
technologies to provide fast, efficient, and reliable services to broaden their customer
base (BSP, 2014).
These technological innovations and wider branch network have to be matched by the
new entrants in order to capture a greater number of clients; hence, access to distribution
as barrier to entry is high.
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Cost Disadvantages Independent of Scale-High. Costs not incurred by established firms

in the industry but will be a cost disadvantage for the potential entrant if it is not able to
replicate favorable conditions enjoyed by the existing firms. These include proprietary
product technology, favorable access to raw materials, favorable locations, government
subsidies and learning or experience curve (Porter, 2004).
Established firms in the financial services industry can afford not to give higher deposit
rates to clients based on their long relationship and trust, while new players need to offer
higher deposit rates to capture some of these markets. This in turn decreases the spreads
of the new players in the industry as they need to match the lower lending rates of
established firms.
New entrants in the financial services industry may also be cost disadvantaged when
looking for favorable locations for their distribution channels which may have been
cornered by the established firms before market forces bid up prices to capture their full
value.
These development factors raise the cost advantages of existing industry players high
while increasing the barriers for new entrants.
Government Policy-High. Government interventions can limit or even foreclose entry
into industries with such controls as licensing requirements and limits on access to raw
materials. In the financial services industry, BSP is the primary regulator that set limits in
the entry into the industry. The other government regulators are the Philippine Deposit
Insurance Corporation (PDIC), Insurance Commission (IC), and the Securities and
Exchange Commission (SEC). Other types of financial institutions are further regulated
by their respective associations such as the Bankers Association of the Philippines
(BAP), Rural Bankers Association of the Philippines (RBAP), Chamber of Thrift Banks,
BAIPHIL and the Cooperative Development Authority (CDA). Potential entrants to the
financial services industry need to operate within the legal parameters allowed by laws
and regulations of the Philippines. These factors combined make this barrier to entry
high.
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Access to Necessary Inputs High. Given the high capitalization requirements to enter in
the financial services industry, new entrants may find it difficult to obtain the necessary
capital through regular channels. Cost of capital may be too high and may have adverse
impact on the new entrants sustainability in the long run. Sourcing highly skilled
employees will likewise be inflated since established industry players are more likely to
attract better human resource than the new entrants. Considering these factors, the barrier
to entry for this determinant is high.
Expected Retaliation High. This refers to the anticipated actions of existing industry
players against the entry of a new firm in the industry. As of end-December 2013, the
BSP report showed that U/KBs have P8.9 billion or 86.4% of the Philippine Banking
Systems resources and are the most active industry players in terms of geographic
expansion and technological development. This shows that the financial system
particularly the large banks have excess capacity to absorb more risk-taking activities
such as lending and to establish more service distribution channels, making this barrier to
entry high for potential entrants.
Summary of Assessment of the Barriers to Entry
Barriers to Entry
Economies of Scale
Product Differentiation
Capital Requirements
Switching Cost
Access to Distribution Channels
Cost Disadvantages Independent of Scale
Government Policy
Access to Necessary Inputs
Expected Retaliation
Assessment
High
High
High
Moderate
High
High
High
High
High
The Philippine financial services industry is a highly government-regulated industry with

various agencies/institutions supervising and monitoring its activities; primarily because
of its crucial role in managing/dealing with public funds and its participation in stirring
economic growth. Considering the emphasis on innovative and technological channels,
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and infrastructures, new entrants may find it difficult to match existing industry players in
delivering quality service.
(b) Threat of Substitute Products - Low
Substitutes put a limit to the potential returns of an industry by placing a ceiling on the prices
firms in the industry can profitably charge (Porter, 2004). Identifying the substitute products is a
matter of finding other products that can perform the same function as the product of the
industry. For instance, the securities brokers are increasingly confronted with such substitutes
such as real estate, insurance, money market funds, and other ways for the individual to invest
capital, accentuated in importance by the poor performance of the equity markets.
However, among the financial institutions in the Philippines, there is no substitute product is
relatively few as banks and NBFIs continue to offer varied and innovative products at
competitive rates that substitute products may find hard to match.
The rise of shadow banking which is found in real estate sector which engaged some big
conglomerates have posed some concerns in the industry. Shadow bank was a term coined by
economist Paul McCulley in his 2007 speech at the annual financial symposium hosted by the
Kansas City Federal Reserve Bank. It refers to financial intermediaries involved in facilitating
the creation of credit across the global financial system but whose members are not subject to
regulatory oversight. This is also referred as unregulated activities by regulated institutions
(Investopedia, 2014).
According to a World Bank report, while banks dominate the financial system of most emerging
markets like the Philippines, shadow bankings share of the pie is significantly growing. The
sector is particularly large in the Philippines and Thailand (more than one-third of total financial
system assets) and its share has been gradually rising.
Relative Price Performance of Substitutes - Low
This refers to the attractiveness of the substitute products price-performance trade-off vis--vis
the products offered by the industry. Accessible and well-priced substitutes creates a competitive
ceiling on the prices that the industry can charge; however, if these products are relatively
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cheaper than the latters products then it places pressure on industry players to reduce their price
and thus squeeze profit margins (Porter, 2004).
The services and products of firms engaged in shadow banking such as the in-house financing
provided by real estate property developers costs higher to the consumers. However, for e-money
platforms such as G-Cash and Smart Money, the service charges are very low compared to
participants in the industry. Likewise, Filipinos have greater accessibility to these platforms
compared to banks and NBFIs. However, these substitutes cater only to a small fraction of the
customers financial services need. The products offered by the financial services industry
continue to be innovative and cheaper than majority of substitutes making the threat of substitute
products LOW.
Switching Cost Moderate
This refers to the ability of substitute products to attract buyers away from the industry due to
low switching costs. Customers switch cost as a result of availing services of entities outside the
financial services industry varies. These switching costs include pre-termination charges of longterm deposits (e.g., time deposits and long term negotiable certificate of deposits), loans and
other investment products, among others. Likewise, since the products tenor are usually matched
by the industry to their funding source (i.e., the bank retains time deposits to match with long
term loans), industry participants discouraged switching by charging higher service fees for pretermination. Meanwhile, short-term deposits like savings and demand can be easily withdrawn
without any charges and used to avail of substitutes. Hence, this determinants impact on threat
of substitute products is assessed as MODERATE.
Buyer Propensity to Switch Low
This refers to buyers tendency to switch to a substitute product because of the perception of
similar or higher quality, performance, customer service, among others.
Given the wide range of financial services offered by banks and innovative platforms to enhance
accessibility of services to clients, and the relationships established especially towards big ticket
clients vis--vis those provided by substitutes, the impact of the propensity of buyers to switch to
the threat of substitute products is LOW.
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Summary of Assessment of the Determinants of Barriers/Determinants of

the Threat of Substitute Products
Barriers to Entry
Assessment
Relative Price Performance of Substitutes
Switching Cost
Buyer Propensity to Switch
Low
Moderate
Low
Threat of substitute products is LOW because while they basically provide for the same need,
respective risk appetite varies according to the type of market being pursued (in this case, the
individual buyers). Apparently, individual buyers are usually considered high-risk market
especially by institutions serving largely bulk accounts. Hence, rates (among the major
considerations of buyers) vary at which loans are offered. For instance, annual interest rate of
SSS for salary loans is at 6 to 8 percent, while annual interest rate of PSBank is at 14 percent.
Also, with the boom of real estate sector, shadow banking services such as in-house financing
from condominium contractors and real estate property developer poses a threat to the financial
services industry. Likewise, the emergence of e-money platforms such as G-Cash and Smart
Money offered by telecommunication companies has been attracting clients within the financial
services industry to switch to substitute products because of their lower costs.
(c)
Bargaining Power of Suppliers -High
This refers to the vulnerability of the industry due to suppliers ability in threatening to raise
prices or reduce the quality of purchased goods and services. Powerful suppliers can squeeze
profitability out of an industry unable to recover cost increases in its own prices (Porter, 2004).
The suppliers inputs for the financial services industry refer to funds, software and hardware,
human resources and others needed to operate financial institutions. Meanwhile, suppliers are the
depositors/investors, government agencies and other financial institutions, service providers,
employees and other companies providing inputs needed by the industry.
Players of the financial services industry provide more differentiated services than tangible
products. Suppliers are less important to buyers - banks and NBFIs - because services are
enhanced more than buying add-on products. Some of the vendors provide materials that have
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indirect contribution to the companys profits such as office supplies, computers and equipment,
and maintenance and security personnel that are outsourced to other companies.
Supplier Concentration Low
The bargaining power of suppliers is high when the industry is dominated by a few sellers and is
more concentrated than the industry it sells to. Suppliers selling to more fragmented buyers may
exert considerable influence in prices, quality and terms.
The financial services industry has a diverse group of suppliers whose inputs or funds are used
for investment and lending activities. These are broadly public funds; hence, this determinant
makes bargaining power of suppliers LOW.
Presence of Substitute Inputs - Low
This refers to the ability of substitute inputs to weaken the suppliers position because it provides
buyers with alternatives which are neither costly nor difficult to purchase.
The financial services industry can either get its funds for lending and investing activities: (a)
from the depositors/investors (the general public); or (2) by borrowing from the interbank market
(other banks or the BSP). However, the latter is more costly to the firm and has reputational
implications. As such, this determinant makes bargaining power of suppliers low.
Importance of Customer to Suppliers Moderate
When suppliers sell to a number of industries and a particular industry only presents a small
fraction of sales, suppliers are more prone to exert more power. If the industry is an important
customer, suppliers fortunes will be closely tied to the industry and they will want to protect it
through reasonable pricing and assistance in activities like research and development and/or
lobbying.
In the financial services industry, the depositors/investors have the option where to allocate their
resources. Individual clients can use their money to purchase personal needs, start up a business,
lend to another individual, or put their money as savings in a bank or investment in bonds/stocks,
among others. For corporate clients, they can use the money to expand operations, lend to other
corporations, park excess funds in the bank or participate in other money market making
Page 46
activities. These suppliers of funds are important system providers of the financial services
industry, thus this determinant makes the bargaining power of suppliers MODERATE.
Importance of the Suppliers Product as an Input to the Buyers Business - High
There is higher bargaining power of suppliers whenever its product serves as an essential input
to the buyers business.
The suppliers products are the deposits which are important inputs to the buyers or financial
institutions because these are used primarily to fund their lending operations and investing
activities. Without these funds, the financial institution will likely revert to general borrowings
such as bills payables or unsecured subordinated debts which are costly compared to deposits
and will likely diminish their profits creating adverse impact on the firms sustainability in the
long run. As such, this determinant makes bargaining power of suppliers high.
Switching Costs of Suppliers and Firms in the Industry Low
Financial institutions are faced with certain cost if they switch from one service/system provider
to another (i.e., core banking system) although, they can negotiate for better terms with their new
provider to offset the cost of contract pre-termination. As such, this determinant makes
bargaining power of suppliers high.
Threat of Forward Integration Relative to Threat of Backward Integration by Firms in the
Industry Moderate
Service providers (e.g., manpower and IT systems) are unlikely to acquire a financial institution
which is generally larger in terms of resources than the former. The needed expertise to run
banks varies greatly from the expertise needed in handling manpower or IT systems.
Conversely, only UBs are allowed to invest in non-allied enterprises or non-related undertakings.
(i.e., companies engaged in manufacturing, wholesale and retail trade, real estate, etc.) (Manual
of Regulations for Banks, 2012). Because of this restriction, backward integration is not common
within the financial services industry. Given these factors, this determinant makes bargaining
power of suppliers moderate.
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the Bargaining Power of Suppliers
Barriers to Entry
Assessment
Supplier Concentration
Low
Presence of Substitute Inputs
Low
Importance of Customers to Suppliers
Moderate
Importance of Suppliers Product as an Input to the

Buyers Business
High
Switching Costs of Suppliers and Firms in the

Industry
Low
Threat of Forward Integration Relative to Threat of

Backward Integration by Firms in the Industry
Moderate
The bargaining power of suppliers is high because there is no better substitute for the inputs or
funds/money from the general public (supplier of funds) that ensure continuous operations of the
financial services industry. Although other fund providers such as other banks and the BSP are
there, the funds are still ultimately sourced from the general public which has the option to
decide where best to place its money. Other suppliers of labor, information technology
infrastructure and other facilities in the financial services industry have moderate influence to the
industry.
(d)
Bargaining Power of Buyers
The bargaining power of buyers refers to the industrys important buyer groups ability to
compete with the industry by forcing down prices, bargaining for higher quality or more
services, or playing competitors against each other for the sake of industry profitability.
Buyer Concentration versus Firm Concentration Low
Buyer concentration is determined by the size of its contribution to the over profitability of the
industry. If a large portion of sales is purchased by a given buyer this raises the importance of the
buyers business in results. (Porter, 2004) The industry serves the general public both
individuals and businesses. It generates profits largely through its lending activities.
While businesses particularly large conglomerates are among the top borrowers of financial
institutions, the industry is unlikely to be concentrated on any individual or group of companies
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because it is closely monitored and highly-regulated to mitigate concentration risk. Considering

this, no one buyer or group of buyers can exert significant influence on the overall performance
of the industry. Therefore, this determinant makes the bargaining power of buyers low.
Buyer Volume - Moderate
Buyers bargaining power is stronger when large purchases by buyers are important to sellers.
Consumer loans (i.e., real estate, auto loans, credit cards and other loans for personal
consumption) accounts for 15.3% of the total industrys portfolio while the rest pertains
corporate and governmental loans. Among the top conglomerates where the banking system has
exposures are the Aboitiz Group, Ayala Group, Andrew L. Tan Group, Sy Group, Yuchengco
Group, Lopez Group, Gokongwei Group, SMC Group, George Ty Group and Lucio Tan Group.
Most of these conglomerates also own large and well established banks in the industry. While it
is important to acquire big ticket clients, banks recognize the significance of retail clients which
has traditionally yielded higher profitability for the industry players. Thus, this determinant
makes bargaining power of buyers moderate.
Product Differences - High
This refers to the ability of buyers to exert influence on industry players because alternative
products and services are offered by several sellers. As banks have similar products/services,
clients can choose to transact with whichever firm that offers good customer service, attractive
rates and higher accessibility. As such, this determinant makes bargaining power of buyers high.
Buyer Switching Cost Relative to Firm Switching Cost - High
This refers to the extent in which the buyers are tied-up to the sellers given the switching costs.
Alternately, the buyer exerts influence on industry players if the latter has high switching costs
compared to the former.
Existing players in this industry have high switching costs because of the high investments in
technological infrastructure as well as in branching networks to give its clients higher
accessibility to its products and services. Clients have the option to switch from one firm to
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another within the industry at minimal or no cost at all. In this regard this determinant makes the
bargaining power of buyers high.
Buyer Information - High
Where the buyer has full information about demand, actual market prices, and even supplier
costs, this usually yields the buyer greater bargaining leverage than when information is poor.
With full information, the buyer is in a greater position to insure that it receives the most
favorable prices offered to others. (Porter, 2004)
Clients in this industry have broad and readily available access to information regarding the
industry players. Information technologies have relatively made it easier for borrowers to access
and compare rates and quality of service among industry participants. As such, this determinant
makes bargaining power of buyers high.
Ability to Backward Integrate Moderate
A buyer group can exert influence on the industry players whenever they have the ability or can
credibly threaten to integrate backward and produce the industrys product themselves
particularly if vendors are too profitable.
Majority of the large banking groups are owned by large conglomerates as a means of facilitating
and supporting the latters activities. These financial institutions also yield significant returns
augmenting the conglomerates profitability. Aside from being capital intensive, the system is
highly regulated making purchase and acquisition not a usual occurrence. As such, this
determinant makes bargaining power of buyers moderate.
Brand Identity Impact on Quality/Performance - Moderate
This refers to the reputation of quality or credibility that a firm has that is recognized and sought
by buyers.
For banks belonging to the top 10 largest financial institutions in the Philippines, thye have
developed brand identity because of their size, history, investments in technological
infrastructure to broaden geographic reach and service awards. Meanwhile, the brand identity of
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TBs, RBs and Cooperative Banks usually spans only to a particular location or region but clients
pursue them because of what they can offer. Most financial institutions in the industry are still
building its brand name which clients can highly recognize and patronize. As such, this
Price/Total Purchases Moderate
This refers to the price of the product relative to total expenditures on all products. It is the
fraction of total expenditure buyers spend on your products. Financial services industry is mostly
involved risk-taking activities such as assessing the creditworthiness of a customer which is tied
with how products/services are priced. The higher the risk to the financial institution based on its
assessment of customers condition, the higher the cost of funding to the customer. Thus, this
Buyer Profits Moderate
Low profits create incentives to lower purchasing cost. If customers no longer find the industry
products/services profitable or sustainable, they will exert more effort to bargain with the sellers
to lower the latters prices. Diverse customers (i.e., individuals to private corporations) may find
products/services offered by the industry profitable but there are also those that find it less
profitable. In this regard, this determinant is assessed as moderate.
Decision Makers Incentives High
This refers to incentives or benefits that buyers may be getting for availing the products/services
of other industry participants. This could be in the form of insurance or rebates that are made
attractive to customers.
In the banking sector for instance, retail customers are often enticed to avail of an auto loan
package because of the free insurance, gadgets and free fuel that is tied to the product. These
financial institutions conduct consumer buying preferences and develop tie-ups with other
industries to ensure that the firms products/services remain competitive and attractive to buyers.
Consequently, this determinant makes bargaining power of buyers high.
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the Bargaining Power of Buyers
Barriers to Entry
Assessment
Buyer Concentration vs. Firm Concentration
Buyer Volume
Product Differences
Buyer Switching Cost Relative to Firm Switching Cost
Buyer Information
Ability to Backward Integrate
Brand Identity Impact on Quality/Performance
Price over Total Purchases
Buyer Profits
Decision Makers Incentives
Low
Moderate
High
High
High
Moderate
Moderate
Moderate
Moderate
High
While the financial services industry is not concentrated to any individual or group of businesses,
the overall bargaining power of buyers poses a high threat to the financial services industry.
(e)
Intensity of Rivalry among Existing Competitors
Intensity of rivalry among existing competitors refers to the degree of competition among
existing firms in the industry. Rivalry occurs because one or more competitors either feel the
pressure.
Numerous or Equally Balanced Competitors-High. Any moves or countermoves made by
the players in the industry resulting to market instability which intensifies competition.
There are more than 1000 operating banks in the Philippines and all of them have
branches all over the country. Intense competition is present among these banks as
everyone is competing for market share in the industry. Thus, competition is high.
Industry Growth-High. It turns competition a market share game for firms seeking
expansion. Due to the effects of the Euro and US economic crisis, business activities of
financial institutions have slow down. Consequently, this will make intensity of rivalry
high as companies are forced to capture its competitors market share to justify their
existence. Due to some government regulations interest rates in the market were not
competitive.
High Fixed or Storage Costs- High High fixed costs create strong pressures for all the
firms to fill capacity which often lead to rapidly escalating price cutting when excess
capacity is present.
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Storage cost in the financial services industry comes in the form of interest rates to be
paid by the depositors. From the time it was accepted even if it is not invested or lent out
to borrowers, interest expenses are already accruing. Competition for low cost funds is
intensified and companies are forced to operate in full capacity to cover the fixed interest
expense especially when the demands for loans are low. Thus, intensity of rivalry is high.
Lack of Differentiation or Switching Costs - High Undifferentiated products make new
entrants to compete in the industry easily. If switching costs are low, buyers will find it
easy to switch to a new brand. Homogenous products tend to intensify competition in the
industry and the new entrants will then be on the offensive in terms of image building,
with the existing players. They will give their best to defend their market share making
the intensity of rivalry high.
Capacity Augmented in Large Increments -High- Capacity additions result to increase in
supply and such expansion adds pressure to companies. Distribution Channels of
financial services industry provide additional operating capacities. To earn revenue they
need to be fully utilized and everyone will do everything to prove that they are worthy
than their competitors in the business. This will intensify rivalry among other banks with
the same distribution channels. Thus, capacity will result to high intensity of rivalry
among competitors
Diverse Competitors -High- Competitors differ in their strategies, origins, personalities,
and relationships to their parent companies have differing goals and differing strategies
for how to compete and may continually run head on into each other in the process. There
are lots of players in the industry which may be operating from smaller to larger scale.
The different participants in the financial services industry are supported by its parent
company which has different interests ranging from utilities, beverage, insurance, etc.
Such scenario result to high intensity of rivalry among players in the industry.
High Strategic Stakes -High Rivalry in an industry becomes even more volatile if a
number of firms have high stakes in achieving success there. In an industry wherein
companies are highly diversified and enable to develop synergy in their strategic business
unit will have the edge to compete strategically in the market they belong. They may
have interest in banking that will enable them to use the branch network and boost their
Page 53
good relationship with clients and sell their products as well. Such moves intensify the
rivalry among the key players.
High Exit Barriers -High Exit barriers are economic, strategic, and social factors that
keep companies competing in the business even though they may be earning low or even
negative returns in investment. Highly specialized assets like machineries, ATMs, branch
structures, equipment and large capitalization will make it hard for existing players to get
out of the financial services industry. They will try to defend its position and opt to stay,
thereby making intensity of rivalry or competition high.
Summary of Assessment of the Barriers/Determinants of
the Intensity of Rivalry among Existing Competitors
Barriers to Entry
Assessment
Numerous or Equally Balanced Competitors
Industry Growth
Fixed/Storage Cost
Differentiation/Switching Cost
Capacity Augmented in Large Increments
Diversity of Competitors
Strategic Stakes
Exit Barriers
High
High
High
Low
High
High
High
High
While the industrys growth is reasonably high, players are forced to invest heavily on physical
and IT infrastructure to gain economies of scale and provide clients with greater accessibility to
its product and/or services; as such, intensity of rivalry among existing firms high.
Summary of Evaluation of Five Competitive Forces
Five Competitive Forces
Evaluation
LOW
LOW
HIGH
HIGH
HIGH
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2.3 ANALYSIS OF POTENTIAL CHANGES IN MACROENVIRONMENT

The conduct of macroenvironment analysis is needed to understand potential changes taking
place in any industrys external environment. It tells how these potential changes can be a threat
or an opportunity to the industry, and thereby will affect the strategic decision-making of firms
belonging to that industry.
There are six segments that can drive potential changes in the macroenvironment of an industry.
These six segments are the social, economic, political, ecological, technological, legal and
infrastructural environments. Each macroenvironment segment can be further divided into
different or several elements that may have different influence or impact to a specific industry.
Macroenvironment Framework
Here are the steps in analyzing the potential changes in the macroenvironment of an industry:
1. Determine the effect of potential changes on the macroenvironment on the barriers and
determinants of the task environment.
2. Determine the effect of the five forces on the task environment
3. Make conclusions on whether the potential change on the macroenvironment will be a
threat or an opportunity to the industry.
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a) Social Segment
The social environment consists of demographics, lifestyles, and social values.
Demographics may be segmented into several elements:
Population Size total number of people in a given geographic
area. Age Structure number of people within different age bands.
Geographic Distribution growth rates within and shifts of population across
geographic regions.
Ethic Mix The mix, size, and growth rates of ethnic groups.
Income Levels The amount and growth rates of income across demographic/ lifestyle
groups such as family types, age levels, and geographic regions.
Demographic Trends - aging population, rising affluence, geographic distribution of
population, and greater disparities in income levels.
Lifestyles may also be segmented:
Household Formation composition, type, rate of change, and size of households.
Work whether people work, what type of work, where they work, expectations about
work, how long they work.
Education type and level of education.
Consumption what people purchase or consume (or do not purchase and consume).
Leisure how people spend their spare or nonworking time.
Social Values may be broken into the following values:
Political Values reflected in how people vote; how they feel about major political and
social issues.
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Social Values reflected in attitudes toward work, leisure, participation in organizations,

acceptance of other groups, acceptance of social habits (e.g., smoking).
Technological Values reflected in acceptance of new technologies, choices between
costs of technologies and their benefits.
Economic Values reflected in pursuit of economic growth, trade-offs between
economic progress and its social costs.
b) Economic Segment
The economic environment refers to the nature and direction of the economy in which
business operates. There are two types of changes:
Structural Change - refer to change within and across sectors of the economy . Cyclical
Change - refers to upswings and downswings in the general level of economic activity.
c) Political Segment
The political environment may be segmented into formal and informal systems.
Formal System - consists of the electoral process as well as the institutions of
government: the executive branch, the legislatures, the judiciary, and the regulatory
agencies.
Informal System - refers to the areas outside government in which political activity
occurs. It includes local community settings and the media.
d) Technological Segment
The technological environment involves the development of knowledge and its
application in how to do things. It can be broadly segmented into the following
domains:
Research - fundamental or basic research that seeks the principles and relationships
underlying knowledge into some prototype form, often termed invention.
Development - transform knowledge into some prototype form, often termed as
innovation.
Operations - put the knowledge to use in a form that can be adopted by others, often
termed diffusion (i.e., emergence of Internet technology and wireless communications).
e) Ecological Segment
The ecological environment involves the stock of the physical and natural resources
within a region. It can be broadly segmented into the following domains:
Physical land, air, water, and sea.
Nature flora and fauna.
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f) Legal Segment
The legal environment covers the new government laws and regulations that influence
the way firms in an industry will perform.
g) Institutional Segment
The institutional environment involves the physical and intellectual infrastructure and all
the institutions associated with them. It has the following domains:
Physical Infrastructure transportation such as roads, rail, and water
systems. Communications mail, phone, and other electronic systems.
DISCUSSION OF THE POTENTIAL CHANGES IN THE MACROENVIRONMENT
1.
Evolving social, political and technological values of Filipinos due to the rise of middle
class (demographic sweet spot)
Segment: Demographics
By 2015, it is expected that the young professionals (25-34 years old) with an estimated
cumulative spending capacity of P955.0 Billion will usher the country towards increased
consumption growth. Consumption profile of the said demographic segment extends beyond
basic purchases such as food, shelter and clothing. This will result in a strong middle class in the
country, which is dubbed as the demographic sweet spot or demographic window. The said
demographic segment has also strong influence in shaping the social and technological values of
Filipinosboth of which may open up to new opportunities or obsolescence.
The Philippines' population is expected to hit 142 million by 2045, with majority of Filipinos in
the working-age group, according to the Philippine Statistics Authority (PSA). According to its
latest population projections, PSA said around 50 million Filipinos would be added in a span of
35 years. This is the veritable demographic 'sweet spot' that pundits have said the Philippine
economy was entering since majority of the population would be working for a living. The PSA
said 67.5 percent of the population in 2045 would be working-age or between 15 and 64 years
old. The share of working-age Filipinos by that year would be higher than the 62 percent in 2010.
In 2010, Filipinos aged 60 years and over comprised 6.7 percent of the population. This group is
projected to account for about a tenth of the population in 2025 and about a sixth in 2045. The
Page 58
proportion of those aged 65 years and over is estimated to increase to 6.5 percent in 2025, and to
11.4 percent in 2045.
Effect on the barriers/determinants
Increases Industry Growth
Effect on the force of competition
Decreases Intensity of Rivalry among Competitors
Conclusion
OPPORTUNITY to the Industry
2. Increased usage of Mobile Commerce by people in the Philippines

Segment: Social
According to an executive from SMART Communications, there are currently 110 million
mobile subscriptions to date based on SIM cards in the Philippines. Prospects of growth for
mobile commerce in the Philippines are optimistic as telecom companies take on a much bigger
role in pushing for the adoption of electronic payments in a country where majority of purchases
and transactions are still done in cash. With the pervasiveness of the mobile phone, a future
where every phone can be an automated teller machine or a bank branch or a virtual credit card is
not a far-off possibility.
With penetration rates for smartphones in the country seen hitting 50 percent in 2015, and with
rising incomes of the so-called Millennials, Generation Y, and digital natives, mobile payments is
seen gaining more attraction in the country as this provides more convenient financial
transactions for users.
This trend will affect the technological values of the buyers as reflected in their acceptance of
new technologies, choices between costs of technologies and their benefits. The increasing rate
for smartphones in the country demonstrates the possible increase in number of potential clients
that will make use of the electronic banking services using their mobile phones.
Decreases Intensity of Rivalry Among Competitors
Conclusion
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3. Despite slowdown in economic growth, industries in the Philippines will continue to

experience robust growth
Segment: Economic
During the NGs midyear economic briefing last September 2014, Socioeconomic Planning
Secretary Arsenio M. Balisacan (Flores, 2014), said that despite the weather disturbances that
hit the country during the third quarter of 2014, he was hopeful that the economys growth
prospects will not significantly be dampened.
On the supply side, the Philippine National Government (NG) announced that the economy
slowed sharply to 5.3% in the third quarter of 2014 from the year before, hit by a contraction
in state spending and weaker growth in all sectors (Reuters 2014). Asian Development Bank
(ADB) country director for the Philippines Richard S. Bolt said congestion at Manilas ports,
aggravated by the truck ban implemented by the city government from February to early
September 2014, was among the reasons behind the expected slower growth.
Despite the slowdown in economic growth, the ADB Report released last 25 September 2014
(de Vera) stated that the Philippine economy will continue its robust expansion through next
year, but its growth outlook has been slightly lowered as government spending grew by 0.9%
in the first half of 2014, as compared to 11.1% in the same period last year, amid the
controversy over the Disbursement Acceleration Program (DAP); higher inflation; and
monetary tightening.
In its April 2014 forecast, ADB projected the GDP growth to grow by 6.2 percent in 2014,
down from the forecast of 6.4 percent in April, and by 6.4 percent in 2015. When it came out
with its 2015 forecast last April, ADB said the economy would expand by 6.7 percent. The
slightly stronger economic growth projection this 2015 is based on expectations that posttyphoon reconstruction accelerates, government fiscal disbursement improves, and exports
benefit from brighter prospects in the major industrial economies (ADO Update 2014).
The ADB raised its inflation forecasts to 4.4 percent in 2014 (from 4.3 percent previously)
and 4.1 percent this year (from 4 percent previously). The basis of these inflation projections
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came on the back of pending petitions to jack up costs of utilities, and the expected dry
weather that could impact on food production by yearend.
Despite lower forecasts, ADB said the Philippines growth would still be robust compared
with most of its neighbors. Philexport (2014) reported that the country still has the highest
GDP growth forecast among the Association of Southeast Asian Nations-6 (ASEAN-6)
members for 2014-2015. ADB expects the Philippines exports to rebound as global markets
recover, while attracting more brick-and-mortar and job-creating foreign direct investment
(FDI).
Higher remittances from overseas Filipinos workers (OFWs) together with increases in
exports of goods and services will underpin current account surpluses this year. Consumption
and investments remain strong, and exports are recovering. While poverty incidence fell in the
first half of 2013 and GDP growth averaging 6.3% since 2010, Bolt said that the government
should accelerate infrastructure investments, take measures to strengthen competition, and
increase access to finance to sustain economic gains and create more jobs. (ABS-CBN News
2014).
As many Philippine industries continue to have such robust growth, individuals and
corporations in these industries are expected to have more financial transactions, hence will
increase industry growth for the financial services industry.
Conclusion
4. Uncertainties ahead of 2016 National Elections

Segment: Political
As said by ADB country director for the Philippines Richard S. Bolt (de Vera, 2014), gains being
made by the present government would be in vain if the new leaders who would be elected to
assume office in 2016 were to interrupt the current reform agenda. The rollout of much-needed
infrastructure projects under the public-private partnership (PPP) program should be sustained.
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The HSBC economist, Trinh Nguyen, stressed that uncertainty regarding the transition will
probably mean investment will be sluggish in 2015 but may recover in 2016 (Caraballo, 2014).
He forecasted the countrys GDP to grow solidly at 6.1% in 2015. The sluggish performance of
projects under the public-private partnership suggests that government investment may not
increase sharply this year. She mentioned that Any hope of an infrastructure boom will have to
come from the government. The appetite for raising fiscal expenditure is low; therefore, we do
not expect government investment to increase sharply next year. She noted that the ongoing
challenges surrounding the Disbursement Acceleration Program (DAP) also led HSBC to not
anticipate fiscal spending to be a major growth driver this year.
Nguyen said that Rapid population growth ensures that demand for private consumption
expands while strong remittance inflows provide sustained income growth. Moreover, about a
quarter of the Philippines population lives below the poverty line, with the result that the
majority of the consumption basket is essential items such as food. This ensures inelastic demand
even when the economy contracts (Caraballo, 2014).
Decrease Industry Growth
Increase Intensity of Rivalry among Competitors
Conclusion
THREAT to the Industry
5. More super typhoons are expected to hit Philippines in the future

Segment: Ecological
According to the Philippine government, the area's typhoons have been getting stronger.
"Menacingly, the Filipino typhoons are getting stronger and stronger, especially since the 90s,"
said Romulo Virola, head of the government's national statistics board. "From 1947 to 1960, the
strongest typhoon to hit us was Amy in December 1951 with a highest wind speed recorded at
240kph in Cebu. From 1961 to 1980, Sening was the record holder with a highest wind speed of
275kph in October 1970. During the next 20 years, the highest wind speed was recorded by
Anding and Rosing at 260kph. In the current millennium, the highest wind speed has soared to
320kph recorded by Reming in Nov-Dec 2006. If this is due to climate change, we better are
prepared for even stronger ones in the future."
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The steady warming of the oceans is likely to lead to fewer but stronger tropical typhoons, said
scientists from the intergovernmental panel on climate change in a special report on climate
extremes this year. "The average tropical cyclone maximum wind speed is likely to increase, but
the global frequency of tropical cyclones is likely to decrease or remain unchanged," it said.
This will adversely affect the agricultural sector considering the fact that many farmers
cooperatives have a limited loan absorptive capacity and dole out mentality still prevails
among them, all of which make agricultural lending a high-risk but not necessarily a high-return
business.
As contribution of the agricultural sector to the national economy becomes limited, economic
growth is not that much, unlike if there is a robust agricultural sector where there could be an
increase demand for financial services which would contribute to faster economic and industry
growth.
Decreases Industry Growth
Conclusion
Threat to the Industry
6. Groundbreaking designs of banks in the future

Segment: Technological
The banks of the future are looking to inject new life into their outlets -- transforming formally
dull environments into efficient, modern, tech-savvy destinations. Long lines and dated designs
are being replaced with luxurious lounge areas, tailored service offerings and even robots. Banks,
it seems, are about to become a whole lot cooler.
The bank branch of the future must be designed around customer engagement. Banks need to
make customers feel welcome from the moment they walk in the doors.
Qatar's Barwa Bank shows the shape of things to come with its concept branch created by Italian
designers Crea International, which has luxury and efficiency at its heart.
Decked with the latest touch-screen technology, lounge-like areas, leather seats and sleek
interfaces, the design resembles a high-end hotel lobby or an ultra-cool members club.
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Luminescent walls are inlaid with arabesque motifs and bank staff sits next to clients at touchscreen tables.
Forward-thinking design and high-quality service are finally taking center stage. but retail banks
do not exist in isolation and have to jostle with other stores for customers' attention. Whilst
competing with the rise of digital applications and online services, banks also need to keep track
of the developments occurring in brick-and-mortar retailers.
Brand Identity
Increase Intensity of Rivalry among Competitors
Conclusion
OPPORTUNITY
7. Banks start to invest in anti-fraud technology

Banks have now been allowed to develop their own technology that can ensure the security of
their clients plastic transactions, in line with efforts to minimize fraud in the country.
The BSP has approved in November 2014 the implementation guidelines for banks migration to
more secure EMV chip-enabled debit and credit cards. This follows a previous order for banks to
get rid of less-secure magnetic strips on cards they issue their clients by 2017.
New rules on the use of EMV technology, which was developed by global financial payments
firms Europay, Mastercard and Visa, aim to safeguard customer information, reduce card fraud
and maintain interoperability of payment networks, BSP said.
Rizal Commercial Banking Corp. (RCBC) and LBP have entered into a memorandum of
understanding (MoU) with Smart e-Money Inc. (SMI) for a three-month trial period for the use
of Smarts anti-fraud solution (Velasco, 2014). This effort is considered well in place as
automated teller machines (ATMs) fraud and phishing activities also become high tech, thus the
need for more sophisticated anti-fraud device is highly appreciated.
Increases Cost Relative to Total Purchases In the

Industry
High Bargaining Power of Suppliers
Conclusion
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8.
Increase in Minimum Capitalization of Banks

Segment: Legal
BSP has issued Circular No. 854 dated October 29, 2014, announcing the increase in minimum
capitalization of banks. This new rule would make it more expensive for potential new entrants:
(a) to establish a new bank, (b) upon conversion of an existing bank from a lower to a higher
category bank and vice versa, (c) upon relocation of the head office of a Thrift Bank/Rural Bank
in an area of higher classification, and (d) when majority of a Rural Banks total assets and/or
majority of its total liabilities are accounted for by branches located in areas of higher
classification.
The granting of approval by BSP to grant special banking authority, such as expansion of branch
networks shall be the required minimum capital which shall be complied with on a continuing
basis. The move is in line with efforts to preserve the strength of the financial system,
complementing the recent lifting of restrictions on the physical expansion of banks in certain
saturated locations. This also follows the imposition of higher risk-based capitalization
requirements on banks at the start of the year 2015.
The new rule that imposed higher capitalization requirement on banks based on the size of their
branch networks would ensure the financial systems stability amid increasing local and foreign
competition, growing asset portfolios, and increasing complexity of operations.
Under the new rule, it will be harder for smaller banks to expand. It will also limit their company
to penetrate other market segment. For the new entrants on the other hand, more capital is needed
to go into banking business.
9.
Effect on the barriers
High Entry Barrier
Low Threat of Entry
Conclusion
Opportunity to the Industry
Approval of the Electronic Commerce Act (SB1902 and HB 9971)

Segment: Legal
The E-Commerce Act provides electronic documents the same legal protection as paper-based
documents.
Online banking makes access to financial intermediaries easier and more

Page 65

convenient. Potential entrants would view this as favorable because it would not entail too much
resources of the firm. Online banking will give all market participants access to the same level of
information.
Effect on the barriers
Low Barrier
High Threat of Entry

High Intensity of Rivalry among Competitors
High Bargaining Power of Buyers
Conclusion
10. Eased and simplified opening of banks branches

Segment: Legal
The BSP Circular No. 91-1993 has eased and simplified opening up of banks branches, thus
increasing competitors branch network accessibility, leading to greater intensity of competition
within the industry.
Low Barrier
Conclusion
11. Increase in the probability of passing new laws allowing more foreign organizations to
operate within and across the Southeast Asian region, specifically in the Philippines, in
different ways
Segment: Legal
Last 18 July 2014, the Philippine government enacted Republic Act (RA) 10641 or An Act
Allowing the Entry of Foreign Banks in the Philippines, Amending for the Purpose RA 7721.
This allows foreigners to own up to 100 percent of foreign banks and allow entry of established,
reputable and financially sound foreign banks in the Philippines. In addition, it also grants
locally incorporated subsidiaries of foreign banks the same banking privileges as domestic
banks of the same category.
As the Philippine government continues to commit to the ASEAN Banking Integration
Framework (ABIF), it should be expected that more laws and regulations will be made by the
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Philippine government to make it easier for foreigners to operate banks employing financial
services in the Philippines.
Although BSP Governor Amando Tetangco, Jr. expressed his confidence on the local banks
competitiveness in the region when the seamless ASEAN Economic Community (AEC) kicks off
starting 2015, Nestor Tan, President of the countrys largest bank BDO Unibank, Inc., admitted
that Philippine banks are not yet ready for full ASEAN economic integration by 2015. Mr. Tan
said that BDO is just number 19 among ASEAN banks and that the top three Philippine banks
have just the size of Bangkok bank.
Thus, while the banking sector is looking at its place in the AEC by 2015, it is also looking at
initiatives analyzing the macro and micro factors that would be affected with the liberalization of
the banking industry. The strategy has to address the issues of volatility, financial impact and
jobs creation.
Mr. Tan also mentioned that the countrys commercial banks face constitutional constraints of
implementing the mutual-recognition clause of the AEC goal to hire ASEAN nationals in the
Philippine industries. Under the Philippine Constitution, banks are not allowed to hire foreign
nationals. Thus, the Philippine government should establish protective-policy mechanisms on
key areas of the country such as food and financial services sectors that fuel the economy; and
the labor market with focus on the business-process outsourcing industry.
Low Barrier due to Government Policy
Conclusion
12. Philippine Government increase annual appropriation for infrastructure development

Segment: Institutional Physical Infrastructure
The infrastructural segment is comprised of the physical and communication infrastructures.
Quality of infrastructures affects business operations. This segment is concerned with the
changes in the quality of physical infrastructures such as roads, ports and airports, and of
communication infrastructures such as phones, mails and other electronic systems.
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During the 2014 midyear briefing, Speakers at the government has been increasing annual
appropriations for infrastructure. Data from the presentations showed infrastructure budget rising
27% to P562.3 billion -- equivalent to 4.0% of gross domestic product (GDP) in 2015 and
consistent with our plan to increase infrastructure spending to at least 5.0% of GDP by 2016 -from P442.3 billion this year, or 3.4% of GDP. This years infrastructure appropriation, in turn, is
44% up from 2013s P306.9 billion, which was 2.7% of GDP. State spending on infrastructure
rose by more than a tenth annually last semester but still fell short by a third of the governments
target for those six months, according to data released late in August by the Budget department.
Public outlay for infrastructure increased 10.8% to P136.6 billion last semester from P123.4
billion in the comparative year-ago period, but still fell 30% short of a P195.3-billion target for
the first six months of 2014.
Added to this is the expectation of a shortfall by 2016 in Luzons power supply and demand;
hence, the need for additional capacity requirements. By 2016, a 600 MW capacity is required to
meet the demand and required reserve. The Luzon grid needs a total additional capacity of
10,500 MW onwards to 2030.
Conclusion
13. Emergence of Neobanks

Neobank is an institution that provides checking, a prepaid debit card and some form of savings
account without the traditional brick-and-mortar building, says Jim Marous, senior vice president
of corporate development at the marketing agency New Control in Cleveland. It has a narrow
range of product offerings -- mobile deposits, person-to-person payments using phone numbers,
emails or even social media identities, mobile budgeting tools and real-time digital receipts.
However, it does not offer products such as car loans, home mortgages, or business services.
Individual retirement accounts (IRAs) and credit cards are not part of the smart banks packages,
either.
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Neobanks stand out because of these features:

Low cost structure: no monthly fees, no withdrawal costs and low reloading fees.
Large ATM networks with no fees.
No overdraft fees because the checking product is a prepaid, reloadable debit card.
Simple and engaging mobile experience, unlike banking on a phone with a traditional bank.
Intuitive budgeting and money-tracking tools that allow you to determine whether or not
you should buy an item.
Real-time balances: The balance on your smartphone is the exact amount of money you have
available.
Many neobanks also provide ways to use retail facilities for making deposits, reloading their
accounts or paying bills. The initial audience targeted by neobanks is the almost 30 percent of
consumers in the U.S. who do not use the traditional banking system for a variety of reasons.
14.
Increases Cost Relative to Total Purchases In the Industry
Increases Bargaining Power of Suppliers
Conclusion
Robust Growth of Remittances to the Philippines

Segment: Economic
Remittances from overseas Filipinos continued to grow robustly, expanding 7.1 percent to $2.3
billion last July, data released by the BSP yesterday showed. The remittance growth came as
demand for skilled Filipinos abroad remained stable (Torres, 2014). Major banks with strong
remittances businesses said the real bulk of international money transfers came from the Middle
East, as a lot of remittances are booked through the US but originated from other destinations
like the Middle East and North Africa.
Latest data from the Philippine Overseas Employment Administration (POEA) showed that for
January-July 2014, job orders reached 540,037, of which 41.1 percent were processed job orders
intended for service, production, and professional, technical and related employment in Saudi
Arabia, the United Arab Emirates, Kuwait, Taiwan and Qatar (Torres, 2014) .
Cash remittances from overseas Filipinos (OFs) increased by 8.1 percent year-on-year to $2.3
billion in September 2014 (SDR/Sunnex 2014). This brought cash remittances for the nine-Page
69
month period to $19.6 billion, representing 6.7 percent year-on-year growth, BSP Governor
Amando Tetangco Jr. said. The increase in personal remittances was driven largely by the steady
increase in transfers from land-based workers with one-year or more work contracts (5.4
percent), and sea-based and land-based workers with less than one year work contracts (8.2
percent).
Remittances have also been fuelling the growth of the retail and real estate industries, as well as
helping more Filipino families to move up to the middle economic class.
Increase Industry Growth
Low Intensity of Rivalry among Competitors
Conclusion
15. Entry of Crowdfunding as an alternative financing option for new ventures

Segment: Social
The concept of online crowdfunding is a modified concept of funding by adding leverage
through social media and e-commerce. With these new high-end technologies at hand,
crowdfunding can easily reach wider communities of creative talents and aspiring entrepreneurs.
Donors can easily contribute and support projects they like through the crowdfunding website
which runs a campaign page for interested individuals who can pitch in their ideas, backed with
detailed descriptions, including the funding goal and the time span to generate the capital. All
project lists should be provided with videos, texts, and photos in order to entice the crowd to buy
the idea.
Crowdfunding portals leverage technology to provide investors not only with historical data on
the performance of different industries, but also with up-to-date information on the
creditworthiness of registered Filipino SMEs, management composition, and product or service
demand; similar to what our Credit Information Corp. (CIC), seeks to provide: independent and
reliable credit information (Morera, 2014). While government entities inevitably take longer to
set up, private ones are less hamstrung by red tape and are equally useful. Such information can
aid investors in evaluating various project proposals at one time and hasten the process of
determining which projects to support and the amounts to invest. Because project plans are
presented to a network, natural filtering takes place: only the most promising projects get funded,
Page 70
and those that do immediately receive favorable reviews, and, as we all know, favorable reviews
usually translate to better than modest sales. SMEs whose projects do not get the nod of investors
immediately get feedback from the community, enabling them to correct mistakes and improve
offerings.
Majority of the value of the market comes from peer-to-peer lending platforms which has been
adopted by young students from the Ateneo de Manila University as an idea of collaborating on
an online project to help other projects to get funded and come to life. This social media platform
called The Spark Project provides support for creative, innovative, and passion-driven
projects (Amoyan, 2014).
The online crowdfunding website owners charge a standard engagement fee plus a platform fee
of 10% if the project fails to reach its funding goal, or 7% if it successfully reaches or exceeds its
funding goal (Amoyan, 2014). This does not include Payment gateway fees that range from 35% per transaction.
Increases Diversity of Competitors
Increases Intensity of Rivalry Among Competitors
Conclusion
2.4 THREATS AND OPPORTUNITIES

As discussed in the previous section, the following threats and opportunities to the Financial
Services Industry are summarized in the Table 8 below:
Table 8. Summary of Threats and Opportunities to the Industry
Change in the
Segment
Demographic
Demographic
Macroenvironment
to come
Improving Labor and
Employment Rate
Effect on the
Barrier /
Determinant
Increases Industry
Growth
Decreases Supplier
Concentration
Increases Industry
Growth

competition
Conclusion
competitors
Power of Suppliers
OPPORTUNITY
competitors
OPPORTUNITY
OPPORTUNITY
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Change in the
Segment
Demographic
Macroenvironment
to come
Effect on the
Barrier /
Determinant
Increases Industry
Growth
Decreases Supplier
Concentration

competition
Conclusion
competitors
Power of Suppliers
OPPORTUNITY
OPPORTUNITY
Demographic
Improving Labor and

Employment Rate
Increases Industry
Growth
competitors
OPPORTUNITY
Demographic
Improving Consumer
Sentiment
Increases Industry
Growth
competitors
OPPORTUNITY
Decreases Supplier
Concentration
Power of Suppliers
OPPORTUNITY
Increases Industry
Growth
OPPORTUNITY
Decreases Supplier
Concentration
competitors
Power of Suppliers
Demographic
Increasing number of
OFWs
OPPORTUNITY
Social
Increasing Emphasis on
Good Corporate Citizenship
Strengthens Brand
Identity
Power of Buyers
OPPORTUNITY
Social
Extending the Retirement

Age of Employees
Increases
Availability of
Workforce Supply
Power of Suppliers
OPPORTUNITY
Technological
Increasing usage of Mobile

Commerce by Filipinos
Increases Industry
Growth
competitors
OPPORTUNITY
Increasing Geolocation
Information
Increases Number
of Buyers
Power of Buyers
OPPORTUNITY
Brand Identity
competitors
OPPORTUNITY
Increase in Information and

Communications
Technologies (ICT)
Increasing Popularity of
Cloud Computing
Increases Industry
Growth
OPPORTUNITY
Despite slowdown in
economic growth,
industries in the Philippines
will continue to experience
robust growth
Increases Industry
Growth
competitors
competitors
competitors
Technological
Technological
Technological
Economic
Rising Investment in Next

Wave Cities
Groundbreaking designs of
banks in the future
Increases Industry
Growth
OPPORTUNITY
OPPORTUNITY
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Change in the
Segment
Economic
Legal
Infrastructural
Political
Legal
Political
Ecological
Technological
Macroenvironment
Robust Growth of
Remittances to the
Philippines
Increase in Capital
requirements of Banks in
the Philippines
Philippine Government will
increase annual
appropriation for
infrastructure development
Continuing Pursuit for
Inclusive Growth
Conclusion
Increases Industry
Growth
competitors
OPPORTUNITY
Increases Industry
Growth
OPPORTUNITY
Decreases supplier
concentration
competitors
power of supplier
Increases number
of buyers
power of buyers
OPPORTUNITY
Impact of the Full

Implementation of the Basel
III Framework
Uncertainties ahead of 2016
National Elections
Increases
Concentration and
Balance
Decreases Industry
Growth
THREAT
More super typhoons are

expected to hit Philippines
in the future
Banks start to invest in antifraud technology
Decreases Industry
Growth
competitors
competitors
competitors
High Bargaining Power
of Suppliers
Increases Bargaining
Power of Suppliers
THREAT

New Entrants
THREAT
Government Policy

New Entrants
THREAT
Low Entry Barrier

due to Government
Policy

New Entrants
THREAT
Increases Diversity
of Competitors
competitors
THREAT
Legal
Approval of E-Commerce
Act
Social
competition
OPPORTUNITY
Emergence of Neobanks
Legal

competitors
Decreases Threat of
Entry of New Entrants
Technological
Legal
Effect on the
Barrier /
Determinant
Increase Industry
Growth
Eased and simplified

opening of banks branches
in PH
Increase in the probability
of passing new laws
allowing more foreign
organizations to operate in
the Philippines
Entry of crowdfunding as
an alternative financing
option for new ventures
Low Entry Barrier
Increases Cost
Relative to Total
Purchases In the
Industry
Increases Cost
Relative to Total
Purchases In the
Industry
Government Policy
OPPORTUNITY
OPPORTUNITY
THREAT
THREAT
THREAT
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2.5 INDUSTRY AND COMPETITIVE ANALYSIS

2.5.1 Strategic Map
Strategic mapping of an industry determines which companies are directly competing with
each other and reveals the market positions of industry competitors. A strategic group is a
group of firms in an industry following similar competitive approaches and market positions
along the same strategic dimensions. Therefore, firms belonging to the same strategic group
are assumed to be directly competing with each other.
Strategic group mapping is a technique for displaying the different markets or competitive
positions that rival firms occupy in the one industry.
The strategic groups in the financial services industry can be displayed on a map using the
two (2) strategic dimensions: service and technological leadership, as shown below:
Figure 6. Strategic Map of the Financial Services Industry
Full
Services
B
Local Universal/
Commercial
Banks
Foreign
Banks
Moderate
D
Thrift/Rural/
Coop Banks,
Insurance /
Investment
House
Pawnshops
Lending
investors
Narrow
Follower or Imitator
Seeking technological
leadership
Technological Leadership
The firms plotted in the two-variable map using pairs of two different strategic dimensions are
grouped in circles proportional to the size of the groups share of total industry sales revenues.
The closer strategic groups are to each other, the stronger the cross-group competitive rivalry
tends to be. Not all positions on the strategic map are equally attractive because of two reasons:
Page 74
Prevailing competitive pressures and industry driving forces favor some strategic
groups and hurt others.
The profit potential of different strategic groups varies due to the strengths and
weakness in each groups market position.
Service is the degree to which it provides ancillary services with its product line, such as
engineering assistance, an in-house service network, credit, and so forth and this was further
subdivided into:
Basic services which are usually offered by almost all financial institutions (e.g.,
deposit taking, withdrawal accommodation, lending, etc.)
Moderate those additional services aside from the basic banking transactions (e.g.,
payroll services, ATMs, electronic fund transfers, overseas remittances, Letters of
Credit, etc.)
Full refers to those services which entail more sophisticated technology and can be
offered by those who have the financial capability (e.g., mobile banking, phone
banking, internet banking, etc.), including insurance services, foreign exchange
services, bills payment services, and interbank services.
Using the strategic dimensions, the financial services industry can now be grouped into five
distinct groups. Below is a description of each group:
Based on these two (2) dimensions the following groupings can be used:
Group A This group is composed of the different foreign banks that have operations in the
country. They have a high degree of seeking technological leadership in support of
their full range of basic financial products and services, but limited ancillary
services. Such foreign banks are Hongkong-Shanghai Banking Corporation,
Standard Chartered Bank and Citibank.
Group B - This group consists of the Philippine universal banks and local commercial banks
with high degree of providing full ancillary services with its product line (Bank of
the Philippine Island, Rizal Commercial Banking Corporation, Philippine National
Bank, Land Bank of the Philippines, and China Bank) competing in the market in
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terms of providing online-banking and mobile banking services, fund transfer

services, credit card services, insurance services, foreign exchange services, and
advisory services, among others. Thus, this group has a high degree of seeking
technological leadership for them to be capable of catering to all types of financial
needs of their customers.
Group C - This group is composed of thrift banks, rural banks, financing companies, insurance
companies and investment houses that offer specialized financing or investing
services, as such they have a low degree to provide ancillary services because of its
limited functional scope, financial and operations capacities. They are leaning more
to seeking technological leadership rather than remaining a follower or imitator in
terms of seeking technological leadership in offering their products and services.
Group D - This group is composed of pawnshops, lending investors and credit cooperatives that
offer basic financial services such as savings and credit assistance, thus they have a
low degree of providing ancillary services and are only followers or imitators in
terms of using technology in offering their financial services.
Table 9. Four Distinct Strategic Groups
Group
Strategic Dimensions
Description
Full line of ancillary

services and
technological leadership
Includes all foreign banks which are considered with

high degree of seeking technological leadership and can
offer ancillary services of their same kind whether
universal or local commercial bank.
Full line of ancillary

services and near
technological leadership
Includes all local universal banks and commercial

banks (except foreign banks), which provide a full line
of ancillary services. They have a high degree of
seeking technological leadership to remain competitive
in the strategic group where they belong.
Moderate line of
Consists of thrift banks, rural banks, financing
ancillary services and
companies, insurance companies and investment houses
leaning more to seeking that offer specialized financing or investing services, as
technological leadership such they have a low degree to provide ancillary
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services because of its limited functional scope,

financial and operations capacities. They are leaning
more towards seeking technological leadership in
offering their products and services.
D
Narrow line of ancillary

services and
technological follower
Consists of all pawnshops, lending investors, credit

cooperatives, stock brokerages and pension funds.
These institutions offer narrow line of ancillary services
and are considered as a follower in terms of technology.
The key mobility barriers of group A (full line of ancillary services and near technological
leadership) is high due to the capital requirements to become classified as a local or universal
bank and the communication networks needed to invest in for providing ancillary services to the
highly fragmented market of the financial services industry.
2.5.2 Market Definition
A market is a group of potential customers. An industry can have several groups of potential
customers. Industries are not large but have many markets. There are some industries that have
few markets. Market is not created; it is a marketing segment which is created.
The market of the Financial Services Industry in the Philippines encompasses all the adults ages
18 years old and above who has the capacity to place money or funds either as deposit, loans or
investments for personal or business purposes that are further classified into cities and
municipalities where the presence of financial services. Financial inclusion refers to the delivery
of financial services, including financial literacy, to the disadvantaged and marginalized, at
affordable costs. Indicators of financial inclusion are the number of banks, ATMs, credit
cooperatives and e-money agents present in the city/municipality/region, the number of deposit
and loan accounts per city/municipality.
Based on the BSP Report on the State of Financial Inclusion in the Philippines 2012, the
Philippine banking systems overall physical network continued to expand. Domestic banking
offices and automated teller machines (ATMs) increased by 4% and 15%, respectively. The
percentage of unbanked cities and municipalities in the country remained at 37% (611 out of
1,634) from 609 in 2011. The number of municipalities without regular banking offices but has
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micro-banking office (MBO) increased by 35% to 50 in 2012 from 37 in 2011. The number of
alternative financial service providers (FSPs) increased by 20% to 46,218 in 2012 from 36,974
in 2011.
Of the 611 unbanked municipalities from 609 in 2011, 395 municipalities (65%) have access to
alternative FSPs. This indicates that only 216 municipalities (equivalent to 13% of 1,634 cities
and municipalities and 4% of the total Philippine population) are left unserved. Four regions
experienced improvement in terms of reduction in the number of unbanked cities and
municipalities but the greatest improvement was observed in Bicol Region where two
municipalities gained banking presence. Seven regions showed no improvement and five
regions experienced reduced banking presence.
Table 10. Total Number of Unbanked Cities/Municipalities
by Region & Percent Share (2011 vs. 2012)
The percentage of population living in municipalities that do not have a banking office is
only 15% of the total Philippine population. Of the 611 unbanked, 395 municipalities have
access to alternative FSPs and 216 municipalities do not have any access points.
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Table 11. Total Number of Unbanked Cities/Municipalities

by Presence of Banks and Access Points (2011 vs. 2012)
Based on the BusinessWorld (January 2015) infographic data sourced from the Philippine
Statistics Authority, the provinces with highest poverty levels are mostly located in
Mindanao, namely in Lanao del Sur, Lanao del Norte Maguindanao, and Misamis
Occidental. The poverty level percentages represent the proportion of families with per capita
income lower than the per capita poverty threshold, as a percentage of the total number of
families.
Table 12. Number of Population living in Banked/Unbanked Cities/ Municipalities
& Percent Share (2011 vs. 2012)
Bank density remains at 6 banking offices per city/municipality. On the average, there is one
bank and 2 ATMs for every 10,000 Filipino adults. Concentration of these bank offices and
ATMS are observed at NCR, CALABARZON, and Central Luzon while regions such as
Eastern Visayas and ARMM are consistently belonging in the bottom group for most of the
access indicators.
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In 2012, total number of deposit accounts decreased by 4% to 41.8 million mainly due to the
decline in the number of deposit accounts in NCR, which comprised 43% of the total number
of deposit accounts in the banking system. Despite this decrease in NCR and in five other
regions, growth in deposits was observed in 11 regions.
In terms of peso value of bank deposits, total amount increased by 7% to P5.7 trillion in 2012
from P5.4 trillion in 2011. The amount of bank deposits grew in all 17 regions where NCR
accounted for 68% of the total amount of deposits in the banking system.
Total amount of bank loans also increased by 5% to P3.34 trillion in 2012 from P3.19 trillion
in 2011. Growth in 9 regions was observed while there was a decline in bank loans in the
remaining 8 regions. NCR again accounted for 87% of the total amount of loans outstanding
in the banking system.
On the average, there were 6,356 deposit accounts for every 10,000 adults or equivalently, 6
out of 10 adult Filipinos who had a deposit account in banks. This does not account for the
unique number of depositors and the need for a demand-driven data gathering exercise to
adequately measure usage of deposits and other financial products.
The number of microfinance borrowers in the banking sector has increased by 191% to 1.14
million in 2012 from 390,635 borrowers in 2002. The microfinance loan portfolio expanded
to P8.4 billion in 2012 from P2.6 billion in 2002. The BSP reported that there is an active and
thriving market for microfinance for some regions where there is relatively low usage of
regular banking products and services.
All regions except Northern Mindanao experienced increase in number of banking offices.
The largest percentage increase was observed in the Bicol Region, followed by MIMAROPA
and then Central Visayas. The increase in regions with the least number of banks (CAR and
Eastern Visayas) appeared modest.
ATM presence increased in all regions. ATM growth is significantly higher than bank growth,
both at the regional and national level. MIMAROPA and ARMM had the lowest ATM count
but these regions achieved the highest growth in the number of ATMs from 2011
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to 2012. The lowest growth in the number of banks and ATMs was observed in Eastern
Visayas, Northern Mindanao and Caraga.
Table 13. ATM presence in Banked Cities/Municipalities
by Region (2011 vs. 2012)
Banking presence was established in 10 municipalities that used to be unbanked. In two of these
municipalities, the establishment of Micro-Banking Offices (MBOs) was the reason for the
banking presence.
Table 14. Banking presence in 10 Municipalities that used to be unbanked
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Aside from banks, the number of alternative access points also increased. It should be noted
though that the large increase in the total number of access points is because of the inclusion
of credit cooperatives and more complete data on e-money agents.
Table 15. Number of alternative access points for financial services
The figure below shows the percentage of cities and municipalities reached by the different
access points. It can be seen that these access points have also increased their presence. The
municipal reach of pawnshops, for instance, was similar with that of banks in 2011 and
became the most prominent in 2012.
Table 16. Percent Share of Cities/Municipalities Reached by Financial Services
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According to World Bank 2012 data, the unbanked are more likely to be women living in
rural areas, where the barriers to banking are greatest because of the high costs of visiting
town centers where banks are likely to be located. Some 59% of adults in the developing
world are estimated not to have an account at a formal financial institution, and 55% or
borrowers in these countries use only informal sources of credit.
2.5.3 Market Size and Parameters
Geographical Scope
In terms of regional distribution, banking presence remained concentrated in highly
urbanized areas of the country, i.e., NCR, CALABARZON (Region IV-A), Central Luzon
(Region III), Central Visayas (Region VII) and Western Visayas (Region VI). Using
geospatial analysis of cities and municipalities with banking offices in these regions, the
broader picture would further indicate the following: NCR has 100.0 percent coverage,
followed by CALABARZON with 94.0 percent, Central Luzon with 92.0 percent, Davao
Region with 80.0 percent and Western Visayas with 79.0 percent. These regions are densely
populated and mostly urbanized, making them viable hubs for business and other industries.
These economic considerations made these regions prime locations for banking to thrive.
On the other hand, the Autonomous Region of Muslim Mindanao (ARMM) remained in the
red with around only 8.0 percent of
the regions cities and municipalities
having banking offices. Other cities
and municipalities with low bank
coverage were found in Eastern
Visayas (Region VIII) with 28.0
percent,
Cordillera
Autonomous
Region (CAR) with 34.0 percent,

and
the
Zamboanga
Peninsula
(Region 9) with 38.0 percent.

Establishing bank branches in these
parts of the country remains an
Page 83
ongoing challenge due to the generally low population density, inaccessibility, as well as the
prevailing geopolitical and socio-economic situations facing some of these locales.
Bank coverage in most parts of the countrys cities and municipalities range between 60.0 to
79.0 percent as of end-June 2013. In terms of access through alternative service delivery
channels, coverage is close to 90.0 percent.
As of September 30, 2014, the Philippine Statistics Authority (PSA) report showed that the
country has a total of 81 provinces, 144 cities and 1,490 municipalities.
As of end-June 2013, the countrys bank density ratio remained unchanged from a year ago at
six banks per city/municipality. Customer ratio improved measly by 0.6 percent to 10,433
persons served per banking office from 10,494 persons per each banking office same period
in 2012. Banks density ratio trended closely with bank dispersion as banks remained
similarly concentrated in highly populous, urbanized and higher income areas of the
archipelago.
The customers of the bank primarily include depositors and borrowers. For universal and
commercial banks, the target market will be those individuals who are of legal age in the
Philippines which are 18 years old and above, belonging to the ABC socioeconomic classes.
The potential customers can be identified by the following:
a. Age
The population pyramid below illustrates the age and sex structure of a Philippine's
population. The population is distributed along the horizontal axis, with males shown on the
left and females on the right. The male and female populations are broken down into 5-year
age groups represented as horizontal bars along the vertical axis, with the youngest age
groups at the bottom and the oldest at the top. The shape of the population pyramid gradually
evolves over time based on fertility, mortality, and international migration trends.
Based on the age pyramid above, the Philippine population is almost 40% comprising of the
teens (14 years old and below) and the young working professionals (25 to 54 years old),
with slightly more males than females. However, implication for the total number of potential
customers for the financial services industry is summarized below:
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Source: CIA World Factbook - August 23, 2014
Age structure: 0-14 years: 33.7% (male 18,493,668/female 17,753,359)

15-24 years: 19% (male 10,416,358/female 10,044,724)
25-54 years: 37% (male 20,031,638/female 19,796,545)
55-64 years: 5.8% (male 2,882,719/female 3,372,485)
65 years and over: 4.5% (male 2,103,596/female 2,773,139)
Estimated total potential customers of the Bank by Age: 71,421,204
Based on the PSA website, the total population of the Philippines as of May 1, 2010 is
92,337,852 based on the 2010 Census of Population and Housing. The Philippine population
increased at the rate of 1.90 percent annually, on the average, during the period 2000-2010.
This means that there were two persons added per year for every 100 persons in the
population.
Projected Potential Customers of Banks aged 18 years old and above (in 000s)
2015
2016
2017
2018
2019
72,778
74,160
75,569
77,005
78,468
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b. Employment Rate
The employment rate in July 2014 is estimated at 93.3 percent. This estimate is based on the
July 2014 round of the LFS which did not cover the province of Leyte. Workers are grouped
into three broad sectors, namely, agriculture, industry and services sector.
Workers in the services sector continued to comprise the largest proportion of the population
who are employed. These workers made up 54.0 percent of the total employed in July 2014.
Among them, those engaged in wholesale and retail trade or in the repair of motor vehicles
and motorcycles accounted for the largest percentage (34.7% of workers in services sector).
Workers in the agriculture sector comprised the second largest group making up 30.1 percent
of the total employed in July 2014, while workers in the industry sector made up the smallest
group registering 15.9 percent of the total employed.
Among the occupation groups, the laborers and unskilled workers remained the largest group
making up 31.6 percent of the total employed in July 2014. In July 2013, such workers made
up 32.1 percent of the total employed in that period. Officials of the Government and special
interest organizations, corporate executives, managers, and managing proprietors (16.1% of
the total employed) comprised the second largest occupation group, followed by farmers,
forestry workers and fishermen (13.6%), and service workers and shop/market sales workers
(12.5%).
In July 2014, the wage and salary workers made up 58.4 percent of the total employed, with
those working in private establishments continuing to account for the largest percentage.
They made up 44.8 percent of the total employed in July 2014 as well as in July 2013.
The unemployment rate in July 2014 is estimated at 6.7 percent. Among the unemployed
persons in July 2014, 63.3 percent were males. Of the total unemployed, the age group 15 to
24 years comprised 49.3 percent, while the age group 25 to 34, 30.8 percent. By educational
attainment, 23.2 percent of the unemployed were college graduates, 13.2 percent were
college undergraduates, and 32.1 percent were high school graduates.
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c. Socioeconomic/Income Class
The latest Family Income and Expenditure Survey (FIES) of the National Statistical
Coordination Board (NSCB) offers some, albeit not that exhaustive, information about
income classes in the country. However, instead of dividing the Philippine population into
Classes A, B, C, D or E, the NSCB simply grouped the country into three segments: the high
income, middle income, and low income groups.
High income segments are families or people earning an average of P200,000 a month or
P2.4 million a year. Thus, they may be described as the rich segment. They are very few,
numbering only 0.1% of total families in the Philippines. Based on the National Statistical
Coordination Boards (NSCB) computations using the Family Income and Expenditure
Survey (FIES) and the Labor Force Survey (LFS), a family in the Philippines must earn at
least P2,393,126 or P199,927 a month to be counted as part of the high-income class in 2010.
This computation would only count 20,000 rich families or 0.1% of the total 17.4 million
families in the country.
The middle income class is said to earn an average of P36,934 per month while the low
income segment earns an average of P9,061 per month.
Class
% Share in
Number of
Families
% Share in Total
Average Annual Income
Income
AB
1%
9%
PHP1,857,000
9%
26%
PHP603,000
60%
56%
PHP191,000
30%
9%
PHP62,000
Total
100%
100%
PHP206,000
In another research by the Social Weather Station (SWS) in 2011 entitled, Family Income
Distribution in the Philippines which offered insights regarding determining the number of
income classes in the country. Data from the report are summarized below:
Based on the 2009 SWS percent distribution of families and incomes by socio-economic
class, the biggest share in family distribution came from Class D (60%) with an average
Page 87
income of P191,000 as compared to only 10% share in family distribution of Class ABC with
average annual income of P728,000 (or approximately P60,000 per month).
Estimated Total Potential Customers by Socio-Economic Class ABC is 1.845 million families
which has a cumulative income of P1.34 billion, representing 35% as of 2009.
Universal and commercial banks usually have low branch density outside based on the 2012
data of BSP on financial inclusion and traditionally focus on more wealthy clients, since
minimum account size limits exclude lower income groups.
Commercial banks are, however, starting to enter the middle income market. Some commercial banks have bought rural banks (e.g.
RCBC and AUB). Some are using new technology such as m-banking to reduce distribution costs and go down-market (e.g. BPI).
Others are reducing minimum account limits.
Figure 7. Market Share of LBP to Gross Revenues of all Universal Banks

as of December 2012
LBPs share
(13%)
Other
Universal
Banks
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The market share of LBP to the total gross revenues of all universal banks in the Philippine
Banking System based on BSP data as of December 2012 is 13%. The Interest Income of
Universal Banks is 2.89 Trillion while LBPs interest income is P381 Billion. Considering
that the financial services industry growth rate for 2014 is at 3.5% (divided into 5 years =
0.7% per year), data below summarized the percentage of market share projection from 2015
to 2019:
Growth
2015
2016
2017
2018
2019
Market Share
13.7%
14.4%
15.1%
15.8%
16.5%
Interest Income
(PhP Billion)
433.20
495.58
570.41
660.53
769.52
2.6 BROADER SOCIETAL EXPECTATIONS

The broader societal expectations reflect the impact on the company of such things as
government policy, social concerns, evolving mores, and other social concerns. The sustainable
view of the firm is based on the need for companies to fully accept the fact that the business
world is part of the natural and social system the acceptance of the scarcity of natural resources
and the notion of business and societys co-responsibility related to the use and development of
social and natural resources based on the principles of sustainable development.
The very reason why the public entrusted their money or even property to the banks and other
financial institutions is because they believe that these companies have integrity and capability to
grow their money or investment. As a government financial institution, social responsibility is
much expected from LBP not to mention that the institution was established for serving the
Agricultural Reform Beneficiaries (ARBs) and the rural population.
2.6.1 Corporate Social Responsibility (CSR)
The most important ethic that a modern business organization should possess is a sense of
social responsibility. The rise in the power of the business sector inevitably increases its
responsibility to society, to the people and entities that it affects with its decisions and
actions.
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In the Philippine environment where LBP operates, Corporate Social Responsibility (CSR) is
defined as the obligations and responsibilities of business to society, that in the pursuit of the
profit motive, the basis for its corporate acts and strategies should include its commitment to
protecting the environment, upholding the rights of its workers and contributing to the
improvement of the quality of life of its community and society at large.
Dr. Elfren S. Cruz, in his book Setting Frameworks: Family Business and Strategic Management,
defined CSR as the obligations and responsibilities of a business to society, that in the pursuit of
profit motive, the basis for its corporate acts and strategies should include the commitment to
protecting the environment, upholding the rights of its workers and contributing to the improvement
of the quality of life of its community and society at large.
The BSP has taken deliberate steps to build a more inclusive financial system that is
responsive to the needs of the Filipino people especially those who are underserved and
unserved. Therefore, as a government financial institution, LBP is expected to provide more
financial services in these marginalized areas in order to protect the environment, uphold the
rights of its customers, and contribute the improvement of the quality of life, specifically in
the countryside.
Borrowing is a double-edged sword. If borrowing is done responsibly, it can help bridge for
much-needed help such as education, health-care, housing, entrepreneurship endeavors, or
investments for the future. But if borrowing brings distress, it can push households into
situation of persistent financial difficulties.
As a leading lender in the countryside, LBP continues to deliver programs with social impact.
Unlike other universal banks, LBP is a bank with a social mission that is, to deliver the
needs of the people in the countryside and at the same time remain profitable.
LBP also plays an active role in protecting the environment and promote sustainable
development. LBP is among those few financial institutions that have included
environmental concerns in its corporate thrusts. It also actively sourced credit facilities from
multilateral and bilateral agencies for programs that promote sustainable development. It was
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also the first bank in the country to set up an Environmental Unit (EU). EU is tasked to
evaluate whether projects funded under LBPs special financing programs are
environmentally sound.
The Sustainable Value Framework by Dr. Stuart L. Hart links the challenges of global
sustainability to the creation of shareholder value by the firm. The sustainable value
framework is composed of four parts. The first two parts are focused on short-term solutions:
1. Pollution prevention strategy with the goal of minimizing wastes and emissions from
operations.
2. Product stewardship strategy which integrates stakeholders views into the business
process. Its drivers are civil society, transparency, and connectivity. The expected
corporate payoff is reputation and legitimacy.
The next two parts are focused on exploiting future opportunities:
3. Clean technology strategy with the goal of developing the sustainable competencies
of the future. Its drivers are new disruptive technologies, innovative clean
technologies, and changing technology base. Its expected corporate payoff is
innovation and repositioning.
4. Sustainable vision whose goal is a shared roadmap for meeting the unmet needs of
those at the bottom of the economic pyramid. Its basic drivers are population growth,
poverty and inequity. Its expected corporate payoff is the potential to unlock future
markets of immense scale and scope.
LBPs CSR embodies its commitment to the institutions social mandate with programs and
activities that contribute to a better, safer and more progressive society, redounding to an
improved quality of life for people of the present and future generations.
In pursuit of its role as the dominant financial institution in countryside development, LBP
adheres and actively promotes environmental protection and sustainable development by
incorporating effective environmental management practices in all its agrarian and banking
operations, services and decisions.
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As a major catalyst in countryside development, LBPs operations are anchored on its five
(5) Sustainability Cornerstones (1) Enterprise Development, (2) Community
Development, (3) Environmental Protection and Management, (4) Customer Service and (5)
Employee Developmenton which sustainability efforts are continuously build and aligned
with the principles of responsible corporate citizenship as contained in the Sustainability
Reporting Guidelines and Financial Services Sector Supplement of the Global Reporting
Initiative (GRI):
Engaging Stakeholders in Environmental Responsibility a Product Stewardship
Strategy
Corporate Environmental Policy : LBP commits to innovative products and services that
allow the Bank and its clients to fulfill its sustainability and environmental protection
goals in business lines, lower our carbon footprint, and promote ecological enhancement.
It reiterates the incorporation of environmental management practices in all our
operations, services and decisions.
Environmental Policy on Credit Delivery: LBP ensures that all financed projects are
environmentally sound and compliant with all environmental laws.
Green Procurement Good Practices: this serves as the Banks supplemental guide in
setting standards in evaluating products and services.
Improving Lives Across the Nation a Sustainable Vision Strategy
Providing Financial and Technical Assistance to Mandated Clients and Priority Sectors:
LBP continues to fuel economic activity in the rural areas by supporting mandated clients
and priority sectors, spurring economic growth in rural and agricultural areas as the chief
provider of financial and technical assistance.
In the community development front, LBP focuses on implementing programs and projects
that embolden communities to believe in their innate capacity to uplift their socio-economic
status and create positive change. Aggressive funding for training and capability building
programs remained, such as through our annual donation (P20 million) to the LBP
Countryside Development Foundation, Inc. (LCDFI), a 100% LBP-owned subsidiary.
Among the beneficiaries of this donation are cooperatives of small farmers and fisherfolk,
Page 92
Agrarian Reform Beneficiaries (ARBs), Countryside Financial Institutions (CFIs), small and
medium enterprises (SMEs), and Overseas Filipino Workers (OFWs). The Bank also
promotes environmental awareness and develops a socially responsible culture within the
institution and among its clients and partners. This is by engaging local communities and
peoples organizations in the Banks CSR programs geared towards rehabilitation,
maintenance and protection of the environment. As of 2012, the number of LBPs partner
institutions has grown to fourteen.
LBP provides technical assistance to priority sectors to increase their credit capacities,
especially those who do not have the necessary credit rating, assets or equity capital to secure
suitable financing from the Bank (LBP CSR Policy). These credit enhancement programs
help clients by monitoring the acceptability and maximum valuation for each type of
collateral or asset i.e., real estate or residential properties, mortgage, chattel, Agricultural
Guarantee Fund Pool (AGFP), Credit Surety Fund (CSF), Fishery Trust Fund (FTF), or
Production Technical & Marketing Agreement (PTMA).
Sustaining Excellent Customer Service: LBP retains its leadership in sustaining excellent
customer service through efficient and cost-effective service operations, maintenance of a
substantial portion in its loan portfolio for priority sectors, and continuing support to
development assistance programs of the national government. In 2013, LBP has an
organization-wide realignment to align the units of the Bank according to business lines
in order to further enhance the delivery of services.
Professional Development and Care of Human Capital. LBP encourages growth by

providing capability-building programs and granting every employee access to fair and
equal opportunities for training and development. The Bank safeguards occupational
health and safety through full compliance with relevant standards.
Banking on a Healthy Environment a Pollution Prevention Technology Strategy
Environmental Sustainability: It has three goals: (1) To evaluate and manage

environmental footprint in the banks daily operations; (2) To deliver products and
services that are ecologically sound and compliant with applicable environmental laws;
and (3) To support climate change mitigation and adaptation undertakings.
Page 93

Promoting Social Justice and Sustainable Development

LBP has established a well-defined governance structure consistent and compliant with all
government policies and applicable laws, with current corporate governance rules and
regulations, and with globally-accepted standards and principles of good governance.
The Bank strictly adheres to civil service rules, and addresses and mitigates corruption
through the implementation of rules on administrative cases, a strict implementation of the
Code of Conduct for Public Officials and Employees, and adherence to the provisions of anticorruption laws. All bank employees are also expected to comply strictly with the banks
Code of Ethics.
The Bank performs its duties and responsibilities with full courtesy and respect, without
prejudice to race, religion, regional or ethnic origin, gender or political affiliation. The
protection of human life within and outside of the organization is prioritized. LBP protects its
people through the administration of adequate security coverage for the Banks personnel and
clientele against unlawful acts, harm, damage, loss, and compromise. The Bank has no
discrimination in hiring and granting professional advancement opportunities and upholding
the rights of employees to associate with and participate in a public sector union.
Serving Customers with Excellence and Integrity
L BP ensures excellence in customer service through full disclosure of the features, terms
and conditions of our products and services that complies with all laws and rules of
government regulatory bodies. We provide timely financial and technical support for our
mandated clients and make pertinent product and service information easily available to
them.
As a financial institution, LBP makes sure that compliance testing is an established procedure
that ensures the management of pertinent risks and compliance with applicable laws, rules,
and regulations. We enhance customer service and reinforce the culture of quality, excellence
and continued improvement by institutionalizing and adopting Quality Management Systems
(QMS) in our banking processes.
Page 94
LBP strictly adheres to the requirements of the Anti-Red Tape Act (ARTA) to improve
efficiency in the delivery of services to the public by reducing bureaucratic red tape and
preventing graft and corruption. All LBP personnel are guided by the principles of
professionalism and integrity, and abide by the Code of Conduct for Employees and ARTA.
Among LBPs environmental initiatives are: Environmental Due Diligence (EDD),
Environmental Management System (EMS), GHG (Green House Gas) Accounting, Green
Procurement, Manila Bay Clean-up, and Adopt-a-Watershed Project. Towards this end, LBP
shall:
Compliance - Comply with applicable environmental laws, regulations and covenants
that it subscribes to.
Pollution Prevention - Implement effective pollution control and waste management
programs, practice conservation of natural resources and conduct appropriate
environmental risk assessment and management.
Communication - Enjoin its employees to be aware and be actively involved in the
implementation of its EMS; inform and influence its stakeholders including its clients,
suppliers and business partners to align with the Bank's environmental management
programs in their business operations.
Continual Improvement - Commit to continuously review and improve its environmental
programs in response to changing needs and conditions.
In July 2013, LBP has launched a scholarship under the Gawad PATNUBAY (Pag-aaral
Tungo sa Maunlad na Bayan) Program for students enrolling in agriculture, fishery, animal
husbandry, forestry, and entrepreneurial courses offered by farm schools in the country. The
scholarship program aims to provide an opportunity to students, particularly those coming
from poor but deserving depends of farmers, fishers and cooperatives to enroll in agripreneurial courses (Diploma in Entrepreneurship), and at the same time, help address the
continuing decline in interest in farming among the youth. The Bank will also finance startup capital of small business projects which have high market potential or expand existing
family enterprise projects of students from these schools.
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The Bank, through a tri-partite partnership with the DENR and local community groups
(Indigenous People/Peoples Organizations), launched the Adopt-a-Watershed Program to
reforest and protect 40 hectares of denuded watersheds in six (6) sites nationwide (2 sites
each in Luzon, Visayas, and Mindanao), which also provided upland dwellers with a source
of livelihood. This program also aims to increase biodiversity in the planted areas; to help
mitigate the impact of global warming and climate change; to minimize floods during
typhoons in the covered areas; to foster volunteerism among LBP employees and their
families; and to contribute to the National Greening Program of the Aquino administration.
LBP is ISO9000 and ISO 14001 certified which assure customers and everyone that the
company works within certain standards that are in place within the organization. The Bank
also has a Quality Management Office (QMO) under the Strategic Planning Group (SPG)
which aims to enhance customer satisfaction by meeting customer and applicable regulatory
requirements and to continually improve its performance in this regard.
Environmental management is defined through what the organization does to minimize
harmful effects on the environment caused by the activities and to continually improve the
environmental performance. The Banks Environmental Management System (EMS) has the
following objectives:
Reduce waste and resource depletion

Reduce or eliminate release of pollutants to the environment
Product design to reduce environmental impact on production, use and disposal
Promote environmental awareness among employees and the community.
Among its environmental performance indicators are:
Quantity of raw materials or energy used

Quantity of emissions, CO, etc.
Waste per quantity of finished product
Efficiency of material and energy used
Percentage of waste recycled
Lands are set aside for wildlife habitat.
As published in The Daily Tribune, Business page last May 22, 2014, LBP was cited by the
Socotep Group, a Quality Management System (QMS) certifier, as having one of the most
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effective QMS procedures among all banks in the Philippines in May 2014. It has passed the
first annual surveillance audit conducted by the Certificator International Philippines, Inc.
(CIP) earlier this year, citing that the QMS is well-maintained across LBPs branches in the
national capital region (NCR).
One year after the branches ISO certification, the benefits of QMS remain evident as
measured and assessed against five critical areas: customer satisfaction and impact; overall
operations flow; documents and records system; work environments; and internal and
external communications.
In 2007, LBP, the fourth biggest bank in the country in assets, successfully implemented
Phase 1 of the ISO-QMS in its wholesale banking and trust banking operations.
In 2010, the Bank was recognized by the Government Quality Management Committee for
its successful attainment of ISO 90001 Quality Management certification in three core
banking processes: lending and financial services operations of the Public Sector
Department, loan operations of the Pampanga Lending Center, and branch banking
operations of the Pesa-Roxas Boulevard branch.
Starting 2013, the Bank is moving towards making all bank units QMS ready after
successfully expanding the scope of the ISO program to cover all 77 branches in the NCR.
LBP is a recipient of the following rewards related to its CSR and sustainability programs:
Tatak Batang Malaya Award: Given by International Labour Organization (ILO). This
is the Bank's support to help eliminate child labor in the Philippines.
ADFIAP
Corporate
Social
Responsibility
Category:
Adopt-A-Watershed
Program/50K@50th; Gawad Kabuhayan Program; Gawad Patnubay Scholarship

Program.
LBP clinches top award in SBA Philippines 2014: LBP was adjudged as the overall
winner in the recently-concluded Sustainable Business Awards (SBA) Philippines
2014.
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Table 17. Summary of the Assessment of LBPs Corporate Social Responsibility

Sustainable Value Framework
LBPs CSR
Pollution Prevention Strategy
Environmental Management System (EMS)

Quality Management System (5S)
Product Stewardship Strategy
Corporate Environmental Policy

Environmental Policy on Credit Delivery
Green Procurement Good Practices
Customer Service Excellence
Clean Technology Strategy
Environmental Sustainability
Sustainable Vision
MODULE THREE ANALYSIS OF INTERNAL ENVIRONMENT

3.1 OVERVIEW OF THE COMPANY
History
Created on 8 August 1963 through Republic Act No. 3884, with the Secretary of Finance as the
Chair of its Board of Trustees, the Land Bank of the Philippines (LBP) functioned as the
Agricultural Credit Administration (ACA) responsible for extending credit assistance to small
farmers and farmers cooperatives.
A decade later, in 1973, under Presidential Decree (PD) No. 251, the Bank expanded its
commercial banking powers and established itself as a universal bank to sustain its social
mission of spurring countryside development. PD No. 251 has empowered the Bank to grant
loans to agricultural, industrial, home-building or home-financing projects, and other productive
enterprises and enabled the Bank to extend credit assistance to farmers cooperatives and
associations to facilitate the production and marketing of crops and the acquisition of essential
commodities (LBP Annual Audit Report 2013).
LBP became the financial intermediary for the Comprehensive Agrarian Reform Program
(CARP) in 1988, acting as an implementing agency of CARP involved in land evaluation,
compensation to owners of private agricultural lands and collection of amortizations from CARP
farmer-beneficiaries. Broadening coverage of agrarian reform in accordance with Republic Act
(RA) No. 6657, otherwise known as the Comprehensive Agrarian Reform Law (CARL), it
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included all public and private agricultural lands and other lands of the public domain suitable
for agriculture. The government established an Agrarian Reform Fund for payment, in cash and
bonds, of land compulsorily or voluntarily acquired from landowners.
By 1990, the primary responsibility of determining land valuation and compensation for land
acquisition under CARP was transferred from the Department of Agrarian Reform (DAR) to
LBP by virtue of Executive Order (EO) No. 405.
In 1995, the Bank became the official government depository from which the National
Government has P11.971 Billion common shares.
Today, LBP operates as a specialized government bank with a universal license. The Banks head
office is located in Malate, Manila. LBP has a unique dual function of striking a balance in
fulfilling its social mandate of promoting countryside development and supporting the
governments thrust towards inclusive growth, while remaining financially viable. The profits
derived from its commercial banking operations are used to finance the Banks developmental
programs and initiatives.
Major Roles of LBP
An implementing agency of CARP involved in land evaluation, compensation to owners of
private agricultural lands, and collection of amortizations from CARP farmers-beneficiaries;
Provision of credit assistance to small farmers and fisherfolk (SFFs) and Agrarian Reform
Beneficiaries (ARBs);
An official depository of government funds; and
A government bank with a social mandate to spur countryside development.
From its initial role as the financing arm of the agrarian reform, LBP has evolved into a fullservice commercial bank with a universal banking license. Its global thrust as a universal bank is
seen through its continuing credit support and technical assistance that it provides to its
mandated clients that enable them to walk the path towards sustainable development. It shares
the vision with every Filipino to see the country bustling with economic activities and providing
greater opportunities for the poor and the marginalized.
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Role in National Governments Priority and Development Programs

It has continuously played a major role in some of the national governments priority and
development programs such as the Food Supply Chain Program which aimed at promoting food
security and increasing agricultural productivity and income of farmers by providing financial
and technical support along the value-added chain of a commodity or industry. Under the
Department of Agricultures (DA) Sikat Saka Program, LBP releases loans to palay farmers in
major rice-producing provinces of the country. The Sikat Saka Program makes available direct
access to credit for palay production of small farmers who are not yet members of LBP -assisted
cooperatives.
In support of Overseas Workers Welfare Administrations (OWWA) OFW Reintegration
Program, LBP approves loans to qualified OFW borrowers to start their own businesses and
engage in livelihood activities (i.e., palay and rice trading, hog raising and fattening, agri-vet and
poultry supplies, and general merchandise).
As the disbursement bank for the Department of Social Welfare and Developments (DSWD)
Pantawid Pamilyang Pilipino Program (4Ps), LBP disburses cash benefits to Filipino households
nationwide.
Nature of business and Major Clients Served
Consistent with its mandate as the financial intermediary of the Government of the Republic of
the Philippines (GRP) in its agrarian reform program, LBP strikes a balance in fulfilling its social
mandate of promoting countryside development while remaining financially viable. The profits
derived from its commercial banking operations are used to finance the Banks developmental
programs and initiatives. This dual function makes LBP unique.
Over the years, LBP has taken the lead in extending timely and adequate financial support to
small farmers and fisherfolk (SFF), agri-aqua businesses, micro, small and medium enterprises
(MSMEs), communications, transportations; environment-related projects (including renewable
energy), housing, education, health care and tourism, which it considers as its priority sectors.
At present, LBP is by far the largest formal credit institution in the rural areas. Its credit delivery
system is able to penetrate a substantial percentage of the country's total number of Page
100
municipalities.
It has just renewed its corporate life for another 50 years under Senate Bill No. 2944 in
December 2012. It celebrated its 50 years of corporate existence in 2013.
Description of Product/Services
LBP offers the whole range of a universal bank including investment and merchant banking,
credit and guarantee facilities, deposit services, ancillary services, treasury, trust, program
lending and international banking.
Among LBPs products and services are deposit-taking, lending and related services, treasury
and capital market operations, trade services, payments and cash management, and trust services.
Among its banking and financial products, services and programs to both retail and institutional
clients are:
Deposit products peso and dollar regular savings, current and time deposits, a
premium savings account (Easy Savings Plus), U.S. dollar savings and time deposits,
Euro savings and time deposits, Chinese Yuan savings time deposits (initially available in
LBP Binondo branch), non-interest and interest-bearing check accounts, Japanese Yen
savings deposits, high-yield time deposits, and Easy Dollar Pension.
E-banking products - E-Payment System or Strategic E-Commerce Program (LBPB2BPricenow.com) which enables users to conduct fast, secure and convenient payment
for products and other commodities.
Credit Facilities short and long-term financing of agricultural production loans,
working capital loans, fixed assets acquisition, etc. to the Banks priority sectors:
microenterprises, cooperatives, small farmers and fisherfolk (SFF) groups, small,
medium and large enterprises, and participating financial institutions; loans for
agribusiness, agri-infrastructure projects of local government units (LGUs), loans for
agri-related projects of GOCCs, loans for environment-related projects, loans for
livelihood, socialized housing, schools and hospitals (Land Bank of the Philippines,
2012).
Fund Transfer - Inter Bank Fund Transfer (IBFT), available thru any LBP or BancNet
member ATM which allows transfer of funds from a source account to another LBP
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destination account costing P25 for every interbank transaction (Land Bank of the
Philippines, 2012).
Electronic Payment LBP Visa Debit Card, a partnership with Visa, enables cardholders
or over 1.7 million LBP customers, to withdraw local currency from any of 2 million
ATMs in more than 200 countries and territories worldwide and pay their bills, shop
online, and make purchases over the phone and via the mail using funds in their linked
transaction account or wherever Visa is accepted, with the convenience and security of
the Visa brand.
OFW Remittance using debit card (OFW Cash Card), FCDU Deposit and Fund
Transfer Transactions.
Investment Banking equity and debt underwriting, financial advisory, project finance,
and debt syndication.
Specialized Lending Land Development and Housing Program for LGUs (LBP tie-up
with Home Development Mutual Fund), OFW Reintegration Program (LBP partnership
with Overseas Workers Welfare Administration), Bahay para sa Bagong Bayani (3B).
Trust Products and Services Unit Investment Trust Fund (UITF) for Growth funds,
Government Securities Fund, Money Market Fund, Retirement Trust Fund, etc.
Programs for Countryside Financial Institutions Equity Investments Capital
Infusion Program, Risk Recovery Program, Unsecured Subordinated Debt Facility for
Rural Banks, Rediscounting Line, and Strengthening Cooperative Banks Program (Land
Bank of the Philippines, 2012).
Enterprise Development Programs - credit and development support to priority sectors
of the Bank, Technology Promotion Center Program, Microfinance Program for
Microfinance Institution Retailers, development programs for small farmers and
fisherfolk (SFF) cooperatives and microfinance institutions (Land Bank of the
Philippines, 2012):
-
Food Supply Chain Program, in partnership with the Department of Agriculture and
Department of Finance, aims to increase farmers income by way of providing
financial and technical support along the value-added chain of a commodity or
industry.
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Rice Productivity Program, aims to increase rice production and eventually achieve
food self-sufficiency.
Development Advocacy Program, uses new lending modalities such as receivables

financing, purchase order financing, and household cashflow-based financing and
credit enhancement instruments like market contracts or guarantee covers.
Grassroots Development Program, expands banking services in the identified

unserved areas to reach more SFFs and micro-entrepreneurs.
Institutional Development Programs develop partnerships through key cooperatives,

training programs for cooperatives and microfinance institutions, scholarship programs for
Agrarian Reform Beneficiaries and underprivileged children, and Integrated Community
Development Program (ICDP).
-
Agricultural Guarantee Fund Pool (AGFP), provides total guarantee coverage

to credit conduits and assist farmers.
Sikat-Saka Program, addresses financing needs of farmers who are not members of a
LBP-accredited cooperative.
Credit Surety Fund, provides collateral alternatives for, and payment assurance on
bank loans of micro, small and medium enterprises.
Strengthening Program for Co-op Banks, strengthens cooperative banking system

through mergers and consolidation of weak cooperative banks by strong partners
called Strategic Third Party Investor.
Countryside Financial Institutions Enhancement Programs, strengthens the rural

banking sector or through trainings focusing on loan portfolio management, financial
reporting package, and corporate government and risk management.
Assistance Programs for Landowners Comprehensive Agrarian Reform Program

(CARP) land transfer operations; Landowners Compensation and Assistance in encashment
of CARP bonds for financing needs; Land amortization collections from CARP farmerbeneficiaries; and LBP-administered Agrarian Reform Fund for CARP.
LBP is the largest formal credit institution in the countryside and services more than 5,000
cooperatives and farmers groups benefiting about 500,000 small farmers and fish folk.
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Cooperative Strengthening Programs, Livelihood Programs and 495 countryside financial

institutions (CFIs) benefit 130,000 small farmers and fish folk.
Under the Countryside Credit Delivery Program, LBP is able to extend credit assistance to small
farmers and fisher folk. The program provides credit to small farmers and fisher folk through
cooperatives and rural financial institutions to finance various livelihood projects, which include
the production of agricultural crops, livestock/cattle raising and the acquisition of pre- and postharvest facilities, among others.
Mandated and Priority Sectors
LBP is the biggest provider of development financing to its mandated sectors, particularly the
small farmers and fisherfolk, including the Agrarian Reform Beneficiaries (ARBs) and their
associations, and other priority sectors: Agriculture and Fisheries - agri- and aqua-businesses,
agri-aqua related projects of local government units (LGUs) and government-owned and
controlled corporations (GOCCs); and National Government Priority Programs (including
Public-Private Partnership projects) micro, small and medium enterprises (SMEs),
communications, transportation, housing (including socialized, low-cost and medium-cost),
education, healthcare, environment-related projects (including clean and renewable energy), and
tourism. As of September 2014, total loans released to priority sectors reached P287.10 billion or
83% of LBPs gross loan portfolio of P246.9 billion.
The figures in Table 18 represent more roads, hospitals, public markets, schools, and other basic
infrastructure constructed by means of financial assistance to LBPs partners in nation-building.
It means providing services to more members of the marginalized sectors who otherwise are
deprived of formal credit access. It means taking an active role in the governments goal of
promoting inclusive growth, extending our reach to the unbanked, unserved, and underserved
sectors of the country.
As a way of enabling small, informal entrepreneurs to establish and grow their enterprises, LBP
has extended loans to MSMEs reaching P50.7 billion this year from P34.6 billion in 2013. By
equipping them to produce, compete, and sustain themselves as viable economic producers, the
Bank creates and nurtures an enterprise culture in the countryside. This way, LBP not only helps
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rural folk improve their lives but also empowers them to contribute to sustainable employment,
production, and livelihood generation in their communities.
Table 18. LBP Loans to Priority Sectors as of 30 September 2014
(Amount in PhP Billions)
Development Assistance Programs

In 2012, the Bank continued extending development assistance support to its mandated sectors.
The support aims to further strengthen the operations and processes of the cooperatives to enable
them to extend continued assistance to their farmer-members.
As part of the Banks continuing development assistance to Bank-Assisted Cooperatives (BACs),
LBP conducts a periodic review of the cooperatives operations. The periodic review focuses on
determining the operational strengths and weaknesses of the cooperatives which will be used as a
basis for credit, and identifying the appropriate capacity-building intervention that may be
provided to them.
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To further refine the operations review, the Bank developed the enhanced Cooperative
Operations Review Instrument (CORI) which covers five areas or components, namely, control
environment, risk assessment, control activities, information and communication, and
monitoring.
Service Delivery Network
LBP is by far the largest formal credit institution that has presence in all 81 provinces of the
country to become nearer and more accessible to its priority clients. As of December 31, 2014,
the Bank has 351 branches/field offices and 1,338 Automated Teller Machines (ATMs). These
branches and ATM networks have enabled the Banks credit delivery system to penetrate almost
90% of the countrys total number of municipalities and provide financial services to far-flung
areas in the provinces. The Bank has set-up 34 lending centers that could attend to the credit
needs of the clients, with 8 tellering booths, 8 foreign exchange booths, 12 agrarian operations
center.
As of 2012, the ATMs were distributed nationwide with 291 (27 percent) in the National Capital
Region, 194 (18 percent) in Northern and Central Luzon, 177 (17 percent) in Southern Luzon,
183 (17 percent) in the Visayas and 225 (21 percent) in Mindanao.
The Banks ATM availability rate continued to improve at 89.1 percent in 2012 from 86.8
percent in 2011. To ensure improvement in availability rate, the following measures were
implemented in 2012:
1. Implementation of a modified ATM bills dispensing scheme where P1,000 bills were
loaded to increase the ATM cash load by 31 percent;
2. Full ATM cash loading on Fridays and conduct of first level maintenance by the branches
even on weekends;
3. Conduct of regular training to branch personnel on ATM hardware-related concerns
including ATM monitoring; and,
4. Closer coordination with the service provider.
The number of debit cardholders of LBP, comprising of ATM and Cash Cardholders, also
continued to grow through the years. As of year-end 2012, LBP ranked third in the banking
industry in terms of cardholder base. A significant growth rate of 32 percent was realized in 2012
bringing the total cardholders to 6.29 million from 4.78 million in 2011.
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In October 2012, LBP forged a tie-up with BancNet. This new tie up, along with the existing
interconnection with Megalink and Expressnet, allowed the Banks ATM cardholders to have
access to additional 12,081 ATMs nationwide.
As part of its strategic move to expand overseas remittance services, LBP has forged partnerships
with remittance companies such as Japan Post, Korea Post, and Bangkok Bank, in countries with
wide presence of Overseas Filipino Workers (OFWs) to enhance remittance services available to
them.
LBP also had a joint undertaking with the Commission on Filipino Overseas (CFO) on handling
lectures on financial literacy in the CFOs Pre-Departure Orientation Seminars (PDOS) and
Community Education Programs (Land Bank of the Philippines, 2011).
Manpower Complement
As of December 31, 2013 (LBP Annual Audit Report), LBPs total manpower of 8,623 is
composed of 999 officers, 6,231 operating staff and 1,393 contractual employees deployed as
follows:
Based on the 2012 LBP Sustainability Report, LBPs workforce is composed of 61% females and
39% males. This has not dramatically changed with latest figures as of November 2013 based on
LBPs HRIS which accounts for a total of 7,205 regular employees. This trend is similar among
the 1,419 total number of contractuals where 56% are females and only 44% are males.
Based on the 2012 statistics, 86.25% of the 7,062 total regular workforce are rank-and-file
employees with 76% deployed in the field units. Of this 7,062 total workforce, 64.51% are
female (4,556) and 35.49% are male (2,506). In terms of rank, 919 are junior officers and 52 are
senior officers. In terms of age group, more than 90% of the workforce is within the age bracket
20-35 years old.
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As to number of new hires, a total of 357 new rank-and-file employees, 7 junior officers and 3
senior officers were hired in 2012. The average age of LBP employees is 41 years with 40%
within the age range 36 to 45 years, followed by 25% within the 26-35 age bracket and 17%
within the 46-40 age bracket.
Organization-Wide Realignment
In 2012, LBP carried out an organization-wide alignment which has reconfigured the Bank into
five sectors:
Sector
Agricultural and Development Lending
Sector (ADLS)
Branch Banking Sector (BBS)
Corporate Services Sector (CSS)
Operations Sector (OS)

Treasury & Investment Banking Sector
(TIBS)
Function
Manages the overall loan portfolio of the Bank and
handles the credit support to the priority sectors
Supervises branch banking operations, e-banking
products, remittance services, and ATM services
Handles overall supervision over human resource,
facilities, procurement services, provident
fund management
Provides Bank-wide operational support including
accounting services, controllership, asset appraisal, and
information technology
Oversees treasury operations, financial resource
management, investment banking, and fund sourcing*
*Fund Sourcing function was transferred to ADLS in 2013.
Subsidiaries
LBP has five wholly-owned subsidiaries that contributed to the achievement of its social mission
to promote inclusive growth and improve quality of life in all cities, municipalities and provinces
of the country:
a. LBP Insurance Brokerage, Inc. (LIBI) was established in 1981 primarily to service the
Banks insurance requirements, its subsidiaries, its clients and borrowers, and other
government agencies through general insurance brokerage, as well as management and
consultancy services on insurance-related activities.
b. LBP Leasing Corporation (LLC) was a SEC-registered corporation created to engage
in leasing of all kinds of equipment; to extend credit to industrial, commercial,
agricultural, and other enterprises; and to engage in financing of merchandise in all their
various forms. LLC extends timely and adequate financial support by allowing Agrarian
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Reform Beneficiaries to acquire farm equipment and post-harvest facilities through a

leasing facility.
c. LBP Resources and Development Corporation (LBRDC) was created in 1975 to serve
as an investment diversification for landowners whose properties have been covered by
the agrarian reform law, in the form of real estate development and construction. LBRDC
is currently engaged in construction, project management, brokering services, and real
estate management and development.
d. Masaganang Sakahan, Inc. (MSI) was conceived in the latter part of 1974 as a whollyowned and controlled subsidiary of LBP to provide needed marketing support to small
farmers and fisherfolk co-ops being assisted by the Bank. MSI started operations in July
1975. It provides the needed marketing support, appropriate technology, transfer, and
institutional capability-building initiatives for small farmers and fisherfolk co-ops being
assisted by the Bank. It provides agricultural facilities and value-adding services such as
management of grains center and capability-building for partner cooperatives on the
above post-harvest operation; market linkaging of agricultural commodities; and
payment-in-kind scheme or in terms of farmers produce.
e. LBP Countryside Development Foundation, Inc. (LCDFI) was established in 1983 as
the embodiment of the Banks commitment to spur development in the countryside,
particularly among its priority sectors such as the small farmers and fisherfolk, Agrarian
Reform Beneficiaries (ARBs), Countryside Financial Institutions (CFIs), small and
medium enterprises (SMEs), and OFWs. Products and Services Programs include
Training and Capability-Building Services for Cooperatives and CFIs, OFW
Reintegration Program, Scholarship Programs (SIPAG, Scholarship Program for IT, and
GAWAD-PATNUBAY), and Research and Publications, among others.
LBP has just renewed its corporate life for another 50 years under Senate Bill No. 2944 in
December 2012. It celebrated its 50 years of corporate existence in 2013.
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Ancillary Services
LBP has a number of traditional ancillary services which can also be similar services offered by
other universal or commercial banks in the country. These are:
1. Deposit Pick-up: allows the mobilization/ mobilization/transmittal of voluminous
cash/check deposits of clients via pick-up of said items at the clients premises.
2. Payroll Services: Payroll is effected by debiting total payroll amount from the client
firms account and crediting each of the individual ATM accounts of employees on
payroll date.
3. Revenue Collection Arrangement: The client firm opens and maintains one-way
depository account (ODAs) at the Banks branches where their field offices/
branches/customers may deposit their sales collections/payments for eventual transfer on
a periodic basis to a main account.
4. Safety Deposit Box (SDB): Boxes which are rented to valued clients of the Bank for the
purpose of keeping their asset valuables and important documents. SDB rental fees
depends on the SDB size. The client must have an Average Daily Balance (ADB)
increase from P100,000 to P200,000. Rental fee is waived if ADB is at least Php 1
million. The SDB contract shall be valid for two years.
5. Demand Draft: Negotiable instrument drawn against the demand deposit with another
bank. For Php 50,000 and below deposits, the charge is Php 50 while for above Php
50,000 deposits, the charge is 1/8 of 1% of face amount.
6. Managers Check: Negotiable instrument issued by the Bank which can be encashed
with the issuing bank or deposited to any bank subject to clearing. The Bank charge for
this is Php 50 inclusive of Documentary Stamp Tax (DST).
7. LBP Gift Check (GC): Alternative form of a managers check; An alternative form of
gift which is good as cash. The amount of the gift check has a minimum of Php 100 up to
a maximum of Php 10,000 per GC. The service charge is Php 55 per GC (inclusive of
DST).
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As a member of BancNet (BN), LBP is able to allow its clients to transact through the following
channels: BancNet Online, eMerchant, and Mobile Banking. LBPs membership with Expressnet
and interconnection with Megalink and Bancnet enabled the Banks ATM cardholders to have
access to additional 10,523 ATMs of other banks nationwide.
One of the recently launched express payment machine is LEAM or LBP Express Access
Machine (LEAM) which is created in support of the governments aggressive campaign towards
improved tax collection, It is designed as an alternative payment channel for taxpayers, but also
has future capability to accept PhilHealth contributions and other bill payments. This project
aims to improve revenue collection and service delivery to the general public and at the same
time help manage customer traffic in LBP branches.
The first batch of 50 LEAMs will be deployed in selected branches nationwide 18 units in
NCR, 8 in Northern Luzon, 2 in Central Luzon, 8 in Southern Luzon, 4 in the Visayas, and 10 in
Mindanao, with 20 more to be deployed within the year.
LBPs Customer Care Center provides 24/7 customer assistance and 8/5 iAccess and weAccess
helpdesks staffed by phonebankers and helpdesk agents who answer the calls and emails of
clients concerning their deposit accounts, credit card, and internet banking transactions.
LBPs e-banking services
For Individuals:
Phone Access aims to enhance deliver of financial services to clients by allowing
them to make selected off-site bank transactions through the use of a telephone.
Through this facility, the client can do the following: balance inquiry, request
statement via fax, check status inquiry, hold an ATM/cash card account, returned
check inquiry, change telephone access number, fund transfer, bills payment to LBPs
accredited merchants (e.g., LBP VISA credit card, PLDT, Smart, Maynilad, Manila
Water) or talk to a LBP Phonebanker for any other account-related concerns.
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iAccess is an alternative banking channel designed for individual customers, which

provides a convenient, reliable and secure delivery of banking transactions via the
internet. LBP iAccess is available 24 hours a day, 7 days a week.
For Corporates:
i-Easy Padala gives the Global Filipino like you the total security you need while
availing of remittance services on-line. It ensures the Banks OFW clients that their
hard-earned money reaches the hands of their loved ones on a near real-time basis
wherever they may be.
e-tax System is LBPs participation to the Electronic Filing and Payment System
(EFPS) of the Bureau of Internal Revenue (BIR). Under the BIR EFPS, paperless
filing of returns and payment of taxes is made possible through the Internet. Once the
tax return is electronically filed, LBPs e-Tax Payment System processes the
electronic payment of the tax due. This also means added convenience as the client
can now settle their payments anytime.
weAccess is an internet banking facility developed for the Bank's institutional clients,
both private corporations and government entities, which allows them to perform
banking transactions and avail of other banking services through the web. With this
system, the client can initiate various transactions like real time and future dated fund
transfers or online balance inquiries through computers with internet connection and a
secure browser. Security and controls are built-in in the system. Eligible clients with
qualified peso deposit accounts at LBP that can enroll in this facility are GOCCs,
NGAs, LGUs, private corporations, FIs, cooperatives, SMEs, development partners,
educational and health institutions, religious and charitable organizations.
Other e-banking services:
b2bpricenow.com is a free and sustainable electronic marketplace than runs an
online trading and payment system for farmers, cooperatives, and small and medium
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enterprises (SMEs). It is a trading portal that provides the latest price update on
market information for agriculture, consumer, and industrial manufactures. It was
endorsed as the official eMarketplace of the Philippines for Agriculture and Fisheries
Sector by the Senate of the Philippines, the House of Representatives, and the
Congressional Oversight Committee on Agricultural and Fisheries Modernization. It
was also recognized by both the World Bank and the Stockholm Challenge for its
innovative use of information technology.
Electronic Modified Disbursement System or eMDS is a web-based system that
allows government agency clients enrolled in the system to transact with the bank
electronically. It provides straight-through processing of the following transactions:
transmission of Advice of Checks Issued and Cancelled (ACIC); processing of
payment of accounts payable to internal creditors; transfer of fund allocation; and
request for checkbook. The eMDS transactions initiated and approved by the
government agency shall be processed real-time by the system while checkbook
requests are automatically forwarded to the concerned branch for processing. With
this facility, the government agency shall no longer submit the hardcopy of the
documents as previously required in the MDS. In addition, the required MDS reports
will be immediately available to the Bureau of Treasury (BTr) and concerned
government agencies.
MORPs or the Muntinlupa Online Real Property Payment System is an internetbased system designed to handle the real-time payment and collection of fees for the
real property tax in Muntinlupa City. This facility adopts the Debit Card (ATM)
Authorization which requires the taxpayer to have LBP ATM Account to complete the
payment thru the MORPS. Payment for real property tax (RPT) fees shall be
automatically debited from the taxpayers LBP ATM account real-time and shall be
consequently credited to Muntinlupa Mother Account for the RPT fee.
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Milestone Accomplishments
In terms of milestone accomplishments, LBP has received the following awards and
recognitions:
Bank of the Year 2013 Award for the Philippines by The Banker, the worlds leading
monthly journal of record for the banking industry, recognizing the Banks prompt
financial services response to Typhoon Haiyan (Yolanda) survivors through its immediate
deployment of mobile ATMs and roll out of LBP Easy Access Facilities (LEAF) that will
function as an Other Banking Office to be installed in unbanked and underserved areas in
the country.
2013s Outstanding Lending Bank under the Credit Surety Fund Category by BSP;
2013s Best Performing Government Securities Dealer by the Bureau of Treasury;
2014 ARTA Breakthrough Agency Award for its 99% passing rate in the Civil Service
Commission ARTA Survey where 38 of LBP branches were rated Excellent;
nd
consecutive Karlsruhe Sustainable Finance Award as recognized by the Global
Sustainable Finance Network (GSFN) for its contributions to the field of sustainable
finance.
Overall winner in the Sustainable Business Awards (SBA) Philippines 2014; and
ADFIAP Awardee under Infrastructure Development Category for financing Facility for
the Department of Education Public-Private Partnership for Shool Infrastructure Project
(PSIP) Phase 1, Tarlac-Pangasinan-La Union Expressway (TPLEX), and Development
and Expansion of Iligan City Water System.
Best Government Securities Dealer (GSED) of the Year 2014
Policy for Quality
As its Policy for Quality, LBP is a development-oriented financial institution that measures its
success on its ability to deliver quality products and services that effectively address the needs
and expectations of its clients. As a universal bank with a social mission, LBP endeavors to
incorporate a culture of excellence and professionalism in all levels of the organization. With its
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continuous and relentless commitment to quality as the foundation of its business, the Bank shall
ensure that:
Its people perform their roles and responsibilities honestly and effectively through
continuous education, values and training programs.
Its products and services provide effective financial and technical support with the widest
reach, adhere to local and international standards, and remain responsive to the changing
needs of our clients and stakeholders.
Its management team fosters a work environment that encourages our employees to
harness their fullest potentials and contribute to our organization's goals.
Its processes and operations are continuously monitored and measured to enhance
efficiency and effectiveness in the long run.
Its quality management system is effectively documented, implemented, continuously
improved and communicated to all members of the organization.
LBP believes that giving premium on quality is one of the best ways that it shows how much
value to its relationship with our clients and partners.
3.2 FINANCIAL ANALYSIS
Analyzing the financial statement of LBP will help to determine its strengths and weaknesses.
Financial analysis involves examining relationship between items on the statements (ratio and
percentage analysis) and identifying trends in these relationships (comparative analysis).
Data used in the computation of financial ratios were based on the latest position of LBP which
is December 31, 2013 as compared to December 31, 2010 to December 31, 2012. The figures
used for the financial analysis pertain to the Parent or the LBP as the depository bank of the
government and its various instrumentalities. The Parent and its subsidiaries shall be referred as
the Group. The Parent services requirements of the national government (NG), local
government units (LGUs), and government-owned and controlled corporations (GOCCs). Thus,
LBP shall be referred as the Parent in this section only.
In 2013, LBP had a gross revenue of P42.03 billion, higher by 11.53% than previous year. With
retained earnings for 2013 reaching P32.30 billion, although lower than previous year, LBP was
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able to financially perform without receiving any significant financial assistance from the
government. All pertinent amounts are summarized in the table below.
(in P millions)
Gross Revenue
Operating Cost
Employee Compensation &
Fringe Benefits
Income Tax
Net Income
Dividends Paid to National
Government
2011 Audited
(base year)
34,201
9,465
6,456
2012 Audited
% Growth
2013 Audited
% Growth
37,683
11,817
6,478
10.18%
24.85%
0.34%
42,030
12,083
7,429
11.53%
2.25%
14.68%
200
8,839
4,590
806
10,725
6,308
303%
21.34%
37.42%
3,047
11,530
6,000
278%
7.5%
-5.13%
31,546
34,405
9.06%
32,300
-6.52%
Retained earnings
Profitability, Liquidity and Leverage ratios are most useful in assessing the financial
performance component of the balanced scorecard. These measures are useful in assessing the
financial returns of a firm (profitability), given the risk associated with its financial liabilities or
debt (liquidity & leverage). Activity ratios are more applicable in assessment from the operations
perspective.
Current revenue size and profit
LBP is one of the biggest contributors to the governments revenue generation efforts and one of
the most active partners in supporting its flagship development programs. In 2012, the Bank has
remitted its record-high contribution of P6 Billion as cash dividends to the Bureau of Treasury
(BTr), representing 59% of its total earnings. The Bank during that year was well-positioned for
further growth and has remained aggressive in expanding its loan portfolio to further drive
support to its priority sectors.
Among the Top 5 Commercial Banks
In terms of ranking, LBP has remained among the top five commercial banks in the country in
terms of deposits, assets, loans and capital. As of September 30, 2014, the Bank has kept its
fourth ranking with P942 billion assets, P303 billion loans and P808 billion total deposits; and
placed fifth in capital ranking with P70 billion.
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The Banks Basel III Capital Adequacy Ratio (CAR) also remains strong at 15.5 percent, which
is above the 13% industry CAR.
The Banks return on equity and net interest margin at 12.7 percent and 3.6 percent remain
higher than the latest industry average of 10.1 percent and 3.2 percent, respectively.
Under the Dividends Law of 1993, GOCCs and GFIs are required to remit to the national
government 50 percent of its annual net earnings. The dividend should be in the form of cash,
stocks or property. Among the eight GOCCs which made it to the Billionaires Club for having
remitted at least P1 billion to the government, LBP remitted the biggest amount at P6.24 billion.
This represents 59 percent of the Banks total earnings in 2012.
3.2.1
The profitability ratios provide information regarding a firms overall economic

performance.
a. Growth revenue growth in the past 3 years and market share and how the growth
companies with key competitor/industry average
In P (000s)
Net Interest Income
2010
19,541,017
Growth rate
2011
2012
2013
19,010,422
19,522,006
21,077,951
-2.71%
2.69%
7.97%
Even though the net interest income of LBP slightly decreased by -2.71% in 2011, it
recovered in 2012 and rose to 7.97% in 2013. This has made the Bank remained to be one
of the most profitable banks in the country recording a P10.97 Billion consolidated net
income in 2012. This is P1.9 billion or 21 percent higher than the P9.06 billion net
income in 2011.
b. Gross Profit Margin
In Php (000s)
2010
2011
2012
2013
Interest Income
28,513,608
28,073,260
27,013,835
27,555,632
Interest Expense
8,972,591
9,062,838
7,491,829
6,477,681
68.53%
67.72%
72.27%
76.49%
Gross Profit Margin
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Gross Profit Margin shows the percentage of revenues available to cover operating
expenses and yield a profit. For banks, it is same as Net Interest Margin which measures
the difference between the interest income generated by banks and the amount of interest
paid out to their lenders.
Gross Profit Margin = Revenues Cost of goods sold
Revenues
LBPs Gross Profit Margin, although increased by 4.55% in 2012 from previous year, is
relatively flat given the prevailing low interest rate regime and the declining interest
margin. However, the Banks non-interest income increased significantly by P4.6 billion
to P10.8 billion due to higher income from investments and foreign exchange profit.
Personal services has a minimal increase of P119 million or 2 percent to P6.5 billion and
financial expenses even declined by P787 million or 8 percent to P8.8 billion. Operating
expenses however, increased by P2.3 billion or 25 percent to P11.8 billion.
As stated in the Notes to the 2012 Audited Financial Statements of LBP, the net interest
margin ratio of the Parent decreased from 4.22% in 2011 to 3.52% in 2012. This means
that the Parent made optimal investment decisions as compared to its debt situations and
that interest expenses were less than the amount of returns generated by investments. The
3.52% NIM ratio of LBP is still above the overall NIM of all universal banks in the
Philippine Banking System as of end of December 2012.
c. Operating profit margin
Operating profit margin shows the profitability of current operations without regard to
interest charges and income taxes.
Operating profit margin = Operating income
Revenues
In P (000s)
2010
Operating Income
Gross Revenues
Operating Profit
Margin
5,878,336
28,513,608
0.206
2011
2012
2013
6,149,784
28,073,260
10,669,263
27,013,835
14,475,157
27,555,632
0.219
0.395
0.525
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d. Return on Total Assets

Return on total assets measure the return on total investment in the enterprise. Interest is
added to after-tax profits to form the numerator, since total assets are financed by
creditors as well as by stockholders.
Return on Total Assets = Profits after taxes + interest
Total Assets
Or
Ratio
Formula
2010
(PhP000s)
Net
Profit
Margin
Net
Income
Sales
8,060,202
28,513,608
2011
(PhP000s)
8,838,552
28,073,260
= Net Income x Sales______

Sales
Total Assets
2012
(PhP000s)
10,724,718
27,013,835
2013
(PhP000s)
Turnover
Sales
28,513,608
28,073,260
Total
Assets
569,014,404
643,275,882
27,013,835
2011
2012
2013
28.3
31.5
39.7
41.84
5.01
4.36
3.92
3.25
1.42
1.37
1.56
1.36
11,530,111
27,555,632
X
Total
Assets
2010
27,555,632
689,128,695 847,083,111
Return on Assets (ROA)
The table shows the asset performance of the Parent bank as it related to operations. The
41.84% profit margin in 2013 exceeded the 10% rule of thumb which shows that the
Bank is effective at generating revenue in excess of its cost. Its total assets turnover
increased from 1.37 in 2011 to 1.56 in 2012 which means that for every peso invested in
the Banks assets, the amount of income generated would be 1.56 times. However, total
assets turnover decreased from 1.56 in 2012 to 1.36 in 2013.
Based on the figures, the ROA from 2010 to 2011 decreased from 1.42 to 1.37 but
increased to 1.56 in 2012. The rule of thumb for ROA is 10% but the Bank is only
generating 1.56% net income from its total assets. In the Notes to the 2012 Audited
Financial Statements, the Banks ROA is 1.61%, up by 0.14% from 1.47% in 2011. This
means that the Banks net income is not asset-driven and that it is asset-conservative.
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e. Return on Stockholders Equity

Return on stockholders equity shows the return stockholders are earning on their
investment in the enterprise. A return of 12 to 15 percent range is average and the trend
should be upward.
Return on Stockholders Equity = Profits after taxes
Total Stockholders Equity
Or
= Net Income
Total Equity
Ratio
Formula
Return on
Equity
(ROE)
2010
2011
2012
(PhP000s)
(PhP000s)
Net
Income
8,060,202
8,838,552
10,724,718
11,530,111
Total
Equity
66,609,441
75,830,207
81,903,426
79,956,150
(PhP000s)
2013
(PhP000s)
2010
2011
2012
2013
12.1
11.7
13.1
14.4
In terms of how much income is returned to its equity providers, LBPs ROE showed a
1.4% increase from 2011 to 2012, which even exceeded the 2010 ROE by 1.0%.
Although the Banks 2013 ROE of 14.4% is still below the 15% rule of thumb in ROE,
the trend is on the upward, which means stockholders of the Bank can expect an
increasing trend in returns on their investment in the following years. In the Notes to the
2012 Audited Financial Statements, the Banks ROE is 13.60%, down by 0.20% from
13.80% in 2011 this is still below the 15% rule of thumb in ROE.
3.2.2. Liquidity Ratios
The liquidity ratios measure a firms capacity to meet its short-term financial obligations.
a. Working Capital
The bigger amounts of working capital are better because the company has more internal
funds available to (1) pay its current liabilities on a timely basis and (2) finance inventory
expansion, additional account receivable, and a larger base of operations without
resorting to borrowing or raising more equity capital.
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Working Capital = Current assets Current Liabilities

In Php (000s)
2010
Total current assets

Total current liabilities
Net working capital
115,746,973
482,395,548
(366,648,575)
2011
111,231,407
549,550,233
(438,318,826)
2012
121,491,223
589,731,878
(468,240,655)
2013
282,376,139
746,541,915
(464,165,776)
The Net Working Capitals of LBP are in negative values across years 2010 to 2013.
Banks use more leverage than manufacturing or production-oriented businesses. Its
business is borrowing and lending of money. The deposits that a bank generates came
from depositors are considered current liabilities since the Bank has no control over when
the depositor will withdraw their money from the Bank.
b. Current ratio
Current ratio shows a firms ability to pay current liabilities using assets that can be
converted to cash in the near term. Ratio of 1.0 or higher is better.
Current Ratio = Current assets____
Current liabilities
Ratio of Liquid Assets
In Php (000s)
Cash and cash items
Due from BSP
Due from other banks
Interbank loans receivables
Financial Assets
Total current assets
In Php (000s)
Deposit Liabilities
Liquid Assets to Deposits
Total current liabilities
Current Ratio
2010
13,769,027
84,812,526
1,145,898
5,721,600
10,297,922
115,746,973
2010
396,624,786
29.18%
482,395,548
0.24
2011
16,129,879
77,168,221
1,923,084
7,582,769
8,427,454
111,231,407
2011
507,457,975
21.92%
549,550,233
0.20
2012
17,867,540
85,096,569
3,545,429
11,168,108
3,813,577
121,491,223
2012
543,849,006
22.34%
589,731,878
0.21
2013
20,354,849
249,497,118
3,140,487
7,036,608
2,347,077
282,376,139
2013
704,058,139
40.11%
746,541,915
0.38
Liquidity of a bank means its ability to meet short-term financial obligations when due.
In Parents case, the average current ratio of the Bank is 0.22 or less than 1.0, which
means that the loans extended to debtors are relatively illiquid assets, but these loans are
funded using the banks short-term deposit liabilities. Average Liquid Assets to Deposits
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of the Bank is at 24.48% which is the percentage cover that the total deposits level of the
Bank can service its liquid assets. Thus, the current assets of the Parent are not sufficient
to cover the full current liabilities of the Bank when they fall due.
However, in LBPs 2012 Annual Report, the Groups total assets expanded to P691.5
billion or 7 percent higher than the P645.8 billion assets in 2011. Regular loans likewise
increased by 8 percent to P270 billion from P249.6 billion in 2011. Investments grew by
P40.1 billion or 20 percent to P236.1 billion on account of government securities
classified as available for sale securities. The Groups lending and investing activities
were funded by deposits that reached P543.7 billion or 7 percent higher than the P507.3
billion outstanding deposit balance in 2011. Government deposits amounted to P383.8
billion, which account for about 71 percent of total deposits.
3.2.3
Activity Ratios
The activity ratios reflect a firms efficient or inefficient use of its resources. It measures
a firm's ability to convert different accounts within its balance sheets into cash or sales.
Activity ratios are used to measure the relative efficiency of a firm based on its use of its
assets, leverage or other such balance sheet items. These ratios are important in
determining whether a company's management is doing a good enough job of generating
revenues, cash, etc. from its resources.
a. Average Collection Period
The Average Collection Period indicates the average length of time or the number of days
the firm must wait after making a sale to receive cash payment. A shorter collection time
is better.
Average collection period = Accounts Receivable
Average daily sales
In Php (000s)
Accounts Receivable
Interest Income1
Interest Income 365
Ave. Collection Period (Days)
1
2010
903,845
28,513,608
78,119
12
2011
1,224,998
28,073,260
76,913
16
2012
1,260,439
27,013,835
74,010
17
2013
1,456,273
27,555,632
75,495
19
Note: Does not include Other Operating Income
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Almira Jorda-Garcia Student ID no.
11183640
The average collection period of the Parent for 2010 to 2013 is 15 days which is lower
than the 30 days allowance from payment due date or after the loan accounts have
become past due in accordance with existing rules and regulations. The Bank has
consistently maintained a significantly average past due ratio of below 2.00% which is
compliant to BSPs requirement of not more than 20% past due ratio.
Average loan receivable which was not included in the computation of current assets for
the period is Php267 Billion. Some of these loans are expected to be collected within one
year. However, the notes to financial statements of the Bank does not report schedule of
classification of loans receivable.
b. Fixed Assets Turnover
This ratio measures how intensively a firm's fixed assets such as land, buildings, and
equipment are used to generate sales. A low fixed assets turnover implies that a firm has
too much investment in fixed assets relative to sales; it is basically a measure of
productivity.
Fixed Assets Turnover =
In Php (000s)
Interest Income1
Property & Equipment (net)
Fixed Asset Turnover
Ratio
1
Net Income_____________
Property & equipment (net)
2010
28,513,608
4,623,481
6.17
2011
2012
28,073,260
4,561,261
6.15
27,013,835
4,680,485
5.77
2013
27,555,632
4,981,525
5.53
This means that the company generates an average of P6,030 worth of interest income or
sales for peso invested in fixed assets. The fixed asset turnover ratio has a declining trend
which implies that the property and equipment (i.e., buildings, furniture, fixtures,
equipment, leasehold rights and transportation equipment) used in the business are
operating efficiently within its capacity and has managed to look at the possibility of
selling the less productive assets.
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c. Total Assets Turnover

This ratio takes into account both net fixed asset; and current assets. It also gives an
indication of the efficiency with which assets are used; a low ratio means that excessive
assets are employed to generate sales and/or that some assets (fixed or current assets)
should be liquidated or reduced.
Total Assets Turnover =
In Php (000s)
Interest Income
____Sales_____
Total Assets
2010
2011
2012
2013
28,513,608
28,073,260
27,013,835
27,555,632
689,128,695
643,275,882
569,014,404
847,083,111
0.041
0.044
0.047
0.033
Total Assets
Total Asset Turnover
1
In this case, LBP produces an average of 0.041 times or P4.10 worth of sales for every
peso invested in total assets. If Parent is able to reduce its investment in accounts
receivable and inventory and/or sell a division or fixed assets which are a burden on the
company's operating performance, it would increase the total assets turnover ratio and
thus would be more productive.
3.2.4 Leverage Ratios
The leverage ratios indicate a firms financial risk, that is, the relative proportion of its
debt to its equity.
In Php (000s)
Total Liabilities
2010
2011
2012
2013
502,404,963
567,445,675
607,225,269
767,126,961
Total Equity
66,609,441
75,830,207
81,903,426
79,956,150
Total Assets
569,014,404
643,275,882
689,128,695
847,083,111
7.54
7.48
7.41
9.59
88:12
88:12
88:12
90:10
Debt Equity Ratio

Debt Ratio
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Since banks lever for its lending activities, they are highly indebted. Debt ratio of the
LBP was maintained at 88:12 from 2010 to 2012 which means that 88% of its total assets
were financed with debt. However, in 2013, the Banks total assets were financed by 90%
debt which means that it has expanded its credit reach to its clients and priority sectors by
2% from 88% in the last three years.
a. Debt to Equity Ratio
Debt-to-equity ratio should be less than 1.0. High ratios above 1.0 signal excessive debt,
lower creditworthiness and weaker balance sheet strength.
Debt-to-Equity Ratio =
Total Debts______
Total Stockholders Equity
The Banks average Debt Equity ratio is 8.00 which means that the proportion of debt
financing to equity financing of the bank is more than 1.0, which confirms that LBP is
highly leveraged. However, this does not conclude that the bank has a weak financial
strength because the Bank relies heavily on its lending activities to gain profit as can be
seen by its positive net income margin growth from 2010 to 2013.
b. Debt to Assets Ratio
Debt to Assets Ratio measures the extent to which borrowed funds have been used to
finance the firms operations. Low ratios are better as high fractions indicate overuse of
debt and greater risk of bankruptcy.
Debt-to-Asset Ratio = Total Debts__
Total Assets
In Php (000s)
Total Liabilities
Total Assets
Debt-to-Asset Ratio
2010
502,404,963
569,014,404
0.88
2011
567,445,675
643,275,882
0.88
2012
607,225,269
689,128,695
0.88
2013
767,126,961
847,083,111
0.90
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The LBPs average Debt-to-Asset ratio is 0.88 is lower than 1.0 which means that the
banks total liabilities are not being used excessively to finance the banks operations;
thus, there is lower risk of bankruptcy.
3.3 VALUE CHAIN ANALYSIS
The value chains describe how your organization creates value for customers.
LBPs Value Chain shall be described using Thompson and Stricklands Value Chain Framework:
Value chain, as defined by Thompson and Strickland (2010), is the combination of all the various
activities that a company performs internally which are the building blocks to create products or
services that are viewed as valuable to the customers/ buyers. Using the value chain framework
as a basic tool to systematically examine all the activities a firm performs is helpful in analyzing
the sources of competitive advantage of that firm. Value activities are the physically and
technologically distinct activities a firm performs. The value chain displays total value and
consists of value activities and margin. Margin is the difference between total values and the
collective cost of performing the value chain activities.
A. Primary Activities are activities directly involved in the physical creation of the product
and its sale transfer to the buyer as well as the after-sale assistance (Porter, 2004). There are
five categories of primary activities:
Supply Chain Management these are activities, costs and assets associated with
purchasing fuel, energy, raw materials, parts and components, merchandise, and
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consumable items from vendors; receiving, storing, and disseminating inputs from
suppliers; inspection; and inventory management.
In the case of financial institutions, the primary input in providing banking
products/services is the funds or money. Therefore, sourcing money is the foremost
activity in LBPs supply chain.
LBPs supply chain will come from deposits generation from private individuals, private
companies,
government
agencies,
government-owned-or controlled
corporations
(GOCCs) and local government units (LGUs). This provides the Bank with another
significant funding source which its privately-owned competitors are now trying to
penetrate as well.
As the official depository bank of the Philippine National Government, LBP can also
source its funds by borrowing from multilateral (e.g., World Bank, Asian Development
Bank) or bilateral agencies (e.g., Japan International Cooperation Agency, KfW) through
the Official Development Assistance (ODA). ODA funding allows the Bank greater
capacity to lend substantial amounts on longer terms with lower cost of funding.
However, ODA funds are more expensive than deposits which can impact the Banks
competitiveness when the interest rate environment is low. Currently, these borrowings
are not being fully utilized.
Other sources of borrowings that the Bank can tap are issuance of Unsecured
Subordinated Debt and Senior notes, and interbank borrowings (including the BSPs
rediscounting line and overnight repurchase agreement).
With the support of the National Goverment, LBP in its inclusive growth mandate is
presented with a captured market (LGUs and other government agencies) which has a
limited capacity to infuse capital in view of its priority programs and budget deficits.
LBP has consistently been among the top best performing GSEDs for both the primary
and secondary markets and among the top brokering participants as licensed by the
Securities and Exchange Commission and the Bankers Association of the Philippines.
LBP charges are among the lowest brokers fee in the industry so that clients could
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maximize the earnings of their investment for a minimum GS investment amount of

P200,000 which is lower than the other GSEDs minimum investment amount of between
P500,000 to P1 million in the secondary market.
Operations these are activities, costs and assets associated with converting inputs into
final product form (production, assembly, packaging, equipment maintenance, facilities,
quality assurance, environmental protection).
For LBP, this primarily involves lending to its priority sectors and other institutions to
fulfill its mandate of promoting inclusive growth and improving the quality of life in the
countryside. Such priority sectors include the small farmers and fisherfolk (groups),
schools, hospitals, LGUs, SMEs, microenterprises, among others. The activities in the
Banks operations are loans and investments packaging, underwriting activities,
processing of day-to-day banking activities (including deposits and withdrawals),
conducting feasibility studies and market analysis/study, and product development or
launching of different programs for conduits (i.e., TODO-UNLAD, ACCESS, etc.) and
performing other activities related to the Banks social mission.
In addition, the Banks operations include processing of client transactions such as
deposit taking/withdrawals, opening and closing of accounts, processing of remittances
(foreign and domestic) and other similar products, and purchasing and selling of foreign
currencies.
Distribution - these are activities, costs and assets dealing with physically distributing the
product to buyers (finished goods warehousing, order processing, order picking, and
packing, shipping, delivery vehicle operations, establishing and maintaining a network of
dealers and distributors).
LBPs distribution channels facilitate the processing of client transactions and delivery of
services such as fund disbursements/drawdowns (including actual release of approved
loans, release of cash to customers with withdrawal transactions), remittances and fund
transfers services, investment services, collection of receivables, payment of dues,
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project/program implementation, and product launching. Such distribution channels are

ATM networks, branch networks, and online banking facilities (internet and mobile
banking).
In 2014, LBP has undertaken conversion of proprietary ATM cards to new LBP VISA
Debit card allowing its account holders to transact at 30,000 Point of Sale (POS)
terminals and online merchants at ATMs worldwide.
The Bank also provides collection solutions by deploying POS terminals such as the LBP
Express ATMs (LEAM) which allows clients to remit their BIR, SSS and PAG-IBIG
payments. The regular ATMs can also be used to transfer funds from one bank account to
another. This was pursued to engage more private and government institutions to avail of
the Internet Pavement Gateway and Bills Payment facilities of the Bank for faster
transactions and easier accessibility. Cash deposit machines are starting to be installed in
strategic locations of the Banks branches that intends to declog the long lines in the
branches.
LBP has also established tie-ups with a network of 1,510 correspondent banks and 38
depository banks in 93 countries to carry out its international transactions. This also
facilitates the remittances assistance to the Overseas Filipino Workers (OFWs)
Representative and offices are also operated in six countries (USA, Italy, Japan,
Singapore, United Arab Emirates and Kuwait.
Through these distribution channels, the officers and employees of LBP can maintain
good relationships with the investors and priority clients. Among the supply chain
activities in a bank are opening new accounts, deposit-taking activities, receiving loan
applications, checking clients background (Know Your Client or KYC practice),
checking of validity and authenticity of submitted documents, handling queries and
concerns of walk-in clients, buying commercial papers/government securities, receiving
placements in various types of investments, issuance of bonds, payment acceptance (i.e,
BIRs property tax, SSS premium, etc.), and accrediting credit conduits (i.e., Countryside
Financial Institutions, Cooperatives, etc.), establishing the following remittance partners:
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In Europe: Austria, Germany, Greece, Ireland, Italy, Spain, United Kingdom

In the USA: California, Guam, New York, Virginia, Illinois, New Jersey, Nevada,
Hawaii, Washington
in the Middle East Region: Abu Dhabi, Bahrain, Dubai, Kuwait, Oman, Qatar,
Saudi Arabia
In the Australia and Oceania: Australia, New Zealand, Palau, Saipan
In the Asia Pacific Region: Brunei, Hongkong, Israel, Japan, Korea, Macau,
Malaysia, Singapore, Taiwan.
LBP further expands its global reach with the signing of a remittance partnership with
MoneyGram International, Inc. which will allow OFWs in the United States, Canada,
Europe, Middle East, Australia, New Zealand, Japan and parts of Asia to remit for cash
pick-up of their beneficiaries at any LBP Branch in the Philippines. Using the
MoneyGram system, LBP branches will also accept outward transfers for payment at any
of MoneyGrams overseas network (LBP Newsgram, 2015)
Sales and Marketing - these are activities, costs and assets related to sales force efforts,
advertising and promotion, market research and planning, and dealer/distributor support.
The sales and marketing efforts of LBP consist of advertising such as the award-winning
ad Ang Bagong Pinoy and promotional campaigns like TODO-BIGAY, BAGONG
BAHAY raffle promo to retain deposits and increase ADB, Fly away to Summer
Hideaways LBP VISA Card promo, etc.), launching of LBPs new tagline, We help you
Grow), sponsoring in entrepreneurial TV shows like Swak na Swak, and having radio
segment in DZRH that provides bank information on business start-ups, lending and
other financing concerns, conducting roadshows about the Banks products and services
(local and foreign locations), managing the sales force (e.g., 12 Overseas Representative
Officers,
account
officers,
marketing
officers),
collection
by
channel
(e.g.,
cooperatives/associations, and rural banks/cooperative rural banks), and quoting and

pricing at competitive rates. It also gives perks and rewards to loyal customers like the
Gawad Entrepreneur Award, Galing Pook Award, Gawad PITAK award, etc.) and
discount promos thru LBP Visa credit card and debit card.
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The Bank also creates value to its clients by: providing low rates and flexible loan terms,
partnering with credible institutions in delivering financial services to end-users, and
establishing long-term and strong relationships with ODA funders and government
agencies.
Marketing efforts are focused mainly on projects targeted at increasing the
competitiveness of Philippine industries, such as those agri-related and aqua-related
projects, infrastructure, transportation, LGU projects, environmental protection, among
others.
Service - these are activities, costs and assets associated with providing ancillary services
or assistance to buyers, such as installation, spare parts delivery, maintenance and repair,
technical assistance, buyer inquiries, and complaints.
LBPs service activities consist of technical assistance through project and loan
monitoring (e.g., site visits, project evaluation/impact assessment), account servicing
(e.g., pick-up deposit services,, bills payment services for both government and private
clients), phone banking facility (LBP Phone Access), electronic banking services (e.g.,
b2bpricenow.com, iAccess, We-Access, Easy Padala, eMDS), installation of Express
Paying Machines (e.g. LEAM), consultation services, handling of customer complaints
and inquiries, and regular trainings for employees on all offerings, policies, and
procedures to ensure smooth, uniform and effective implementation of Banks services in
all branches.
LBPs excellent service is through full disclosure of the features, terms and conditions of
the Banks products and services; providing timely financial and technical support;
making pertinent product and service information easily available through various types
of media (i.e., posters, brochures, websites); and strictly complying with all laws and
regulations of the BSP and the National Government in the fair design and sale of
financial products and services.
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B. Support Activities
Product Research & Development (R&D), Technology, and Systems Development - these
are activities, costs and assets relating to product R&D, process R&D, process design
improvement, equipment design, computer software development, telecommunications
systems, computer-assisted design and engineering, database capabilities, and
development of computerized support systems.
LBP implements the following process design improvement activities:
Know-Your-Customer Policy Process Re-engineering

Customer Service Excellence Program Process Re-engineering
Credit MIS Process Re-engineering
Record MIS Process Re-engineering
It maintains a database system for each of its deposits, loans, treasury trading
transactions, compliance reports, and all records of the Banks workforce. It has
capability to develop and conduct User Acceptance Testing of its various computerized
support systems that provides quantitative analysis, model testing, and monitoring of the
Banks credit and other risk exposures.
Human Resources Management - these are activities, costs and assets associated with the
recruitment, hiring, training development, and compensation of all types of personnel;
labor relations activities; and development of knowledge-based skills and core
competencies.
LBP gives importance in cultivating its most important capital its dynamic workforce
through its progressive recruitment, development and retention programs. This include
training development (for staff and officers), On-the-Job Training Development Support
Program, Graduate Development Program, enhanced Performance Management System
to use as basis to measure and evaluate employee performance as basis for promotion or
giving of incentives and rewards (e.g., Gawad Punla loyalty award, bonuses, merit
incentive program), and other training and assessment interventions required for new
senior executives in accordance with Civil Service Commision (CSC) qualification
standards.
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To ensure employee retention, the Bank structures compensation package, job evaluation
with third party consultation, establishes a Grievance Machinery Mechanism that serves
as guide in handling employee-related complaints and concerns, providing employee
wellness activities (e.g. sports competition, health forum, Annual Physical Examination,
nutritional counseling, sports activities, small group learning sessions, gym, day care
center, etc.), disseminating internal communications (e.g., participation in employee
volunteerism activities of government agencies), providing HMO plans to employees,
evaluating employees performance and job evaluation assessment, conduct of
organizational climate survey, facilitating meetings between the banks senior
management and labor union and managing the quality of work environment of
employees (e.g. practice of EMS, 5S, etc.).
In 2013, a number of core positions have been vacated by the Early Retirement Incentive
Program availees and other resignees. Attracting the best talents has been more
challenging for the Bank given the tedious civil service process on recruitment and the
conditions imposed by recent executive and legislative issuances, i.e., Joint Resolution
No. 4, Executive Order No. 7 dated September 8, 2010, and the GOCC Governance Act
of 2011, on the increases in allowances, benefits and basic salary of government financial
institutions (GFIs) and GOCCs.
General Administration - these are activities, costs and assets relating to general
management, accounting and finance, legal and regulatory affairs, safety and security,
management information systems, forming strategic alliances and collaborating with
strategic partners, and other overhead functions.
The general administration activities of LBP include: planning and budgeting,

managing treasury and liquidity positions, procuring supplies, equipment, and
buildings, providing legal advisory to concerned bank units, organizing government
affairs, and administering internal risk-based audit to assess work process of banks
units, business continuity practices, and cost-reduction measures.
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Table19. Summary of Value Chain Activities of LBP

Primary
Activities
Supply Chain
Management
LBPs Value Chain Activities
Operations
Distribution
Sales & Marketing
Service
Taking or generating deposits

Sourcing of external funds or grants given by external partners like private
companies, government agencies, multilateral or bilateral agencies
Maintaining good relationships with the investors and priority clients
Receiving loan applications
Checking of validity and authenticity of submitted documents
Buying commercial papers/government securities
Receiving placements in various types of investments, issuance of bonds
Accepting utility and government fees payments (i.e, BIRs property tax,
SSS premium, etc.)
conduits (i.e., Countryside Financial
Institutions,
Accrediting credit
Cooperatives, etc.)
Establishing remittance partners in other regions like US, Europe, Middle
East, Asia Pacific
Evaluating, Assessing and Reviewing Proposals of Account Officers for
their clients
LC applications, remittances, treasury dealings and foreign
Processing
exchange transactions
Processing loans and investments packaging, underwriting activities,
of day-to-day banking activities (including deposits and
Processing
withdrawals),
Conducting feasibility studies and market analysis/study
Product development or launching of different programs for conduits (i.e.,
TODO-UNLAD, ACCESS, etc.)
Disbursing loan proceeds to clients
Releasing of cash to clients with withdrawal transactions
Handling of remittances (local and abroad)
Facilitating fund transfers services investment services, collection of
receivables, payment of dues,
Implementing approved projects/programs
Launching of advertising and promotional campaigns like LBPs new
tagline, We help you Grow)
Conducting roadshows about the Banks products and services (local and
foreign locations)
Collecting by channel (e.g., cooperatives/ associations, and rural
banks/cooperative rural banks)
Quoting and pricing of products and services at competitive rates.
Managing sales force (e.g., 12 Overseas Representative Officers, account
officers, marketing officers)
Advertising through radio, TV program (Swak na Swak entrepreneur show)
materials like brochures and leaflets
Giving perks and rewards to loyal customers
Monitoring of financed projects and loan monitoring (e.g., site visits, project
evaluation/impact assessment)
of individual accounts (e.g., pick-up deposit services,, bills
Servicing
payment services for both government and private clients)
Providing off-site bank transactions thru, phone banking facility (LBP
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Support
Activities
Phone Access), electronic banking services (e.g., b2bpricenow.com,

iAccess, We-Access, Easy Padala, eMDS), and mobile banking (Mobile
Loan Savers)
Installing Express Paying Machines
Handling of customer complaints and inquiries
Conduct of regular trainings for employees on all offerings, policies, and
procedures to ensure smooth, uniform and effective implementation of
Banks services in all branches.
Installing 24-hour call center
Handling account-related queries and concerns of clients
LBPs Value Chain Activities
Product R&D,
Technology and
Systems Development
Human Resources
Management
Recruiting and hiring employees

Training employees
Evaluating performance of employees
Promoting qualified employees
Giving incentives and rewards (e.g, Gawad Punla loyalty award, bonuses,
merit incentive program)
Structuring of compensation package
Terminating employees (thru firing, resignation, or retirement)
Providing employee wellness activities (health forum, nutritional counseling
services, Annual Physical Examination, sports activities, small group
learning sessions, gym, day care center, etc.)
Providing HMO plan (e.g. Medicard) to employees
Evaluating employees performance and job evaluation assessments
Conducting organizational climate survey
Disseminating of information to employees about the Banks internal
activities, participation in employee volunteerism activities of government
agencies
Facilitating meetings between the banks senior management and labor
union
Handling complaints and concerns of employees (Grievance Mechanism)
Managing the quality of work environment of employees (practice of EMS,
5S, etc.)
Planning and budgeting
Managing treasury and liquidity
Procuring supplies, equipment, buildings
Providing legal advisory to concerned bank units
Organizing government affairs
Administering internal risk-based audit to assess work process of banks
units, business continuity practices, and cost-reduction measures.
General
Administration
Designing process improvement systems to better serve the clients such as:
Know-Your-Customer Policy Process Re-engineering, Customer Service
Excellence Program Process Re-engineering, Credit t MIS Process Reengineering and Record MIS Process Re-engineering
Maintaining of various database system that the Bank needs for each of its
deposits, loans, treasury trading transactions, and all records of the Banks
workforce.
Conducting User Acceptance Testing of computerized support systems
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3.4 STRENGTHS AND WEAKNESSES

1. Strengths
A strength is something a company is good at doing or a characteristic that gives it enhanced
competitiveness.
Description
LBP reported a net income of P6.0 billion for the first half of 2014, 29 percent
lower than the P8.5 billion registered in the same period last year. The decrease
in the net income is due primarily to lower trading gains as brought about by
unfavorable market conditions, which is prevalent among the countrys largest
lenders. But despite the decline, the Bank managed to surpass the year-to-date
target net revenue by 5 percent and remain on track to meet its full-year profit
target of P12 billion.
Result
Higher absorption capacity to finance and sustain new projects of clients,

specifically in areas that are often unserved and neglected.
Basis
Value Chain: General Administration

Financial Ratios: Positive Growth Revenue Margin and Operating Profit
Margins and industry competitive ROA (0.56%) and ROE (12%). Stable stream
of deposits with 71% from government accounts and 29% from private accounts
that finance all lending/investing activities of the Bank. The Bank is highly
leveraged to which 88% of its assets are debt financed.
Activity: Implementing the Banks lending policies and procedures in strict
compliance, documenting and monitoring of loan accounts performance,
maintain sound accounting practices and performing risk management measures.
Strong Tie-Ups with established conduits (i.e., PFIs, cooperatives, SFF groups)
Description
LBP fosters a unified approach in development where linkages among farmers

cooperatives, private companies, rural banks, non-government organizations
(NGOs) and LGUs are created to address specific development gaps that inhibit
the development of rural industries such as agricultural production and
marketing activities in the countryside.
Through its strong tie-ups with its partner conduits in the countryside, LBP has
remained the biggest credit provider to small farmers and fishers, local
government units, and the biggest lender to microenterprises and SMEs among
government financial institutions.
A leader in countryside lending, the Bank was able to release P3.26 Billion to
some small farmers and fisherfolk cooperatives/groups in 2012. Exposure to
SMEs and mass housing loans reached P50.7 Billion and P32.6 Billion,
respectively. Credit delivery and support to rural and countryside development
Page 136
is considered high risk and yet through its established conduits, LBP has
consistently served its social mission for 51 years now.
Result
More economic activities in the rural areas and spurring economic growth in
rural and agricultural areas.
Basis
Value Chain: Distribution by partnering with reputable institutions

Financial Ratios Liquidity from additional funding source (ODA) as well as
client referrals provided by this arrangement.
Activity: Partnering with reputable and good standing institutions like key
cooperatives, large enterprises, and small farmers and fisherfolk (SFF) groups,
and providing financial and technical assistance such as project
evaluation/impact assessment, account servicing and monitoring when lending
to its mandated and priority sectors.
Extensive branch network in the countryside

Description
The Bank remains the only universal bank with presence in Siargao, Quirino,
Saranggani, Baler, Guimaras and Dinagat, to name a few. Most commercial banks
70% of their branches are concentrated in Metro Manila and other key cities like
Cebu and Davao. As of December 31, 2014, it has a total of 351 branches/units, 34
lending centers/units and 12 Agrarian Operations Centers strategically located
covering all 81 provinces of the country.
Result
Faster and more efficient financial service to clients
Basis

Activity: Providing easier access to distribution channels by physically transporting
the ATMs to the place of the clients for them to withdraw the cash needed without
needing to travel to the nearest branch available; thus, reducing costs for the clients.
Timely Delivery of Innovative Products and Services

Description
Being the first to launch Mobile LoanSaver (MLS) facility makes LBP a
technological leader in terms of introducing the first paperless, fully electronic
salary loan application and processing in the country which comes with an autosaving component. MLS is a product of our thrust to innovate how we do things. It
employs the advances in technology as a leverage to offer innovative products and
deliver fast and efficient service at affordable prices. This program totally
eliminates the preparation and submission of paper documents such as loan
application, income and loan approval forms, and post-dated checks, among
others. It saves the borrower transport costs by going to the bank to submit the loan
documents and the hassle of taking a leave just to facilitate such application. The
MLS is also an example of a market-based innovation solution that contributes to
responsive and responsible financial access among Filipinos, especially those who
have limited access to mainstream financial services. This socially innovative
financial service combines the pervasiveness of the mobile phone with the extensive
Page 137
banking reach of LBP especially in the countryside in pushing for a program for
financial inclusion.
Another service innovation is the mobile ATMs that only LBP has. These mobile
ATMs are especially designed and mounted on customized vehicles for deployment
to service unbanked and remote areas of the country. This was launched particularly
to aid in the distribution of cash grants to beneficiaries under the governments
Pantawid Pamilyang Pilipino Program (4Ps) or Conditional Cash Transfer Program.
Result
More convenient cash banking services, especially to clients in remote and

unbanked areas; thus, reducing financial services cost for the clients.
Basis

Activity: Introducing new ways of making credit/funds more convenient and
accessible to clients through faster channels/conduits and more responsive cash
delivery systems.
Direct affiliation with National Government (LGUs, NGAs, GOCCs)

Description
As a wholly-owned government financial institution, LBP benefits from taking

active participation in the National Governments priority programs such as the
governments Pantawid Pamilyang Pilipino Program (4Ps) or Conditional Cash
Transfer Program to which the Bank serves as distribution channel of cash grants to
CCT beneficiaries in unbanked and remote areas of the country. The Bank also plays
a major role in the Food Supply Chain Program that promotes food security and
increases agricultural productivity and income of farmers. It releases loans to rice
farmers under the DA-Sikat Saka Program and supports the OWWAs OFW
Reintegration Program by approving business loans to qualified OFW borrowers. It
also continues to provide financial assistance, land transfer operations, and land
amortization collections to landowners under CARP.
Given that government agencies, LGUs and GOCCs are mandated to deposit their
funds with government financial institutions, majority of LBPs funding source are
government deposits.
As the official depository bank of the Philippine government, LBP, along with
DBP, serves as conduits of ODA funds from multilateral and bilateral agencies that
are guaranteed by the National Government. This allows LBP and DBP to extend
loans at longer and more flexible terms than regular loans offered by other U/KBs.
Result
Availability of longer tenor and fixed rate funds to borrowers located in povertystricken or poor provinces that are prioritized by the National Government to have
inclusive growth.
Basis
Value Chain: Supply Chain Management on Sourcing of Funds

Financial Ratios Leverage Ratios
Activity: Identifying and collaborating with strategic partners to provide more
Page 138
loans/credit access/support to new clients and maintaining a sound accounting and

finance performance compliant to regulatory policies and procedures of BSP and
COA.
Competent and Responsive Manpower

Description
LBP has competent and responsive manpower with 7,062 employees as of 2012
which are provided with extensive management trainings and development
programs for both internal and external applicants such as Leaders Development
Program and Executive Development Program. It also has in-house training
programs lined up for the whole year making sure that each employee is compliant
to the required qualification standards for their jobs. The Bank also offers
scholarship for employees who are interested to obtain post-graduate studies in the
school of their choice.
Result
Competent and responsive employees that can anticipate, understand and serve the
needs of customers when they need it.
Basis
Value Chain: Human Resources Management

Activity: Recruiting, hiring, training, and developing knowledge-based skills and
core competencies of employees for better delivery of customer service and
2. Weaknesses
A weakness is something a company lacks or does poorly (in comparison to others) or a
condition that puts it at a disadvantage.
The following are the identified weaknesses of LBP in terms of organizational
competitiveness:
Inability to match the preferred lending and
borrowing rates of clients with other U/KBs
Description
Some of LBPs priority clients, especially government agencies, will transfer their
accounts with other U/KBs who can offer them their preferred interest rate. These
clients perceive LBPs offered rates as not competitive and flexible at the time of
financial need as compared with other U/KBs causing the Banks deposit or loan
portfolio to decrease.
Result
Lost business opportunity to serve priority clients of the Bank.
Basis

Activity: Sustaining the deposits of clients by providing them with competitive
interest rates as compared to other U/KBs, and providing clients, especially the big
ticket clients, with competitive lending rates.
Page 139
Concentration on Certain Economic Sectors

Description
Following its social mandate, LBP focuses its financial assistance to its priority
sectors in order to promote inclusive growth and spur economic development in the
countryside. Thus, more than half of its loan portfolio is generally concentrated on
agriculture-related and development loans with large and long term exposures.
These loans comprise 70% to 80% of the Banks total loan portfolio
Result
Risk exposure of the Bank in particular industry segments for which the Banks
loan portfolio may be concentrated can be altered due to abrupt changes in the
countrys macroeconomic condition or shift in business climate. This may have
adverse effects on the profitability and capital sustainability of Banks priority
sectors.
Basis

Financial Ratios: Leverage Ratios
Activity:
Lending to mandated sectors and extending financial support for
agriculture and fisheries and other national government projects are prioritized over
private developmental projects and other sectors.
Low Availment of Financial Services in Unbanked Regions/Areas in the Country

Description
Presence of a bank office in all provinces is not sufficient to provide easier access to
funds in unbanked regions/areas in the country. The 2009 Consumer Finance
Survey (CFS) found out that 8 in 10 Filipino households did not have a deposit
account. Roughly 93% of those with no deposit accounts cited having not enough
money for bank deposits as primary reason. Others say they can manage without a
bank account and do not like to deal with banks and financial institutions. As to
regional distribution, about 28% of households in NCR hold deposit accounts while
16% of households in regions outside NCR.
Result
Untapped opportunities to source additional funds for lending or investment that can
benefit more people in unbanked regions/areas in the country who need it the most.
Basis

Activity: Extending financial assistance to areas/regions in the country that have
no bank presence and have low levels of bank deposits and/or loan exposure and by
partnering with alternative Financial Services Provider (FSP) like money transfer or
remittance agents to reach more private individuals who does not want to deal with
banks and use of mobile, online and phonebanking facilities.
Page 140
Reliance on High Cost Funding Source

Description
Given that most of LBPs deposit liabilities came from LGUs, GOCCs and other
government agencies, the Banks liquidity position is threatened by the
implementation of the Treasury Single Account (TSA).
Under the TSA, all government revenues deposited to accredited agent banks like
LBP will be swept to a single account with the BSP. Thus all the governments
estimated daily expenditures shall be deposited under one expenditure account and
suppliers/payees will be paid through the e-Modified Disbursement System (MDS).
The excess funds from this expenditure account will be swept daily to BSP for
short-term investments. This leaves the government bank accounts zero balance at
the end of the day (Official Gazette, 2014). Thus, LBP will lose a big chunk of its
government deposits and have to rely more on higher cost of funding such as ODA
and other foreign borrowings. As of end-2013, COA reported that the ODA funds
has low utilization rate of 65.6% and that reliance on ODA and other foreign
borrowings is at 25% of total liabilities.
Result
ODA and other foreign borrowings provide a stable funding source but entails
higher costs than regular Bank deposits which lead to low utilization rate of these
funds maintained by LBP.
Basis

Activity: Acquiring alternative source of funds that the Bank can use in addition
to deposit liabilities taken from ODA or other foreign borrowings to provide more
credit assistance to priority sectors.
Table 22. Summary of LBPs Strengths and Weaknesses

Strengths
Strengths
Basis
Financial Ratios
Value Chain: General
Administration
Direct affiliation with

National Government (LGUs,
NGAs, GOCCs)
Financial Ratios Leverage

Ratios
Value Chain: Supply Chain
Management
Activities
Implementing the
Banks
lending
policies and procedures in strict
compliance,
documenting
and
monitoring
of
loan
accounts
performance, maintain sound accounting
practices
and
performing
risk
management measures.
Identifying and
collaborating
with
strategic partners to provide more
loans/credit access/support to new clients
and maintaining a sound accounting and
finance performance compliant
to
regulatory policies and procedures of
BSP and COA.
Page 141
Strong Tie-Ups with

established conduits (i.e.,
PFIs, cooperatives, SFF
groups)
Strong Commitment to
Extend More Credit to its
Mandated Sectors (Small
Farmers and Fisherfolk and
Agrarian Reform
Beneficiaries) and other
Priority Sectors
Extensive Branch Network in
all provinces of the country
Timely Delivery of
Innovative Products and
Services
Competent and Responsive

Manpower
Value Chain: HRM
Financial Ratios
and Research and
Development
Partnering with reputable and good

standing institutions like key
cooperatives, large enterprises, and small
farmers and fisherfolk (SFF) groups.
Providing financial and
technical
assistance
such
as
project
evaluation/impact assessment, account
servicing and monitoring when lending
to its mandated and priority sectors.
Providing easier access to distribution
channels by physically transporting the
ATMs to the place of the clients for them
to withdraw the cash needed without
needing to travel to the nearest branch
available; thus, reducing costs for the
clients
Introducing new ways of making
credit/funds more convenient and easier
to access by the clients through faster
channels/conduits and more responsive
cash delivery systems
Recruiting, hiring,
training,
and
developing knowledge-based skills and
core competencies of employees for
better delivery of customer service and
Weaknesses
Weaknesses
Basis
Inability to match the

preferred lending and
borrowing rates of clients
with other U/KBs
Concentration to Certain
Economic Sectors

Ratios
Low Availment of Financial

Services in Unbanked
Regions/Areas in the Country

Ratios
Activities
Sustaining the deposits of clients by
providing them with competitive rates
as compared to other U/KBs, and
providing clients, especially the big
ticket clients, with competitive lending
rates by offering low-cost funds.
Lending to mandated sectors and
extending financial support for
agriculture and fisheries and other
national government projects are
prioritized over private developmental
projects and other sectors.
Extending financial assistance to
areas/regions in the country that have
no bank presence and have low levels
Page 142
Reliance on High Cost

Funding Source
of bank deposits and/or loan exposure

and by partnering with alternative
Financial Services Provider (FSP) to
reach more private individuals who
does not want to deal with banks and
use
of
mobile,
online
and
phonebanking facilities.
Financial Ratios: Leverage

Ratios
Activity: Acquiring alternative

source of funds that the Bank can use
in addition to deposit liabilities taken
from ODA or other foreign borrowings
to provide more credit assistance to
priority sectors.
3.5 PERSONAL VALUES OF KEY IMPLEMENTERS

The social principles and moral teachings articulated in the Catholic Social Teachings (CST)
provide a moral framework as basis for businessmen to reflect on how their faith and moral
values affect the way they decide or do their business.
Personal Value an enduring belief that a specific mode of conduct or purpose of existence is
preferable to an opposite mode of conduct or purpose of existence (Rokeach).
The following are some key teaching documents that are typically considered in the development
of CST and how it is observed in LBPs management teams personal values:
Page 143
The personal values of an organization are reflected by the personal values of its key
implementers. The key implementers of LBP are the Management Team led by the President &
CEO Gilda E. Pico and the Executive Vice Presidents (EVP) of the five major sectors of the
Bank namely:
ADLS: EVP Cecilia C. Borromeo
BBS : EVP Jocelyn DG. Cabreza
CSS : EVP Julio D. Climaco, Jr.
OS
: EVP Andres C. Sarmiento
TIBS : EVP Rabboni Francis B. Arjonillo

Biographies
Ms. Pico has been the Vice Chairperson, President and Chief Executive Officer at LBP since
2006. She has over 27 years of service with Land Bank in the fields of audit, controllership,
operations, treasury and banking. Ms. Pico joined LBP in 1981 as an Assistant Vice President.
She received a Magna Cum Laude from the College of Holy Spirit.
Mr. Sarmiento serves as the Executive Vice President of Operations Sector at LBP. He has held
several key positions in the bank including Senior Vice President of the Controllership Group,
First Vice President of the Banking Operations Group and Vice President of the Audit Group. Mr.
Sarmiento also worked as Staff Auditor at Sycip Gorres, Velayo & Co. He holds a degree in
Business Administration from the Philippine School of Business Administration and is a
Certified Public Accountant. Mr. Sarmiento has been conferred the Career Service Executive
Eligibility (CSEE) by the Civil Service Commission in 2004.
Ms. Borromeo serves as the Executive Vice President of Agricultural and Development Lending
Sector at LBP. Prior to joining the bank, she has held several key positions in other government
offices, including the Ministry of Human Settlements, the University of Life, the Human
Settlements Development Corp., and the Department of Trade and Industry. Ms. Borromeo
completed her Bachelor of Science degree in Agribusiness at the University of the Philippines
and her Master's degree in Business Administration at the De La Salle Business School. She also
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completed an Advanced Bank Management Course at the Asian Institute of Management and is a
Career Executive Officer VI.
Mr. Arjonillo serves as the Executive Vice President of Treasury and Investment Banking Sector
at LBP. He serves as the founding Chairman at the Vietnam Bond Market Forum. Mr. Arjonillo
served as a Director and President at the Money Market Association of the Philippines and
Director and Vice President at the Associatione Cambiste Internationale (ACI Forex Philippines).
He also founded the Junior Philippine Economics Society during his college days. Before he
joined the bank in 2012, Mr. Arjonillo served as the Chief Risk Officer and Senior Vice President
at China Banking Corporation Philippines. He has an AB Economics Degree from De La Salle
University and a Master's in Business Management degree from the Asian Institute of
Management.
Ms. Cabreza serves as the Executive Vice President of Branch Banking Sector at LBP. She is a
Certified Public Accountant and holds a Master of Business Administration degree. Ms. Cabreza
is a Career Executive Service eligible.
Mr. Climaco serves as the Executive Vice President of Corporate Services Sector at Land Bank.
Before joining the bank, he worked at Price Waterhouse Coopers as Senior Managing
Consultant. Mr. Climaco also served as a Market Analyst at the Hongkong Bank in Manila and as
Research Associate at the Economic Forecasting Unit of the Center for Research and
Communication. He graduated from De La Salle University Manila with a Bachelor's Degree in
Commerce major in Management of Financial Institutions, and earned Masteral units in Applied
Business Economics from the Center for Research and Communication.
Corporate Governance
True to LBPs Vision-Mission, the Management Team is committed to delivering innovative
products and services that are consonant with ecological enhancement and effectively address
clients needs. By providing employees with a work environment that encourages growth and
rewards excellence, they embody professionalism and integrity.
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Corporate governance is seen as crucial to achieving LBPS vision and mission. The direction
taken by the Bank, the quality of decisions, and the implementation of a balanced accountability
framework rest in the leaderships wisdom, experience, and ethics.
Properly designed governance rules paired with the command of competent, qualified, and
ethical individuals ensure the presence of a fair and transparent business environment where the
leaders and employees collaborate for the benefit of the Bank and its stakeholders.
The extent to which the Management Team hold themselves accountable and take responsibility
for their actions is tied to good governance, its principles and practice. This is demonstrated by
their strict adherence to standards, rules and regulations; assessments in the form of internal and
external audits; and group and individual self-evaluations. They promote transparency and full
accountability in their actions and decisions. They exemplify good followers of the rule of law
and apply the impartial enforcement of legal frameworks.
Just this year, President and CEO Gilda E. Pico bagged the Asia Pacific Entrepreneurship Awards
(APEA) 2014 Outstanding Entrepreneur Award for being one of the countrys finest business
leaders, Asias most coveted award for entrepreneurs. APEAs Outstanding Category
Award is given to outstanding leaders who have greatly contributed to the growth of their
respective businesses and organizations.
Picos solid commitment for development has steered LBP to consistently demonstrate continual
growth in the areas of developmental banking, increasing the Banks loan portfolio from P143
billion in 2005 when she first assumed her post as Acting President of LBP to P303.9 billion in
2013; adopting technological solutions for operations; doubling total ATM count from 608 to
1,315 to date; and establishing LBP presence in all 81 provinces in the country; among others.
LBP defines a governance hierarchy led from the top by LBP Board of Directors and the
President, filtering down to the four Board-level committees and the independent Bank units
(Internal Audit Group, Risk Management Group, Compliance Management Office, and Trust
Banking Group) performing specific functions.
The Internal Audit Group, reporting directly to the Audit Committee, implements the Risk
Scoring System, a tool in the risk assessment phase of the audit planning process that identifies,
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measures, and prioritizes risks, and allocates resources to meet the auditing needs of the Bank. Its
policies and guidelines for the proper conduct are based on the International Standards for the
Professional Practice of Internal Auditing and/or BSP issuances, and were approved by the Audit
Committee. The IAG serves as the Lead Auditor in overseeing the conduct of the Bank audit and
ensuring the continued certification of the Bank units to the ISO 14001:2004.
Board of Directors
LBPs affairs, business, and properties are directed, managed, and preserved by the Board of
Directors, as per Republic Act No. 3844 and as amended by Republic Act No. 7907 of 1995 or
the LBP Charter. Members of the Board of Directors are appointed by the President of the
Philippines based on attained education and proficiency, expertise and recognized competence in
relevant fields, and attendance to the special seminar on corporate governance. These are the
requirements in addition to those required under other applicable laws and regulations.
LBPs Board of Directors is composed of nine members, five of whom are ex-officio members.
The Secretary of the Department of Finance (Cesar V. Purisima) is elected or appointed as Chair
of the Banks highest governance body, in accordance with RA 7907; the LBP President (Gilda
E. Pico) as the Vice Chairman; and the Secretaries of Agriculture (Proceso J. Alcala), Agrarian
Reform (Virgilio R. de los Reyes), and Labor and Employment (Rosalinda D. Baldoz) as
members. They are authorized to designate their respective alternates to attend Board and Boardlevel committee meetings in their place. The remaining four are sectoral representatives two
from the private sector (Mr. Domingo I. Diaz and Mr. Tomas T. de Leon, Jr.) and two from
agrarian reform beneficiaries (Mr. Crispino T. Aguelo and Mr. Victor Gerardo J. Bulatao) who
all directly support the President and Chief Executive Officer of the Bank.
The Board conducts two regular LBP Board Meetings every month. These meetings cover the
organizations identification and management of economic, environmental, and social
performance, including relevant risks and opportunities and adherence to or compliance with
internationally agreed standards, codes of conduct, and principles.
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The Board exercises full disclosure regarding any actual or potential conflict of interests as well
as inhibition from participation in any decision-making of the concerned Director/s. It evaluates
its performance as a group and as individual members based on an annual performance selfrating system that facilitates the identification of strengths and areas of improvement to optimize
performance. Annual Board Members Performance Evaluation Reports are submitted to the
Office of the President of the Philippines.
Based on the above discussion, the following personal values of LBPs Management Team and
Board of Directors are assessed using the Catholic Social Teaching (CST) social principles and
moral teachings as follows:
Table 20. Evaluation of Personal Values of LBPs Key Implementers
using the CST Framework
CST social principles and moral
teachings
Personal Values of LBPS Management Team
1. Human Dignity belief in the sanctity of

human life and the inherent dignity of the
human person is the foundation of a moral
vision for society.
As civil servants, LBP employees are expected to put

value of honesty and integrity in its day-to-day
business dealings and in their personal lives.
A big part of our commitment to integrity and
transparency is maintaining continuous and open
dialogue between management and shareholders. Its
shareholders are encouraged to seek guidance and to
air out their concerns via a number of formal
channels. These channels include the Contact Us
tab in the LBP website, and its official Facebook and
Twitter accounts.
As civil servants, LBP employees are expected be
accountable to the people they serve by committing
to respond to their needs with efficiency, genuine
concern, and professionalism.
2. Community/Common Good indicates the

betterment of the person and the
improvement of society
3. Rights and Duties Every person has a
right to the basic material necessities that
are required to live a decent life.
4. Option for the Poor remembering the
widows, orphans, and aliens; a necessary
element of the common good.
5. Participation all people have a right to a
minimum level of participation in the
economic, political, and cultural life of
society.
6. Economic Justice
Rerum Novarum
(on the condition of labor):
As civil servants, LBP employees are expected to be

socially responsible to its community and its
environment.
As civil servants, LBP employees are expected to
uphold truth and justice by playing an active role in
stamping out corruption and unfair business practices
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It calls for the protection of the weak and the

poor through the pursuit of justice while
excluding socialism and class struggle as
legitimate principles of change.
It affirms dignity of work, the right to private
property, and the right to form and join
professional associations, i.e. labor unions.
Every person has a right to the basic materials
necessities that are required to live a decent
life.
The economy must serve people, not the other
way around. People are more important than
things; labor is more important than capital.
7. Stewardship of Creation The goods of

the earth are gifts. We hold them in trust,
as stewards.
that taint the image of the institution and the whole

bureaucracy.
LBP has a zero-tolerance policy for corruption. For
its internal accountability and assessment program,
the Bank examined 296 or 104.0% of its 286 target
units /IT systems and conducted quality review of 27
accounts with large exposures.
LBP personnel are guided by the Revised Rules on
Administrative Cases in the Civil Service and are
expected to strictly comply with various anti-graft
and corruption laws, such as RA No. 1379 (An Act
Declaring Forfeiture in Favor of the State Any
Property Found to have been Unlawfully Acquired
by Any Public Officer or Employee), Article XI of
the 1987 Philippine Constitution (Accountability of
Public Officers), RA No. 3019 (Anti-Graft and
Corrupt Practices Act), RA No. 6713 (Code of
Conduct and Ethical Standards for Public Officials
and Employees), RA No. 9485 (An Act to Improve
Efficiency in the Delivery of Government Service to
the Public by Reducing Bureaucratic Red Tape,
Preventing Graft and Corruption, and Providing
Penalties or The Anti-Red Tape Act of 2007),
Revised Penal Code (Title II) - Crime Against the
Fundamental Laws of the State Revised Penal Code
(Title VII), RA No. 7080 (An act Defining and
penalizing the Crime of Plunder), PD No. 749
(Granting Immunity
from Prosecution to Givers of Bribes and Other Gifts
and their Accomplices in Bribery and Other Graft
Cases Against Public Officers), and PD No. 46
(Making it Punishable for Public Officials and
Employees to Receive, and for Private Persons to
Give Gifts on Any Occasion, Including Christmas).
While LBP does not currently conduct human rights
screening among suppliers, contractors, and
consultants, its procurement process strictly adheres
to the procedures and requirements under RA No.
9184 (Government Procurement Reform Act).
As civil servants, LBP employees are expected to be
socially responsible to its community and act as
stewards of its environment.
LBPS Corporate Environmental Policy which
reiterates the incorporation of environmental
management practices for environmental protection
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and sustainable development in all our operations,

services, and decisions.
As valuable stakeholders, the Bank enjoins its clients
to exercise environmental responsibility as we ensure
that all LBP-financed projects are environmentally
sound. This is through our Environmental Policy on
Credit Delivery which ensures that all financed
projects are compliant with environmental laws.
LBPs Environmental Due Diligence (EDD)
facilitates assessment and screening of environmental
and social risks in the implementation of LBPassisted
projects, where projects screened undergo the
following: (1) environmental categorization, (2) EDD
for identification of potential adverse impacts on
natural habitats, and (3) the preparation of necessary
mitigating measures.
Additional services to such as the Carbon Finance
Support Facility which provides opportunities to
eligible project proponents to participate in the Clean
Development Mechanism (CDM) program of the
United Nations Framework Convention on Climate
Change (UNFCCC).
8.
Virtue of Solidarity determination to As civil servants, LBP employees are expected to

commit ones self to the common good.
lead simple and modest lifestyles even as they
continue to take pride to work in the service of the
nation.
9.
Role of Government the state has a As a government financial institution, LBP is the
positive moral function to promote human only bank with a social mission to uplift the lives of
dignity, protect human rights, and build the people specifically in the countryside.
common good.
10. Promotion of Peace
Trust equity, openness, and fairness
Pacem in Terris (Peace on Earth) which is In the pursuit of excellence and professionalism, key
based on mutual trust if undergirded by a implementers exhibit leadership and competence in
unity of right order in human affairs arising dealing and deciding on organizational matters.
from a genuine for and adherence to the Key implementers show professionalism by
law of God.
upholding integrity, mutual respect, teamwork,
dedication, commitment, loyalty towards working
with others.
11. Mater et Magistra (Christianity and Social LBP engages its stakeholders in discussions
Progress) which calls for a greater regarding the efficiency and effectiveness of its bank
awareness of the need for all peoples to offerings. By gathering information on the needs and
live as one community with a common realities of our priority sectors, the Bank arms itself
good. Special attention is focused on the with the relevant information and best possible
plight of the farmers and farm workers in practices to help improve the products and services
depressed rural, agricultural economies.
being offered.
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By its continued economic viability, the Bank has

developed environment-friendly and sustainable
products, services and programs for farmers,
fisherfolk, and others in unbanked
and underserved areas of the countryside, as evident
in its involvement in enterprise, countryside and
community development. This is done through the
provision of loans and trainings inaccessible to its
mandated sectors. Samples of these Stakeholders
Engagement are:
b) Pantawid Pamilyang Pilipino Program (4Ps) or
the Conditional Cash Transfer where the
member beneficiaries had easy access to the
cash grants from DSWD thru LBP cash cards,
over-the-counter transactions, Globe G-Cash,
rural banks, cooperatives and PHILPOST. Total
cash grants as of end-December 2012 is P23.7
billion, benefiting over 3 million households.
The beneficiaries have quick and easy access to
funds via the Banks wide reach of ATM
network, and mobile ATMs.
c) Farmer cooperatives were also serviced by LBP
thru granting of pre-discounted loans with an
enhanced credit line. Nearly 100% of the coop
members received loans that enabled them to put
up capital for their farming activities, subject to
performance evaluation and monitoring by the
Bank. The low interest rates enabled them to
sustain their farming operations without losing
profits. Another program that was opened to
service their needs was the Sikat-Saka
Program. These coops were granted 14 training
seminars a year, including sessions on financial
management and capability building. By
providing guidance through education to
accompany loans, LBP enabled them to produce
high-quality crops that increased their household
income and afforded them productive use of
what used to be an idle land.
d) Government agencies avail salary loans,
personal loans and other services from LBP who
gave government employees conveniences such
as the second endorsement of checks, which
enables them to use these for purchases in the
absence of cash on hand.
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As a government-owned corporation (GOCC), LBP is a public office which is a public trust.

LBPs ability to secure and maintain its strong position in the banking industry depends, to a
great extent, on the trust and confidence of clients, business partners, other stakeholders and the
general public. This kind of relationship that is founded on trust entails responsibilities from the
people working in the organization. Thus, all LBP employees are expected to strive to
consciously adhere to the following work principles consistent with the organizations vision and
mission as well as core values.
MODULE FOUR ANALYSIS OF INTERNAL ENVIRONMENT
4.1
VISION
st
For its 51 Founding Anniversary on August 8, 2014, LBP has unveiled its new vision-mission
as follows:
VISION
By 2018, LBP will be the top universal bank promoting inclusive growth and improving
the quality of life especially in the countryside through the delivery of innovative financial
and other services in all provinces, cities, and municipalities.
MISSION
To Our Clients and Publics:
We will use best technology solutions to deliver responsive financial and support services
to our clients, while promoting sustainable development, and environmental protection.
To Our Employees:
We will develop and nurture talents that will exemplify the highest standards of ethics and
excellence consistent with the best in the world.
Using the Vision Framework by James Collins and Jerry Porras, the current vision-mission of
LBP shall be assessed applying the following concepts:
1.
Core Ideology defines the enduring character/identity
of an organization that transcends market, technological,

management, and leadership changes. It is not created, but it is
intended for the organization to discover. It can exist without a
formal statement.
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a. Core Values are the essential and enduring tenets of an organization. These are traits
that must not change over the years, even if the changes in the market do not require them
anymore or even if at some point they become a competitive disadvantage.
b. Core Purpose is the organizations reason for being. It is reflected by the peoples
idealistic motivations for doing the companys work. It is deeper than simply making
money or maximizing shareholder value. It is something that can be accomplished
collectively in a company which cannot be accomplished separately. Though it does not
change, it inspires change.
2. Envisioned Future embodies a Big Hairy Audacious Goal or BHAG that should be clear and
compelling; serves as a unifying focal point of effort; acts as a catalyst for team spirit; have a
clear finish line; and have a 50-70% probability of success. The BHAG should be able to be
vividly described as to what it will be like to achieve it.
Below is the summary table of the assessment of LBPs core ideology and envisioned
future based on its current Vision-Mission:
Table 21. Evaluation of LBPs Vision-Mission using the Vision Framework
Core Ideology
Core Values
Envisioned Future
Big Hairy Audacious Goal (BHAG)
The essential and enduring tenets of LBP
The BHAG of LBP is to become a top universal
are
Service
Excellence,
Social bank which does not directly state that it should
Responsibility, Trust and Professionalism.
surpass its existing competitors in terms of assets,
deposits, capital and loans from its 4th industry
ranking at present (2014). Its measures are the
Core Purpose
promotion of inclusive growth and improvement of
LBPs core purpose is to contribute to the
quality of life in the countryside. These measures
can be attained through the delivery of innovative
improvement of the quality of life of all its
clients and stakeholders by providing financial and other services to its clients in all
responsive, innovative, sustainable,
and provinces, cities and municipalities in the
environmentally sound financial
and Philippines. The time specified to reach the BHAG
is four (4) years from now, which is in 2018 it
support services at all times.
has a clear finish line However, it does not clearly
state how realistic is this BHAG that it can produce
the expected results in just a span of 4 years .
Vivid Description
LBPs Vision-Mission generally states its thrust or
commitment to its clients, publics and employees
which it has already been doing at present.
Although it is not specifically stated, it can be
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implied that by 2018, LBP, as a top universal bank,

should have the following characteristics that gives
it advantage over its competitors:
the best technological solutions in delivering
responsive financial and support services to all
its clients and publics;
the employees that exude the highest standards

of ethics and excellence consistent with the
best in the world.
Upon evaluation, the core ideology and envisioned future are balanced. Thus, no new vision will
be proposed for LBP as it has a 50% probability of successfully achieving its BHAG being the
only government bank with the social mission to promote inclusive growth and improve quality
of life in the countryside. Technically, the closest competitor of LBP in having the same
developmental goals is the Development Bank of the Philippines (DBP) which is currently
lagging behind LBP in terms of growth in assets, deposits, capital, and loans. However, LBP
should not rest on its laurels but must protect itself from being overtaken by DBP in the future,
particularly now that the issue of a possible merger between the two is being revived as banks are
being prepared by BSP for the coming ASEAN financial integration in 2015. However, once the
BHAG is accomplished by 2018, LBP should create a new BHAG.
4.2
OBJECTIVES
The strategic, financial, and social objectives identified here are based on LBPs corporate vision
to be the top government/universal bank by 2018 in providing the best technological solutions,
environmentally sound, and adequate financial and support services that effectively address the
various needs of its multi-sectoral clients, especially in the promoting inclusive growth and
improving the quality of life of people in the countryside, through its highly ethical, professional,
competent and committed workforce akin to the best in the world.
Based on the current vision-mission of LBP, the corporate objective is to be the top government
universal bank in providing the best technological solutions, environmentally sound, and
adequate financial and support services that effectively address the various needs of its multisectoral clients, especially in the promoting inclusive growth and improving the quality of life of
Page 154
people in the countryside, through its highly ethical, professional, competent and committed
workforce akin to the best in the world.
During LBPs Operational Planning Conference last December 2014, the President & CEO Gilda
E. Pico gave an overview of the challenges and opportunities presented by the ASEAN economic
integration in 2015 (Newsgram Vol.26 No.1). The opportunities include:
Large customer base for businesses in each member-country;
Greater selection and competition brought by increased number of economic players;
Lower prices for products and services; and
Volume of savings that may be mobilized for productive investments.
Meanwhile, the challenges include:
Volatility of capital inflows will likely be heightened;
Larger foreign banks likely to dominate should regional integration take place;
Competition in a changing banking landscape;
Growing number of local banks shifting focus on agriculture and small and medium
enterprise (SME) sectors which are traditionally LBPs markets solely;
Growing need to offer more competitive products and services, and improvement in
customer services;
New capital requirement; and
Limitations in increasing better-quality capital.
a) Strategic Objective
To become the top universal bank by 2018, LBP shall expand its deposit base and loan portfolio
to mandated sectors and outside growth areas where the Banks developmental role is more
needed.
As the National Governments official depository bank, LBPs strategic thrust is to spur
countryside development towards nation-building and promote inclusive growth. LBP shall
attain this by expanding its deposit liabilities base and loan portfolio to increase its market share
for the period 2015-2019, as follows:
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Total Deposits
LBP*
U/KB System*
Year
2013
2014
2015
2016
2017
2018
2019
704.06
914.24
1,106.23
1,338.54
1,619.64
1,959.76
2,371.31
6,837.53
7,794.78
8,886.05
10,130.10
11,548.32
13,165.08
15,008.19
% Share
10%
12%
12%
13%
14%
15%
16%
Total Loans
LBP*
U/KB System**
Year
2013
2014
2015
2016
2017
2018
2019
267.1
276.4
320.6
371.9
431.4
500.5
580.5
% Share
4,256.96
4,725.23
5,245.00
5,821.95
6,462.37
7,173.23
7,962.28
6.27%
5.85%
6.11%
6.39%
6.68%
6.98%
7.29%
Financial Objectives
In order to extend more credit assistance to its priority sectors, LBP seeks to maintain its
institutional viability by earning returns commensurate to its risk exposures. Thus, the Bank aims
to increase its Net Income each year for the period 2015 to 2019, as follows:
Net Income
Year
Net Income*
2013
2014
2015
2016
2017
2018
2019
11.53
12.08
13.39
14.84
16.44
18.22
20.19
% Growth
Baseline
Baseline
10.82%
10.82%
10.82%
10.82%
10.82%
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10.82% and 10.72% Industrys average net income growth rate from 2010 to 2013
.Social
Objectives
To contribute in the global goal of financial inclusion, LBP will extend microfinance services to
farmers and fisherfolk individuals who are unbanked and non-members of LBP-assisted key and
anchor key cooperatives by engaging them in financial literacy, wealth management and
livelihood programs sponsored by the Bank that will enable them to become eligible borrowers
of the Bank after completion of these programs. These financial inclusion-related programs will
be focused on key priority areas in the poorest and unserved provinces in the country as follows:
Year
Target Number of
Participants
2015
Target Number of
Financial
Literacy/Livelihood
Programs
50 trainings
15,000
enabled to become
eligible borrowers of
LBP
7,500
2016
50 trainings
15,000
7,500
2017
50 trainings
15,000
7,500
2018
50 trainings
15,000
7,500
2019
50 trainings
15,000
7,500
Target Priority
Areas
Apayao, Ifugao,
Sarangani,
Ilocos, Benguet,
Negros Oriental
Masbate, North
Cotabato,
Mindoro,
Romblon,
Marinduque,
Eastern Samar,
Northern Samar
Biliran, Lanao
del Sur,
Southern eyte
Maguindanao,
Zamboanga del
Norte, Davao
Oriental, Sulu
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4.3
EVALUATION OF PRESENT CORPORATE STRATEGIES
The Philippine economy is primed for even brighter prospects, as it performed beyond
expectations and outdid most economies in the Asia Pacific region in 2014. Strong growth
capped by a credit rating upgrade and set against a backdrop of continued reforms in governance
is positive news in favor of the Philippines bid for lasting and more meaningful development.
As the strongest government bank and one of the leading financial institutions in the country
today, LBP holds steadfast to its role as one of the prime movers for progress.
LBP aligned its objectives and initiatives to its three main business goals, namely pursuit of
mandate, enhanced customer service, and institutional viability, which it aims to achieve by
maintaining the trust and confidence of its clients, business partners, other stakeholders and the
general public.
As such, LBP has the following Guiding Principles:

Catalyst of countryside development and poverty alleviation
Commitment towards the development of the cooperative system
Self-sustainability through cross-subsidy operations (commercial banking profits
supporting agrarian operations)
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Self-reliant government institution with no budgetary support

Commitment towards environmental protection.
During the organization-wide realignment in 2012, LBP intends to work towards: (1) achieving a
sustained expansion of loans to the priority sectors; (2) attaining higher financial inclusion
through credit outreach and availability of deposit and branch services in areas without banks;
(3) aligning organizational units according to business lines to improve operational efficiencies
and comply with Basel Accord requirements; and (4) implementing more efficient, standardized,
and streamlined operations.
Present Corporate Strategy 1: Achieving a Sustained Expansion of Loans to the Priority
Sectors
In order to make services more inclusive, LBPs priority sectors were redefined in 2012 to give
focus on three major sectors:
Mandated Sector covering small farmers and fisherfolk, agrarian reform beneficiaries
(ARBs) and their associations;
Support for Agriculture and Fisheries including agri-business, aqua-business and agriaqua-related projects of Local Government Units (LGUs) and Government-Owned and Controlled Corporations (GOCCs); and
Support for National Government Priority Programs (including Public-Private
Partnership projects) including micro, small and medium enterprises (MSMEs),
communications, transportation, housing (socialized, low-cost, and medium-cost),
education, health care, environment-related projects (including clean and renewable
energy), and tourism.
By directing a greater part of its resources to these sectors, jobs and livelihood, as well as better
social services, will be available to more people, ultimately leading to the creation of greater
value in the economy. As of end-2012, LBPs loans to these priority sectors exceeded its target
and reached P205.3 billion, representing 75.0 percent of the Banks total regular loan portfolio of
P273.8 billion.
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Present Corporate Strategy 2: Attaining higher financial inclusion through credit outreach
and availability of deposit and branch services in areas without banks
To keep pace with the industry and gear up LBP to the demands of both business and social
mandate, a major organizational restructuring was implemented that established a new sector in
2012. Bank units, except those reporting directly to the Board of Directors or the President and
CEO, were realigned into five sectors: Agricultural and Development Lending, Branch Banking,
Corporate Services, Operations, and the newly created Treasury and Investment Banking.
With the new structure, LBP expects to become more adaptable to present and future market
needs. Units were aligned according to business lines, thereby improving our efficiencies and
enhancing service delivery. With the realignment came greater focus on addressing and
anticipating the banking and financial needs of each client set.
LBP is also geared at further expanding its loans to the priority sectors by extending the Banks
reach to the unbanked and underserved areas. It has also strengthened competencies in the areas
of treasury and investment banking in order to compete head-on with our peers.
Present Corporate Strategy 3: Enhancing the Quality of Customer Service thru
Modernization
In 2012, LBP signed to become an institutional member of BancNet, the largest ATM network in
the Philippines. With BancNet membership, the Bank was able to open new channels for
interbank fund transfers, and internet and mobile banking.
LBP installed 122 new ATMs in various locations all over the country, bringing a total number of
ATMs to 1,070 as of end-2012. This made LBP the 4th bank with the widest ATM coverage
across the country.
In 2012, LBP has rolled out two mobile ATMs in Metro Manila, mainly to aid in the distribution
of cash grants to beneficiaries of the national governments Conditional Cash Transfer Program
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(CCT). Consistent with its corporate goal to continuously improve client servicing, expect LBP
will establish more robust alternative banking channels, including mobile banking.
Meanwhile, LBP continued to fortify its physical network, with a total of 351 branches and 34
lending centers/units as of December 31, 2014. The Bank opened five new branches and
upgraded one extension office into a branch. There were eight tellering booths, eight foreign
exchange booths and 12 Agrarian Operations Centers. Spanning the countrys 81 provinces,
LBPs network of field offices remains the most extensive in the Philippines.
Present Corporate Strategy 4: Maintaining a Sound Institution by implementing more
efficient, standardized, and streamlined operations
In line with our goal to continually improve, LBP sustained our Quality Management System
(QMS) and Environmental Management System (EMS) to include more operations and sites.
In 2012, the Bank moved to the third phase of its ISO-QMS Program to cover the establishment
of QMS and certification to ISO 9001:2008 of the branch banking operations of all 77 Metro
Manila branches. Moreover, after passing the surveillance audit conducted for the year, the ISO
14001:2004 of the EMS at the LBP Plaza and 15 NCR and provincial branches were maintained.
Another part of nurturing a sound institution is equipping the Banks people with the right set of
skills and sharpening their competencies. LBP continues to provide development opportunities to
employees through training and other leadership programs. In line with the Banks succession
planning program, the Bank aims for more aggressive recruitment of fresh talent to reinforce the
organization by having a topnotch management development program and a performanceoriented system to assure that the best of the best will join LBP.
LBP ended the year 2012 was with a strong financial performance. The Banks net income was at
a record-high of P10.9 billion for 2012, which is 12 percent higher than our 2011 income of P9
billion. Its return on equity (ROE) at 13.8 percent is higher than the industry average. Its total
assets expanded seven percent to P691.5 billion. Deposits increased seven percent to P543.8
billion while capital grew by eight percent to P83.9 billion from P77.7 billion. Its capital
Page 161
adequacy ratio remained high at 20.2 percent, more than double the regulatory standard of 10
percent.
Evaluation of LBPs Present Corporate Strategies
To protect the Bank from the adverse effects of the five competitive forces due to changes in the
industrys external macroenvironment, LBP should position itself to gain competitive advantage.
There are two generic strategies of gaining competitive advantage a firm can possess: low cost
and differentiation. These two generic types of competitive advantage combined by scope of
activity could lead to three generic strategies: cost leadership, differentiation, and focus as shown
in Figure 8. The focus strategy has two variants, cost focus and cost differentiation. Each of the
generic strategy is also briefly defined below.
Figure 8 : Five Generic Competitive Strategies
Cost leadership requires aggressive acquisition of efficient-scale facilities, vigorous pursuit of

cost reductions from experience, tight cost and overhead control, avoidance of marginal
customer accounts, and cost minimization in areas like R& E, service, sales force, advertising,
etc.
Page 162
Differentiation requires the creation of something that is perceived industry-wide as being

unique. Perception of being unique can take in many forms: design or brand image, technology,
features, customer service, dealer network, etc.
Focus - is concentrating on a particular buyer groups, segment of product line, or geographic
market. Focus, unlike cost leadership and differentiation, aims to serve only a particular market
in the most efficient and unique way as possible. This can be further subdivided into:
Cost Focus - seeks a cost advantage in its target segment. It exploits differences in
cost behavior in some segments.
Differentiation Focus exploits the special needs of buyers in certain segments.
Based on the present corporate strategies aligned to LBPs three business goals, it can be
deduced that LBPs generic strategy is Differentiation driven by its Policy Choice particularly in
the products and services it provide to serve the small farmers and fisherfolk in the countryside,
the network linkages in using key cooperatives, CFIs, rural banks and thrift banks as conduits for
relending to individual small farmers and fisherfolk (SFF), and the specialized skills and
experience of its personnel in the branches or field units to handle such accounts that are
considered by other local universal and commercial banks as high-risk borrowers/end-borrowers
in the industry. LBP development assistance centers also provide technical assistance to these
SFF groups in terms of adopting new technology to increase their production and utilizing
environmentally sound practices in their operations in compliance with global standards.
LBP has been adopting differentiation strategy for 51 years now. To retain its distinct identity,
which has been perceived by bank clients, several uniqueness drivers were considered to sustain
the competitive advantage. Some of these are policy choices, linkages, timing, location,
interrelationships, proprietary learning, institutional factors. These are the underlying reasons of
an activitys uniqueness.
The four differentiation-based approaches in creating buyer value, which was authored by A. J.
Strickland III, are as follows:
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Incorporate product attributes and user features that lower the buyers overall costs of
using the companys product;
Incorporate features that raise the performance a buyer gets out of the product;
Incorporate features that enhance buyer satisfaction in non-economic or intangible
ways; and
Complete on the basis of capabilities.
Dimensions of Competitive Strategies
The evaluation of the present corporate strategies shall be based on the 11 dimensions of
competitive strategy:
Dimension #1
Specialization: the degree to which it focuses its efforts in terms of

the width of its line, the target customer segments, and the
geographic markets served.
Corporate Strategy
Pursuit of Mandate - Achieving a Sustained Expansion of Loans

to the Priority Sectors
Details
LBP focuses its effort in spurring the countryside development

nationwide by providing credit assistance to its priority
sectors/markets such as the small farmers and fisherfolk,
microentrepreneurs, small and medium enterprises, local
government units, schools, hospitals, and other agri-related and
environment-related projects. The Bank provides a wide range of
services in terms of credit facilities to these priority clients.
However, there are still many provinces, cities and municipalities in
the country that are left unserved by banks.
Evaluation
Improve. Although this is the core competence of the Bank as its

social mission, LBP should not rest on its laurels. It should continue
finding new ways of reaching out to the unserved localities or areas
in the country where credit assistance is most needed either by
finding strong participating financial institutions or conduits that
could help extend innovative financial services to the people in these
far-flung and poverty-stricken areas.
Dimension #2
Brand Identification: the degree to which it seeks brand

identification rather than competition based on price and other
variables.
Pursuit of Mandate - Achieving a Sustained Expansion of Loans
to the Priority Sectors
LBP is known as the implementing agency of CARP involved in
land valuation, compensation to owners of private agricultural lands,
and collection of amortization from CARP farmer-beneficiaries. It is
also known as the official depository of government funds but a
Corporate Strategy
Details
Page 164
self-reliant government financial institution with no budgetary

support. It is the first government bank granted with universal
banking license in the country.
Evaluation
Maintain. Although it is a government bank, it also serves the

private individuals and corporations which have significant
contribution to the large deposits and loans base of the Bank. LBP
has been identified as a bank of choice for public-private
partnerships and has established a good bank relationship with many
government and private organizations as well.
Dimension #3
Push vs. Pull degree to which it seeks to develop brand

identification with ultimate consumer directly versus support of
distribution channels in selling its products.
Corporate Strategy
Customer Service- Enhancing the Quality of Customer Service

thru Modernization
LBP finances its priority sectors through conduits or credit channels
such as the cooperatives, countryside financial institutions (CFIs),
and local government units (LGUs). The pull strategy is being
emphasized here, however because of its commercial banking
functions it also uses a push strategy because it directly marketed
large corporations, financial institutions and other big companies.
Details
Evaluation
Maintain because this is one of the core competencies of LBP

where it has already established effective ways of creating and
maintaining partnerships/linkages with such conduits.
Dimension #4
Channel Selection the choice of distribution channel ranging

from company-owned channels to specialty outlets to broad line
outlets.
Corporate Strategy

thru Modernization
Details
Being a universal bank, LBP uses its own distribution channels, all
the 351 branches as well as it 34 lending centers and the 1,337
ATMs installed all over the country are operated and owned by the
Bank to reach its customers
plus the operation in six foreign
countries through representative offices to cater the remittances of
OFWs.
Evaluation
Improve. With its wide presence in all provinces of the country,

LBP should ensure that all its ATMs are upgraded with the security
features as recommended by BSP and should allow faster response
time when ATM gets offline. Branches should be designed more
ergonomically that would ease
work of branch employees and
Page 165
effective queuing systems that would decrease waiting time of

clients. More express payment machines should also be strategically
located and installed to bring more access points for clients. Also
provide other mobile banking services, aside from Mobile Loan
Savers, as use of mobile phones for transacting business is on an
upward trend.
Dimension #5
Product Quality its level in terms of raw materials,

specifications, adherence to tolerances, and features.
Corporate Strategy

thru Modernization
Quality of services provided by LBP can be measured in terms of
customer satisfaction since Banks standards and guidelines are
already defined by regulatory body and other international partners
institutions. In a 2013 customer satisfaction survey by Civil Service
Commission (CSC), the Bank was awarded the 2014 Anti-Red Tape
Act (ARTA) Breakthrough Agency Award in October 2014 for
obtaining a 99% rating in 100 LBP branches nationwide from June
to November 2013 wherein 38 branches were rated as excellent.
Details
Evaluation
Maintain. Bank personnel should be extensively oriented about the

products and services of the Bank before being deployed to the
branches or field units. They should be continuously updated about
the policies and guidelines of the Bank in borrowing and lending
through continuous product roadshows, trainings on customer
service, and employee reorientation program, among others. These
trainings and briefings would help bank personnel become more
confident and reliable in marketing the products and services of the
Bank to the clients.
Dimension #6
Technological Leadership degree to which it seeks

technological leadership versus following or imitation. Quality and
technological leadership do not necessarily go together.
Corporate Strategy

thru Modernization
LBP has a high degree to seek technological leadership as seen
through its system upgrades in its loan origination system,
centralized liability system, credit rating system, central MIS, and
other systems that would adhere and comply with the new standards
(PFRS, BASEL III) and could identify, measure and monitor the
risks inherent to the Bank. It has also created a working committee
to handle the needed policy guidelines and infrastructure
requirements for creating an Asset and Liability Risk
Management System (ALRMS).
Details
Page 166
Evaluation
Improve. The era of the Internet is evidently changing the

landscape of businesses and financial services firms are not
exempted from this technological challenge. LBP should seek
technological leadership in order to keep a strong market position
and continue delivering faster credit assistance that has value to its
clients.
Dimension #7
Vertical Integration the extent of value-added as reflected in the

level of forward and backward integration adopted, including
whether firm has captive distribution, exclusive or owned retailed
outlets, or in-house service network. Vertical integration is
operating in successive stages of production or distribution.
Corporate Strategy
Institutional Viability- Maintaining a Sound Institution by

implementing more efficient, standardized, and streamlined
operations
LBPs operations has a high level of vertical integration since it has
five (5) subsidiaries and two (2) attached agencies namely;
LBP
Countryside Development Foundation, Inc. (LCDFI);
LBP
Insurance Brokerage, Inc. (LIBI); LBP Leasing Corporation (LLC);
LBP Realty and Development Corporation (LBRDC); Masaganang
Sakahan, Inc. (MSI); National Livelihood Support Fund (NLSF);
and the Peoples Credit and Finance Corporation (PCFC).
Details
Evaluation
Maintain. The financial performance of LBP with its Subsidiaries

(Group) has cushioned the bank from the risk of financial
illiquidity or insolvency especially during the Asian financial crisis
and past typhoon calamities that hit the country. The Bank was able
to remain profitable and sustain its business operations because of
its subsidiaries and partner organizations.
Dimension #8
Cost Position extent to which it seeks the low-cost position in

manufacturing and distribution through investment in costminimizing facilities and equipment.
Corporate Strategy

thru Modernization
Details
LBP is known to be a low cost provider in the industry as it

continuously strives to automate its processes to be cost efficient.
The bank has installed ATMs nationwide, Efficient Paying
Machines, rolled out mobile ATMs in typhoon-inflicted areas, and
has started putting itself in front of the electronic banking services,
including online and mobile banking transactions.
Evaluation
Improve. Carrying its new corporate tagline, We help you grow,

LBP has made steps in coming up with the lowest cost possible for
the financial services needs of its clients. It is just a matter of
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making these facilities more available and deploying them to

unbanked areas of the country particularly in the Eastern Visayas
and ARMM regions.
Dimension #9
Service - the degree to which it provides ancillary services with its

product line (i.e., engineering assistance, in-house service network,
credit).
Corporate Strategy
Customer Service-Enhancing the Quality of Customer Service

thru Modernization
LBP has a full range of services before, during and after-sales
service including ancillary services. It has trust and treasury
products and services. It has subsidiaries that offer insurance
brokerage, leasing, foreign exchange, and remittance services.
Details
Evaluation
Improve. LBP could still add more ancillary services like wealth
management services, and others that could increase the fee-based
income and commission of the bank.
Dimension #10
Price Policy the relative price position of the company in the

market which is related to cost position and product quality.
Corporate Strategy

operations
Catering to two extremely different types of customers (small
farmers and fisherfolk and big private corporations), the Bank has
standardized its policy in pricing its clients. It usually takes into
consideration the eligibility of the client in terms of risk appetite or
credit rating, asset size, and capability to pay relative to market
trends, source of funds to be used, and the relationship with the
clients at stake.
Details
Evaluation
Maintain. As the market volatility gets unpredictably challenging,

LBP should continuously update its existing Credit Policy
Guidelines in order to remain institutionally viable and keep its
pricing lower than competitors as perceived by its clients.
Dimension #11
Leverage the amount of financial level and operating leverage it

bears or up to what extent a company can borrow or invest.
Corporate Strategy

operations
Page 168
Details
The Bank is highly leveraged in its financial and operations. It can

source out funds from international and local financial institutions
with longer repayment terms ranging from 5 to 25 years. Through
these foreign-assisted loans and domestic funding, the Bank can
afford to lend out money to its clients including the priority sectors
with a repayment term similar to its funding source.
Maintain. Although highly leveraged, LBP as a government bank is
conservative when it comes to maintaining its CAR, ROE and ROA
ratios within the industry levels as set by BSP. It has also
maintained good working relationships with multilateral and
bilateral agencies from which it has gained external funds to support
its developmental projects and initiatives for many years now
Evaluation
4.4 PROPOSED CORPORATE STRATEGIES

The proposed corporate strategies shall be based on the four limits in formulating a competitive
strategy which are: the companys strengths and weaknesses, the industrys threats and
opportunities (economic and technical), the broader societal expectations, and the personal
values of key implementers.
Figure 9 : Four Limits in Formulating a Competitive Strategy
Industrys
Companys
Strengths and
Weaknesses
Factors
Internal to
the
Company
Opportunities
and Threats
(Economic &
Technical)
Factors
Competitive
Strategy
External to
the
Company
Personal
Broader
Values of the
Key
Implementers
Societal
Expectations
Page 169
Proposed Corporate Strategy # 1: Provide ancillary services to low-income farmers and

fishermen by helping organize themselves into small self-made groups that can enable them to
have access to microloans from LBP using the Grameen (which means Village) Bank model.
Dimension: Service
Description:
Help poor people in communities or barangays who have no credit history organize themselves
into small self-made groups (SMGs) and establish stable pool of funds that will raise their level
of creditworthiness for banks to provide them access to microcredit or microdeposits.
According to Muhammad Yunus in his book Creating a World without Poverty, Social Business
and the Future of Capitalism (2007), the Grameen Bank model offers a shift in thinking to
financial institutions who do not want to take the risk of lending to the poor because they are not
credit-worthy enough to repay their loans on time and not default. At Grameen Bank, they
question banks if they are people-worthy. If the poor are to get the chance to lift themselves out
of poverty, banks should remove the institutional barriers created around these poor people in the
society. But Grameen Bank dared to give the poorest people bank credit, and has proven that it
can operate self-reliantly without taking donor money since 1995. It has a good repayment rate
of 98.6% from which it has given out loans totaling US$6 billion. Deposits and other resources
make up 156 percent of all outstanding loans.
The Grameen Bank is both a business and an institution for the poor. This is what this strategy
will do to change LBPs development programs in promoting inclusive growth and improving
quality of life in the countryside.
According to Grameen Banks internal survey, 64 percent of their borrowers who have been with
the bank for five years or more have crossed the poverty line. This demonstrates that credit for
Page 170
the poor can create self-employment and generate income for them. Grameen bank recognizes
that every poor household is a production unit and that entrepreneurial ability is universal.
What Grameen Bank offers to the poor is a development program that allows them access to
loans, make them able to repay their loans, with interest, through their own productive work.
This makes Grameen Bank sustainable. The essence of development is changing the quality of
life of the bottom half of the population through an enabling environment that lets individuals
explore their own creative potential.
To provide financial services to the poor, Grameen banks lending program. No one who borrows
from Grameen Bank stands alone. Each belong to a self-made group of five friends, no two of
whom may be closely related. When one of the five friends wants to take out a loan, she needs
approval from the remaining four. Although each borrower is responsible for her own loan, the
group functions as a small social network that provides encouragement, psychological support,
and practical assistance in bearing the unfamiliar burden of debt and steering the individual
member through the unfamiliar world of business.
Ten to twelve such groups (50-60 members) come together for a weekly meeting in a center,
which is a simple hut-like structure built by them in their own village or community. At the
weekly meetings, loan repayments are collected by a local branch officer, applications for new
loans are submitted, and various inspirational, instructional, and practical activities are
undertaken, from discussions about new business ideas to presentations about health or financial
topics to brief periods of group exercise.
The community-oriented dynamic of Grameen Banks success lies on its positive social pressure
created by the group and the centers encouragement for borrowers to remain faithful to their
commitments. This is the reason why Grameen members who are surveyed about why they repay
their loans would answer that they will feel terrible to let down the other members of their group.
Although some Grameen Bank critics say that this social pressure seem coercive, but since no
one is ever forced to join Grameen Bank, it is more appropriate to recognize its example
Page 171
of power of community to encourage people to achieve things they might otherwise find
impossible.
Members of Grameen Bank are offered microloans with loan installments for a five-month
period. Over the years, Grameen system has evolved from a one-size-fits-all program to
changing its bank operations by strengthening its economic footing, making its products more
relevant to the needs of its members and increasing its flexibility for dealing with changing
conditions and needs. They focused on two areas: a) increasing the amount of savings deposited
with Grameen Bank to improve the latters capital structure and create a reserve of funds that
could be a source of additional funds during times of economic stress; and b) introduce greater
flexibility in the Banks loan products making it easier for borrowers to pay back more money
at times when their business was at peak season, while paying less during the slack seasons.
Grameen Bank offers four different loan products at four different interest rates. All are simple
interest, unlike the compound interest charged by conventional banks. The amount collected
from the borrower in interest does not exceed the principal amount. Even if a borrower takes
twenty years to repay her loans, she wont pay a total of more than twice the sum she borrowed.
1) Basic income-generating loans are offered at a rate of 20%
2) Housing loans charge at 8%
3) Student loans at 0% during the study period, and 5% after finishing the degree
4) Credit to the very poorest beggars, referred to as struggling members which has no
interest rate and the borrowers can pay whatever amount they wish, whenever they wish.
The struggling members use the loan to carry small merchandise such as snacks, toys, or
household items, when they travel from house to house begging.
Other innovations of Grameen Banks program include a pension fund savings program, the
flexi-loan program, and loan insurance.
Following the Grameens Village Banking model, LBP will also form a team of Field
Representative Officers (FRO) who will act as community development workers in their
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designated regional offices. Each FRO will survey their respective municipalities and help poor
and low-income residents in their areas to organize and form themselves into self-made groups
who will then have access to a formal bank loan in which repayment terms will be flexible
coupled with a low interest rate and a requirement to open a deposit account with the nearest
micro-banking office (MBO), branch or lending center of LBP in their community or
barangay.
LBPs FROs will then train the self-made groups on financial literacy, wealth management, and
livelihood programs. These trainings will help them become economically viable for a microloan
from LBP which they could use to start up their own business and become a source of income
that will cover for their daily household expenses. The members of the self-made group would
also be taught how to manage their daily expenses and how to save. The loan amount that can be
granted and its corresponding interest rate will depend on the amount of funds kept by the selfmade group and cash flow of their business. As the groups funds grow, so does their loanable
amount from the Bank grows and their lending rate becomes lower than the initial loan. The LBP
FRO will be responsible for weekly visits in a designated center for the SMGs to come together
to assess their financial standings and address any concerns related to the management of their
funds and businesses.
Before any loan is released, the LBP FRO shall pay a courtesy call and seek the barangay or
municipal government of the area to seek help in the preliminary assessment of people in a
certain agricultural area and interview them. The SMGs are formed voluntarily and borrowers
the loan borrower in the SMG can borrow a minimum of P2,000 provided that all five of them
will open a savings deposit account with that LBP Branch with a minimum placement of
P100.00 each. Ideally, micro-loans are for the enterprising poor or those whose family income
does not exceed P10,000 a month, which is considered the poverty line. Interest rates for microloans are higher than commercial bank loans, because the risk is also higher. They usually range
from 15 percent to 20 percent for a six-month term; a P1,000 loan, for instance, would have to be
paid P1,200.
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According to the Rural Poverty Portal (2009), a family of five needed P160 daily income to stay
out of food poverty, translating to P4,870 per month or P58,440 per year.
Just like what the National Bank for Agriculture and Rural Development (NABARD) in India,
LBP can lend money to the poor through Self-Help Group (SHG) methodology, under which a
group of about twenty people, usually women, affiliates with a branch of LBP. After saving for a
minimum of 6 months, the SHG becomes eligible for a loan from LBP that charges at about 10 to
12 percent interest (or prime lending rate). And the SHG in turn lends to members at a higher
rate, usually 25 to 30%.
Objectives satisfied by the proposed strategy
By providing this ancillary service, the Bank will be able to meet its strategic objectives to
increase the number of its individual borrowers who are low-income farmers and fishermen
through its new microlending program that it will launched within 2015. Increasing the number
of borrowers would also mean increasing the number of loans that would be released particularly
to the economically poor and underserved municipalities in the country. Number of deposits will
be increased as individual members of the SHGs will be given opportunity to open microdeposit
accounts in the LBPs branches.
This will achieve the strategic objective of LBP to promoting inclusive growth and improving
the quality of life in the countryside. It can increase the market share of the Banks deposit and
loan portfolio based on the strategic objectives:
Year
2013
2014
2015
2016
2017
2018
2019
Total Deposits
LBP*
U/KB System*
704.06
914.24
1,106.23
1,338.54
1,619.64
1,959.76
2,371.31
6,837.53
7,794.78
8,886.05
10,130.10
11,548.32
13,165.08
15,008.19
% Share
10%
12%
12%
13%
14%
15%
16%
Page 174
Year
Total Loans
LBP*
U/KB System**
2013
2014
2015
2016
2017
2018
2019
267.1
276.4
320.6
371.9
431.4
500.5
580.5
% Share
4,256.96
4,725.23
5,245.00
5,821.95
6,462.37
7,173.23
7,962.28
6.27%
5.85%
6.11%
6.39%
6.68%
6.98%
7.29%
This strategy will also be meeting the social objective of expanding the credit reach of the Bank
to the 611 unbanked and underserved municipalities in the country (BSP 2012). Not only will
LBP grow its deposits and loans portfolio, but it will also attain its objective of inclusive growth
and improvement in the quality of life especially those living under poverty line or among the
poorest of the poor.
Year
Target Number of
Financial
Target Number of
Participants
enabled to become
Literacy/Livelihood
eligible borrowers of
Programs
LBP
2015
50 trainings
15,000
7,500
2016
50 trainings
15,000
7,500
2017
50 trainings
15,000
7,500
2018
50 trainings
15,000
7,500
2019
50 trainings
15,000
7,500
Target Priority
Areas
Apayao, Ifugao,
Sarangani,
Ilocos, Benguet,
Negros Oriental
Masbate, North
Cotabato,
Mindoro,
Romblon,
Marinduque,
Eastern Samar,
Northern Samar
Biliran, Lanao
del Sur,
Southern eyte
Maguindanao,
Zamboanga del
Norte, Davao
Oriental, Sulu
Page 175
Bases:
Opportunities in the Industry. LBPs customer base will be expanded to include the non-bank
and und non-member of agricultural cooperatives or farmers associations thus meeting the
Banks social objective of extending microfinance services to the poor and low-income
families of farmers and fisherfolk in the unbanked and underserved municipalities in the
country. It will also address the strategic objective of the Bank to increase deposit and loan
portfolio and thus increasing its market share in the industry.
According to BSP (2013a), only 10.5% of Filipino adults have reported acquiring a loan from
a formal financial institution over the past year, and even a smaller percentage of them
(2.1%) have accessed electronic payment services. Consumer Finance Survey (BSP 2009)
also confirm limited usage of financial services in the country. Only two out of ten Filipino
households have a bank deposit, or equivalent to 4,288 deposits per every 10,000 adults as of
2012. The majority of the unbanked households (84%) are found outside the urban areas of
the National Capital Region (which include Manila and adjacent 15 cities and 1
municipality). For example, the Autonomous Region of Muslim Mindanao that is considered
the most underserved and depressed region in the Philippines, has 467 bank deposit accounts
per 10,000 adults compared to 21,491 bank accounts in the National Capital Region. The
majority of households maintain only one deposit account, which is mainly with commercial
banks, and each account has a median outstanding balance of P6,875.
Threats in the Industry. The presence of alternative financial service providers (FSPs) that
serve as critical access points in many unbanked areas (BSP 2012) are gaining more clients in
the rural areas. These include pawnshops, remittance agents, credit cooperatives,
moneychangers, and foreign exchange dealers that provide specific financial services. LBP
need to use more channels to capture the households outside the urban areas who prefer to
have deposits in rural banks, thrift banks, cooperatives, and microfinance banks instead of
large commercial and universal banks (BSP 2009).
Page 176
Strengths and Broader Societal Expectations. LBPs developmental goal is to uplift the lives
of the Filipino families and give support to the priority programs of the National
Government. Thus, LBP will fortify its strength as being the biggest credit provider to the
countryside which is aligned to its broader societal expectation to improve the quality of life
in the countryside by providing financial services to clients and credit programs that require
clients to observe environmental sound practices in the operation of their business.
Personal Values of Key Implementers. This is also aligned with the personal values of the
key implementers of LBP which is the commitment for development and social responsibility
to its community and environment. The LBP Management Team upholds the value of
accountability to respond to the needs of its community with integrity and professionalism on
its daily business dealings.
Proposed Corporate Strategy # 2:
Seek technological leadership by investing in RFID technology for Mobile Electronic Money
(SMART e-MONEY) platform.
Strategic Dimension: Technological Leadership
Description:
With the Mobile Electronic Money platform, Banks clients can receive their loan disbursements
and send loan payments to their bank account by using their mobile phones and encashing their
loan proceeds through SMARTs authorized Mobile Money Agents (e.g., retailers, pawnshops,
money changers, SMART money centers) situated in the areas where banks or ATMs are not
easily accessible to the clients.
Developments in banking technology have transformed banking service delivery from the
traditional physical office infrastructure to a system supplemented by other innovative channels
such as electronic money (e-money) agents, as well as bank branches and ATMs with cash-in and
cash-out (CICO) capabilities.
Page 177
Based on the Near Field Communications Organization, any device capable of making payments
using radio-frequency identification (RFID) is using contactless payment technology. Radio
Frequency Identification (RFID) is a technology that uses electronic chips embedded on tags to
transmit radio waves. These tags can identify products, assets, medical records, and even
individuals with embedded security cards or wristbands. (Health Industry Business
Communications Council) The mobile phone or device does not have to be a smartphone so long
as the antenna and chip is embedded into the device, this will allow the customer to transfer
money using the mobile phone.
LBP will tie up with SMART Money Inc. (SMI) to use its Mobile Money platform where the
mobile phone and Mobile Money Agents serve as alternative financial services access channels
to its clients which will provide a more convenient way of receiving or acquiring formal banking
products and services especially those living in remote areas where the Banks branches/lending
centers or ATMs are difficult to reach.
Smart Communications Smart Money started in the Philippines in 2001 a Mobile Network
Operator (MNO) Smart Communications partnering with Banco de Oro (BDO), plus a number of
retail merchants who acted as their agents overseas (Singh,2013). There has been competition in
the market of mobile money services since the early days. MNOs and the banks have become
increasingly integrated. Mobile money meshes with mobile banking more easily in the
Philippines. Mobile money started with international remittances and now covers customers in
the cities in the Philippines and in the remote rural areas. Mobile money is used to distribute cash
transfers in the governments welfare program. But in 2012 only 27 percent of adults in the
Philippines had an account with a formal financial institution, including four percent of the poor.
Women were more banked then men at 34 percent.
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Platform Architecture of New Payments Franchise on Mobile:
The diagram shows a bank that uses its existing core banking system and the implementation of a
mobile banking platform to deliver Mobile Banking to its consumer base. The platform allows a
consumer with an application on their phone, or on a server, to authenticate (usually with a PIN)
and deliver an instruction to the platform. The platform, depicted in the diagram, will extract the
consumers bank account data and pass the instruction to the application management
environment. The application environment will have a set of processes to follow for this specific
transaction. Once completed, the application environment will have submitted a financial
transaction into the financial switch and from there into the core banking system. The core
banking system will process the transaction and submit a confirmation back into the platform
that would be delivered back to the consumer. The platform can be housed at the bank, MNO, or
third-party processor. The integration effort is similar to that of interfacing into a bank.
Looking at the countrys population percentage per city and municipality, there are 237 unbanked
cities and municipalities have access to other access points which decreases the unbanked to 23%
(BSP 2011):
The percentage of population living in these cities and municipalities accounted only for
15.2% of the total Philippine population
237 out of 609 municipalities (7.6% of the population) have no access to banks but have
access to other FSPs
372 out of 609 municipalities (7.6% of the population) have no banks and other access
points.
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Thus, the presence of alternative delivery channels helps significantly in reaching the areas in
Western and Central Visayas, and MIMAROPA with no banking presence, while the extended
virtual reach of innovative delivery channels reduces the number of unserved municipalities in
ARM, CAR, Eastern Visayas, and Zamboanga Peninsula.
The presence of alternative FSPs such as pawnshops, remittance agents, money changers/foreign
exchange dealers, and mobile banking agents presents a significant opportunity for financial
inclusion. Based on a study (BSP, 2011), 55% of the population (95% being poor) use these
access points for various transactions. Developments in mobile technology have also allowed
these alternative FSPs as channels to access financial services. While 609 out of 1,634
municipalities (15.2% of the population) are unbanked, only 372 municipalities (7.6% of the
population) remain unserved because of the presence of alternative FSPs.
There are four commonly used lenses through which financial inclusion is measured by BSP
access, quality, usage and welfare.
Access refers to the supply and availability of financial products and services from formal
institutions.
Usage captures the levels and patters of use of different financial products and services.
Quality encompasses the experience of the consumer, demonstrated in attitudes and opinions
towards those products that are currently available to them.
Welfare measures the impact of a financial product or service on the lives of consumers,
including changes in consumption, business activity and wellness.
There are two main sources of financial inclusion data: supply side which are the banks and other
financial institutions, ATMs, and other financial touch points (i.e., FSPs); and the demand side or
the actual and potential users of financial products and services which provides information
about client experience and the needs of non-consumers.
Access to financial services and reach of financial infrastructure is measured by the distribution
of financial institutions in the country. The distribution of banking offices across the 17 regions
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of the country shows marked disparities (BSP, 2011). Bank branches are highly concentrated in
NCR, CALABARZON and Central Luzon indicating that the banks tend to establish more
branches in highly populous and urbanized areas rather than in unbanked areas in the regions
such as ARMM, CAR, and Eastern Visayas (Region VIII). Bank count is also small in
Zamboanga Peninsula (Region IX) and MIMAROPA. This trend is similar with the regional
ATM distribution, however, CAR and Zamboanga Peninsula may have small banking and ATM
presence but in BSPs study (2011), the number of banks and ATMs in this region is just
proportionate to its adult population and habitable area.
Usage indicators are the number and amount of deposits and amount of loans outstanding of
bank clients. In 2011, 78% of the total number of deposit accounts were below P15,000 and only
13% accounted for deposits from P15,001 to P100,000 while the remaining accounts with large
amounts covered marginal shares in terms of quantity. Most of the deposit accounts are relatively
in small denominations, which may suggest that Filipinos may not have enough money to
deposit in banks or even if their level of income can allow them to place deposits in banks, they
choose not to use the banks deposit facilities.
The 2009 Consumer Finance Survey (CFS) found out that 8 in 10 Filipino households did not
have a deposit account. Roughly 93% of those with no deposit accounts cited having not enough
money for bank deposits as primary reason. Others say they can manage without a bank account
and do not like to deal with banks and financial institutions. As to regional distribution, about
28% of households in NCR hold deposit accounts while 16% of households in regions outside
NCR.
The demand study on domestic payments conducted by Bankable Frontier Associates (BFA) in
2010 provided information on the demand for domestic payment services in the Philippines such
as money transfers and remote bills payments. According to the study, the total size of the
domestic payments market which consists of individuals making formal, informal, and personal
direct payments is estimated at the equivalent of $3.2 billion per month by a projected 41 million
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people. The market for domestic payments in the Philippines is highly active as 55 percent of
Filipino adults are users of money transfer and loan and bill payment service providers.
One of the notable results is that 76 percent of the users of all payment service providers are
classified under Class D (poor) and 19 percent belong to class E (very poor). Among the 1,794
adults interviewed, 72 percent made payment in the last 12 months, of which 33 percent sent
money transfers, 16 percent made loans and 55 percent paid bills.
As suggested by CFS findings, those who do not have enough money are not using the basic
banking services such as deposits but the BFA study suggests that this segment of the population
are actually significant users of services provided by other financial services providers.
Pawnshops appear to be well-used and dominate the money transfer market while banks and
payment centers are major players in the bills payment.
In BSPs (2011) analysis, there is a positive correlation of 94% between the number of ATMs and
banks and the number of deposit accounts present in a given region. This relationship suggests
that regions with the most number of banks and ATMs are the ones which have the most number
of deposit accounts. While high usage may be expected as these regions with adequate banking
infrastructure are urbanized regions with higher levels of income and population, there is
indication that increased access reinforces usage.
With the aid of digital channels like the Internet and mobile phones, with less intervention by the
bank personnel, LBP shall benefit from having such mobile electronic money transfer systems in
place as the percentage of the total population are mobile phone users in the country is increasing
to more than 80% (BSP 2013) where more than 90% are SMART subscribers either prepaid or
postpaid. Anticipating the needs and addressing the needs for convenient banking experience of
the clients will give edge to the Bank in providing fast and secured financial services that has
superior value to the customers at a low cost, right time and in their preferred distribution
channels.
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Objectives satisfied by the proposed strategy

Investing in this RFID technology in providing financial services will increase the net income of
LBP as follows:
Net Income
Year
Net Income*
2013
2014
2015
2016
2017
2018
2019
11.53
12.08
13.39
14.84
16.44
18.22
20.19
% Growth
Baseline
Baseline
10.82%
10.82%
10.82%
10.82%
10.82%
10.82% and 10.72% Industrys average net income growth rate from 2010 to 2013.
Bases:
Opportunities to the Industry. With the increase in usage of mobile commerce and rise of the
middle class and working age, customer-centric infrastructure that uses digital technologies can
strengthen the core competency of LBP in providing the best technological solutions to the
financial and support needs of its clients. This will also help LBP provide more differentiated
products for the OFWs with the use of channel analytics that could provide real-time information
about their remittances and other personalized services.
Threats to the Industry. The use of mobile payment solutions such as electronic wallet or
electronic money will protect LBPs competitive advantage over the emergence of alternative
financial options such as crowdfunding which is already being exercised by some informal
groups to raise funds in support of potential business or project investments online. Compared
with its bank peers, the banks in the Philippines showed lower financial inclusion level than that
of Mexico, Peru and Malaysia but higher than that of Kenya and Thailand. In 2011, the number
of ATMs per 10,000 adults increased to 1.7 or approximately 2 ATMS per 10,000 Filipino adults.
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Weakness. This mobile money agents service will help reduce operations cost of the Bank in
hiring more personnel for the branches in times of employee turnovers and required trainings
because the automation and integration of systems through analytics will simplify the Banks
operations and provide more selfless service to clients in their touchpoints or branches.
Broader Societal Expectation. The automation of Banks operations is in line with the Banks
commitment to improve the quality of life of its community and society at large by providing
them with technological solutions that environmentally sound and responsive to their needs.
These analytics systems will help simplify and reduce processing time of credit assistance to
LBP clients because of faster dissemination of information, faster evaluation of project proposals
and real-time monitoring of several accounts of a client with the Bank.
Personal Values of Key Implementers. One of the personal values of LBPs Management Team is
accountability and commitment to the quality of service it provides to its customers and the
people they serve by committing to respond to their needs with efficiency, genuine concern, and
professionalism.
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4.5 COMPETITIVE ADVANTAGE

The Competitive Advantage Cycle will be used as a framework to develop and sustain the banks
competitive advantage as shown in Figure 10.
Figure 10. Competitive Advantage Cycle
Sources of
Advantage
Key Success
Factors
Superior assets
Superior
capabilities
Performance
Positional
Advantage
Realized
Superior Customer
value
Barriers
to Imitation
Rewards
Investments
Satisfaction
Loyalty
Profits
In Renewal
Share
Competitive
Dynamics Erode
Advantage
Competitive advantage gives a company an edge over rivals and an ability to generate greater
value for the firm and its shareholders. This means having superior performance as compared to
other competitors in the same industry or superior performance relative to the industry average.
It could also be anything that an organization does better as compared to its competitors. Every
company must have at least one advantage to successfully compete in the market. Otherwise the
competitors will soon outperform the company. An organization that is capable of outperforming
its competitors over a long period has sustainable competitive advantage. The more sustainable
the competitive advantage, the more difficult it is for competitors to overcome the advantage.
These competitive advantages may be on the firms cost structure, product offerings, distribution
network, and customer support.
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There are two basic ways that a firm can achieve competitive advantage either through cost or
differentiation position. A company that is able to achieve superiority in cost is able to offer
products/service at lower costs, while a superiority in differentiation is able to offer with higher
degree of differentiation and most importantly, is able to compete with its rivals.
The positional advantages of a firm in an industry are a consequence of relative superiority in the
resources a business employs superior assets and capabilities. However, the position of
competitive superiority, the resulting market share and profit awards are continually subject to
erosion by competitive moves and changes in the market. Thus, the dynamic cycle of
competitive advantage suggests that investments in renewal be made by creating a strategy that
will put impediments in the way of competitors to protect current advantages and to keep
investing in new assets and capabilities. Thus, the creation of advantages and their sustenance is
a long-run, iterative process. To sustain and renew advantages in dynamic environments,
managers need to examine what are the possible factors that can erode the current competitive
advantage of the firm and identify what new assets and capabilities it needs to acquire to make
its positional advantage realized as indicated by its performance rewards (customer satisfaction,
customer loyalty, market share, and profitability).
4.5.1 Present Competitive Advantages
A manifestation of a companys competitive advantage is its market share in the industry. L
LBP is the fourth largest universal bank in terms of deposits, loans and assets. It is the 5
th
largest in terms of capital. As computed in the market size section of this paper, LBP
captured 13% of the total revenues of the Philippine Banking System in 2012.
Based on the analysis of its internal environment, LBPs Sources of Competitive Advantage
are:
Accessibility of Services to Clients Superior Assets
Value Chain: Distribution with extensive branch network in the countryside 351
branches and 1,337 ATM networks (as of December 31, 2014), and providing
electronic banking facilities that reduces costs for the clients in making their bank
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transactions without needing to go to the branch physically and accessing services

24/7.
A strong management team and competent and aggressive marketing workforce of its
banks products and services superior
Value Chain: Human Resources Management the Bank is hiring and training its
senior leaders and rank-and-file employees to develop knowledge-based skills and
core competencies for better management of the Banks operations.
Biggest credit provider to SFFs and other priority sectors Superior Capabilities
Value Chain: Service - Aside from loans, the Bank also provides financial and
technical assistance to its mandated and priority sectors; project evaluation/impact
assessment, account servicing and monitoring. LBP has gained expertise and brand
identity to numerous SFF groups, rural cooperatives, SMEs, CFIs and LGUs which it
has financially assisted and provided developmental and technical assistance to help
them sustain their business.
These three competitive advantages of LBP resulted to an increase in market share, profit and
loyalty among its clients. However, LBP should continuously develop new capabilities and
maintain the existing competitive advantage by investing in the continuous improvement of
its human resource development and utilization of low-cost innovative technologies.
Competitive Dynamics Erode Advantage
The following competitive dynamics (change in macro environment) have potential to cause
erosion of competitive advantage of LBP:
The emergence of non-traditional players including new financial organizations
(neobanks- a mobile-first banking experience that has moved away from the
traditional banking experience), hard ware providers, third party processors, and
mobile app developers that merchants and consumers are using to chip away at the
traditional financial services model.
Page 187
Another threat of substitution is the crowdsourcing options for investment and

lending that are just regulators approval from going mainstream, even in the
Philippines.
Investment in Renewal
Due to the possible erosion of LBPs competitive advantage, the Bank must renew its sources
of advantage by being a partner bank of SMART Money Inc. to increase its market share and
credit reach especially to its mandated sectors (SFFs and ARBs) who are still unserved by the
Bank. It must also continuously invest in customer-centric infrastructure service-oriented
architecture (SOA), like SMART electronic Money agents, which will serve as alternative
financial services channels that can provide real-time virtual cash-in and cash-out
transactions in areas where the banks touchpoints are not easily accessible or expensive for
the clients to access. The Mobile Money Agents will provide the gap between the unbanked
or underserved individuals and LBP which is committed to attaining inclusive growth thru
this mobile money platform.
The products and services provided by all universal and commercial banks are almost the
same with just a different branding. LBPs Charter requires its services to be more focused on
serving the government sector and not prioritize the private sector. In terms of deposit
liabilities profile, the Banks depositors are 70% government and only 30% private and
almost 60% of these deposits are highly cost. Its loans to deposits ratio is 42.3% as of
November 2014 with deposits increasing by 3.7% as and loans by 1.9% as compared to last
month). Its top-tier competitors like BDO, Metrobank, BPI are more focused on getting
private individuals (especially those high in networth) and private corporations. Since LBP is
a government bank, it is also limited by its Charter to acquire any organization that is not in
line with its core business or mandate like insurance company.
Positional Advantage Realized
LBPs positional advantage is realized through the customers participation in its new
investments and products and its customer loyalty thru its deposit retention and availment
rate of various types of loans. The advantage of higher accessibility provides an increased
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value to customers in terms of face-to-face customer service and convenience in withdrawing

cash especially thru its mobile ATMs when the branches were devastated by typhoon floods.
The development and technical assistance provided by the Bank also enhances customer
loyalty. These positional advantages contribute to the increase in the market share of LBP
year-on-year.
Performance Rewards
Customer satisfaction and loyalty - through repeat customers and referrals.
Profits: LBPs loan concentration is in the NCR region, Cebu, Davao, Isabela and Nueva
Ecija. These resulted to higher revenues as compared to close competitor which is DBP
also a government bank.
With the proposed competitive advantage, the company will increase in performance
rewards. Thus, there will be increase in revenue and market share as both customers and
employees satisfaction is sustained.
4.5.2 Proposed Competitive Advantages
In order to attain LBPs vision to become the top universal bank in providing credit
assistance to small farmers and fisherfolk cooperatives/associations, CFIs, MFIs, rural banks,
and thrift banks, the following competitive advantages relative to its competitor government
banks such as the Development Bank of the Philippines (DBP) are proposed:
1. More Accessibility to Financial Products and Services - The Bank can develop more
innovative ways of marketing and delivering financial products and services to potential
clients, especially during times of natural disasters (i.e., typhoons/earthquakes) and
political instability (i.e., terrorist activities), particularly in unbanked localities or less
developed areas in the country where it can help uplift the quality of life of people.
2. Wider Service Delivery Networks in the Country. The Bank will add more service
delivery channels to add to its existing 351 branches/field offices and 1,338 Automated
Teller Machines (ATMs) networks to include alternative financial services providers such
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as pawnshops, money changers and mobile money agents or remittance centers, to name a
few.
3. More Availability of Low-Cost Funding Source. The Bank will develop more strong tieups with new bilateral and multilateral agencies that can provide loan packages with
competitively low-cost funding and thereby enabling the Bank to offer more competitive
lending rates to its potential borrowers.
Positional Advantage
The positional advantage of LBP can be achieved by differentiation through providing
superior customer value. To ensure superior profitability with a superior value strategy,
the price premium the customer is willing to pay must exceed any costs of providing the
extra value. Thus, competitive advantage is achieved by offering superior quality. As
LBPs dominant resource is capacity, its value discipline is gravitating towards the
efficiency benefits of operational excellence strategy. This means the provision of
consistent quality at the best price, through a standardized business system that
minimizes the cost and difficulty the customer will face in acquiring the product. Thus,
LBP should invest heavily in integrated low-cost transaction processing systems and
understand how to optimize business processes across organizational boundaries. Thus,
being cost-efficient in operations will bring low-cost benefits to both the Bank and its
clients.
Performance Rewards
Customer satisfaction and loyalty of LBP clients shall be retained by offering quality
products and services that is in line with the preference and needs of its clients. The
profits from its deep customer base and operations capacity will bring profits to the Bank.
Investment in Renewal
The emergence of new e-commerce financial products//services like crowdfunding or
mobile banking are new alternative financing schemes and the approval of the law to
allow foreign banks in the Philippines to operate can erode the competitive advantage of
LBP. To protect itself from losing competitive advantage, LBP should renew its sources
of advantage (value chain: Operations) by investing in mobile technology, data will be
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shared and leveraged in real-time on all of the banks touchpoints, allowing the bank to
provide more personalized service based on a complete customer profile. Upgrade in the
existing superior capabilities such as providing credit to small farmers and fisherfolk,
LGUs, rural cooperatives and its other priority sectors can be done by forging strategic
alliance with another government bank that has similar developmental goals as LBP. It
can also increase the credit reach of LBP as it considers the delivery channels of DBP as
its additional delivery channels as well.
Sources of Advantage
Superior Capability - providing a full range of credit assistance to small farmers and
fisherfolk groups, cooperatives, small and medium enterprises (SMEs), local government
units (LGUs), and other priority sectors (value chain Operations).
Superior Assets - extensive service delivery network in the countryside (value chain
Distribution).
MODULE FIVE FUNCTIONAL AREA STRATEGIES
According to the Strategy Pyramid, or the hierarchical levels of strategy, the functional area
strategies are on the second level which must be aligned to attaining the corporate objectives of
the company. This module presents the objectives and strategies in the functional areas of the
LBP which includes the marketing, operations, finance, information management, and human
resources management. These strategies are based on the proposed corporate strategic plan and
competitive advantages discussed in Module Four of this paper. This involves the development
and coordination of resources through which corporate level strategies can be executed
efficiently and effectively. Once the higher-level strategy is developed, the functional units
translate it into discrete action-plans that each department or division must accomplish for the
strategy to succeed.
Page 191
Figure 11: Hierarchical Levels of Strategy

Corporate
Strategies
Functional Area
Strategies
Operating
Strategies
The functional area strategies are approaches/actions that a functional area must take to achieve
corporate strategies by maximizing resource productivity.
5.1
MARKETING
Marketing comprises of activities that are defining, developing and delivering value to the
customers. The important thing is to define the need.
5.1.1. Target Marketing Segments
Potential target markets of the financial services industry are classified into public or
private individuals or institutions who have excess funds to deposit (savings) and/or
invest and those who are seeking financing and are willing to pay for the cost of the
borrowing.
LBPs mandated sectors or customers are the small farmers and fisherfolk (SFF) in the
countryside. However, the marketing segments of LBP are the SFF groups and
cooperatives whose members are the small farmers and fisherfolks, and Agrarian Reform
Beneficiaries (ARBs) groups. The other priority sectors of LBP are the local government
units (LGUs), GOCCs, countryside financial institutions (CFIs), hospitals, schools, micro
small & medium microenterprises (MSMEs), small and medium enterprises (SMEs), and
large enterprises, which are the other marketing segments of LBP.
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5.1.2. Marketing Objectives

The marketing objective of LBP is to improve its market share in the financial services
industry loan portfolio, particularly the unbanked and underserved small farmers and
fisherfolk who has no access to financial services because of lack of money or incomegenerating activity that could make them viable to get a loan or financial support from
banks. Focus of marketing would be in the unbanked regions of Autonomous Region in
Muslim Mindanao (ARMM), Eastern Visayas, and Cordillera Administrative Region
(CAR) in order to achieve inclusive growth. This would be addressed by both corporate
strategies through the increase in microloans and easy and efficient collection of loan
repayments from mobile money agents or centers that are alternative financial services
channels that LBP clients can have easier access to despite absence of a bank or faraway
ATM network site.
Below is the projected total loans for the period 2015 to 2019 which will be funded by
the projected deposit liabilities, supplemented by foreign-assisted projects or Official
Development Assistance (ODA) and non-ODA borrowings from bilateral and multilateral agencies like Japan International Cooperation Agency (JICA), Asian Development
Bank (ADB), World Bank (WB/IBRD), Kreditanstalt fur Wiederaufbau (KfW) of
Germany.
Projected Total Loans
Year
LBP*
U/KB System**
% Share
2013
2014
2015
2016
2017
2018
2019
303.73
386.62
502.61
653.39
849.41
1,104.23
1,435.50
6,837.53
7,794.78
8,886.05
10,130.10
11,548.32
13,165.08
15,008.19
4.44
4.96
5.66
6.45
7.36
8.39
9.56
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Although LBP ranked fourth with the biggest loan portfolio as of December 31, 2013, its
loan growth rate is only at 3.5% year-on-year which is below the 11% average loan
growth of U/KBs over the last five years. The slow loan growth can be explained by the
low interest rate environment during the past two years that directed U/KBs to revert to
trading securities in order to offset their thinning interest spreads. Given the rising
interest environment spurred by the slight improvement in the economy, the Banks net
interest spread from lending is expected to go higher. Thus, LBPs loan portfolio is
forecasted to grow at an average of 30% per annum.
To attain this loans portfolio growth, the Bank needs to also accelerate growth of its
deposits by an increase of 14% per annum as its core funding source. As of December 31,
2013, LBP ranked fourth in terms of biggest deposit volume with 29.8% deposit growth
year-on-year.
Total Deposits
Year
LBP*
U/KB System
% Share
2013
704.06
6,837.53
10%
2014
914.24
7,794.78
12%
2015
1,106.23
8,886.05
12%
2016
1,338.54
10,130.10
13%
2017
1,619.64
11,548.32
14%
2018
1,959.76
13,165.08
15%
2019
2,371.31
15,008.19
16%
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5.1.3. Marketing Plan

The formulation of the marketing strategy for LBP is based on the 4 P Components
(Product, Price, Promotion, and Place) of the Marketing Mix Framework by Peter
Drucker.
Figure 12: 4 Ps of the Marketing Mix
Product People do not buy products. Customers pay not for the products but for the
value or benefits that they get out of the product. Thus in the aspect of Product, the firm
must focus on customer benefits, but must ensure that there is only one benefit for a
brand geared towards a specific marketing segment. There should be one buying
motivation, one unique value proposition of a brand. If the industry does not change, so is
the market. But the product attributes and customer benefits change over time.
LBPs new tagline We help you grow manifest the various products and
services offered by the Bank to its priority sectors such as credit assistance for
agricultural production, project financing, deposit/trade/treasury and investment
products and services, and fund transfer and remittance services that will give
sufficient returns and help their business grow.
For the proposed corporate strategies, LBP shall utilize products under the
Development Lending Program and tie it up with the Development Assistance
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Centers located in the Banks branches or lending centers in the provinces. These are
the people who are subject experts when it comes to identifying the actual needs of
their customers in a certain region or municipality. The Grameen Village Banking
Model will be a fresh marketing scheme that the branches can introduce to the poor
communities in remote areas which the low-income farmers and fisherfolk can avail
in order for the Bank to serve its social mission of promoting inclusive growth and
countryside development.
st
Marketing Strategy: The Bank will offer products under the Development
Lending Program which includes:

Commodity-based Program (i.e., CACAO100 Program, KAWAYAN Program,
ISDA Program, and MILK Program)
Programs for Individual SFFs and ARBs (i.e., Agrarian Production Credit
Program, DA Sikat Saka Program)
Microfinance Program for Microfinance Institution Retailers
Agricultural Credit Support Project (ODA-financed program)
Infrastructure Development Credit Program (i.e., BUILDERS Program, SSLDIP,
LIP, LIP, CFMMP)
Business Development and Entrepreneurial Credit Program (i.e., ASENSO
Program, OFW Reintegration Program)
nd
Marketing Strategy: All the banking products and services shall be made
available to all branches and lending centers of LBP. This includes the offering of
Smart e-Money cards to potential clients and teaching them how to do financial
transactions using it to link it with their bank accounts with LBP.
The focus should shift from transactional customer service to management of customer
relationships. Today, the trend is towards personalized banking. Each customer should be
treated as a relationship. To maintain a good relationship, the total need of the
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customer should be satisfied.Establishing a relationship focus marketing means engaging

the Banks customers at various levels during the entire customer life cycle from
acquisition to termination of the relationship and this needs to done in such a way that
only the profitable ones are with you. The Pareto principle will say that 20% of the
customers give 80% of the profits and value. So it becomes even more important to have
or retain these 20% customers.
Price This component emphasizes how the company can reduce the costs of its product
th
or service for their customers. LBP ranked 5 after DBP in terms of offering competitive
interest rates and discounts granted on loans for the period of January 12-16, 2015 (BSP).
Interest Rates Charged on Loans and Discounts Granted
(For the period January 12-16, 2015)*
Interest rates on loans in 2012 range from 0.86% to 39.00% for peso-denominated loans
and from 3.50% to 30.00% for foreign currency denominated loans. (LBP Annual Report
2012-Notes, 17).
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For 2013, interest rates on loans range from 1.375% to 39.00% for peso denominated
loans and from 0.24% to 30.00% for foreign currency denominated loans. (LBP Annual
Audit Report 2013-Notes, 38).
Promotion emphasis on how the company communicates with or reaches out to its
customers to make them aware of their product or service.
LBP should be ready to provide customers with information about their products and
services, particularly the use of electronic money transfer (using Smart e-money card)
using various channels like posters, television ads, print ads, and promotional updates in
the LBP website, email alerts, and mobile phone application which will actually be
beneficial as costs in selling a new product here are very negligible.
LBP promotions of its development lending programs will be aired thru DZRH Teleradyo
where the invited guest shares their success stories, knowledge and experiences on how
they thrived on growing their business and ABS-CBN TV show, Swak na Swak where
they feature successful entrepreneurs whose business projects or ventures are financed by
the Bank.
To attract more depositors and retain their deposits with the Bank, LBP shall intensify
promotion of capital build-up and savings mobilization among cooperatives. In the long
run, make the members of the Self-Help Groups member of formal organizations like
farmers association or cooperatives. Deposit generation campaigns shall also be
undertaken where special deposit rates could be given to depositors with high volume of
deposits starting from P50,000 and above.
To encourage more private clients to avail of the Banks loans, LBP shall provide rewards
such as points/offer/cash back roll out based on customer profitability. Customers with
higher profitability will get higher rewards thereby enticing them to
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deposit more or avail loans. The more value the customer gets in, the more options to
accumulate rewards. However, targeting customer specific rewards schemes while
keeping the relationship and marketing costs in mind is not always easy because there is
no one product or service that could fit all needs of a customer.
Place - emphasis on how the company can make their product or service more accessible
and convenient for potential customers through the following:
Expansion of the LBP Easy Access Facilities (LEAF) to reach and deliver
services in all municipalities and cities
Use of the Customer Queue System (CQS), Cash Deposit Machine, and LBP
Express Access Machine (LEAM) which receives BIR payments, and CDM to
de-clog lobby traffic in branches.
Adding more customer touch points thru the operationalization of the Banks
Regional Treasury Hubs
LBP shall enhance its service delivery networks through the use of Smart
Communications electronic money platform where customers, particularly individual
farmers and fisherfolk, can apply for a loan using their mobile phones and acquiring a
bank savings account which will give them opportunity to take advantage of
microfinancing services from a formal banking institution. Similar to the use of online
banking accessed through a computer and Internet, mobile banking transactions can help
reduce lobby traffic or queuing time in the physical branch units of the Bank. Through
the presence of mobile money agents or authorized SMART e-Money dealers, clients
using mobile phones can have access and control over their bank accounts easily and also
do fund transfers, bills payment, and account management transactions without needing
to go physically to the Banks branch or ATM networks.
Although it claimed bank presence in all provinces of the country, LBP shall continue to
expand its branch networks and establish new remittance partners here and abroad to
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make the Bank more responsive to the needs of its clientele especially those living in the
countryside.
Finding new ways to generate fees from new innovations or established products, testing
new security options which will allow for greater acceptance of mobile banking and
mobile payments and finding ways to improve compliance with fewer dedicated
resources are must haves.
5.2
OPERATIONS
Operations comprise all activities that produce the results that have value to the customer. The
functional area strategy for operations looks at both cost and value to the customer. It focuses on
two targets: productivity and quality. The degree of productivity is measured by the cost of
performing the activities that will produce the results that has customer value. This means
finding ways of making the performance of activities as efficient as possible.
Quality of the final product or benefits translates to the level of customer satisfaction. The more
specifications demanded by the customer, the higher is the customers perceived quality on a
product or service. If the firm will be able to meet all those customer specifications, the higher
will be the level of customer satisfaction.
5.2.1. Operations Objective
To have a balance of both productivity and quality, LBP shall satisfy the customers
perceived quality on a product or service by increasing the number of depositors and
borrowers from microloans and microdeposits as follows:
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The projected increase in borrowers and depositors are based on the estimated annual growth
of the population and business enterprises.
LBP shall use its competitive advantage of having strict implementation of lending policies
and procedures that includes compliance with Environmental Protection Laws. The Bank
shall gain confidence and trust of clients in helping them improve their quality of life and
grow a sustainable business in the countryside.
To increase the Banks depositors and borrowers, the following operational functional area
strategies are recommended:
Identify and cultivate key cooperatives as credit conduits to penetrate greater number
of small farmers/fisherfolk that can access credit assistance;
Enhance incentive programs for performing cooperatives;
Launch a special credit program for Agrarian Reform-affected landowners;
Continue conducting stakeholders dialogues/joint workshops with the Department of
Agrarian Reform (DAR) field processors to further improve land valuation and
compensation processing time.
5.2.2. Operations Plan
An operational plan provides a clear picture of how a team, section or department will
contribute to the achievement of the organizations strategic goals. The operations plan will
be based on the framework for operations as illustrated below:
Figure 13. Operations Framework
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This framework tells that for a firm to determine its capacity, it has to set standards. Capacity
is dependent on inventory. Standard is dependent on scheduling. Inventory is dependent on
scheduling. Thus, a control system is needed to ensure that all of these aspects of operations
are continually aligned.
Capacity - pertains to the product or service that has customer value. LBP and DBPs
combined resources can provide enough capacity to grant the allocated loan portions
and to provide the necessary expertise to conduct the technical assistance and
roadshows to maximize utilization of loans approved/released.
LBPs assets which havs customer value are its branches, ATM networks, online and
phonebanking facilities, and mobile ATM services. Although LBP branches are
already present in all 81 provinces of the country, it should not stop adding branches.
It shall add two branches per year especially in far-flung and remote areas without
bank presence in the areas of ARMM, CAR, Eastern Visayas, and MIMAROPA.
Additional Technological Promotion Centers shall be established in these areas to
provide clients with access to developmental trainings where they could gain
knowledge about new technologies and best practices in the field of agriculture and
fisheries geared towards food security, livelihood and skills trainings, financial
education programs, and eco-tourism development programs.
Standard LANBANK branches must be ergonomically designed to save on space
and must be manned by competent workforce with Treasury and Trust Product
representatives that could cross sell in the branches in order to process more loan
availments and generate more deposits especially in the unbanked regions in Visayas
and Mindanao. ATMs must have anti-fraud technologies built in and must be easy for
rural folks to understand how to use.
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The Banks Credit Policy Guidelines provides clear cut codified approving and
signing authorization for each type of loans or credit assistance to priority sectors that
will ensure that every loan is processed and approved in consideration of all aspects
of the borrowers eligibility and profitability of the project to be financed.
The Credit Enhancement System of the Bank shall ensure that the collateral and other
financial instrument of the clients are valid and eligible to be considered acceptable
and eligible as borrower of the Bank.
The Banks Credit Policy and Risk Management Department shall review the credit
risk of a potential clients borrower level and formulate and update the Banks credit
policies, in accordance with specific BSP regulations and subject to the approval of
the Board of Directors.
Scheduling LBP branches can offer extended banking hours from 8:30am to
5:00pm during weekdays during collection of BIR tax payments and giving of payroll
salaries to government employees or other occasions when there are expected high
volumes of transaction in the branch. This would allow the Bank more opportunities
to acquire new depositors and borrowers and at the same time, provide more time to
existing Bank clients to make transactions such as fund transfer, bills/loan payments,
or other account inquiries in the Banks branches.
The Program Management Department (PMD) units are responsible in implementing
the Banks developmental programs, in coordination with the Banks lending centers
and corporate banking units. The PMD units usually work with consultants in
generating recommendations for addressing problems arising in the implementation
of on-going programs and providing the necessary reports/updates to senior
management on the program and project evaluations, particularly on loan utilization.
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The Branch Banking Support Department is the unit responsible for providing
information to the branches nationwide regarding changes in deposit interest rates and
other updates in policies related to deposits.
The Electronic Payment Department can work with the Customer Service and
Product Development Department in preparing print ads and announcements about
new deposit products and services of the Bank for distribution to all branches
nationwide while the Corporate Affairs Department is in charge of updating the
Banks website information on deposit and loan products, special promos and rewards
tied up with the use of the Banks VISA debit card or any ATM cards, including the
electronic money card of Smart Money, Inc. (SMI) and the new ancillary service for
microfinancing services.
The Treasury Support Department provides branches and lending units with the pool
rates and effective cost of deposits through e-mail or phone call queries. The pool rate
peso or dollar are used by lending units as gauge in providing interest rates on
loans for different types of borrowers while the effective cost of deposits are used by
the branches in pricing back-to-back loans upon request by the Banks clients.
Control System - LBPs control system shall quantify and monitor its risk-taking
activities in relation to MSME, SFF groups/associations, and other priority sectors of
the Bank.
The Risk Management Group (RMG) works with both the Financial Accounting
Department (FAD) and Asset and Liability Management Group (ALMG) in
monitoring the Banks credit exposures and formulating frameworks to manage the
Banks exposures to credit risk, market risk, counterparty risk, and reputational risk.
The RMG also provides reports to senior management regarding the level of core
deposits maintained by the Bank after conducting various simulations relating to the
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implementation of the Treasury Single Account (TSA), which may create great
reduction in the deposit level of the Bank.
The ALMG monitors the fixed rate loan capacity of the Bank to maintain a 40% cap
in the amount of available volume limit that lending units could provide fixed rate
loans with tenors of 3 years and above. This is to prevent the Bank from being
exposed to loans with interest rates higher than the market in the future. The results of
the analyses by RMG and ALMG are presented to the senior management and Board
of Directors (BOD) during its bi-weekly committee meetings.
Moving forward, the Bank has initiated the Asset and Liability & Risk Management
System (ALRMS) as a form of analytics that can be used to reduce operational risk of
the Bank. The ALRMS can generate real-time reports or summary dashboard of
deposits and loan portfolio analysis and provide multiple transfer rates that business
units can use to compute their earnings from the Banks loan and deposit accounts.
As the much-needed cost reduction will primarily be supported by optimized
operational efficiency, market infrastructures and participants alike will want to
consider joining forces for the creation of new, or the expansion of currently existing,
shared utilities based on open standards which can deliver both global access and
substantial cost reduction in the processing of low-value commodity activities. The
same philosophy applies to outsourcing, sharing developments and data analysis.
The transformational changes we are living today will create substantial future
opportunities for those players that can get the basics right, that can best adapt to the
need for new high-margin business models, and that can embrace the principle to use
shared utilities for low-margin commodity processes and that can leverage analytics
to reduce risk and gain customer intimacy. Failure to embrace these new operational
models will however result in inefficient use of capital, inability to improve margins,
reduced competitiveness, and increased financial and reputational risk.
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5.3
FINANCE
5.3.1. Financial Objective

To augment the financial objective of increasing the net income of the Bank, the
following are the financial functional area objectives:
To optimize the value of a firm based on each of the following financial ratios:
Profitability achieve by having a net interest margin ratio of more than 3.15% (industry
average per BSP as of September 30, 2014) and achieve a Loans to Deposit Ratio of not
more than 65.75% (industry average per BSP as of November 30, 2014).
Solvency achieved by having a Capital Adequacy Ratio threshold above 15% or 5%
higher than the 10% minimum required by the BSP.
Although there is a robust growth in the industry forecast, conservative targets are being
recommended. In order to attain the projected P17.35 Billion net income in 2019, the
Bank must be capital intensive to keep its financial stability and remain competitive with
other foreign banks as the ASEAN financial integration may set in starting this year.
5.3.1. Financial Plan
Strict monitoring of the budget implementation in all business units of the Bank should
be undertaken by the Management Team and Board of Directors through prudent
evaluation of each loan and investment proposal that has P1 Billion and up amount.
Financial strategies will focus on efficient sourcing of funds or funds generation with
lower costs and improving the quality of loan portfolio by:
Beefing up collection through rigorous monitoring system and more aggressive
collection efforts to minimize non-performing loans;
Ensure the Banks liquidity position meets short-term obligations and funds the
Banks daily operations;
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Maintain a capital level of at least P20 billion to achieve the CAR above the 10%
minimum requirement with at least 5% additional buffer, to sustain
competitiveness in the market and mitigate risks;
Pre-terminate or minimize high cost funding by re-negotiating ODA rates with the
Department of Finance (DOF) and multilateral/bilateral fund providers.
Monitor the Banks financial performance by preparing and analyzing financial
reports and reports on a monthly basis.
Conduct variance analysis of the Banks budgets and determine if targets are met.
5.4
INFORMATION MANAGEMENT
The Management Information System (MIS) is a set of procedures for processing data that can
help managers across all units in decision making.
5.4.1. Information Management Objective
The Information Management objective is to be able to provide timely, accurate or real-time
information and relevant reports, and to ensure that all information gathered and analyzed
reflect the actual conditions or current risk profile of the Bank. Thus, the MIS should be able
to provide relevant forecasts of different market and economic scenarios in comparison with
the present financial data.
One way of doing this is to configure the treasury, deposit and loans generation systems in
the Centralized Management Information System Data Warehouse that would provide indepth analysis on the overall performance of the Bank in terms of deposits, loans and trading
which automatically generates reports for use of the Management Team in critical and
strategic decision-making. For market-driven rates, the Bank shall endeavor the procurement
and implementation of Asset-Liability and Risk Management System (ALRMS) and upgrade
of its Integrated Treasury System (ITS).
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In line with the proposed corporate strategy to tie up with SMART e-Money, Inc. (SMI), the
LBPs Technology Management Group must closely coordinate with SMIs IT team that
would ensure that the Mobile Money Platform will be compatibly interfaced in the Banks
systems following an established policy guidelines that would require certain User
Acceptance Testings (UATs) and User Protocols.
5.4.1. Information Management Plan
The MIS Framework used to come up with the Information Management Plan is illustrated
below:
Figure 13. Management Information System (MIS) Framework
a. Day-to-day Reports
A credit risk management system using IT infrastructure such as the Central Liability
System, Central Information System and Credit Information Builder shall be shared
by LBP and DBP to facilitate the quantification and monitoring of different credit
risk-related exposures on a daily basis.
Each Bank shall conduct its own credit approval process wherein a detailed risk
assessment of the potential credit exposure with a borrower or counterparty is
integrated in their various credit rating systems. Thus, they both have the capacity to
monitor day-to-day activities of their respective operations.
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To manage credit concentration risk of having significant credit exposures to a single

name/group of borrowers, industry sectors and Directors, Officers, Stockholders and
Related Interest (DOSRI), both LBP and DBP follows a credit limit structure. This is
done by the acceptance of eligible collaterals and guarantees complemented by a
thorough credit evaluation process and counterparty monitoring as part of the Banks
credit risk mitigation measures.
b. Variance and Exception Analysis Reports
LBP generates reports on the variance and exceptions from credit and concentration
limits. These reports are presented to LBPs Asset and Liability Committee (ALCO)
and Risk Committee (RiskCom) before presentation to the Board of Directors (BOD)
on a monthly basis.. Among the variance and exception analysis reported are the
market risk, liquidity gap, counterparty risk, earnings-at-risk, interest rate gap, deposit
level monitoring, management action triggers, and other risk limits and loan maturity
analyses.
c. What-if Analysis
LBP must employ stress testing and simulation scenarios as a key component of the
risk management process that can identify vulnerabilities to exceptional but highly
probable events that may have an impact on the Banks deposit and loan portfolios or
capital. The Banks have in place credit policies and controls, credit evaluation and
assessment processes, and monitoring systems that manage credit risk exposure in all
relevant levels of their organizations.
For LBP, the results of the stress tests conducted by the RMG provide the senior
management and the Board with potential adverse outcomes that may impact the
Banks performance and attainment of their business objectives in certain risks which
is exposed to. The validity of the stress test results are audited by LBPs Internal
Audit Group (IAG) and these are reported to ALCO and the Board for confirmation
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or notation. The reports also give action recommendations for the Banks Board to
consider in protecting the Banks capital by ensuring higher loss absorptive capacity
given possible large risk shocks and unfavorable economic conditions.
The what-if reports increase the probability of making good decisions especially in
attaining income targets of the Banks.
d. Strategic Information System
This is the correlation of several variables to arrive at the conclusion. For LBP, the
relevant variables are PDST-F rates, BSP policy rates, CAMELS rating, S&P or
Moodys Credit Rating, and other borrowers eligibility requirements (ex. Minimum
capitalization requirements for cooperatives, rural banks and thrift banks.)
The Bank reinforces its own Enterprise Risk Management (ERM) Systems
demonstrating the Banks commitment to embed risk management through the
institution. The ERM system regards risk from a Bank-wide perspective involving the
Board, senior management and all business units in identifying, measuring,
controlling and monitoring risks (LBP Annual Report 2012). The ERM sub-processes
identified, which are in cognizance with the changing business environment
specifically in the economic and regulatory front, generate appropriate strategies to
address and prepare the Bank for emerging threats that could bear impact on its top
and bottom lines. It can also help the Banks revisit and modify its risk appetite in the
context of the identified emerging risks. The decisions of the Board and senior
management based on feedback or ERM reports are then disseminated to the
concerned functional units for appropriate action.
LBP has a Credit Risk Engine System (CRES) that was designed to automate the
credit rating system of the Bank for various clients. Client ratings are used as bases
for determining credit worthiness while the CRES itself determines the probability of
default using a range of variables. With the implementation of CRES, the Bank
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hopes to maximize its lending capacity by using the Foundation Internal Ratings
Based (FIRB) approach for all the different loan portfolios of the Bank.
Other risk management enhancements of LBP include policies on the Single
Borrowers Limit, LGU Borrowings and Real Estate Exposures. In terms of
operational risk management, the Bank also adopted the automated Risk and Control
Self-Assessment (RCSA) and the Business Impact Analysis (BIA) to be conducted by
all business units of the Bank.
To avoid distortion of reports between LBP and DBP, an IT Technical Working Group
(TWG) shall be formed consisting of members representing different functional area
groups or sectors from both banks to provide recommendations to the IT Steering
Committee on future IT strategies and recommendations that would provide accurate,
reliable, and real-time information. The IT TWG shall review and evaluate the
systems of DBP and LBP and propose ways on how the strategic information and
various reports can be synchronized and utilized for the purpose of serving each of
the Banks goals and targets.
5.5
HUMAN RESOURCES MANAGEMENT (HRM)

HRM is a functional area of an organization that focuses on recruitment of, management
of, and providing career direction for the officers and staff. It deals with issues related to
hiring, personnel administration, compensation, job evaluation performance, employee
communication, training development, change management, physical security, and
wellness.
5.5.1. HRM Objective

The Banks HRM objective is to increase the level of financial literacy in the Philippines
by organizing livelihood training programs to benefit non-members of SFF cooperatives,
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MSMEs, CFIs, MFIs, returning OFWs and their families and other private individuals or
entities belonging to poverty-stricken areas or provinces unserved by banks. These
trainings intend to educate them on how to invest and grow their money and how to
create sustainable and environmentally sound businesses or means of livelihood in their
communities that will enable them to become eligible borrowers of microloans.
Year
2015
Target Number of
Financial
Literacy/Livelihood
Programs
50 trainings
Target Number of
Participants
No. of eligible
borrowers of
LBP
Target Priority Areas
15,000
7,500
Apayao, Ifugao,
Sarangani, Ilocos,
Benguet,
2016
50 trainings
15,000
7,500
Negros Oriental
Masbate, North
Cotabato,
2017
50 trainings
15,000
7,500
Mindoro, Romblon,
Marinduque, Eastern
Samar, Northern Samar
2018
50 trainings
15,000
7,500
Biliran, Lanao del Sur,

Southern eyte
2019
50 trainings
15,000
7,500
Maguindanao,
Zamboanga del Norte,
Davao Oriental, Sulu
Another HRM objective is to hire IT consultants that would prepare and train LBPs
personnel on how to assist clients using the Smart Money cards and how to process
microloans in the branch or field offices. Field Representative Officers need to be trained
on how to make contact with community or barangay officers and how to successfully
form Self-Help Groups using the Grameen-Village Banking Model, either directly or with
support of NGO or community helpers in a certain municipality or region,.
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In order to come up with an effective HRM objective, the HR Cycle framework is used to
determine how the performance of people should be evaluated as illustrated below:
Figure 14. HR Cycle Framework
The objective of HR functional area is performance of people rather than efficiency and
productivity. Determinants of performance of people are as follows:
a. Recruitment
For the first HRM objective, LBP shall form teams who will conduct the trainings per
region. Regular employees under the Agriculture and Development Lending Sector
(ADLS) and Branch Banking Sector (BBS) shall be selected based on their position,
work experience, and core competencies demonstrated, preferably those who are already
deployed or residing in the target regions where the trainings will be conducted to
minimize on transportation and accommodation costs.
For the second HRM objective, LBP shall have a Memorandum of Agreement with Smart
Money, Inc. to provide their IT experts in the formulation and implementation of the
electronic payment or mobile money platform for the Banks loan borrowers that need to
be linked to the Banks internal systems for proper loan processing and booking of Page
213
accounts i.e., microdeposits and microloans. The Banks personnel need to also be
oriented about the guidelines in processing such microfinancing products to make
efficient use of it especially in linking up with SMART Communications system. The IT
team should work with the implementing units of the Banks to ensure that the application
of electronic money will compatibly and seamlessly operate to sustain the business of the
Banks lending and deposit-taking activities of the Bank. There should be intensive
information, education and communication seminars that should be rolled out to all the
branches in order for the Bank and SMART to make the use of electronic money easy and
useful to the clients.
b. Performance Appraisal
Every Bank manager with supervisory functions uses a performance appraisal report that
has performance targets agreed upon with the employee/rate. This performance appraisal
report shall be used as basis for evaluating the employees improvement or failure in its
work tasks and responsibilities. This could be measured in the number of clients
satisfactorily served, the number of products and services actually availed by the
customers entertained, or the number of favorable customer feedback the employee
received for the period of the performance appraisal.
c. Performance Evaluation System
The development and reward should both result to improved performance of the
managers and staff of the business units of the Bank. LBP has a standard set of policy
guidelines for performance evaluation and each business unit must customize it according
to the functions of the unit and the duties and responsibilities of the employees. The
weight of each task is dependent on the importance of the job function or the level of
accountability of the position held by the employee or officer.
To measure the Bank lending units performance, each Account Officer shall be assigned
a Loan Scoring System and the Relevance and Development Impact (RDI). The lending
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unit with a loan portfolio showing higher RDI at the end of each year will merit a higher
performance rating. The Bank also provide merit incentive programs, including
promotion and performance-based bonuses allowed under its Charter (i.e., annual merit
increases, CNA incentives, Loyalty Award Program, etc.).
For employees who are near retirement age or compulsory age of retirement, the Bank
grants an attractive special incentive program (SIP) subject to proper evaluation and
assessment by the HRMG on the merits of the employees performance and welfare and
approval by senior management. Each employee has an allocated retirement package
computed based on the number of years in government service and inclusive of all the
other compensation benefits from the Bank.
5.5.2. HRM Plan
HR planning involves other departments, not only the HR department. Training is not
limited to formal training. The following are the steps to be followed by LBP in
preparation for the entrepreneurship and community development trainings roll-out in the
selected regions of the country:
1. The Human Resource Management Group (HRMG) of the Bank shall coordinate with
Lending Program Management Group and Corporate Banking Groups to identify the
cooperatives, countryside financial institutions (CFIs), microfinance institutions
(MFIs), rural banks and thrift banks which the Bank sees as having the potential of
becoming an eligible credit conduit of the Bank.
2. The HRMG and two lending groups shall decide on what capability or skills training
could be provided for these targeted clients based on assessment and evaluation of the
clients credit rating, nature of business, and other criteria.
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3. The HRMG and two lending groups shall come up with a proposal to Management
Team on how the developmental training series will be conducted, who will conduct
the trainings, and the timelines in implementing them, together with the needed
budget per training.
4. Upon approval of the budget for the trainings, roll out the livelihood trainings based
on the results of the needs assessment or business development opportunities that
farmers and fisherfolk or poor families can make a living out of for the projected
period 2015 to 2019.
MODULE SIX STRATEGY EXECUTION
6.1
ANALYSIS OF LBPS CAPABILITIES TO EXECUTE STRATEGY
To analyze the capability of LBP to execute each of the proposed corporate strategies, the
McKinseys 7-S Framework by Robert Waterman, Tom Peters, Julien Philips, J. R. (1980) shall
be used. This framework strongly emphasized that the structure is not the organization. The
interaction among the 7S is illustrated in Figure 9.
Figure 15. Wharton Model of the 7-S
There are seven aspects of an organization that need to
harmonize with each other, to point in the same direction
like the needles of seven compasses. If each aspect
supports the others, then the organization can be said to be
organized. A change in any one of the Ss will have an
impact on all other Ss. Thus, if a planned change is to be
effective, then changes in one S must be accompanied by
complementary changes in the others.
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Therefore, all these 7 elements are inter-dependent. Changes in one will have repercussions on
others. Thus, an introduction of new systems will certainly affect skills, and may well effect
structure, style, and staff. If only try to change one element on its own, the other elements may
well resist the change and try to maintain the status quo. In this sense, any change in organization
is best seen as a shift in the whole picture.
The constituent parts of the 7S Model are:
Strategy: the actions that the company plans in response to anticipation of changes in its
external environment its customers and competitors, leading to the allocation of an
organizations finite resources, over time, to reach identified goals.
Structure: the formal and informal arrangement of tasks, responsibilities, lines of

authority, and reporting relationships by which the firm is administered or the way units
of the organization relate to each other: centralized, functional divisions (top-down);
decentralized (the trend in larger organizations); matrix, network, holding, etc.
Systems: formal and informal procedures, processes, and routines, including how
information moves around the organization, which characterize how important work is to
be done: financial systems; hiring, promotion, and performance appraisal systems;
information systems.
Staff: numbers and types of personnel within the organization; it refers to the hard
aspects (appraisal systems, pay scales, training programs, etc.) and the soft aspects
(morale, attitude, behavior).
Style: characterization of how key managers behave in order to achieve the

organizations goals manifested in its patterns of actions, time spent, or symbolic
behaviors.
Skills: distinctive capabilities of the organization as a whole; what they do best.

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Superordinate Goals: the interconnecting center of all the other Ss; the shared values
that the organization stands for and what it believes in; central beliefs and attitudes.
In the analysis, the purpose of the 7S framework is to help identify how the organization can be
made capable in order to achieve its corporate objectives. Capabilities that LBP possess or need
to acquire for each of the two proposed corporate strategies using each of the 7S elements as
follows:
Using the 7-S Framework, LBPs capacity will be analyzed to ensure that proposed strategies
can be properly implemented.
Strategy 1: Providing ancillary services low-income farmers and fishermen by helping
organize themselves into small self-made groups that can enable them to have access to
microloans from LBP using the Grameen (which means Village) Bank model
Dimension: Service
Structure
Systems
Style
Staff
Skills
Shared values
Centralized reporting and decision making to LBP Management Team and

Board of Directors
As a government bank, LBP shall employ formal and standardized
procedures to provide integrity, consistency, and transparency in its
operations and dealings with all its other stakeholders.
Separate Committees are assigned for loans approval, for internal audit, for
risk management, for asset and liability management, technology, bids and
awards, and other decision-making and policy review regulations of the
Bank
Committee members are composed of Senior Management Team and Group
Heads
The Bank has standardized its performance evaluation and appraisal
systems which is usually done semestral (every 6 months) for rank-and-file)
and annually for officer level positions. The HRMG provides a yearly
calendar of trainings for employees to choose from for free and the Bank
allows sponsorship to external trainings provided that the seminar or
training is relevant or will enhance the employees performance or career
development.
Acquired competency in packaging loans for the SFFs and other priority
sectors of the Bank and expertise in establishing long-term relationship with
clients
Service Excellence, Institutional Viability, and Social Responsibility
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Strategy 2: Use the technology of SMART Mobile Electronic Money (SMART e-MONEY)
platform of Smart Communications, Inc. from which clients can receive their loan
disbursements and send loan payments to their bank account by using their mobile phones and
encashing their loan proceeds through SMARTs authorized Mobile Money Agents (e.g.,
retailers, pawnshops, money changers, SMART money centers) situated in the areas where
banks or ATMs are not easily accessible to the clients.
Dimension: Technological Leadership
Structure
Systems
Synergy among the operations units of the Bank such as treasury, lending and
branches groups are in sync with the reporting of controllership, accounting
and banking operations.
Almost all of the activities needed in dealings with SFFs are available in the
existing lending centers of the Bank, including the Development Assistance
Centers (DACs). Any change to expand customer base and improve products
and services will definitely be undertaken
Style
As a government bank, the procurement of consulting services for any new

technology is undertaken thru bidding and the lowest bidder usually wins.
Staff
Skilled employees in dealing with SFFs always exist. They are mostly
available in the provinces where priority clients can be found.
Skills
The Bank sees to it that necessary trainings (formal and informal) are given to
all personnel especially those who are in the front-liners
Shared values
Service Excellence, Social Responsibility and Accountability to clients
The era of centralization and single-platform strategies is drawing to an end. Increasingly, shared
services entities will be decentralized, either by disbanding them altogether, or by restructuring.
The disintegration of the value chain entails splitting the universal banking model into retail and
investment banking is not the end of the journey, however.
Banking regulators are keen to destroy the concept of banks being too big to fail. One way to
achieve this is to divide protected banks into smaller components along product lines, spreading
the risk between separate locally-resolvable entities. For example, in the UK, the FSA has
Page 219
identified 25 components, so-called economically critical functions, including retail deposits,

payments and retail mortgages.
The aim is clear. If a bank gets into trouble, these components can be unplugged and transferred
to another entity. For example, if RBS encounters difficulties again, the regulator could take all
its current accounts and transfer them to Lloyds instead, or even protect them as a standalone
entity. This could be done quickly, almost overnight if necessary, and customers themselves
would suffer relatively little inconvenience. It would in essence be the same product, but with a
different badge.
Such a system would require fundamental changes; not only in bank operating models, but also
in the way the industry operates. For example, it is likely that a sector-wide payments entity will
be necessary and, by default, all customers would automatically be on the system. So if one bank
failed, it would not affect the whole payments system their customers could simply be
reassigned on the central system. If a customer wanted to move banks, they could be assigned
to their new bank on the central system, rather than having to go through the current bureaucratic
and time-consuming process of opening a new bank account.
Cost efficiency is key in developing new operating models. The consistent theme that underlines
many of the challenges facing the universal banking model in the coming years is cost reduction.
However, traditional downsizing strategies are unlikely to be enough to deliver the cost base
reductions needed. We believe that banks should start thinking about implementing longer-term
sustainable cost reduction measures, such as straight-through processing (STP), first-time
resolution and self-service channels. There is some movement along these lines in the US, as
banks strive to eliminate paper, automate processes and retire physical infrastructure to right size
their operating environments.
New IT architectures are essential for the banking industry to achieve the necessary degree of
separation and componentization, its underlying IT architecture must be capable of operating in a
similarly decentralized environment. These are significant challenges for banks, but they must be
overcome.
Page 220
Firstly, banks must recognize that existing tightly-integrated core platforms wont be able to
meet these new operating models. They should revisit Service Oriented Architecture (SOA)
principles, including cloud computing, and try to identify the best roadmap for a componentized,
service-oriented IT architecture.
Secondly, having a componentized value chain and corresponding IT architectures will require
industry-wide data standards. For example, customer data held by one bank must be held in a
format that enables it to be processed simply and accurately by any other bank, as well as by any
potential new structures, such as a central payments facilitator.
Thirdly, reporting requirements (mainly driven by the regulatory agenda) are already stretching
banks IT resources.
A disintegrated value chain and componentization will bring additional complexity into this
picture which banks need to tackle swiftly.
Page 221
6.2 MANAGING INTERNAL ORGANIZATION FOR STRATEGY EXECUTION

The Ten Strategy Implementation Tasks (10-SIT) will be used to determine what the company
needs to do or the tasks to be performed to implement the strategy. They are also the principal
managerial components of the strategy execution process.
Figure 16: The 10 SIT (Strategic Implementing Task) Framework
Key Implementers:
President and Chief Operating Officer
Executive Vice Presidents Agricultural Lending & Development Sector (ADLS), Operations
Sector (OS), Branch Banking Sector (BBS), Treasury and Investment Banking Sector (TIBS),
and Corporate Services Sector (CSS)
SIT No. 1 - Build the organizational capabilities required for successful strategy
execution
Action Steps
Staffing the organization
Key Implementers
EVP, CSS
Page 222

Building and Strengthening Core Competencies and

Competitive Capabilities
EVP, CSS
Structuring the organization and work effort
EVP, CSS
SIT No. 2 Staff the organization with the right people for executing the strategy
Action Steps
Key Implementers
Spending considerable effort on screening and evaluating job

applicants
EVP, CSS
Putting employees through training programs that continue

throughout their careers
EVP, CSS
Providing promising employees with challenging, interesting and

skill stretching assignments
EVP, CSS
Rotating people through jobs that span functional and geographic

boundaries
EVP, CSS
Making the work environment stimulating and engaging so that

employees will consider the company a great place to work
EVP, CSS
Striving to retain talented, high-performing employees via

promotions, salary increases, performance bonuses, stock options
EVP, CSS
and equity ownership, fringe benefit packages and other perks

Coaching average performers to improve their skills and
capabilities,whileweeding outunderperformersand
EVP, CSS
benchwarmers
SIT No. 3 Establish a strategy-supportive organizational structure

Action Steps
Decide which value chain activities to perform internally
Key Implementers
The Management Team
and which ones to outsource

Page 223
Align the organizational structure with the strategy
The Management Team
Decide how much authority to centralize at the top and

how much to delegate to down-the-line managers and
The Management Team
employees
Facilitate collaboration with external partners and
strategic allies
The Management Team
SIT No. 4 Allocate sufficient resources to the strategy execution effort

Action Steps
Allocate sufficient resources to the strategy execution
effort
Key Implementers
EVP, OS
SIT No. 5 Institute policies and procedures that facilitate strategy execution
Action Steps
Key Implementers
Provide top-down guidance about how certain things The Management Team
need to be done
Help ensure consistency in how strategy-critical
activities are performed
The Management Team
Promote the creation of a work climate that facilitates

good strategy execution
EVP, CSS
SIT No. 6 Adopt best practices and business processes that drive continuous
improvement
Action Steps
Key Implementers
Continuously improve the adoption of 5S Quality The Management Team

Management System for best practice standard
Page 224
SIT No. 7 Install information and operating systems that support strategy execution
activities
Action Steps
Instituting adequate information systems, performance
tracking and controls that cover five broad areas:
Key Implementers
EVP, OS
EVP, CSS
customer data
EVP, BBS
operations data
EVP, ADLS
employee data
EVP, TIBS
supplier/partner data
financial performance data
SIT No. 8 Tie rewards and incentives to the achievement of strategic and financial
objectives
Guidelines for designing effective incentive
compensation system:
Key Implementers
Make the financial incentives a major, not minor piece of

the total compensation package
EVP, CSS
Have incentives that extend to all managers and all

workers not just top management.
EVP, CSS
Keep the time between achieving the targeted

performance outcome and the payment of the reward as
EVP, CSS
short as possible
Avoid rewarding effort rather than results
EVP, CSS
Page 225
SIT No. 9 Instill a corporate culture that promotes good strategy execution
Action Steps
Key Implementers
Practice leadership by example in promoting good

governance, honesty system, good corporate citizens
The Management Team
Internalize the corporate values Social Responsibility,

Trust, Honesty, Integrity, Professionalism and Service
The Management Team
Excellence
SIT No. 10 Exercise strong leadership to propel strategy expectation forward

Action Steps
Key Implementers
Stay on top of what is happening and closely monitor

progress.
The President & CEO
Put constructive pressures on the organization to

executive the strategy well and achieve operating
The President & CEO
excellence by treating employees as valued partners,

fostering team spirit, and employee empowerment.
Page 226
6.3 MANAGING STRATEGIC CHANGE

Letter to LBP President and CEO, Gilda E. Pico explaining the 8-Steps framework for Leading
Change.
01 December 2014
MS. GILDA E. PICO
President and Chief Executive Officer
Land Bank of the Philippines
Dear President Pico:
I would like to take this opportunity to extend my heartfelt gratitude for giving me a chance to be
a recipient of the banks study program that enabled me to take a masters degree in Business
Administration from one of the best business schools in the country De La Salle University. In
return, I have prepared a Strategic Management Paper (STRAMA) for LBP applying all the
theories I have learned. Based on these, I have come up with the following corporate strategies
based on my external and internal analysis.
Providing ancillary services low-income farmers and fishermen by helping organize
themselves into small self-made groups that can enable them to have access to
microloans from LBP using the Grameen (which means Village) Bank model; and
Use the technology of SMART Mobile Electronic Money (SMART e-MONEY) platform
of Smart Communications, Inc. from which clients can receive their loan disbursements
and send loan payments to their bank account by using their mobile phones and
encashing their loan proceeds through SMARTs authorized Mobile Money Agents (e.g.,
retailers, pawnshops, money changers, SMART money centers) situated in the areas
where banks or ATMs are not easily accessible to the clients.
Page 227
However, instituting change in an organization can be difficult because it upsets the status quo
for some senior managers. The key to success in instituting change in an organization lies in
successful implementation of its chosen corporate strategies. This means changing the way the
bank operates and the way people work. It will be a challenge to adapt a product centric culture
to a new customer-centric way of working.
To succeed in introducing change in an organization, one must focus on changing the
organization as a whole.
Change on this level requires strong leadership. It cannot be achieved with a simple directive or
surface adjustment in people policies. It requires an innovative rethink of the entire management
system, in a strong partnership between bank leaders and their change agents. New systems and
policies must support the strategy to be successful. The real test of a good strategy
implementation plan is whether the people understand the strategy, are motivated and enabled to
implement it, and actually start achieving its goals.
To help in managing strategic change in LBP, the 8-Steps Framework for Leading Change is
recommended to be used as a guide.
The 8-Step for Leading Change provides the company with the capabilities required for good
strategy execution. Successful implementation depends on how the organization performs its
core business activities such as doing a good job of leading, working with and through others,
allocating resources, building and strengthening competitive capabilities and installing strategy
supportive policies.
Steps
Transformation Suggestions
1. Establishing a Sense of Urgency
2. Creating the Guiding Coalition
Examine market and competitive realities

Identify and discuss crisis, potential crisis, or major
opportunities
Provide evidence from outside the organization that
change is necessary
Assemble a group with enough power to lead the
change effort
Page 228

Almira Jorda-Garcia Student ID no.
11183640
3. Developing a Vision and Strategy
Attract key change leaders by showing enthusiasm

and commitment
Encourage the group to work together as a team
Create a vision to help direct the change effort
Develop strategies for achieving that vision
Build alignment and engagement through stories

Use every vehicle possible to communicate the
new vision and strategies
Keep communication simple and heartfelt
Teach new behaviors by the example of the
guiding coalition
4. Communicating the Change Vision
5. Empowering Broad-Based Action
6. Generating Short Term Wins
Remove obstacles to the change

Change systems and / or structures that work
against the vision
Plan for and achieve visible performance
improvements
Recognize and reward those involved in bringing
the improvements to life
Plan for and create visible performance

improvements
7. Consolidating Gains and Producing Recognize and reward personnel involved in the
More Change
improvements
Reinforce the behaviors shown that led to the
improvements
As you go through each step in the change process, it is important to measure the progress
against the strategic plan and vision and spend time during your regular team meeting assessing
your teams progress as you plan next steps.
I hope that this Strategic Management term paper would be useful to LBP in attaining the Banks
vision to become the top universal bank promoting inclusive growth and improving the quality of
life especially in the countryside through the delivery of innovative financial and other services
in all provinces, cities, and municipalities.
Page 229
Thank you.
Respectfully yours,
ALMIRA J. GARCIA
Junior Management Associate
Treasury Support Department
Land Bank of the Philippines
MBA Student No. 11183640
De La Salle University
Page 230
MODULE SEVEN FINANCIAL PROJECTIONS

The countrys banks, which accounts for about 65% of the financial system, are expected to post
higher profits in 2015 in the account of the availability of cheap cash that would allow the
sustained expansion of lending, supported by stable economic environment (Montecillo, 2014).
According to Moodys Investor Service, the positive outlook for the local banking sector was
in line with its own forecast for the countrys sovereign debt rating, which has been in line for an
upgrade for more than a year. Ample domestic liquidity conditions also strengthened banks
funding and liquidity profiles.
Moodys also expect profitability levels to recover in 2015, as interest rates rise. The greater
exposure of the banks to higher yielding small-and medium-sized enterprises and retail loans
would alleviate pressure on net interest margins (Montecillo, 2014).
The financial projections are based on the following assumptions in predicting how LBP will
perform the next five years (2015 to 2019):
GDP growth rate of 6.9%
Headline Inflation of 4.3%
Gross Revenue Index of key industries by 10.8%
Page 231
PROJECTED FINANCIAL STATEMENTS
Page 232
Page 233
Page 234
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DE LA SALLE UNIVERSITY - MANILA

Ramon V. Del Rosario - Graduate School of
Business

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De La Salle University - Manila

Ramon V. Del Rosario College of Business

A Strategic Management Term Paper on

LAND BANK OF THE PHILIPPINES

In Partial Fulfillment of the Course Requirements in

3 Term, AY 2014 2015

Threat of new entrants

Threat of substitute products

Bargaining power of buyers

Bargaining power of suppliers

Intensity of rivalry among existing competitors

Identified Threats and Opportunities to the Industry:

Improving Labor and

Philippines' demographic 'sweet spot' to be

Effect on the force of

Extending the Retirement

Increasing usage of Mobile

Increase in Information and

Rising Investment in Next

will continue to experience

Impact of the Full

More super typhoons are

High Threat of Entry of

High Threat of Entry of

Low Entry Barrier

High Threat of Entry of

Eased and simplified

Direct affiliation with

Strong Tie-Ups with

Value Chain: Distribution

Partnering with reputable and good standing

Providing financial and technical assistance

Extensive Branch Network

Value Chain: Distribution

Providing easier access to distribution

Value Chain: Distribution

Value Chain Operations

Competent and Responsive Value Chain: HRM

Recruiting, hiring, training, and developing

Inability to match the

Value Chain: Operations

Sustaining the deposits of clients by

Lending to mandated sectors and extending

Value Chain: Operations

Reliance on High Cost

Financial Ratios: Leverage

Value Chain: Distribution

Value Chain Operations

Push versus Pull Strategy

Product and Service Quality

Strategic Management Term Paper on Land Bank of the Philippines

Proposed Corporate Strategies

1.2 INTRODUCTION ............................................................................................................15

ANALYSIS OF THE PRESENT TASK ENVIRONMENT ............................................ 34

Threat of New Entrants ............................................................................................... 35

Threat of Substitute Products .....................................................................................43

Bargaining Power of Suppliers ................................................................................... 45

Bargaining Power of Buyers....................................................................................... 48

Intensity of Rivalry among Existing Competitors ...................................................... 52

ANALYSIS OF POTENTIAL CHANGES IN MACROENVIRONMENT.................... 55

Social Segment ........................................................................................................... 56

Economic Segment ..................................................................................................... 57

Political Segment ........................................................................................................ 57

Technological Segment ..............................................................................................57